CALM OCEAN SHIPPING S.A. v. WIN GOAL TRADING LTD AND OTHERS

HCAJ 118/2015

[2020] HKCFI 801

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 118 OF 2015

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R E A S O N S   F O R   D E C I S I O N

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D E C I S I O N   O N   C O S T S

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1.  This was the Plaintiff’s Summons filed on 24 October 2018 (“Summons”) by which it sought an order that :

(1)  The 1^st Defendant be appointed to represent all members of a Class of persons[1] wherever situated or incorporated and to defend this action for and on behalf of the Class (“Representative Action Application”);

(2)  Alternatively, the Plaintiff be at liberty to join members of the Class as defendants under the style “Persons Unknown comprising each and all persons wherever situated or incorporated” (“Alternative Relief”); and

(3)  Service out of jurisdiction and substituted service on members of the Class be allowed.

2.  The Representative Action Application was resisted by the 1^st to 4^th Defendants (“D1-4”).  They maintained a neutral stance in respect of the Alternative Relief.  At the end of the hearing, I granted the Alternative Relief with modifications of the terms of the draft order.  These were my reasons for doing so.  In addition, this Decision deals with the costs of the Summons.

Background

3.  There was no dispute over the factual background.  The Plaintiff was the owner of the vessel “Sophia Z” (“Vessel”).  It entered into a time charterparty dated 9 July 2015 with Med-Asia Shipping BV (the Intervener in this Action) as time charterer.

4.  By a sale contract dated 4 May 2015 (“Sale Contract”), D1 as seller agreed to sell and D7 as buyer agreed to buy a consignment of 27,700 tons of carbon steel billets for US$11,190,800.

5.  Pursuant to the Sale Contract, an irrevocable letter of credit (“LC”) dated 9 June 2015 was opened in favour of D1 for the amount of US$11,190,800, with D6 as issuing bank, D5 as nominated bank, and HSBC as advising bank.

6.  Pursuant to ICC Uniform Customs and Practice for Documentary Credits 600 (“UCP 600”) which applied to the LC, if the nominated bank (D5) and issuing bank (D6) chose not to honour or negotiate the LC on grounds of non-compliance of the presented documents, they should give notice of refusal by the close of the fifth banking day following the day of presentation.  Failure to do so would precluded them from claiming that the documents did not constitute a complying presentation. 

7.  On or about 24 July 2015, pursuant to the Sale Contract, the Cargo was shipped on board the Vessel in China, for carriage by the Plaintiff to D7 in Algeria.  A bill of lading (“B/L”) was issued for the Cargo, which stated that: (i) the Plaintiff was the carrier; (ii) D1 was the shipper; (iii) consignee was “To the order of [D6]”; and (iv) D7 was the Notify Party.    

8.  On 10 August 2015, HSBC collected from D1 the documents required under the LC for payment, including the B/L.  On 11 August 2015, the Documents were delivered to D5.  On 13 August 2015, D5 forwarded the Documents to D6.

9.  On 11 September 2015, the Cargo arrived at Algeria.  Shortly thereafter, the Plaintiff received a notification of rejection of the Cargo.  D7 refused to take delivery of the Cargo and purported to reject it on the basis that it was excessively radioactive.  

10.  Pursuant to UCP 600, the deadline for D6 as issuing bank or D5 as confirming bank to reject the Documents was 18 August 2015.  D6 purported to reject the Documents on 14 September 2015 on grounds of non-conformity.

11.  On or about 23 September 2015, the Vessel was forced to leave the berth in Algeria.  Due to draft limits, the Vessel could not continue its journey to its next destination in Italy until the Cargo was discharged.  Therefore, the Plaintiff sailed the Vessel to an alternative safe anchorage at Malta in accordance with new orders received from the Intervener, and anchored the Vessel there awaiting fresh instructions. 

12.  On 22 October 2015, the Plaintiff issued this Action and applied for an injunction requiring (inter alios) D1 to (i) surrender the B/L; and (ii) provide fresh instructions in respect of the discharge and sale of the Cargo.  The Injunction Application was dismissed on 2 November 2015 on the grounds (inter alia) that: (i) D1 had a good arguable defence that it did not have the B/L in its possession and hence did not have ownership over the Cargo; and (ii) the court could not be satisfied to a high degree of assurance that the Plaintiff would be able to establish its rights against D1 at trial.

13.  On or about 10 December 2015, the Plaintiff began unloading the Cargo in Italy. 

14.  On 25 March 2016, the Plaintiff sold the Cargo for US$200/MT in Italy.  The total net amount received by the Plaintiff was US$5,677,815.92 (“Sale Proceeds”). 

15.  At the time of the hearing, the net balance of unencumbered funds out of the Sale Proceeds which was deposited in the Plaintiff’s bank account in Germany was US$2,471,917.17.

16.  On 10 August 2016, the Plaintiff filed an application for interrogatories (“Interrogatories Application”), seeking information on D1-D4’s insurance in respect of the Cargo.  The Interrogatories Application was dismissed on 2 December 2016.

The Plaintiff’s case

17.  The Plaintiff said that it was innocent of any wrongdoing in the carriage of the Cargo but had incurred much cost as a result of events which were beyond its control.  In this Action, the Plaintiff sought a number of protective declaratory relief, in effect the court’s approval as to the course of actions it undertook in Europe in light of the abandonment of the Cargo by the cargo interests, including D1.

18.  It was important to note that the Plaintiff’s primary claim was against D1 for breach of the contract embodied in the B/L in failing to take delivery of the Cargo (when the intended receiver D7 had failed to do so).  By way of self-help, the Plaintiff had compensated itself for its losses from the Sale Proceeds on an interim basis.  If D1 was not the owner of the Proceeds, it might have to answer for the Plaintiff’s damages claim, and the Proceeds would have to be replenished by the Plaintiff (possibly with the damages received from D1). 

19.  In respect of the present application, the Plaintiff said that it had a legitimate concern that in future a party would approach it claiming as holder of the B/L and/or owner of an interest in the Cargo and alleging that the Plaintiff had dealt with the Cargo in an unauthorised manner and/or had committed mis-delivery or conversion and/or was not entitled to sell the Cargo or deduct its expenses from the Proceeds.  Further, such a party might seek to attach the Plaintiff’s assets in Hong Kong or other jurisdictions as security for such claims.

20.  With the Summons, the Plaintiff sought to bring all concerned parties before the court and, so far as possible, to protect itself against future claims.

The case of D1-4

21.  To begin with, it was not very clear why D2 to D4 were sued in this Action.  D2 was the Shipper of another bill of lading which, at the time of the hearing, the Plaintiff accepted as irrelevant.  D3 and/or D4 were “the Production Plant as defined in the Sales Contract” (para 4 of the Amended Statement of Claim).  The relevance of these Defendants to these proceedings was not readily apparent. 

22.  In so far as D1 was concerned, its stance had always been that it had no interest in the Cargo upon presentation of the B/L to D5 through HSBC.  That might or might not be an answer to the Plaintiff’s claim for breach of contract.  However, save for maintaining that under the terms of the LC it had a right to be paid by D6, and “whether or not [D1] has pursued and/or will pursue an action for breach of the [LC] is irrelevant”[2], there was no positive case advanced by D1. 

23.  The attitude adopted by D1 was not an attractive one in that it had steadfastly refused to provide relevant information to the Plaintiff which might enable it to identify the owner or person(s) entitled to the Cargo or its Proceeds, eg, whether D1 had been paid by its insurer in respect of the Cargo.

Potential claim(s) against the Plaintiff

24.  There were clearly merits in the Plaintiff’s claim that it was an innocent party caught in circumstances beyond its control.  There was no suggestion otherwise from D1-4. 

25.  The oddity of the case was that someone must have incurred a large commercial loss in respect of the Cargo but had not come forward and produce the B/L and sought the return of the Cargo or compensation for its value.

26.  The Plaintiff said that, prima facie, the person who had suffered such a loss was D1, who sourced and shipped the Cargo but did not appear to have been paid for it by either D6 or D7.  Yet, D1 asserted no interest in the Cargo.

27.  The Plaintiff believed that it was possible that D1 might have been compensated for its loss by its Mainland-based trade credit risk insurer (‘Sinosure’).  If so, it would explain D1’s stance in these proceedings.  So far, D1 was unwilling to disclose to the Plaintiff any details of its insurance arrangements.  If D1 had been paid by its insurer, the insurer might have a claim in respect of the Cargo or its Proceeds.

