KING FIELD SHIPYARD LTD v. TAI PAK SEA-FOOD RESTAURANT LTD AND ANOTHER

HCA 1494/2022

[2025] HKCFI 560

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1494 OF 2022

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D E C I S I O N

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A.  Introduction

1.  Following directions for a ‘speedy’ trial, and subsequent allocation of the case to me, a Pre-Trial Review (“PTR”) has been fixed for 7 May 2025, and trial dates have been fixed for 12 days commencing 28 July 2025. A Case Management Conference (“CMC”) was fixed for and held on 24 January 2025, including to deal with any further interlocutory applications made prior to the cut-off date set.

2.  Hence, in addition to the general CMC matters, four summonses (together, “Summonses”) require determination, being:

(1)  the summons dated 20 August 2024 issued by the plaintiff (“P”), for leave to adduce expert evidence on liability and quantum (“Expert Summons”);

(2)  the summons dated 20 November 2024 issued by P, for leave to amend the Statement of Claim (“SOC”) as per the draft (“draft ASOC”) attached to the summons (“Amendment Summons”);

(3)  the summons dated 20 November 2024 issued by P, for an order that the 1^st Defendant (“D1”) produce documents specified in the Schedule to the summons (“Discovery Summons”); and

(4)  the summons dated 20 November 2024 issued by the Defendants (“D1” and “D2”, respectively, together “Ds”) seeking security for costs (“Security Summons”).

3.  At the hearing, P was represented by Ms Joyce Leung and Mr Johnathan Tsang of Counsel, and Ds were represented by Ms Sara Tong SC leading Mr Thomas Wong of Counsel. The hearing was conducted with the benefit of prior written skeleton submissions filed by the parties as regard each of the summonses, as well as the CMC matters.

4.  At the end of the hearing, I reserved my decision to be handed down on 5 February 2025. This is my Decision.

5.  Because the matters raised by the Summonses and the CMC are all matters of case management, my Decision can be expressed in reasonably short terms. However, though I may not refer in this Decision to all of the submissions made to me, or to all of the documents to which reference was made, I have them well in mind.

6.  I acknowledge that, with the trial taking place on a milestone date a few months from now, there may be a temptation simply to allow the proposed amendments, expert evidence and disclosure, and leave things to be sorted out at the trial itself. But, a more disciplined approach is appropriate, on the application of well-settled principles – not least in the context of modern case management.

B.  Material Background

7.  The necessary material background can be stated quite shortly.

8.  D1 is the registered owner of vessels being the “Tai Pak Restaurant Boat”, “Tai Pak Kitchen Boat” and “Tai Pak Fire Separation Barge” (collectively, “Tai Pak Boats”). D2 is the registered owner of the vessel “Jumbo Kitchen Boat”. Together, the four boats (or ships) can be referred to as the “4 Boats”.

9.  The 4 Boats were moored at the Aberdeen South Typhoon Shelter (“Shelter”), and were part of the Jumbo and Tai Pak Floating Restaurant fleets, which ceased operations in 2020 and 2018 respectively. At the material times, the 4 Boats held licences issued by the Hong Kong Marine Department (“MarDep”), which allowed them to be permanently moored at the Shelter. It is P’s case that MarDep has confirmed that such licences for a permanent station at the Shelter will no longer be issued.

10.  P, D1 and D2 entered into an agreement dated 19 May 2022, written in Chinese but the title of which has been translated as ‘Ship Handling Services Agreement’ (“Agreement”). Under the Agreement:

(1)  D1 and D2 agreed to pay HK$5.4 million to P as the “handling fees” for the 4 Boats, made up as follows:

(a)  D1 and D2 would within 7 working days of the execution of the Agreement pay to P HK$600,000 as deposit for the “handling fees” (“Deposit”); and

(b)  on the day after the transfer of each of the 4 Boats, P was to provide relevant proof to D1 and D2, and within 7 working days of receipt of each such proof of transfer D1 and D2 would pay P HK$1.2 million as an instalment of the handling fees (“Instalment”).

(2)  Transfer of ownership of the 4 Boats from D1 and D2 respectively to P was to be made, with P paying HK$1 as consideration for each of the 4 Boats.

(3)  D1 and D2 were required to assist P in applying for a certificate of ownership of the 4 Boats, and an application for the name transfer for the food licence.

(4)  If delivery and/or transfer of any of the 4 Boats was not effected by the respective deadline stipulated – 31 May 2022 for the Jumbo Kitchen Boat, and 31 July 2022 for the Tai Pak Boats – then the Agreement would be immediately terminated and D1 and D2 would have no further obligation to pay the Instalment(s).

11.  Between 20 May 2022 and 26 May 2022, P paid the HK$1 consideration for the Jumbo Kitchen Boat, and D1 and D2 paid the Deposit, and the parties attended MarDep’s offices to lodge the documents required for transferring the Jumbo Kitchen Boat to P.

12.  On 31 May 2022 (the deadline stipulated for the transfer of the Jumbo Kitchen Boat), P was informed by D2’s representative (a Mr Chan) that MarDep had approved the documentation for the transfer. Whilst the parties agree that eventually the transfer of the Jumbo Kitchen Boat was not completed, it is not clear what step was missing and there is a dispute as to which party was at fault.

13.  Less than one day later, at around midnight of 1 June 2022, Mr Chan notified P that the Jumbo Kitchen Boat had capsized in the Shelter (“Incident”).

14.  The transfer of the Tai Pak Boats also did not materialise before the stipulated deadline of 31 July 2022. Shortly prior to that, on 27 July 2022, Ds suggested that the Agreement had already been automatically terminated by reason of its terms, upon the failure of delivery of the Jumbo Kitchen Boat.

15.  By writ endorsed with the SOC issued on 7 November 2022, P commenced the present action against D1 and D2, based on the Agreement. It is pleaded that P had purchased the 4 Boats to take advantage of their unique identity and licences, and planned to refurbish them and operate them as restaurants again in the Shelter. P alleges that there is an implied term that Ds shall do all things necessary to enable the transfer of ownership and/or actual ownership of the 4 Boats. It is alleged that D1 and D2 had breached the Agreement in failing to deliver the 4 Boats and to assist P to arrange for the transfer of ownership. P claims specific performance of the Agreement and seeks damages for the alleged breaches. It is also pleaded that Ds are unable to rely on their own wrong to trigger the clause automatically terminating the Agreement, by reason of the ‘prevention principle’.

16.  Ds’ case is that the Agreement was not a sale and purchase of the 4 Boats, but rather an agreement for P, a shipyard, to provide disposal services for the 4 Boats at the consideration of HK$5.4 million. The transfer of ownership was only ancillary to the provision of services to enable P lawfully to take control of the 4 Boats, which were regulated for public safety reasons by MarDep. Ds say the Agreement was automatically immediately terminated following the failure to complete the change of registered name of the Jumbo Kitchen Boat by the 31 May 2022 deadline, or further or alternatively the Agreement was discharged by frustration by reason of the Incident. Ds also say that P is not entitled to an order for specific performance, since any losses suffered by P can be adequately compensated by damages and other monetary awards. There is a counterclaim seeking an order for P to execute all necessary documents to return the legal title of the Jumbo Kitchen Boat.

17.  On 29 March 2023, P discovered that the Tai Pak Kitchen Boat had disappeared from the Shelter. P was subsequently informed that the same had been towed away much earlier on 7 March 2023 to Zhongshan, Mainland China for repairs, and had been torn down to its bare shell.

18.  In around April 2023, D2 began demolishing the Jumbo Kitchen Boat. D2 explained that this was done pursuant to directions from MarDep to raise the capsized Jumbo Kitchen Boat from where it sank at its mooring. However, P argues that MarDep only required the Jumbo Kitchen Boat to be “raised” or “removed”.

19.  On 25 April 2023, P issued a Preservation Summons, seeking preservation orders of the “Remaining Hull Parts” of the Jumbo Kitchen Boat, and the Tai Pak Boats.

20.  On 28 April 2023, after a contested inter partes hearing, Lisa Wong J granted an ‘interim-interim’ preservation order for the Remaining Hull Parts, pending determination of the Preservation Summons, which was later dealt with at a contested hearing on 7 March 2024.

21.  On 8 April 2024, DHCJ Phoebe Man held that a preservation order should be granted in principle, and ordered that the status quo of the 4 Boats be preserved. On 23 September 2024, DHCJ Phoebe Man decided on the form of the preservation order and the amount of fortification to be provided by P, namely HK$3,145,925. That sum has since been paid into court.

22.  It can be noted that the Remaining Hull Parts are currently stored on a barge, and there are various photos identifying their condition. There are also photos taken at various times of the Tai Pak Kitchen Boat in Zhongshan.

23.  It is also material for present purposes to note that, when granting the preservation order, DHCJ Phoebe Man held that (as she put it):

(1)  It cannot be decided at this juncture which party was in breach of the Agreement. If it is ultimately found that D1 and D2 had deliberately failed to complete their obligation in the completion of the transfer of title of the Jumbo Kitchen Boat on 31 May 2022, the prevention principle might apply so that D1 and D2 cannot take advantage of the automatic termination clause of the Agreement.

(2)  It is arguable that despite the fact that the sale and purchase of the 4 Boats was not the main subject matter in the Agreement, the transfer of the 4 Boats is clearly something that P would have been entitled to under the Agreement, and as such it is open for P to insist on the transfer of the 4 Boats to be specifically performed, as part of the bargain.

(3)  Due to the uniqueness of the 4 Boats and the fact that the licences attached to them are irreplaceable, it is arguable that damages would not be an adequate remedy and specific performance is required.

24.  DHCJ Phoebe Man also made a costs order nisi that the costs of the Preservation Summons should be costs in the cause, with certificate for two Counsel, to be taxed if not agreed. There is an outstanding variation application, but no date for argument of it has been fixed.

C.  Amendment Summons

25.  Though not issued chronologically first in time, the Amendment Summons logically falls to be dealt with first. This is because matters relating to any potential expert evidence and/or further discovery will turn on the pleaded case. Indeed, much of the expert evidence sought will likely simply fall away if the contested amendments are disallowed.

26.  I mention contested amendments because some of the proposed amendments found in the draft ASOC are not controversial. In those circumstances, I allow them. Further, one proposed amendment found in §26(d) of the draft ASOC was contested but was not pursued by Ms Leung at the hearing – wisely, as it seems to me that it was fundamentally misconceived in any event.

27.  Focus can therefore now be put on the remaining contested proposed amendments in §25 and prayer §(1)(e) of the draft ASOC. It is first convenient to set out a brief summary of the material applicable principles:

(1)  As a guiding principle, all such amendments ought to be made for the purpose of determining the real question or controversy between the parties to any proceedings or of correcting any defect or error in any proceedings.

(2)  Leave is readily granted to amend before trial, unless it can be shown that the new claim based on the proposed amendment is bound to fail. (This is essentially the obverse of a strike-out application.)

(3)  Absent any real prejudice, technical and procedural rules should not ordinarily stand in the way of allowing parties to raise their real claims or defences before the court for adjudication.

(4)  But an application for leave to amend should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation.

(5)  The Court should always recognise that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.

(6)  However, all matters relevant to the exercise of the power to permit amendment should be weighed.

(7)  The underlying objectives in RHC Order 1A include taking into account the situation of the other party as well as the amending party – and costs are no longer simply regarded as sufficient compensation in all circumstances.

28.  With the proposed amended parts shown by underlining, the particular paragraphs in the draft ASOC are as follows:

25. The Plaintiff has at all material times been and is now ready and willing to perform its obligations under the Agreement. The Plaintiff therefore claims specific performance of the Agreement. By reason of the damage and/or acts done by the 1^st and 2^nd Defendants to the Jumbo Ship and the Tai Pak Kitchen Boat as pleaded in paragraphs 21A and 21B hereinabove, to enable specific performance of the Agreement, and pending further discovery and/or interrogatories and/or expert evidence, the Plaintiff further claims that the Defendants do reinstate the Jumbo Ship and the Tai Pak Kitchen Boat to the status required for the issuance and/or renewal of their respective licences with the Marine Department.

and

(1) Specific performance of the Agreement by way of:-

…

(e) An order that the Defendants do reinstate the Jumbo Ship and Tai Pak Kitchen Boat to the status required for the issuance and/or renewal of their respective licences with the Marine Department.

29.  As is probably obvious, what was pleaded in §§21A and 21B of the draft ASOC was of the matters giving rise to the Preservation Summons.

30.  During argument, I pointed out to Ms Leung the apparent incongruity in the phrase “and pending further discovery and/or interrogatories and/or expert evidence” proposed to be added as part of the amendment to §25 – where that phrase might suggest discovery, interrogatories and expert evidence would be sought in order to found the proposed pleading, rather than that any relevant disclosure and evidence would follow on from an already properly pleaded case. Ms Leung signified her willingness for that phrase to be deleted, if otherwise I were minded to allow the proposed amendment to §25.

31.  Ms Leung submitted, in summary, that:

(1)  The amendments seek to clarify P’s case on the orders which it will seek if the Court grants specific performance.

(2)  The amendments were necessitated by the acts carried out by Ds on the Jumbo Kitchen Boat and Tai Pak Kitchen Boat.

(3)  The terms of the Agreement included the purchase of licensed vessels – that being the subject-matter of the things to be transferred – and if specific performance is to be ordered it would at least implicitly be for delivery of vessels in a licensable condition.

(4)  Hence, for specific performance to be the full remedy, reinstatement to a position for relicensing should be required. In short, reinstatement is the means to give effect to the specific performance.

(5)  That is not rewriting the contract, where the contract subject matter still exists, even though two of the vessels have changed in part.

(6)  It does not matter that no warranty was given as to the condition of the 4 Boats in the Agreement, when at the time of the Agreement they were as a matter of fact licensed.

(7)  The Tai Pak Kitchen Boat is being repaired/renovated by D1, presumably because D1 thinks it can obtain a renewed license, so the same could be true of the Jumbo Kitchen Boat.

(8)  The proposed amendments do not come anywhere near the threshold of “bound to fail”, especially when DHCJ Phoebe Man has already held that it is still open for P to insist on the transfer of the 4 Boats to be specifically performed.

(9)  Ds’ reliance on the delivery of the ships being “as is” is contrary to well-established authorities holding that an “as is” clause does not preclude the Court from granting specific performance, even though changes had been made to the property since the signing of the Agreement, so long as substantial performance can be given. Whether substantial performance can be given is a matter for trial (and may include expert evidence, relevant and probative to assist the Court in this regard).

32.  Ms Tong submitted, in summary, that:

(1)  The Court will not grant an order for specific performance so as to impose upon the parties an agreement which they had not made, or to bind the parties contrary to their agreement.

(2)  Put another way, a Court will not order specific performance in terms that would rewrite the bargain made by the parties.