28.  Further, there was evidence to support the Plaintiff’s specific concern regarding Qingdao Bosson International Logistics Co Ltd (“QBIL”).  QBIL asserted that it was a forwarding agent of D1 and that there was a Consent Arbitration Award in its favour against D1 in excess of US$1.65 million.  Through its Italian lawyers, QBIL had sought to enforce the Award against the Sale Proceeds held by the Plaintiff. 

29.  However, despite the invitation by the Plaintiff to particularise its claim on the Sale Proceeds and to participate in these proceedings, QBIL had taken neither course.  It should also be noted that the first contact made by QBIL with the Plaintiff’s solicitors took place at about the end of 2015. 

30.  Despite the absence of a party making a claim either against the Plaintiff as carrier of the Cargo or in respect of the Cargo or its Proceeds at the time of the hearing, it was difficult to believe there was no such potential claim given the significant sum of money sitting in the Plaintiff’s bank account. 

31.  In these circumstances, it was certainly legitimate for the Plaintiff to try to protect itself against potential claims which might surface in the future and to ensure, so far as possible, that these proceedings would determine the issues once and for all. 

Representative Action Application

32.  The applicable principles of law were not in dispute[3]. O.15, r.12(1) of the Rules of the High Court, Cap 4, provided that:

“Where numerous persons have the same interest in any proceedings, not being such proceedings as are mentioned in rule 13, the proceedings may be begun, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one or more of them.”

[emphasis added]

33.  The definition of “Class” contained in the Summons (para 2) was as follows:

“… ‘Class’ means the class comprising each and all persons wherever situated or incorporated:

(a) falling within the definition of ‘Merchant’ in the [B/L][4]; and/or

(b) entitled to assert any right against the Plaintiff as holder or otherwise under or in connection with the [B/L]; and/or

(c)     being the legal and/or beneficial owner of, or entitled to assert any security interest in, or otherwise entitled to assert any right against the Plaintiff in connection with, the Cargo or any part of it.”

34.  For 3 reasons, it was not appropriate to grant the Representative Action Application.  Firstly, there was, putting it at the lowest, a potential conflict of interest between D1-4 and the Class.  It would be unlikely for a person claiming an interest in the Cargo to want to have the Sale Proceeds deducted with the Plaintiff’s expenses.  That person might assert that the expenses were attributable to the breach of contract by D1-4, which claim was disputed by those Defendants with vigour.

35.  Secondly, in light of the joinder of D5 to D7 in this Action, it was unlikely that the number of persons within the Class would be more than a few.  The rule only applied where the persons having the same cause in the proceedings were “numerous”.  So small a number as five persons would not be regarded as “numerous”, unless the amount involved was very small, or the court was satisfied that it was the wish of all the persons interested that the representation desired should be ordered: Hong Kong Civil Procedure 2020, vol 1, [15/12/4]. 

36.  The objective of the rule was to “facilitate disposition of cases where parties were so numerous that the proceedings would be unmanageable if all were named”: Ng Hing Yau and Anr v City Noble Developments Ltd and Ors, unrep., HCA 430/2017, Master E Liu, 16 November 2017, §8.

37.  The Plaintiff submitted that the court should adopt a flexible and modern approach to the application of the rule, bearing in mind the underlying objectives set out in O.1A, r.1.  Whilst there was force in the submission, it would not be appropriate to render the requirement of “numerous persons” redundant. Further, this was not the only obstacle to the application. 

38.  Thirdly, there would be duties imposed upon D1-4 in the event that the Representative Action Application was granted.  Those duties included: (a) an obligation to inform anyone of these proceedings whom D1-4 knew had an interest in the Cargo or the Sale Proceeds (paras 11 and 12(a) of the Summons); and (b) acting as the representative of the Class and to defend this Action on its behalf (para 3 of the Summons).  D1-4 complained that the imposition of such duties would constitute serious prejudice to them. 

39.  The obligation under (a) should be considered in conjunction with the misgivings of D1-4 about the vagueness of the definition of Class (see further below).  Whether or not the definition could be improved upon, the exercise of identifying those who had an interest in the Cargo or Sale Proceeds would unlikely be a straightforward one.  More likely than not, legal advice would have to be obtained for the purpose.  The duty under (b) (which would be imposed on D1), putting aside the potential conflict of interest between D1-4 and the Class, would likely involve additional costs and delay to D1. 

40.  Although the court had the power to compel D1 to be a representative of the Class against its wish: see Baynard Ltd v Secretary for Justice, unrep, HCA 4073/02, per DHCJ L Chan (as he then was) at §42, this was a matter which went to the discretion of the court whether to grant this application.  In the face of a viable alternative relief (see below), it would not be appropriate to accede to this application against the will of D1-4. 

Inherent jurisdiction

41.  It was permissible to sue a specific ‘person unknown’ by describing the role and nature of that person, with amendment later if his identity becomes known: see University of Hong Kong v Hong Kong Commercial Broadcasting Co Ltd [2016] 4 HKLRD 113, per G Lam J at §§52-3.  This procedure was designed only to alleviate the need to name a defendant where it was impossible to do so and did not obviate the need for there to be a real defendant when the action was commenced.  The device did not give rise to an ‘ambulatory’ action.

42.  It was not uncommon to see the deployment of this device in cases involving possession of land where the occupier(s) of the land was unknown.  In Chiu Luen Public Light Bus Co Ltd v Persons Unlawfully Occupying or Remaining on the Public Highway & Ors [2014] 6 HKC 298, injunctions were granted against unnamed defendants in the Occupy Central Campaign. 

43.  In Billion Star Development Ltd v Wong Tak Chuen [2013] 2 HKLRD 714, in an obiter dicta, Lam JA (as he then was) approved the adoption of the device in that case where the circumstances demanded legal redress of the plaintiff’s interest against a large number of unidentified persons by way of injunctive relief [§70].  Further, it was observed that the court had to be vigilant in the following respects [§74]:

(a)  The proper description of the unnamed defendants to satisfy the test of certainty;

(b)  The nomenclature used would not prejudice the rights of those potentially affected by orders the court might make from being notified of the proceedings or from appearing to defend their rights if they wish;

(c)  Proper directions must be given for proper service of the proceedings and notification to those who might be affected; and

(d)  If no-one came forward to resist an application against a group of unidentified defendants, the court should consider whether caveats similar to those in O.15 r.12(3) to (6) should be built into any relief it might grant (including order of costs).

44.  In this case, the court accepted that the Plaintiff was an innocent party and there existed potential claims against it in connection with the carriage and/or disposal of the Cargo.  The Alternative Relief would serve to ensure, as far as possible, that all interested parties would be before the court and that the issues in these proceedings could be resolved with finality.  These were clearly legitimate purposes, and the Alternative Relief ought to be granted in conjunction with the related order for service out of jurisdiction and substituted service, subject to some amendments of the draft order before the court.

45.  Major amendment was required in respect of the description of the defendants to be joined. Instead of describing the Unknown Persons by reference to the definition of the Class (see para 33 above), the formulation could have been reduced into simple and easily understood terms.  Apart from verbosity, the definition was complicated and couched in highly legalistic terms.  It would require a legally qualified person to fully understand the definition.

46.  The Plaintiff agreed with the court that its potential liabilities fell into 2 categories, liability incurred as carrier of the Cargo and liability incurred in the disposal of the same.  In the premises, the court took the view that the additional defendants should be described as “Persons Unknown wherever situated or incorporated who have any claim against the Plaintiff as the Carrier under [the B/L] or in respect of the Cargo under [the B/L] or its proceeds of sale”.

47.  One of the paragraphs of the draft order sought to impose an obligation on D1.  After modification by the court, it provided as follows: “The 1^st Defendant do forthwith in writing inform any person, wherever he, she or it may be located or incorporated, from whom it had received any payment in respect of [the Cargo] of the existence of this Action and the substance of this Order”.

48.  The 1^st Defendant objected to the imposition of the obligation.  However, I was unable to see any valid ground for the opposition.  The court must have power to impose such obligation so as to ensure that its order would be effective.  There was clearly substance in the Plaintiff’s belief that D1 might have been paid for the Cargo, which would explain its apparent disinterest in making any claim under the LC.  The party or parties who had paid D1 might well fell within the “Persons Unknown” who would be joined in this Action.  The obligation was therefore justified. 