(3)  The proposed claim for Ds to “reinstate” the Jumbo Kitchen Boat and Tai Pak Kitchen Boat “to the status required for issuance and/or renewal of their respective licences” is unarguable, as that would rewrite the bargain between the parties. It was never an obligation on Ds, where the Agreement required only that Ds deliver the 4 Boats in the condition they were in at the respective times they were to be delivered (or when they were inspected “as is”).

(4)  The proposed amendment does not merely differ from the Agreement in respect of its machinery provisions, and the Court’s ability to depart from the contract terms would not permit going any further than just that.

(5)  In any event, in the case of the Jumbo Kitchen Boat, it is impossible for it to be reinstated to the status required for issuance and/or renewal of the relevant licences, and it is settled that impossibility is a jurisdictional bar to the grant of specific performance (not a discretionary one).

(6)  It is irrelevant that the impossibility might arise as a result of a defendant’s own wrongdoing, and any reliance on the prevention principle is misguided.

(7)  Here, the photos identify clearly that it is impossible for the Remaining Hull Parts – essentially “a heap of severely corroded scrap metals left exposed for more than a year” – somehow to be “reinstated” into a vessel, let alone a vessel in a licensable condition.

(8)  The vague assertions contained in a two-page repair proposal prepared for P, more than 15 months ago, falls far short of showing that reinstatement is realistically possible.

33.  Further, Ms Tong emphasised that the context of the amendment application should be seen against the fact that the only pleaded breaches of the Agreement, in §22 of the SOC, are that:

(1)  Ds failed and/or refused to deliver the Tai Pak Boats and/or to assist P to arrange for the transfer of ownership and/or licences of them on or before 31 July 2022;

(2)  Ds failed to maintain the Jumbo Kitchen Boat “in the safely moored status prior to delivery causing the same to be submerged and/or sunk” – though without any particulars being provided; and

(3)  Ds failed and/or refused to deliver the Jumbo Kitchen Boat to P on or before 31 May 2022.

34.  There is no allegation of breach relating to the condition of the 4 Boats, which is not surprising in the absence of any warranty about their condition contained in the Agreement, and the fact that the Agreement instead expressly includes a provision that Ds make no undertaking whatsoever as to the quality or condition of the 4 Boats.

35.  In broad terms, I accept the submissions of Ms Tong. It seems to me that the proposed amendments in §25 and prayer §1(e) do go further than the terms of the Agreement made between the parties, and so essentially seek an order for specific performance to impose contractual obligations which had not been made or agreed. Whilst it is correct that ownership of the 4 Boats was to be effected when they were licensed – that is, the transfer was to be made during the period of validity of the licences – there was at the same time the clear absence of any warranty that the 4 Boats were or would remain in any status or condition required for issuance and/or renewal of any licence, and instead the express provision was included that Ds made no undertaking whatsoever as to the quality or condition of the 4 Boats.

36.  I also accept, from the photographic evidence provided relating to the Jumbo Kitchen Boat, that the vessel (or former vessel) is now essentially constituted by five badly damaged and corroded sections of what used to be a whole, without any of the superstructure as was also part of the vessel. The proposed amendment in effect seeks to run an argument seeking specific performance that, for all practical purposes, would require the Jumbo Kitchen Boat not to be “reinstated”, but rebuilt almost from scratch. The evidence provided by P as to possible “repair” is wholly unimpressive.

37.  Therefore, so much of the proposed amendment as is still pursued but contested – i.e. the proposed amendments in §25 and prayer §1(e) – are disallowed.

38.  I see no reason why the costs of the application made by the Amendment Summons should not follow the event, so as to be payable by P, with certificate for two Counsel, to be taxed if not agreed.

D.  Expert Summons

39.  In an application for leave to adduce expert evidence under RHC Order 38 rule 36, the burden is on the applicant to show that the proposed expert evidence is relevant to the issues in dispute. The court has to examine the pleadings in determining the application. The court retains complete control over the use of expert evidence, the purpose of which is to limit expert evidence to what is reasonably necessary to resolve the issues for determination at the trial.

40.  Ms Leung referred to Man King Chuen v Hong Lok Yuen International School Association Ltd [2018] 4 HKLRD 294 at §17, where Recorder Yvonne Cheng SC (as Cheng J then was) gave a helpful summary of the principles on adducing expert evidence (omitting her reference to authority):

(1)  In deciding whether proposed expert evidence should be received, there is a two-stage test.

(a)  First, the evidence has to be admissible as ‘expert evidence’ for the purpose of section 58 of the Evidence Ordinance Cap 8. It will be so admissible in any case where the court accepts that there exists a recognized expertise governed by the standards and rules of conduct capable of influencing the court’s decision on any of the issues which it has to decide, and the witness to be called satisfies the court that he has a sufficient familiarity with, and knowledge of, the expertise in question, to render his opinion potentially of value in resolving any of those issues.

(b)  Second, evidence meeting this test can still be excluded by the court if the court takes the view that calling it will not be helpful to the court in resolving any issue in the case justly. Such evidence will not be helpful where the issue to be decided is one of law or is otherwise one on which the court is able to come to a fully informed decision without hearing such evidence.

(2)  It is for the party seeking to call expert evidence to satisfy the court that expert evidence is available which would have a bearing on the issues which the court has to decide and would be helpful to the court in coming to a conclusion on those issues.

(3)  The court’s discretion as to whether to grant leave to a party to adduce expert evidence is to be exercised within the ambit of the court’s case management powers, exercised in the light of the underlying objectives of the CJR.

(4)  Where the proposed expert evidence is plainly inadmissible or irrelevant, the court ought to exercise its discretion to refuse the admission of such evidence.

(5)  But where the court cannot form a clear view of the relevance of the proposed expert evidence or where it considers that the proposed evidence is clearly relevant, then it should grant leave for the evidence to be adduced at trial.

41.  However, between the date of argument and the date of decision in the Man King Chuen case, the Court of Appeal decided Shenzhen Fuhaitong Precision Industry Co Ltd v BYD Co Ltd [2019] 2 HKC 175. Ms Tong referred to §§9-13 of that decision, not least in relation to point (5) above. There, it was emphasised that the giving of expert directions is very much a matter of case management, with the relevant duties imposed on the judge. The Court of Appeal pointed out – in what seems to me to be a more analytically stringent approach – that the Court will not grant leave for expert evidence just because the Court cannot form a clear view of its relevance, or cannot rule out the possibility that such evidence might be relevant and helpful. Rather, if the applicant for expert evidence directions fails to persuade the Court on relevance and necessity of such evidence, the application should be dismissed.

42.  These are the principles I adopt.

43.  As described by the Expert Summons and by Ms Leung in her submissions, P seeks leave to adduce expert evidence on the following issues:

(1)  in respect of the Jumbo Kitchen Boat:

(a)  A1 – the ‘Cause of Capsize Issue’, namely because of the capsizing of the Jumbo Kitchen Boat in the Shelter; and

(b)  A2 – the ‘Licence Renewal Issue (Jumbo)’, namely whether it is (i) possible for the Jumbo Kitchen Boat to be reinstated with the Remaining Hull Parts, and (ii) possible for the Jumbo Kitchen Boat’s operating licence with MarDep to be renewed, and if so, what other conditions (if any) to the renewal of that licence;

(2)  in respect of the Tai Pak Kitchen Boat:

(a)  B3 – the ‘Exit/Return Issue’, namely whether the Tai Pak Kitchen Boat can depart/exit from Zhongshan/Mainland China and return to Hong Kong without completion of the “full-scale repair” under (i) PRC laws/regulations and (ii) Hong Kong laws/regulations; and

(b)  B4 – the ‘Licence Renewal Issue (Tai Pak)’, namely whether it is possible for the Tai Pak Kitchen Boat’s operating licence with MarDep to be renewed, and if so, what are the conditions (if any) to the renewal of that licence; and

(3)  the reinstatement costs of both the Jumbo Kitchen Boat and Tai Pak Kitchen Boat.