49.  Further, the obligation was hardly an onerous one.  D1 must know if it had received any payment for the Cargo.  All that was required was for it to inform the payer(s) of the existence of this Action and the Order made by this court so that they could participate in this Action if they wished to do so.

Disposition

50.  For these reasons, an order in terms of the draft order as amended was made granting the Alternative Relief in favour of the Plaintiff. 

Costs

51.  The Alternative Relief was not resisted by D1-4.  They were therefore the winner and there was no good reason not to award them the costs of the Summons.

52.  However, the Plaintiff argued that the Defendant should bear its costs of the call-over hearing which took place in November 2018.  The reason being that D1-4 insisted on having the Summons fully argued at the call-over hearing, which necessitated the briefing of counsel by the Plaintiff.  Such costs were wasted because the hearing was far too short to allow full ventilation of the Summons.  Indeed, that hearing was adjourned with directions for further conduct as expected by the Plaintiff. 

53.  The insistence by D1-4 to have the Summons fully argued at the call-over hearing was unrealistic.  They were warned by the Plaintiff in respect of the costs consequence of their conduct.  In the premises, I fail to see any good reason why D1-4 should not bear the wasted costs, namely, the costs thrown away by the preparation for full argument at the call-over hearing.  Such costs would include, inter alia, wasted counsel fees.  However, I do not agree with the Plaintiff that indemnity costs order is justified.   

54.  I make an order that, save for such costs thrown away which are to be paid by D1-4, the costs of and occasioned by the Summons be paid by the Plaintiff to D1-4, to be taxed if not agreed.  I do not believe that the nature or complexity of these matters justified a certificate for 2 counsel.

HCAJ 118/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 118 OF 2015

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R U L I N G

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1.  There are two substantive applications before this Court:

(1)     the Plaintiff’s Summons seeking an order pursuant to RHC O 26 that the 1^st to 4^th Defendants do answer the Plaintiff’s interrogatories dated 20 July 2016 on an unless basis; 

(2)  the 1^st to 4^th Defendants’ Summons seeking an order also pursuant to RHC O 26 that the interrogatories be withdrawn and the Plaintiff’s Summons be dismissed.

2.  For the sake of simplicity, I will call the 1^st to the 4^th Defendants the “Defendants”.

3.  The Plaintiff’s and the Defendants’ Summonses are two sides of the same coin.  If this Court takes the view that the Plaintiff is not entitled to administer the interrogatories on the Defendants, it will dismiss the Plaintiff’s Summons, and vice versa.

4.  The interrogatories are in these terms and I quote:

“1. Was the cargo lately carried on board the ‘SOPHIA Z’ under the bill of lading LD001002 covered by an insurance policy?

2. If the answer to the first interrogatory is yes:

(a) Was the insurance policy a cargo insurance or credit insurance policy;

(b) Has a payment been made under that policy and if so to whom and when;

(c) What is the identity of the insurer.

(d) When payment was made did the insurer became [sic] subrogated to any parties’ rights or was there any assignment of rights from the party receiving the funds to the insurer?

3.  Whether D1 to D4 has been compensated by an insurer or not in respect of the cargo, has any action been taken by D1 to D4 (or insurers) to recoup the invoice value of the cargo from any banks involved in the credit arrangement between D1 and D7 as indicated at the hearing dated 30 October 2015.”

5.  Pausing here, Mr Alder tells this Court that the banks in question are the 5^th Defendant, Deutsche Bank (China) Company Limited, as nominating bank; the 6^th Defendant, as issuing bank; and HSBC, who is not a party to this action.

“4. If the answer to the third interrogatory is yes:

(a) Before which Court has the action been taken?

(b) Has the action been determined?

(c) If not, when is it anticipated to be determined?

5.  Where are the original bills of lading numbered LD001002?”

6.  The factual background is not in serious dispute. 

7.  The Plaintiff is the registered owner of the vessel “SOPHIA Z”. On about 24 July 2015, a cargo of slightly over 50,000 steel billets was shipped on board the vessel from a port in the PRC to a port in Algeria under the bill of lading in question.

8.  The 1^st Defendant is the named shipper under the bills of lading, the seller under a sales contract with the 7^th Defendant (ie the buyer), and the named beneficiary under a letter of credit issued by the 6^th Defendant, a bank in Algeria.

9.  The Plaintiff duly carried the cargo to Algeria.  On arrival, the buyer refused to take delivery while 1^st Defendant did not give fresh instructions to the Plaintiff as to how to deal with the cargo.

10.  Subsequently, the Plaintiff arranged for the discharge and sale of the cargo in Europe at considerable cost.  This Court was told that the cargo’s original value was about US$12 million.  After the sale, about US$2.4 million is kept in the Plaintiff’s account in Germany.  Another US$1.3 million has been paid into Court in Italy, to which the Intervener in this action lays claim.

11.  None of the Defendants have come forward and made a claim against the Plaintiff for having sold the cargo.  Rather, it is the Plaintiff who instituted the present proceedings in October last year. 

12.  In its prayer for relief, the Plaintiff seeks various declarations, the essence of which is that the Plaintiff has already fulfilled its duty of delivery and it is under no liability for having sold the cargo and kept the proceeds.  It also seeks damages against all Defendants in the action, except the 5^th Defendant, for breaches of contract and/or duty in their failure to perform their contractual obligations under the bills of lading.

13.  According to Mr Alder, the primary purpose of the Plaintiff’s application is to ensure that the Plaintiff and its vessel are protected from legal actions in connection with the sale.  Specifically, the Plaintiff is concerned about claims for misdelivery and/or conversion by someone purporting to be the true owner of the cargo and/or its insurer. 

14.  Thus, the Plaintiff seeks, by the interrogatories, to identify all relevant parties and bring them before the Court so that the matter in this action can be resolved once and for all in a way that binds all concerned parties and to ensure that the Plaintiff and its vessel are protected from further legal action.

15.  In support of its application, the Plaintiff has adduced expert evidence to the effect that, under PRC law, an insurer, upon subrogation or obtaining an assignment from the assured — in this case, one or more of the Defendants — may bring recovery action against the Plaintiff.

16.  The evidence is contained in a letter dated 14 September 2016 from Wang Jing & Co.  The relevant part reads:

“1. Generally, as a matter of Chinese law, a subrogated cargo insurer stands in the shoes of the cargo interests for recourse claims within the amount of insurance indemnity. In other words, the subrogated cargo insurer would be entitled to enforce the subsisting or revived rights of the cargo interests for the insurer’s own benefit. In the meantime, the cargo insurer should also be subject to any defense against the cargo interests.”

17.  Paragraph 2(2) reads:

“Time limit. Subrogated cargo insurers under a marine cargo insurance policy should be subject to the time limit applicable to the cargo interest, which generally is one year upon cargo delivery. However, for cargo insurers who issue other insurance policies, the time limit starts from the day when the cargo insurers obtain the subrogation.”

18.  Pausing here, the time limit at the back of the bills of lading also states that the time limit for bringing action is one year from the date of the delivery of the cargo or the date where the cargo should have been delivered.  On that basis, it seems that any claim for the loss or damage or any claims relating to the cargo would have been time‑barred by today.

19.  Paragraph 3 of the letter reads:

“By way of clarification, subrogation and assignment are two different conceptions under Chinese law. Subrogation is regulated mainly by the Chinese insurance law. By way of the subrogation, the cargo insurer does not have to inform the third liable party and any recourse claim should be commenced in the name of the cargo insurer itself. However, assignment is mainly provided under the Chinese Contract Law. Typically, a third‑party is involved in a contract with the assignor and the contract is in effect transferred to the assignee. For assignment of contract, notice to the third party beforehand would be necessary.”

20.  In this case, Mr Alder tells this Court that the Plaintiff has not received any notice of assignment.

21.  Lastly, towards the end of the letter, it reads:

“Depending on the terms of the insurance policy, there is a real risk that the insurer, by virtue of the rights acquired from the insurer by subrogation, would be entitled to arrest the Vessel in China in order to obtain security for their claims.”

22.  On the existing materials, it is reasonably clear that the Plaintiff need only be concerned if an insurer, having paid the Defendants and subrogated to their rights, whatever those may be, makes a claim against the Plaintiff and arrests its vessel. 