44.  The matters in (1) and (2) have been defined as the “Liability Expert Issues”, and the matter in (3) defined as the “Quantum Expert Issues”.

45.  However, in light of my ruling on the Amendment Summons, it can be seen items A2 and B4 and the Quantum Expert Issues will fall away.

46.  As to item A1, Ms Leung submitted that resolution of this issue would assist the Court in determining whether Ds failed to keep the Jumbo Kitchen Boat in a safely moored state and/or failed to ensure the existing safely moored status of the boat to enable it to be transferred/delivered to P. That, she submitted, would go to the question of the application of the prevention principle, and whether Ds were in breach of the Agreement first.

47.  However, in this context, it is necessary to consider what is actually pleaded in the SOC. As already identified above there are no particulars provided of the alleged breach on the part of the Ds to maintain the Jumbo Kitchen Boat in the safely moored status prior to delivery causing it to be submerged or sunk. Indeed, at §14 of the SOC, P pleads the event of the Incident, and then pleads:

In respect of the Incident, including but not limited to its cause, the Plaintiff reserves the right to plead further after discovery and/or interrogatories and/or further and better particulars and/or expert evidence.

48.  The words “and/or expert evidence” have been added by an uncontroversial, unopposed amendment under the Amendment Summons (which I have therefore allowed). However, no such further plea (for which the right was supposedly reserved) has since been made – and it is trite that discovery, interrogatories, further and better particulars, and expert evidence flow from the issues identified in a pleading, and not the other way round.

49.  Therefore, I accept Ms Tong’s submission that this proposed expert issue A1 travels well beyond the pleaded issues, which are simply (1) whether Ds maintained the vessel in the safely moored status, and (2) if not, whether such failure caused the Incident. I agree with Ms Tong that proposed issue A1 is framed in an imprecise, open-ended manner – I would say, in effect “fishing”. I reject Ms Leung’s submission that, if there is no expert evidence at trial, the Court will be left only with photos and will have to guess as to the cause of the capsize. Whilst P has apparently sought to focus on a hole and a tear in the hull shown in some of the photos of the Remaining Hull Parts, I do not think a desire to investigate those matters arises out of the current pleading. But factual evidence has already been filed on the mooring, and the Court will be able after trial to determine whether the Jumbo Kitchen Boat was in a safely moored status.

50.  I also take into account that, in any event, the current condition of the Remaining Hull Parts identifies that the proposed expert issue would be unhelpful and lack probative value. Further, as Ms Tong pointed out, P itself previously accepted that once the bedding of the hull of the boat is destroyed, the cause of wreckage could no longer be ascertained.

51.  As to issue B3, on exit/return, I accept that expert evidence was filed by both parties on this issue in the context of the Preservation Summons, when that evidence was relevant to the determination of that summons. But time has moved on, and the Expert Summons is seeking to obtain directions to adduce expert evidence at trial, in the context of the resolution of the trial issues. There is simply nothing in the pleadings relating to whether the Tai Pak Kitchen Boat is or is not precluded by PRC laws/regulations from returning to Hong Kong. That is not a trial issue, and therefore expert evidence on the point could not be relevant or helpful.

52.  The Expert Summons is, therefore, dismissed. I see no reason why the costs of this summons should also not follow the event, and so be payable by P, with certificate for two Counsel, to be taxed if not agreed.

E.  Discovery Summons

53.  By the Discovery Summons, P seeks disclosure of those 10 documents listed in the Schedule to the summons.

54.  Again, there can be little dispute as to the principles governing an application for discovery under RHC Order 24 rule 10. That rule entitles a party to a cause or matter to serve a notice on any other party in whose pleadings, affidavits or witness statements, reference is made to any document requiring him to produce that document. There are two stages to be considered, though in practice they will usually be examined together. First, the party who has referred to the document in a pleading or affidavit bears the burden of showing good cause why an order for production should not be made – and it is ordinarily difficult, as a matter of practicality, for the referring party to contend that the document does not exist, and may also make it difficult to contend that it is not relevant. Secondly, an independent of the first stage, there is a burden on the applicant for an order for production to show the Court that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

55.  The items under Requests (1) to (8) in the Schedule are various plans, referred to in an affirmation, or various quotations for repair/renovation work carried out, or intended to be carried out by D1 on the Tai Pak Kitchen Boat. Ms Leung submitted that the plans are necessary, first to understand the scope of works and whether the boat may exit Zhongshan in its current state and return to Hong Kong, in accordance with the relevant PRC and Hong Kong laws. Obviously, that is tied to the exit/return issue, but I have held that is not a pleaded issue which requires resolution at trial. Ms Leung also says the plans (and in particular the general arrangement plan under Request (8)) are necessary for the Court to understand the extent of the approval sought by D1 from MarDep prior to commencing works, and whether such approvals or lack thereof would affect the subsequent renewal of the boat’s licence with MarDep. But, for similar reasons I have given above, I do not think such documents are necessary either for disposing fairly of the cause or matter of saving costs. In essence, there is no dispute as to whether the operating licence of the boat can be renewed.

56.  As to the suggested necessity regarding the costs of reinstating the Tai Pak Kitchen Boat to a licensable status, I have already held that P is not entitled to seek any reinstatement order in the form sought by the proposed amendment, which is why I disallowed it.

57.  The items under Requests (9) and (10), I also do not think these are necessary for disposing fairly of the cause or matter or for saving costs. I accept Ms Tong’s submissions that the various plans and contracts sought are not suitable to reflect the current status of the boat, were merely points of reference, and the contract documents do not shed any light on the extent of the works done or the sums expended. As to Ms Leung’s submission that the documents would enable the Court to assess D1’s allegation that it would suffer financial hardship if specific performance were ordered, that point (though referenced in a witness statement, or prior affidavit) has not in fact been pleaded. I do not think it appropriate to anticipate or assume that the point will be pleaded by D1, and order disclosure in advance or in case. Disclosure is to be made by reference to the issues as they arise on the pleadings at the time of the application for disclosure and its consideration by the Court.

58.  For those reasons, I dismissed the Discovery Summons. I see no reason why the costs of this summons should also not follow the event, and so be payable by P, with certificate for two Counsel, to be taxed if not agreed.

F.  Security Summons

59.  Ds’ application for security for costs is made pursuant to section 905 of the Companies Ordinance Cap 622 (“CO”), on the basis that there is reason to believe that P will be unable to pay Ds’ costs if Ds succeed in the action.

60.  Again the relevant applicable principles are well established. Again, there is a two-stage analysis. The first stage involves an assessment as to whether there is credible testimony to believe the company will be unable to pay costs. Whilst the burden of showing that the plaintiff is impecunious rests on the defendant, the defendant cannot be expected to produce conclusive evidence of the plaintiff’s lack of means, and it is sufficient to point to the surrounding circumstances or adduce some credible evidence to support the belief. The Court must decide whether a reasonable person with ordinary experience of daily life would consider the plaintiff unable to pay such costs, and it is not necessary to prove the lack of means to pay.

61.  The second stage involves the Court considering whether, in all the circumstances, it is fair to grant security for costs. The Court can take into account a wide range of different factors, including whether the plaintiff is using its impecuniosity to put pressure on the defendant, the plaintiff’s prospects of success, whether a security for costs order will stifle the plaintiff’s claim, and delay in making the application. However the Court should not delve into the respective merits of the parties’ case, unless it can clearly be demonstrated one way or the other that there is a high probability of success or failure. Where there is a counterclaim – as in this case – it may be necessary to ask whether the counterclaim is a cross-action or merely operates as a defence. There may need to be identification of the “real attacker” in the proceedings. The substantial position of the parties must be considered, and ascertaining matters is a question of substance and not of formality or pleading.

62.  Ms Leung suggests that, in this case, Ds are the true attackers. I disagree, particularly where Ds have confirmed that they abandoned their previously pleaded counterclaim to damages to be assessed. I do not accept that step was taken to disguise themselves as the victim, in order to better their chance in the Security Summons, or to siphon off the damages claim to a second round of litigation.

63.  I accept there are clear reasons to believe that P will be unable to pay Ds’ costs if Ds succeed on the action. As previously pointed out by DHCJ Phoebe Man, P is a company with only HK$10,000 in share capital and no known sizeable and liquid assets. Despite doubts raised as to P’s financial standing, and renewed requests made of P to provide evidence of its financial capability, P has not produced any documentary evidence such as bank statements or management accounts that could refute that doubt.

64.  Pointing to the fact that P is an ongoing business, rather than a shelf company, does not remove the credible basis upon which to believe that P will be unable to pay costs if it loses. I have taken into the balance the point that Ds chose to enter into the Agreement with P, which was presumably on the basis that Ds regarded P as at least a credible and lawful shipyard in active business, able to handle/dispose of the 4 Boats legally and safely. But that point does not seem to me to have great weight in the overall circumstances to be weighed.

65.  Nor does it assist P to point to the fact that it has been able to pay the roughly HK$3.6 million to fortify its undertaking of damages. It seems to me to be quite a different thing for P to provide funds in fortification of the preservation order which it pursued, as opposed to facing a potential costs order if it is ultimately unsuccessful in the main claim/action. What the provision of fortification does evidence, though, is that there may not be any suggestion that ordering security for costs would in some way stifle the claim (a point which is not really pursued by Ms Leung anyway).

66.  I also do not think the merits of P’s claim can be said so strong as to point against an order for security of costs.

67.  Ms Leung submitted a number of other points which she said weighed against an order of security, but I think they are really matters which go more to the amount of any security as might be ordered. She pointed to Ds’ delay in taking out the Security Summons, having waited over 30 months after 14 September 2023 (the fortification order), and with just over seven months before trial, to renew the request for security – which lateness is another instance of Ds’ oppression towards P. Ms Leung also asserted that the quantum of costs sought by Ds in the Skeleton Bill are both excessive and oppressive, entitling the Court to dismiss the application for security on this ground alone.

68.  As I said, these points seem to me to go to the quantum of security to be ordered. But I wholly agree that the claimed security in the total sum of HK$13,571,100 – split roughly in half as to costs expended and those yet to be expended – is excessive. I also agree with the proposition advanced by Ms Leung that the applicant for security should provide a realistic estimate of his costs, and there is no room for any practice of inflating a bill and then settling for less in anticipation of a broad brush discount by the Court. But, I think there is sufficient information available in this case for the Court to identify the appropriate figure for security.

69.  In assessing the appropriate sum of security to be provided, I take into account at least following matters: (1) the security to be provided need not be full but should be sufficient; (2) I have disallowed the contested amendment, and the largely connected applications for expert evidence and further disclosure, which will therefore not incur costs; (3) there has been apparent duplication of work between solicitors and Counsel, as shown on the Skeleton Bill; (4) there have been a number of changes in the Counsel team (though the additional costs may not be as great as might otherwise appear, for reasons explained by Ms Tong in her submissions); (5) the overall figure, and a number of the constituent element figures, are at least on the high side and are unlikely to survive the taxation exercise.

70.  A difficult feature to weigh in the balance relates to the costs of the Preservation Summons. As I have indicated above, the present order nisi is that those costs are to be costs in the cause. Therefore, if Ds succeed at trial, they will also be entitled to the costs of the Preservation Summons. But the costs order nisi is subject to an outstanding variation application, adjourned to a date to be fixed, albeit that P has apparently not taken steps to fix a date or prosecute the application. Nevertheless, I do not think the correct approach at this stage is either to include or exclude all of the costs. Rather, I take these matters more broadly into the overall discretionary mix.

71.  Therefore, I order P to pay into Court the sum of HK$7 million as security for D’s costs incurred, and to be incurred, in this action up to and inclusive of this stage of trial. The security sum must be provided on or before 21 February 2025. All further proceedings in this action are stayed until that security is given. Should P fail to provide that security for costs by that deadline, further proceedings against Ds in this action shall stand dismissed without further order, with costs (including any reserved costs) to Ds, to be taxed if not agreed.

72.  For the avoidance of doubt, I do not make the order additionally sought by Ds, to grant Ds liberty to apply for further security for costs, as and when they might consider it necessary.

G.  CMC Directions

73.  The appropriate CMC directions are not so controversial. I can make the direction/orders broadly in accordance with the suggestions made by Ms Leung (though I do not think there is any need for filing and service of any updated Listing Questionnaires). In the timetabling, I take account of the public holidays shortly before the PTR hearing.

74.  I make the following directions/orders:

(1)  The matter is adjourned to a PTR hearing at 10am on 7 May 2025.

(2)  The bundles used for the CMC hearing, and the four Summonses dealt with on the same occasion, shall be retained for use at the PTR, with any necessary additional documents added.

(3)  The plaintiff shall file and serve skeleton submissions for the PTR by 4pm on 29 April 2025.

(4)  The defendants shall file and serve skeleton submissions for the PTR by 4pm on 2 May 2025.

(5)  All documents in Chinese shall be translated into English and be certified or agreed between the parties at least 28 days before the trial.

(6)  Liberty to apply.

(7)  Costs of the CMC hearing to be in the cause.

75.  At the CMC hearing, I also asked the parties to give advance thought to the preparation of an electronic bundle for use at the trial (in accordance with the relevant practice directions for such bundles). Though I have currently directed the PTR to be conducted using the existing bundles, if an electronic bundle is available for use at the PTR, that would also be acceptable. Any further documents can be added to it or extracted from it, insofar as is necessary, for the trial. I respectfully urge the parties to give early thought to how the trial bundle can be prepared, so as to include only such documents as are reasonably required for the conduct of the trial (and not simply throwing in everything that has been prepared throughout the interlocutory processes).

Ms Joyce Leung and Mr Johnathan Tsang, instructed by CFN Lawyers, for the plaintiff

Ms Sara Tong SC and Mr Thomas Wong, instructed by Johnson, Stokes & Master, for the 1^st and 2^nd defendants

HCA 1494/2022

[2024] HKCFI 2320

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1494 OF 2022

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BETWEEN

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DECISION

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Background History

1.  For the background facts of the case, I refer to paragraphs 1 to 13 in the decision handed down on 8 April 2024 (the “Decision”). The defined terms in the Decision are adopted herein. By the Decision, this court held in favour of the Preservation Summons and ordered that in principle the Remaining Hull Parts and the Tai Pak Boats should be preserved.

Applications

2.  The following summonses were before the court:

(1) The Preservation Summons, for the terms of the Preservation Order to be granted by the Court and the amount for additional fortification (if any);

(2) Costs Variation Summons dated 22 April 2024, for P’s application to vary the costs order nisi in the Decision;

(3) Leave to Appeal Summons dated 22 April 2024, for D1 and D2’s application for leave to appeal against the Decision with draft Notice of Appeal;

(4) Speedy Trial Summons dated 11 June 2024, for D1 and D2’s application for a speedy trial of the Action.