23.  It is also reasonably clear that the Plaintiff suspects that the Defendants have been paid by a PRC insurer, which explains why none of the Defendants have come forward to make a claim against the Plaintiff for the sale of the cargo and, of all jurisdictions in this world, the Plaintiff has chosen to put before this Court a PRC legal opinion as expert evidence.  That suspicion is now reinforced by the contents of Mr Butler’s second affidavit.

24.  RHC O 26 r 1 reads:

“A party to any cause or matter may, in accordance with the following provisions of this Order, serve on any other party interrogatories relating to any matter in question between the applicant and that other party in the cause or matter which are necessary either for disposing fairly of the cause or matter; or for saving costs.”

25.  The governing principles are fully set out in Lee Nui Foon v Ocean Park Corp (No 2) [1995] 2 HKC 395 and are not in dispute. 

26.  Mr Alder argues that the interrogatories are both relevant and necessary.  On the issue of relevance, he submits that the words “relating to” are of very wide scope, citing in support a House of Lords’ decision and a decision of the High Court of Australia. 

27.  This Court does not doubt that the words “relating to” can be of very wide scope, but in law, context is everything and neither decision is remotely concerned with what this Court is now dealing with, ie the propriety of the interrogatories in the context of RHC O 26 and the principles set out in Lee Nui Foon v Ocean Park Corp (No 2).

28.  Miss Cheung accepts that the test of relevance is fairly wide and the right to interrogate is not confined to facts directly in issue, but extends to any facts the existence or non‑existence of which is relevant to the existence or non‑existence of facts directly in issue, but she submits that relevance is determined by reference to the pleadings and there is nothing of remote relevance to insurance, whether or not the Defendants have been paid by an insurer, and if I may add, whether any of the Defendants have pursued the banks for payment of the value of the cargo.

29.  This Court agrees with Miss Cheung relevance has to be determined by reference to something and it is widely accepted that that something is the parties’ pleaded case.  If not, what else can it be?  The opening words of paragraph 24/2/10 in the Hong Kong Civil Procedure 2017 reads as follows:

“Relating to any matter in question between them”.

30.  And that is in the context of discovery.

31.  And I further quote:

“These words refer, not to the subject‑matter of an action, but to the questions in the action. So, in an action for possession of land, where the plaintiff’s title is in question, they refer to the title, not the land (per Lindley J in Philipps v Philipps (1879) 40 LT 815 at 821). Relevance will be determined by reference to the pleadings (Re Estate of Ng Chan Wah, unrep, HCAP No 5 of 2003, March 5, 2003, [2003] HKEC 317, CFI).”

32.  In CHC Software Care Limited v Hopkins & Wood [1993] FSR 241, a case relied upon by the Plaintiff, Mummery J ordered disclosure by the defendants to the plaintiff the names and addresses of recipients of letters allegedly containing malicious falsehood.  The gist of the decision of Mummery J was summed up in a short passage at page 250. It reads:

“The recipients of the letters are not wrongdoers, but, in my view, the jurisdiction of the court is not confined to the case of identifying wrongdoers. The copies of the letters sent by the defendants and any distribution list of names and addresses of recipients are documents relevant to the issues pleaded in this action. The fact that the immediate purpose for which the plaintiff seeks discovery is to write to the recipients to set straight the record does not oust the jurisdiction of the court to order discovery of relevant documents. The plaintiff’s purpose is a legitimate purpose relating to the issues raised in the action. The plaintiff wishes to take reasonable steps to protect itself against the damaging consequences of the alleged tortious document disseminated by the defendants.”

33.  This Court readily understands why Mummery J came to the conclusion that the plaintiff’s purpose for seeking the names and addresses of the recipients of the letters in question was a legitimate purpose, but as this Court has no access to the pleadings in that case, it does not know how Mummery J came to his conclusion that the information requested related to the issues in that action.

34.  On the other hand, this Court has read the pleadings in the present case and is satisfied that at least paragraphs 1 to 4 of the interrogatories sought by the Plaintiff do not relate to the issues raised in this action.

35.  For the avoidance of doubt, this Court hastens to add it accepts the Plaintiff’s application is for a proper and legitimate purpose, but that is only one hurdle that an applicant of interrogatories has to overcome.

36.  Given the Plaintiff’s failure to show relevance, that is sufficient to dispose of paragraphs 1, 2, 3 and 4 of the interrogatories.

37.  Regarding paragraphs 3 and 4 of the interrogatories, this Court should add that none of the Defendants are counterclaiming against the Plaintiff for the value of the cargo.  Hence, whether any of them have taken legal action against the three banks involved in the transaction to recoup the invoice value of the cargo is not an issue that requires this Court’s determination at trial, if this action does get to trial eventually.

38.  Lastly, in relation to paragraph 5 of the interrogatories, concerning the location of the bills of lading in question, the Plaintiff has already received the answer from the Defendants, not once but twice:  in Mr Pang’s first affidavit in October last year and in correspondence with the Defendants’ solicitors in May this year.

39.  This Court therefore agrees with Miss Cheung that paragraph 5 is not necessary, either for disposing fairly of the cause or matter or for saving costs.

40.  For these reasons, this Court will dismiss the Plaintiff’s Summons.

41.  I will make no order on the Defendants’ Summons.

42.  Costs of and occasioned by the Plaintiff’s Summonses dated 10 August 2016 and dated 24 November 2016 be to the Defendants, with certificate for Counsel.

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

Miss Elizabeth Cheung, instructed by Eversheds, for the 1^st to 4^th defendants

HCAJ 118/2015

ADMIRALTY ACTION NO 118 OF 2015

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D E C I S I O N
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1.  By a Decision dated 2 November 2015 (“the Decision”), I dismissed the plaintiff’s summons (supported by the intervener) for an injunction against the defendants. On a nisi basis, I ordered the plaintiff and the intervener to pay the costs of the defendants. This is the losing plaintiff’s application to vary the costs order nisi, seeking (i) costs on indemnity basis; or (ii) that each party should bear its own costs.

2.  Although the intervener has not applied for variation of the costs order, in my view, its liability should not exceed that of the plaintiff.

Legal principles

3.  Since the injunction application was interlocutory nature, the starting point is Order 62, rule 3(2A), Rules of the High Court.  The court may order costs to follow the event.

4.  I disagree with Mr Hui, counsel for the defendants, that the injunction application was final in nature.  Though the injunction sought was mandatory in nature, granting it would not have disposed of the action. 

5.  Mr Horton (solicitor for the plaintiff) and Mr Hui have cited several cases on costs after trial, such as Re Elgindata (No.2) [1992] 1 WLR 1027, Wong Kam Tong v Tin Shing Court, Yuen Long (IO) [2012] 2 HKLRD 1128, Hong Kong Kam Lan Koon Limited v Realray Investment Limited (No.4) [2005] 4 HKC 162.  Those cases are not applicable to the present situation.

6.  In exercising its discretion, the court should have regard to various matters set out in Order 62, rule 5, including the conduct of the parties.  Conduct includes those set out in r 5(2):

(a) Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) The manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) Whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) Conduct before, as well as during, the proceedings.

The plaintiff’s emphasis is on (b) and (d).

The plaintiff’s case on costs

7.  The plaintiff’s case is that it had made many attempts with the defendants to have open discussion before action but to no avail.  The conduct that the plaintiff relies on is that:

(a) The defendants concealed its knowledge and failed to clarify the position of the Win Goal B/L.

(b) The defendants informed the plaintiff that they had not been paid by the bank within 5 days of presentation of the BADR B/L and that the documents had been rejected. It led the plaintiff to believe that a rejection of the BADR B/L had occurred and the BADR B/L was held to the order of the defendants. 

(c) The defendants assumed inconsistent positions.  Before the hearing on 30 October 2015 (“the Hearing”), they informed the plaintiff that they were negotiating a sale of the cargo to ADO, thereby asserting ownership over the cargo.  At the Hearing the defendants claimed to have no interest in the cargo.  Instead they relied on the right to sue the appropriate bank under the UPC600, a position never taken in the correspondence.

8.  The plaintiff says that it could only have known of the position of the cargo and who was holding the BADR B/L from the defendants.  However, the defendants only filed an affirmation out of time (I think the plaintiff means out of office hour) the day before the Hearing.  According to Mr Horton, it was only at 11:30 am during the Hearing that the defendants claimed to have no ownership in the cargo.