(5) The New Evidence Summons dated 22 July 2024, for D1’s application to adduce the 4^th affirmation of Wong Tai Yu (“Wong 4^th”).

3.  At the end of the hearing on 7 August, out of the 5 summonses, only the Speedy Trial Summons, the New Evidence Summons and the Preservation Summons were dealt with due to insufficient time. As such, the Costs Variation Summons and the Leave to Appeal Summons were adjourned to another day to be heard.

The New Evidence Summons

4.  After the handing down of the Decision, parties have filed the following affirmations:

(1) P: i) the 5^th Affirmation of Ho Wing Fai (“Ho 5^th”) – this affirmation dealt with the history to the Preservation Summons in support of the Costs Variation Summons; and ii) the 6^th Affirmation of Ho Wing Fai (“Ho 6^th”) – this is in reply to the 3^rd Affirmation of Leung Hoi Wai and the 3^rd Affirmation of Wong Tai Yu filed on behalf of D2 and D1 respectively (as set out below).

(2) D2: the 3^rd Affirmation of Leung Hoi Wai (“Leung 3^rd”) – this affirmation provides information on the status of the Remaining Hull Parts, and the amount of costs that had been spent on the preservation of the Remaining Hull parts.

(3) D1: the 3^rd Affirmation of Wong Tai Yu (“Wong 3^rd”) – this affirmation deals with the state of the Tai Pak Kitchen Boat, the Tai Pak Restaurant boat and the Tai Pak Fire Separation Barge and the relevant PRC customs laws and regulations on whether the Tai Pak Kitchen Boat can leave Mainland China in its current form, the possible fines for breaching the PRC deadline for repairs. It also sets out the storage costs incurred since the Decision and other likely costs due to be incurred by reason of the Decision.

5.  Mr Ambrose Ho SC and Mr Jonathan Tsang, counsel for P, objected to Leung 3^rd, Wong 3^rd and Wong 4^th being adduced and submitted that D1 and D2 (together, “Ds”) ought to have put in all evidence necessary for the determination of the method of preservation and the likely fortification required when evidence was filed for the last hearing when the Preservation Summons was heard.

6.  Although no directions had previously been given for the filing of further evidence, I am of the view that since I had directed parties to agree on the form of preservation and the amount of additional fortification, and in light of the parties’ failure to come to an agreement, evidence on the current state of the vessel and the various options of preservation would assist the court in coming to a view on what would be the preferred mode of preservation. I would therefore grant retrospective leave for the filing of Leung 3^rd and Wong 3^rd.

7.  As to Wong 4^th, the position is different. In light of parties’ extensive arguments over correspondence on the appropriateness of the filing of Leung 3^rd and Wong 3^rd, I had already previously ordered that the admissibility of Leung 3^rd and Wong 3^rd be dealt with at the hearing and that no further evidence be filed without leave of the court. I also note that the position of Ds, together with the relevant evidence had already been clearly set out in Leung 3^rd and Wong 3^rd. Wong 4^th only served to rebut some of the evidence and to respond to new matters raised in Ho 6^th. However, it cannot be the position that whenever there are new matters raised by one side, the other side will immediately be entitled to respond. The round of evidence filed by parties already have sufficient information for the court’s consideration and determination of the appropriate form of preservation. It would thus be inappropriate to have another round of evidence and to allow Wong 4^th to be adduced.

8.  The New Evidence Summons is accordingly dismissed, with costs to P, to be taxed if not agreed, with certificate for 2 counsel. Retrospective leave is given for the filing of Leung 3^rd and Wong 3^rd.

The Speedy Trial Summons

9.  Parties are in agreement that speedy trial directions should be given. I am also of the view that in view of the circumstances of the case, including the state of the Tai Pak Boats and the substantial costs involved in preserving the Tai Pak Boats and the Remaining Hull Parts, it is appropriate to grant directions for speedy trial. Based on P’s draft speedy trial directions, after discussions with counsel, the final form of the directions are as follows:

(1) This action (“Action”) be set down for a speedy trial (“Trial”) at the earliest available date, but not earlier than 2 June 2025 with 10 days reserved before a judge (“Trial Judge”);

(2) All affidavits/affirmations filed on behalf of the parties pursuant to the Preservation Summons shall stand as evidence-in-chief unless otherwise directed by the Trial Judge;

(3) The Plaintiff shall file its supplemental list of documents and the 1^st and 2^nd Defendants shall file and serve their list of documents within 14 days from 6 August 2024, and there be inspection of documents within 7 days thereafter;

(4) The Plaintiff shall take out an application for leave to adduce expert evidence on issues of liability and quantum within 14 days from 6 August 2024;

(5) Leave for parties to exchange supplemental witness statements as to facts within 35 days from 6 August 2024;

(6) Each deponent of the affidavits/affirmations and maker of witness statements filed on behalf of the parties do attend the Trial to give oral evidence and be cross-examined failing which his or her affidavit/affirmation and witness statement shall not be admissible as evidence at the Trial;

(7) The parties do take out all interlocutory applications as may be advised within 14 days after the exchange of supplemental witness statements in paragraph (5) above;

(8) There be a Case Management Conference (“CMC”) before the Trial Judge with 3 hours reserved to be fixed not before December 2024 at which any outstanding interlocutory applications shall be dealt with;

(9) After the CMC, no further interlocutory applications shall be made without leave of the Court;

(10) The parties must inform each other and the Court forthwith if they or any of them should become aware of any matter or development that may affect the above estimated length of the Trial or the holding of the Trial on the dates fixed;

(11) A pre-trial review be fixed before the Trial Judge not later than 42 days before the commencement of the Trial;

(12) Time shall run during the summer vacation;

(13) There be liberty to apply; and

(14) Costs of this application be in the cause of the Action.

10.  I note here that since the parties have asked that the Trial be heard as soon as possible, the trial dates would be provided to them upon their attending the listing office. In these circumstances, it ought to be borne in mind that the Trial Judge may not entertain any request for adjournment and vacation of trial dates and proceed to hear the Trial despite there being any outstanding appeals to the interlocutory decisions by the time of the Trial. Parties should thus endeavour to promptly take out and deal with any interlocutory applications, and if applicable, any appeals therefrom.

Form of Preservation – Applicable Principles

11.  In considering how the Tai Pak Boats and the Remaining Hull Parts should be preserved, Mr Ho submitted that the following principles are relevant:

(1) The applicable rule for Preservation Order in every case is where the Court sees that as between the plaintiffs and the defendants there is something which ought to be done for the security of the property: Johnson v Tobacco Leaf Marketing Board[1].

(2) A Preservation Order is an order that ought to be made only for the purpose of preserving the property until the issues involved in the cause can be determined. If the order is sought in a form which involves consequences beyond the achievement of that purpose and which cannot be reversed, that is a consideration, if not precluding, at all events operating against the making of the order[2].

12.  P proposed that:

(1) In relation to the Tai Pak Kitchen Boat, it should continue to be stored in its current condition at the shipyard in Zhongshan (“Zhongshan Shipyard”) pending determination of the Action.

(2) In relation to the Tai Pak Restaurant Boat/Fire Separation Barge, the two vessels should either:

(a) continue to remain in the Shelter pending determination of the Action; or

(b) be dry-docked: (i) for the Tai Pak Restaurant Boat, be dry-docked in Xinhui, PRC; and (2) for the Fire Separation Barge, be dry-docked in Hong Kong with Harbour Shipping Limited.

The costs of dry-docking both vessels shall be borne by P first, subject to P’s right to claim against Ds for loss and damages if P prevails after trial.

(3) In relation to the Remaining Hull Parts, P proposes that the same be stored in Hong Kong at P’s costs first.

13.  Ds proposed the following:

(1) For the Tai Pak Kitchen Boat, D1 be permitted to complete the remaining repairs, reinforcement and refurbishment works (the “KitchenRepair Works”) at Zhongshan Shipyard and then arrange for it to be returned to Hong Kong; and

(2) For the Tai Pak Restaurant Boat and Fire Separation Barge, commencement of full-scale repair of the same (the “Restaurant and Fire BargeRepair Works”) at Zhongshan Shipyard, or alternatively, dry-docking in Zhongshan.

(3) For the Remaining Hull Parts, D2 agrees to store them at P’s proposed shipyard in Hong Kong provided (i) P can show its entitlement to use such shipyard and adequate third-party insurance coverage is maintained; and (ii) P agrees to pay for all storage costs (as previously agreed) and not to tamper with the Remaining Hull Parts.

Discussion – Form of Preservation

14.  Mr Ho submitted that D1 and D2’s proposals for the Kitchen Repair Works and the Restaurant and Fire Barge Repair Works clearly and directly contradict with “preservation”. It was submitted that in proposing such works to be completed or undertaken respectively, Ds are in fact taking advantage of the situation (which is due to Ds’ own making) in asking the court to grant an order to allow D1 to continue or commence substantial works on the Tai Pak Boats under the guise of preservation.

15.  Ms Sara Tong SC with Mr William Wong, counsel for Ds, submitted that given the dilapidated condition of the Tai Pak Boats, having them undergo repair work is conducive to and necessary for their preservation. Ms Tong further stressed that as D1 remains the registered legal owner of the Tai Pak Boats and bears legal responsibility for them, it should be allowed to carry out works as they wished.

16.  Most of the disputes on repairs concerned the Tai Pak Kitchen Boat, which had been taken to Zhongshan Shipyard for repairs since March 2023. Ms Tong submitted that the Kitchen Repair Works had been substantially completed but such works had been grounded to a halt due to the Preservation Order. It was also said, with the support of a legal opinion that, in not completing such works before the prescribed deadline, D1 is being put in danger of infringing Mainland laws, incurring hefty penalties and tarnishing its credibility with the Mainland customs authorities. Ms Tong further submitted that no useful purpose can be served for the Tai Pak Kitchen Boat to remain in its current half-repaired state, as it cannot return to Hong Kong in such state. In any event, any issue of “uniqueness” of the Tai Pak Kitchen Boat is done and dusted in any event, as most of the demolition work has been completed, at a time before the Preservation Summons was taken out in April 2023.

17.  I am of the view that the Kitchen Repair Works and the Restaurant and Fire Barge Repair Works should not be continued or commenced for the following reasons:

(1) The Kitchen Repair Works and the Restaurant and Fire Barge Repair works are clearly beyond “what ought to be done for the security of the property”.

(2) Preservation in the present context must mean to maintain the status quo, rather than to maintain the Tai Pak Boats to a standard or state as desired by D1.

(3) Ms Tong repeatedly stressed that D1 is the legal owner of the Tai Pak Boats and as such they should not be restricted to exercise their rights as owners to carry out repairs as they wished. However, one must note the history of the proceedings and various events to consider the question of whether D1 should be allowed to continue and complete the Kitchen Repair Works “as owner” in context:

(a) P has alleged as early as 7 November 2022, when the Statement of Claim was filed, that D1 should have transferred the legal title of the Tai Pak Boats to P pursuant to the Agreement.

(b) It can thus be seen that from the commencement of this litigation, in November 2022, the ownership of the Tai Pak Boats, including the Tai Pak Kitchen Boat, was already in dispute.

(c) Despite that, D1 had caused the Tai Pak Kitchen Boat to be moved to Zhongshan Shipyard without prior notice to P in about March 2023 for necessary repairs.

(d) Upon discovery of the removal of the Tai Pak Kitchen Boat, P had written to Ds’ solicitors by letter dated 31 March 2023 asking for preservation of the same pending determination of the action. At that point, the 2^nd quotation from Zhongshan Shipyard had just been issued and the works had not yet started.

(4) D1 had chosen to embark upon and to expand the scope of the repair works despite knowing full well P’s objection and dispute of D1’s ownership. Against such context, the fact that D1 is currently the legal owner of the Tai Pak Boats is of little weight when the issue of ownership is the exact issue in dispute.

(5) Ms Tong submitted that in practice, there is no utility for the Tai Pak Kitchen Boat to remain in Zhongshan and the completion of the Kitchen Repair Works is necessary and to all parties’ benefit due to:

(a) the necessity of obtaining an operating licence from HKMD before the Tai Pak Kitchen Boat can return to Hong Kong waters; and

(b) the deadline for the completion of the Kitchen Repair Works and the removal of the Tai Pak Kitchen Boat from the Mainland before January 2025.

(6) The uniqueness of the Tai Pak Kitchen Boat had always been stressed and mentioned by P. There is also no dispute that the value of the Tai Pak Boats stem from the special restaurant boat licences (the “Restaurant Boat Licence”) which would no longer be issued by HKMD. When P discovered that the Tai Pak Kitchen Boat was removed from the Shelter, P was informed by D1’s solicitors by letter dated 14 April 2023 that it had been removed for repairs that were necessary to deal with the “very serious water seepage”. This P did not object to, save as to stress that the Tai Pak Kitchen Boat should be preserved.

(7) However, from the photographs available, it can be seen that the “necessary repairs” undertaken by D1 in effect was a complete tearing down and gutting out of all the interior of the Tai Pak Kitchen Boat, leaving just the metal exterior and some internal partitions.

(8) One of the reasons why P strongly objects to the Kitchen Repair Works is the fact that there is no evidence showing that approval had been sought from HKMD on the extensive repairs and rebuilding that had been done to the Tai Pak Kitchen Boat. P says that this would potentially jeopardise the Restaurant Boat Licence.

(9) Notice No. 215/2023 issued by HKMD provides:

“If the intended alteration is of such an extent that will render the particulars stated in any documents referred to in section 75(a) of the Merchant Shipping (Local Vessels) (Safety and Survey) Regulation (Cap. 548G) inaccurate, but not to the extent that it will render the vessel a new vessel, the owner shall … apply for a written permission before making any alteration to the vessel.”

(10) The only approval that had been granted by HKMD by letter dated 24 July 2023 concerned the addition of watertight bulkheads in the underdeck compartments.

(11) D1 relied on an opinion from Mr Lloyd, a marine consultant and a surveyor authorized by HKMD and contended that the Kitchen Repair Works including the paint job, the installation of railings, doors and ladders, the water pipe system, the ceiling heat insulation, electrical wiring system and kitchen equipment did not require any approval from HKMD as they are not of a nature that will alter the enclosed space and principal dimensions of the Tai Pak Kitchen Boat.

(12) However, according to Mr Lloyd, approvals from HKMD are necessary for obtaining an Operating Licence, which is required before the Tai Pak Kitchen Boat can return to Hong Kong waters, as it will no longer be possible to apply for a “Permission for Laid-Up Vessel”. Part of the requirements for obtaining an Operating Licence includes satisfying the stability assessment, the inspection of the hull, watertightness inspection and the insulation resistance test. There is no dispute that the result of a stability assessment is a crucial consideration regarding a vessel’s safety and the stability assessment can only be performed after the construction is at least 90% completed. As such, although it may be said that approval is not necessary for carrying out the alteration, effectively an approval is still required as a result of the alteration because of the need to obtain an Operating Licence. It is only upon the fulfilment of all the requirements that a Certificate of Survey will normally be issued. I am thus of the view that in effect, approval will be needed as a result of the substantial overhaul of the interior of the Tai Pak Kitchen Boat and it is not a matter of certainty that the completion of the Kitchen Repair Works would definitely pass all the necessary requirements.