9.  The court found, amongst others, that the owner ADO and pledgee of goods have not been sued (§§64-65 of the Decision).  The plaintiff asserts that it was due to the fault of the defendants that they had to litigate and sued the wrong party.

Analyses

10.  Firstly, it cannot be denied that the defendants were the true winner of the summons.  The plaintiff did not seek orders in relation to the Win Goal B/L.  Their case on the BADR B/L was dismissed.  At the Hearing, the defendants have made good what they have told the plaintiff before action, namely, that (i) they had no knowledge of the existence of the Win Goal B/L and (ii) they had already submitted the BADR B/L and other documents to the banks but they had not been paid. 

11.  Secondly, even accepting the plaintiff’s case in paragraph 7(c) and 8 above, the plaintiff had not abandoned its summons at the start of the Hearing. In fact when I informed the parties of the difficulties in giving a quick judgment due to in my diary position, the plaintiff insisted on proceeding to argue the summons without a call-over. The Hearing had gone on with full arguments after 11:30 am.  The result was that the court ruled in favour of the defendants.

12.  Thirdly, the failure to sue the right parties could not be blamed on the defendants.  The names of ADO (cargo purchaser) and the bank(s) to whom the defendants had presented the BADR B/L (probable pledge) were available to the plaintiff before action.

13.  Fourthly, the plaintiff’s pre-action communication with the defendants lasted about a month.  The defendants were not then legally represented, so no costs would have been awarded to them for that period anyway.

14.  In paragraph 68 of the Decision, I stated as follows:

“Costs should follow the event and be to the defendants.  Counsel have drawn my attention to the correspondence between 25 September through October 2015. The issues of the Win Goal B/L have been discussed which turns out to be otiose.  In the telephone conversation on 23 October 2015 (day after service of the writ), the defendants have already made their position clear to the plaintiff.  The affirmation that the defendants filed verified their position.  Mr Chain’s submission makes the legal position clear.  Any “lateness” in putting forward the defence could not undermine the validity of the defence.”

15.  Having considered Mr Horton’s submission, I maintain my views in paragraph 68 of the Decision.  Cost should follow the event.  There was no basis for saying that the defendants’ conduct or way of defence was such as should deprive them of costs.

16.  Although the Intervener had not filed any submission at the Hearing, they supported the plaintiff’s application.  I see no reason why they should not be jointly and severally liable for costs of the summons.

17.  The above is enough to dismiss the application for variation of the costs order nisi.  I just add that the issues at the Hearing were by no means straightforward and had been well fought out by the defendants.  Even if I were to grant the plaintiff costs, it would not have been appropriate to order indemnity basis. 

Quantum of costs

18.  Given that counsel was engaged at an early stage and the urgency of the Hearing, I allow the costs of only one fee earner at an hourly rate of $4,000. There was only one simple affirmation prepared for the defendants and 2 full affirmations of the plaintiff to peruse.  I summarily assess the amount and order the plaintiff and the intervener to pay the defendants $100,000 for the summons.

19.  As for this hearing on costs, I order the plaintiff to pay $35,000 to the defendants.  The intervener has not applied for variation of the costs order.  They should not be required to bear costs of the hearing on costs, although they attended this hearing.

Conclusion

20.  In conclusion, the order nisi is made absolute and costs are summarily assessed at $100,000 to be borne by the plaintiff and the intervener. The plaintiff shall additionally pay costs of $35,000 for this application to vary the costs order.

21.  I thank Mr Horton and Mr Hui for their assistance.

HCAJ 118/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 118 OF 2015

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D E C I S I O N

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1.  There are 2 applications before the court for an order that:

A. Med-Asia Shipping BV (“Med-Asia”) be granted leave to intervene;

B. The defendants do surrender the bills of ladings to the plaintiff, and there be discharge and sale of the cargo on board the plaintiff’s vessel.

THE FACTS

2.  The facts are largely undisputed and are taken from the helpful summary of Mr Chain, counsel for the defendants.

3.  The plaintiff is the owner of SOPHIA Z (“the vessel”).

4.  The intervener, Med-Asia, chartered the vessel from the plaintiff under a time charter contained in a fixture note dated 9 July 2015 with a LAYCAN for 16^th/22^nd July 2015.

5.  The vessel was sub-chartered to another company under a voyage charter dated 26^th June 2015 (vessel to be nominated). Med-Asia believes that the sub-charterers are connected to the defendants.

6.  Under a sales contract dated 4^th May 2015, Win Goal (D1) agreed to sell steel billets to Acieries De L-Ouest Sarl (“ADO”), a company based in Algeria.

7.  D1 as shipper entered into a contract of carriage with the plaintiff as carrier for the steel billets to be shipped from Longkou, PRC, to Djendjen, Algeria. Specifically:-

(a) The contract of carriage was contained in a bill of lading (no. LD00102) with the consignee being to the order of BADR, an Algerian bank (“the BADR B/L”). All parties accept that the BADR B/L was mistakenly dated 24^th July 2014, rather than 24^th July 2015.

(b) There was an earlier draft bill of lading with the same B/L number and similar description of goods, which listed D2 as shipper and D1 as consignee (“the Win Goal B/L”). As clarified in the affirmation of Mr. Schloemer (for Med-Asia) and that of Mr Pang (for the defendants), the Win Goal B/L was a draft that was never formally issued and was superseded by the BADR B/L.

(c) The plaintiff’s confusion as to the Win Goal B/L was caused by Med-Asia having emailed a copy of the Win Goal B/L to the plaintiff without subsequently clarifying to the plaintiff that the Win Goal B/L was a draft that had been superseded by the formally issued BADR B/L.

8.  The steel billets (“the cargo”) were duly loaded onto the vessel on or around 24^th July 2015 at Longkou, PRC. The vessel left Longkou and arrived at Djendjen, Algeria, on 11^th September 2015.

9.  Med-Asia issued the letter of indemnity (“the LOI”) to the plaintiff and demanded discharge of the cargo without production of the bill of lading.

10.  ADO used what all parties regarded as a false excuse of the cargo being radioactive to reject the cargo and prevent it from being discharged and unloaded from the vessel at Djendjen, Algeria.

11.  The plaintiff is thus caught in a difficult situation.  ADO has “abandoned” the cargo.  The plaintiff cannot enter Algeria. It has been unable to get discharge/delivery instructions from Med-Asia or the defendants.  Because of draft limits imposed by the vessel’s next intended destination port (Ravenna, Italy), the vessel cannot continue its journey until the cargo is discharged. The vessel is now anchored at Malta on the instructions of Med Asia.  It has been used as a floating warehouse contrary to the plaintiff’s wishes.  Hire continues to accrue at US$7,500 per day.

12.  Without possession of the original BADR B/L or a court order, it would be difficult for the plaintiff to sell the cargo to third parties in non common law jurisdictions relying on contractual self-help rights alone or common law rights: The Bao Yue [2015] EWHC 2288 (Comm) §75, Males J.  The plaintiff wishes to take whatever steps it can to avoid future claims from the defendants, the Ravenna receivers (or others asserting claims through them), both of which might entail arrest in an inconvenient or unpredictable jurisdiction.  It seeks this injunction to enable it to dispose of the cargo.

A.  Application to intervene

13.  Order 15, rule 6(2)(b) provides that the court may order the following persons to be added as a party, namely (i) any person whose presence before the court is necessary to ensure that all matters in dispute may be effectually and completely determined; or (ii) any person between whom and any party there may exist a question arising out of or relating to any relief claimed which the court considers would be just and convenient to determine as between him and the parties to the cause or matter.

14.  There is no opposition to the intervention of Med-Asia, who is stuck between the plaintiff and the defendants.  This matter clearly has an impact on Med-Asia’s legal and commercial interests with the existing parties.  I therefore granted leave at the hearing to Med-Asia to intervene.

B.  The injunction application

15.  The plaintiff relies on the ‘self-help’ rights (including carrying beyond the intended port of delivery and a right of sale) under the following clauses of the BADR B/L:

“[8] …The goods shall be supplied and taken delivery of by the Owner of the goods as fast as the vessel can take and discharge them, without interruption, by day and if required by Carrier also by night, sundays and holidays included, notwithstanding any custom of the port to the contrary and the Owner of the goods shall be liable for losses or damages including demurrage incurred in default thereof. (underline added)

Discharge may commence without previous notice. If the goods are not taken delivery of by the Receiver from alongside the vessel without delay, or if the Receiver refuses to take delivery of the goods, or in case there are unclaimed goods, the Carrier shall be at liberty to land such goods on shore or any other proper places at the sole risk and expense of the Merchant and the Carrier’s responsibility of delivery of cargo shall be deemed to have been fulfilled.

…

If the goods are unclaimed during a reasonable time, or wherever the goods will become deteriorated decayed or worthless, the Carrier may, at his discretion, and subject to his lien, and without any responsibility attached to him, sell, abandon or otherwise dispose of such goods solely at the risk and expense of the Merchant. (underline added)

[13]… If necessary, the Carrier shall be at liberty to carry the goods to their port of destination by other vessels… and to carry the goods or part of them beyond their port of destination, and to tranship, lighter, land and store the goods on shore or afloat and reship and forward the same at the Carrier’s expenses but at the Merchant’s risk.”

“Receiver” has not been defined in the BADR B/L.

“Merchant” has been defined as including the shipper, the receiver, the consignor, the consignee, the holder of the bill of lading and the owner of the goods.

16.  The plaintiff seeks a mandatory injunction against the defendants requiring them to surrender the bills of lading to the plaintiff, give fresh instructions for disposal, or sale of the cargo under Order 29, rule 4 of the Rules of the High Court.  A draft order was submitted.

17.  With regard to §§2-4 of the draft order, it is the defendants’ position that there are no Win Goal B/L to deliver up in view of the confirmation of position by Med-Asia and the defendants set out in paragraph 7(b) above.  The plaintiff, rightly, does not press further.  I need not make any order in this regard but the preamble to any order that this court may make should spell out clearly that confirmation to bind the parties before the court.

18.  Under §5 of the draft order, the plaintiff asks that D1 either provide fresh instructions for the delivery and discharge of the Cargo from the vessel at a safe Mediterranean port; or (b) surrender to the plaintiff a full set of the originals of the BADR B/L for cancellation.

19.  Under §6 of the draft order, if D1 fails to comply, the plaintiff asks that it be at liberty to discharge the cargo at any safe Mediterranean port, sell the cargo and, after deducting the charges, pay the proceeds into court.  

20.  Med-Asia supports the plaintiff’s application.

21.  The defendants oppose §§5 and 6 of the draft order.  Their position is that by virtue of D1’s valid presentation of documents (including the BADR B/L) under a letter of credit (“the LC”) for payment, the property rights have unequivocally passed to ADO, with the issuing bank or nominating bank having possessory rights as pledgee.  It is thus impossible for D1 to give instructions on how to deal with the cargo.  In short, the plaintiff has sued the wrong entity.  The defendants do not assert rights over the cargo and would have no objection over disposal of the cargo provided there is no mention of the defendants in the order. 

22.  The plaintiff disagrees.  It contends that since presentation of the documents under the LC has been rejected, the BADR B/L is held to the order of D1.  Moreover, the defendants may transfer rights under the bill of lading but not the liabilities.

23.  The issues before the court are:

(1) Whether or not the defendants still have ownership rights over the cargo;

(2) Whether the BADR B/L is held to the order of D1; and

(3) Whether D1 has liabilities that cannot be transferred.

Legal principles for grant of injunction

24.  The injunction sought is in the nature of a mandatory injunction.  The court will not grant one unless it feels a high degree of assurance that at the trial of the action, it will be shown that the injunction was rightly granted. This means the applicant's case on the merits has to be made out to a higher standard of proof than in the case of prohibitory injunction.  The court will take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong. Sight must not be lost of this fundamental principle.  Two common guidelines are the consideration of the merits of the plaintiffs' claim and the balance of convenience.  Where it is shown, as an exception to this general approach, that the case is one in which the withholding of on interlocutory mandatory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel the "high degree of assurance" as aforesaid, it would be right to grant an interlocutory mandatory injunction.  SeeMusic Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041, §12, Ma J (as he then was).

25.  The Courts have been willing to grant orders enforcing obligations under bills of lading and other shipping-related instruments by mandatory injunction where justice demands it, eg:

(a) Restraining shipowners from sailing a vessel anywhere other than such place as charterers might direct: The Houda[1994] 2 Lloyd’s Rep 541;

(b) Ordering shipowners to complete a voyage by entering a port and discharge a cargo to prevent deterioration and much greater loss on both sides: LPG Shipping Ltd v Worldwide Panama Shipping Inc [1997] EWCA (Civ) 2747;

(c) Ordering delivery up to shipowner of a B/L by receivers who had wrongfully refused to take delivery, as the shipowner had a legitimate need to have the B/L for further handling of the cargo: The Bao Yue.

26.  Where a defendant is within the jurisdiction of the court there is power to make an order in relation to acts outside Hong Kong.  Whether or not the power is exercised is a matter for discretion: Jackson, Enforcement of Maritime Claims §25.8.

(1) Whether D1 has ownership rights over the cargo

27.  D1 was the seller and ADO the buyer.  The bill of lading is a title document so that whoever is in possession of it can assert ownership and it is that person who can give instructions as to disposal of the cargo.  The question is who has that right to assert the ownership in this case.

28.  ADO as buyer has caused BADR to issue the LC in favour of D1 for the amount of US$11,190,800 with Deutsche Bank (China) Co Ltd (“Deutsche Bank”) as nominating bank.

29.  D1 has deployed the LC by presenting documents (including the BADR B/L) to Deutsche Bank for payment on Tuesday 11 August 2015.  It appears that Deutsche Bank forwarded those documents to BADR on Thursday 13 August 2015.

30.  The LC is specifically stated to be subject to ICC Uniform Customs and Practice for Documentary Credits 600 (“UCP 600”).   The material articles are as follows:

(a) Under article 14(b), the nominating bank [in this case the Deutsche Bank] and issuing bank [BADR] shall each have five banking days following the day of presentation to determine if a presentation is complying.

(b) Under article 16(c), should the nominating bank and issuing bank choose not to honour or negotiate the LC on grounds of non-compliance of the presented documents, they must give a notice to that effect to the presenter.

(c) Under article 16(d) (corresponding with article 14(b)), the notice of refusal to honour must be given by the close of the fifth banking day following the day of presentation.

(d) Under article 16(f), if an issuing bank or confirming bank fails to act in accordance with article 16, it shall be precluded from claiming that the documents do not constitute a complying presentation.

See also: §§5.41 to 5.44 of Jack on Documentary Credits (4^th ed.)

31.  Applying these provisions, if BADR as issuing bank or Deutsche Bank as nominating bank had wanted to refuse to honour the LC on the ground of non-compliance with the presented documents, they had to do so respectively by close of business on Thursday 20 August 2015 or Tuesday 18 August 2015.

32.  Neither bank gave notice of refusal within 5 banking days.  They were thus precluded from refusing to honour on the ground of non-compliance.  Article 16(f) is mandatory in terms.

33.  It was only on 14 September 2015 that Deutsche Bank passed on a message from BADR to HSBC (acting for D1) stating that the certificate did not specify affirmatively the absence of any trace of radioactivity as required and so BADR considered that the documents did not conform and the payment would not be effected until the applicant’s (ie HSBC/D1’s) agreement.  That was over a month after Deutsche Bank and BADR had first received the documents. 

34.  Thereafter, HSBC had repeatedly made clear by swift messages to BADR and Deutsche Bank that they were precluded from refusing to honour the LC (see exhibit PHL-5).  Despite HSBC’s clear stance, no payment has been made by BADR to D1 to date.

35.  As contended by Mr Chain, the net effect is that D1 had given up the documents (including the BADR B/L) as security in exchange for Deutsche Bank/BADR’s promise to pay.  The presented documents were taken to have been accepted by the bank.  As a result, the property in the cargo which has previously been retained by the seller D1 has passed to the buyer ADO. 

36.  The following authorities explain the relationship between D1, Deutsche Bank, BADR and ADO.

37.  As held in Sale Continuation Ltd v Austin Taylor & Co Ltd [1968] 2 QB 849 at 861 D-E per Paull J:-

“…the seller parts with his ownership in the documents as soon as he sends the documents to the bank. His right is to be paid the draft. The ownership of the goods passes to the buyer but the bank has the possessory title of a pledgee as against the buyer. He has that title until the buyer puts the bank in funds in respect of the draft and discharges his liability for interest payable in respect of the draft. If the pledger does not do so the bank has the usual right of a pledgee to see as if he were the owner.”

38.  In Jack on Documentary Credits (4^th ed.), §11.4, it is so stated,

“11.3 A pledge may be described as the transfer of the possession of goods by way of security whereby the ownership of the goods remains in the pledgor and the pledgee obtains a right to possession only. He has a ‘special interest’ in the goods, which includes the right to sell. The goods must be transferred to the possession of the pledgee and actual possession is normally required. One of the exceptions to actual possession is the case where a bill of lading is transferred with the intention of pledging the goods to which the bill is title. Then the pledge is effective on the transfer of the bill alone. …

11.4 … it is clear that in the classic situation where the bank receives bills of lading made out to the order of the shipper and blank indorsed it becomes a pledgee of them. This is the case for a negotiating bank as much as for an issuing or confirming bank. The position is that, when the documents are accepted by the bank as conforming to the credit, the property in the goods which has previously been retained by the seller will pass to the buyer, the intention being that the seller no longer looks to the documents for his security (or the goods) but looks to the promise of the bank. (underline added)

… [having referred to Sale Continuation Ltd v Austin Taylor & Co Ltd]

Where the bills of lading are drawn to the order of the bank or are indorsed to the order of the bank, the bank will obtain a pledge in the same way as where the bills are drawn to order and blank indorsed.  Where they are drawn in favour of the buyer or other consignee, the bank, it is suggested, still obtains its pledge (for by setting up the credit the buyer has consented to the bank doing so).  But unless the bank can obtain the indorsement of the bills to itself, its power of sale will be ineffective because the bills themselves will not evidence any right on the part of the bank to the goods.  In order to enforce its rights, the bank would probably have to bring an action for delivery of the cargo against both the named consignee or indorsee and the carrier.”

39.  The above principles apply equally to a negotiating bank as much as an issuing bank: The Stone Gemini [1999] 2 Lloyd’s Rep 255 at 263-265, §§39-40 per Tamberlin J.

40.  The legal effects are that:

(a) Deutsche Bank as nominating bank has incurred an obligation to honour the LC, with a corresponding right to be reimbursed by BADR.  Deutsche Bank holds the documents (including the BADR B/L as title document to the cargo) as pledgee until it is paid by BADR. 

(b) BADR as issuing bank has incurred an obligation to pay Deutsche Bank, with a corresponding right to be paid by ADO. If the documents have been passed to BADR by Deutsche Bank, BADR holds them as security by way of pledge until it is paid by ADO.

(c) Legal ownership of the goods had passed to ADO, subject to the pledgees’ rights.

41.  Even if the buyer legitimately rejects the goods, the property in the goods would not revert to the seller: Jack on Documentary Credits.

“11.5 Passage of property is ultimately determined by the objectively construed intentions of the parties. There will often be an inference that the seller intends to retain title in the goods until payment, an inference which is not displaced merely because payment is to be by letter of credit. On acceptance of the documents against payment by the bank, property passes to the buyer, but, so long as the bank retains the bills of lading, subject to the bank’s pledge interest. If the buyer refuses to take up the documents on the ground that they do not comply with the credit, either himself or by declining to authorise the issuing bank to take them up from the errant confirming bank, then he cannot retain the property in the goods. Where a buyer rejects goods because they are found on arrival not to conform to the contract, the property in the goods – which has been described as vesting in the buyer conditionally – revests in the seller. But that would be inappropriate here. For the seller has been paid, or has his right to be paid, by the bank and has no further interest in the goods.It is therefore tentatively suggested that the property should find a resting place with the bank, perhaps by way of a type of subrogation, so that although the bank may not always have a complete documentary title it will become the owner of the goods.” (emphasis added)

42.  In the present case, ADO’s was even not entitled to reject the cargo as the reason for rejecting (radioactivity) was false.

43.  There is clearly a good arguable defence that D1 has no ownership over the cargo, which will afford a complete defence to the application.

(2) Whether the BADR B/L is held to the order of D1

44.  Under section 2(2)(b) of the Bills of Lading and Analogous Shipping Documents Ordinance, Cap 440, the holder of a bill of lading is, amongst others, “a person with possession of the bill as a result of the completion, by delivery of the bill, of any endorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill”.

45.  Possession of a bill of lading cannot be forced on a person.  The person receiving it has to receive it into his possession and accept the delivery before he becomes the holder: The Aegean Sea [1998] 2 Ll Rep 39, at 59, per Thomas J; The Erin Schulte [2015] 2 Ll Rep 97, §28.

46.  A shipper who has not transferred a bill of lading not only has a right to take delivery upon tender of the bill of lading but a duty to do so: The Bao Yue §51. 

47.  The following passages in Aikens on Bills of Lading (2006 ed) explains the legal position in fuller details:

“The holder of a bill of lading – the concept of possession

8.38 A holder of a bill of lading is under [sections 2(1) and 2(2) of Cap 440] ‘a person with possession of the bill’ in certain specified circumstances. ‘Possession’ in the strict sense is narrower than the right to possession. ‘Holder’ will thus, on the natural meaning of the wording of the section, be limited to a person with actual custody of the bill himself, or through an agent who holds as such and has no independent right. Where a bill is indorsed and posted to the transferee, the latter will not have possession of it until he receives it. However, in The Giovanna Rix J was inclined to the view that the indorsee was in possession of the bills from the time the indorser had handed them to couriers for despatch. The time at which a person becomes holder is unlikely to affect the basic question of entitlement to sue, although it may be relevant to the question as to whether the holder is a lawful holder.

…

Obtaining possession

8.40  Under [section 2(2)(b) of Cap 440] although the holder has to have possession of the bill as a result of the completion, by delivery of the bill, of an indorsement, there is no requirement for the delivery to be to the indorsee.  The standard means of X becoming a holder is by way of endorsement of the bill of lading to X and delivery of it to X.  However, endorsement of a bill of lading to X and delivery to X will not necessarily be sufficient to constitute X the ‘holder’ of the bill of lading for the purposes of [section 2(2)(b)].  Thus in The Aegean Sea a bill of lading was endorsed and delivered to a party in error, when the intention was to endorse it to the party’s subsidiary who had bought the cargo from the endorser.  Thomas J held that mere physical receipt was not enough: the recipient has to receive it into his possession and ‘accept’ the delivery before he becomes the holder.  Thus, it would appear that both the transferor and transferee need to have the requisite intention that the person to whom indorsement of the bill of lading is made and delivery given is to be the ‘holder’ of the bill.  It is not entirely clear what is sufficient to constitute ‘acceptance’.  If there is acceptance, but on the basis of a mistake of fact or law induced by fraud or misrepresentation (other than on the part of the transferee who would otherwise not be a ‘lawful’ holder: see the provision at the end of [section 2(2)(b) which refers to a person becoming a holder of the bill in good faith] this would, it is suggested, vitiate any such acceptance.  In our view it is clear that possession of the bill is a necessary but not sufficient condition for being a ‘holder’ of the bill.”

48.  Regarding disposal of documents, the bank must state how it will dispose of the documents.  Notice of refusal is irreverisble: Jack: Documentary Credits states as follows:

“5.68 The notice must also state how the bank has or will dispose of the documents. There are four options: (a) the bank is holding the documents pending further instructions from the presenter [in this case, D1]; or (b) it is holding the documents until it receives a waiver from the applicant [ADO] and agrees to accept it or receives further instructions from the presenter prior to agreeing to accept a waiver; or (c) it is returning the documents; or (d) it is acting in accordance with instructions previously received from the presenter.

5.69 The options referred to at (a) and (c) above require no further comment. An issuing bank will wish to select option (b) where it has sought a waiver from the applicant but wishes to preserve its right to refuse the documents if a waiver is not forthcoming by the close of the fifth banking day. … (underline added)

5.70 A notice which makes the beneficiary’s disposal of the documents conditional on any matter other than the acceptance of a waiver is invalid.

Refusal irreversible

5.76  Once a notice of refusal has been given to a presenter [D1] of documents, it can only be withdrawn with the agreement of the presenter.  For the documents are then at his disposal and he has the right to them.  If the market has risen then he may wish to sell the goods elsewhere and may not be prepared to agree to a withdrawal.  If the bank has given a notice in the form of Article 16.c.iii(b) (i.e. that it is holding the documents until it accepts a waiver) then, provided no further instructions have been received from the presenter, it may release the documents to the applicant [ADO].”

49.  The plaintiff is not a party to the LC.  Mr Alder submits that the LC is a matter between D1 and BADR/ADO which does not concern this application.  The mere fact that the BADR B/L reached ADO through the LC/banking system is not enough to transfer the BADR B/L.  Possession cannot be forced on someone.  Since the presentation under the LC has been refused, be it on right or wrong grounds, the BADR B/L ought to have been returned to D1 or held to its order: UCP600 Article 16c(iii)(a) to (d).  D1 can, on a without prejudice basis, retrieve the BADR B/L from BADR/Deutsche Bank for surrender to the plaintiff, so Mr Alder submits.

50.  Mr Chain does not dispute all the legal principles but does not agree to the preceding paragraph.  I agree with him that those principles hardly assist the plaintiff.  In all those authorities, there was no acceptance of the presentation of documents and issue of the rejection notice by the bank was within 5 banking days prescribed by UCP 600. Notice of refusal being irreversible is only true when the refusal is within time.

51.  If the opening or confirming bank (BADR/Deutsche Bank) fails to pay against presentation of conforming documents under a letter of credit payable at sight, the beneficiary (D1 here) may sue in debt to recover the value of the credit, provided he is willing and able to transfer the documents to the bank against payment: The Erin Schulte, at §51; Jack: Documentary Credits, §5.87. 

52.  The BADR B/L is already with Deutsche Bank/BADR but, apparently, ADO, BADR and Deutsche Bank do not want it.  Time is of the essence in international trade involving letters of credit but they were out of time in giving the notice of rejection and thus precluded from rejection.  To ask D1 to retrieve the BADR B/L on a without prejudice basis is tantamount to asking D1 to give up a certainty (the bank’s promise to pay under the LC), in exchange for uncertainty (being treated as having waived its rights under the LC and resort to sale of the cargo to get back the price) to help out the plaintiff.  This will cause serious injustice to D1, who is as much a victim as the plaintiff.

53.  The Bao Yue is distinguishable from the present case and does not assist the plaintiff.  This is because the bill of lading there did not mention a consignee or notify party other than the shipper.  There was also no transfer of bill of lading and hence divesting of ownership as in the present case. 

54.  On this issue, I find that it is hardly arguable that the BADR B/L is held to the order of D1. 

(3) Whether D1 has liabilities that cannot be transferred

55.  Mr Alder submits that although rights can be passed on under a bill of lading, liabilities cannot.  He relies on the Bills of Lading and Analogous Shipping Documents Ordinance, Cap 440:

“4(1) Subject to this section, a person who –

(a) becomes the lawful holder of a bill of lading;

(b) becomes (without being an original party to the contract of carriage) the person to whom delivery of goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or

(c) becomes the person to whom delivery of goods to which a ship’s delivery order relates is to be made in accordance with the undertaking contained in the order,

shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract. (underline added)

5(1) Where section 4(1) operates in relation to any document to which this Ordinance applies and the person in whom rights are vested by virtue of that subsection –

(a) takes or demands delivery from the carrier of any of the goods to which the document relates;

(b) makes a claim under the contract of carriage against the carrier in respect of any of those goods; or

(c) is a person who, at a time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods,

that person shall (by virtue of taking or demanding delivery or making the claim or, in a case falling within paragraph (c), of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract.” (underline added)

56.  In Aikens on Bills of Lading (2006 ed), it is said that:

“8.86 The treatment of liabilities under [s.5(1) of Cap 440] differs from the treatment of rights under [s.4(1)] in 2 important respects. First, the circumstances in which the transferee acquires liabilities are more restricted than those in which he acquires rights. Secondly, whereas rights are transferred to the transferee, liabilities remain with the original party to the contract of carriage even if they are also vested in the transferee of the bill.”

57.  Mr Alder submits that by virtue of these sections, D1 as shipper can transfer rights but not liabilities.  BADR is the person under s.4(1).  If it takes further steps under s.5(1), it will be subject to the same liabilities under the contract of carriage as if it were a party to that contract.  

58.  With respect I cannot see what “liabilities” D1 has.  Clause 8 of the BADR B/L (paragraph 15 above) talks about “risk and expenses” if the plaintiff lands the cargo on shore, or exercises its lien and disposes of the cargo.  D1 may arguably be the “merchant” as defined in the BADR B/L, and it may not escape liability by virtue of s.5(1) of Cap 440.  However, this application is not concerned with liabilities like storage or demurrage charges.  Clause 8 does not revive the lost ownership of D1.

59.  Clause 13 of the BADR B/L (paragraph 15 above) does not assist the plaintiff either.  It only talks about risk but not expenses to D1 if the plaintiff carries the cargo in a certain manner.

60.  Neither clause 8 or 13 confers or retains a right in D1 to give the instructions sought in terms of §5 of the draft order. Nor do they create “liabilities” for D1 to specifically perform, as contended for by the plaintiff.

Draft §6 – liberty to discharge and sell

61.  The application is made under Order 29 rule 4.  The court has jurisdiction to order a sale of property “which is the subject matter of the cause or matter or as to which any question arises therein and which is of a perishable nature or likely to deteriorate if kept or which for any other good reason it is desirable to sell forthwith.”  Taxfield Shipping Ltd v Asiana Marine Inc, HCCT 15/2006, 7 March 2006, DHCJ L Chan (as he then was).

62.  In Taxfield Shipping, the plaintiff intended to commence arbitration proceedings in Hong Kong and would include a claim for a declaration that the defendants had abandoned the cargo, that the plaintiff could exercise a lien over the cargo and a claim for demurrage.  All relevant entities have been made parties, including the shipper (also seller), consignee and notifying party (buyer) and process had been served on them. Therefore, although the cargo of cement was on board a ship at a port in Nigeria, the court granted an interim order for sale. 

63.  The present case is distinguishable from Taxfield Shipping. The consignee (BADR) and the party to be notified (ADO), both named in the BADR B/L, have not been made parties.  Similarly, the present case is distinguishable from The Bao Yue where the only parties on the bill of lading were the shipper and contractual carrier, with no mention of a consignee or notify party.  The bill of lading was still with the shipper.

64.  I have queried, at the beginning of this hearing, whether the owner and pledgee should be made parties but the plaintiff insists on proceeding with the hearing.  The plaintiff cannot enter Algeria and it does not want to sue ADO.  It fears that exercise of self-help rights under the BADR B/L may not be recognized or enforced in unfamiliar jurisdictions around the Mediterranean. Its intention is to avoid claims and likely arrest by third parties should it proceed of its own accord to an alternate port.  

65.  These are understandable sentiments.  However, it is unjust to take away an owner/pledgee’s right over the cargo without affording them an opportunity of being heard just because it may be difficult for the plaintiff to exercise its rights in unfamiliar jurisdictions.  The plaintiff’s undertaking to give notice to BADR and ADO after an injunction is granted does not reverse what is unjust.

66.  Therefore, however much I find it desirable to break an impasse, there being no prejudice to the defendants, and the cargo is perishable as being exposed to the risk of rusting, I decline to grant the order sought under §6 of the draft order.

CONCLUSION

67.  D1 has a good arguable defence that it does not have the BADR B/L in its possession and does not have ownership over the cargo.  The court cannot be satisfied to a high degree of assurance that the plaintiff will be able to establish its rights against D1 at the trial. The owner and pledgee of the cargo are not parties to this action.  It is unjust to grant the injunction behind their backs and I decline to do so.

COSTS

68.  Costs should follow the event and be to the defendants.  Counsel have drawn my attention to the correspondence between 25 September through October 2015.  The issues of the Win Goal B/L have been discussed which turns out to be otiose.  In the telephone conversation on 23 October 2015 (day after service of the writ), the defendants have already made their position clear to the plaintiff.  The affirmation that the defendants filed verified their position.  Mr Chain’s submission makes the legal position clear.  Any “lateness” in putting forward the defence could not undermine the validity of the defence. 

69.  I therefore order as follows:

(1) There be an order nisi that costs of the application for intervention be in the cause of the action;

(2) The plaintiff’s application for an injunction is dismissed;

(3) There be an order nisi that costs shall be to the defendants payable by the plaintiff and the intervener to be summarily assessed on 18 November 2015 on the papers without attendance; and

(4) The defendants do file and serve their costs statement by 9 November 2015.  The plaintiff and the intervener do file and serve their grounds in opposition by 16 November 2015.

70.  I thank counsel for their thorough preparation and helpful assistance.