(13) If D1 had carried out only the approved works which concerned only the addition of watertight bulkheads in the underdeck compartments, the current difficulty faced by D1 and the uncertainty in the issue of an Operating Licence would not exist，or at least be much lower, as the interior of the Tai Pak Kitchen Boat would remain the same.

(14) On the issue of potential penalties for breach of the Mainland regulations, according to the legal opinion relied upon by Ds (“Ds’ Legal Opinion”), the deadline for moving the Tai Pak Kitchen Boat out of Mainland falls on January 2025. If the Tai Pak Kitchen Boat does not leave, the penalty would be the imposition of import duties.

(15) Ms Tong submitted that the relevant regulation is Article 6 of the “Measures for the Administration of Temporary Import and Export of Goods by the Customs of the People’s Republic of China” (《中華人民共和國海關暫時進出境貨物管理辦法》第六條) (the “Regulation”):

“暫時進出境貨物除因正常使用而產生的折舊或者損耗外，應當按照原狀復運出境、復運進境。”

(Translation: For goods which are temporarily imported and exported to the country, apart from depreciation or wear and tear arising from their normal use, they shall be transported out of the country and transported into the country in their original states.)

(16) From the wording of the Regulation, it seeks to regulate the temporary import and export of goods into and out of the Mainland. One can see that a guarantee/security is payable upon the goods entering into Mainland, and if the same goods leave the Mainland, subject to depreciation due to normal wear and tear, the security will not be forfeited as duties. On the contrary, if the goods do not leave the Mainland before the deadline, such goods will be subject to duties and penalties.

(17) The legal opinion relied on by P (“P’s Legal Opinion”) is of the view that the Tai Pak Kitchen Boat does not fall within the definition of “goods” (貨物) and as such the Regulation is inapplicable to the present scenario.

(18) I tend to agree that the situation of the Tai Pak Kitchen Boat entering the Mainland for repairs does not seem to fit in as an “import and export of goods”. However, it is not disputed that the Tai Pak Kitchen Boat had paid a security/guarantee in the amount of RMB 284,593.70. From the payment slip, it can be seen that the “goods” referred to is the Tai Pak Kitchen Boat itself. On the face of it therefore, the entry of the Tai Pak Kitchen Boat into Mainland waters had attracted payment of security.

(19) According to Ds’ Legal Opinion, the items inside the Tai Pak Kitchen Boat had been declared upon entry into the Mainland. However, as the machinery and equipment had been removed and not yet re-installed, it cannot leave Mainland waters:

“當前太白廚房船的狀態與進境申報時點的狀態並不一致 …在當前太白廚房船未完成恢復原狀工作的情況下，太白廚房船將基於其現狀違反前述規定，而被海關監管部門禁止按照《中華人民共和國海關暫時進出境貨物管理辦法》復運出境。”

(Translation: Currently, the state of the Tai Pak Kitchen Boat is not consistent with its state declared upon entering the country… At present, the state of the Tai Pak Kitchen Boat has not yet been restored to its original working condition. Since its current state violates the aforesaid stipulation, the Tai Pak Kitchen Boat will be prohibited from being transported out of the country by the monitoring authorities of the Customs pursuant to the “Measures for the Administration of Temporary Import and Export of Goods by the Customs of the People’s Republic of China”.)

(20) Ds’ Legal Opinion does not address on what is “恢復原狀” (restored to its original working condition) and whether the completion of the Kitchen Repair Works can be described as “恢復原狀” when all the appliances will be replaced, and the layout inside the Tai Pak Kitchen Boat, including the location of hobs are completely changed.

(21) I am of the view that even assuming the Regulation applies to the Tai Pak Kitchen Boat’s entry into the Mainland, there is at the moment uncertainty on whether, even after the Kitchen Repair Works are completed, the Tai Pak Kitchen Boat can leave the Mainland as anticipated by D1.

(22) There were a total of 10 quotations in relation to the Kitchen Repair Works. They spanned from 7 February 2023 to 8 April 2024. It can thus be seen that the initial quotation did not contemplate a complete demolition and overhaul. Instead, the decision to carry out the Kitchen Repair Works was reached in stages.

(23) I thus agree with Mr Ho’s submission that whatever difficulties and predicament that D1 currently finds itself to be in is its own doing: the original scope of works, i.e. the addition of watertight bulkheads in the underdeck compartments had already been completed latest by the end of 2023. If no further works had been commissioned and embarked upon, the Tai Pak Kitchen Boat could have left by now. It was only due to D1’s decision to completely revamp the interior of the Tai Pak Kitchen Boat that led to further time being required for the completion of the Kitchen Repair Works. I thus do not see why any potential infringement of the Regulation, or such potential costs or penalty for the delay can be attributed to the Preservation Order for which P ought to provide fortification.

18.  Based on the above, I agree with Mr Ho’s submission that the Kitchen Repair Works ought not to continue and the Tai Pak Kitchen Boat ought to remain in Zhongshan Shipyard at the daily storage cost of RMB 500. Such costs should first be borne by P and subsequently shall be costs in the cause of the Action.

Tai Pak Restaurant Boat - On Land or in Water?

19.  Parties agree that the Fire Separation Barge should be stored on land in Hong Kong with Harbour Shipping Limited and P shall first bear the costs of such storage, such costs to be in the cause of the Action.

20.  That leaves the question of how should the Tai Pak Restaurant Boat be stored.

21.  Mr Ho’s primary position was that the Tai Pak Restaurant Boat should be kept in the water in its current position at the Shelter. D1 will be permitted to carry out genuine repairs/maintenance to it. It was submitted that this proposal is consistent with the nature and purpose of preservation and is practical in view of the stable condition of it. Further, this option is the least costly for both parties.

22.  As an alternative, P suggested storing the Tai Pak Restaurant Boat on land in Guangdong Fengyang Shipping Development Co Ltd in Xinhui (“Xinhui Shipyard”). This involves towing the Tai Pak Kitchen Boat via open sea to Xinhui.

23.  Ms Tong’s position was that the Tai Pak Restaurant Boat is almost 63 years old and is in a grossly dilapidated state and there is a danger of it capsizing if left in the Shelter. D1’s expert, Mr Lloyd, is of the opinion that the underwater section is likely to be in a severely deteriorated condition and suffer from corrosion, leaks and structural issues. There is also concern that during typhoon seasons and severe weather conditions the risk of capsizing is increased.

24.  Ms Tong also pointed out concerns of public health and safety from the presence of asbestos leaking into the Shelter, if the Tai Pak Kitchen Boat were to remain in the water.

25.  D1 therefore suggested towing the Tai Pak Restaurant Boat to be stored on land in Zhongshan with Jianglong Shipbuilding Co Ltd (“Jianglong Shipyard”). This involves towing the Tai Pak Kitchen Boat via open sea to Zhongshan.

26.  History has shown that capsizing could happen both in the Shelter (as happened to the Jumbo Kitchen Boat in June 2022) or in the open sea during transport (as happened to the Jumbo Restaurant Boat also in June 2022). It is thus not possible to statistically gauge which option poses a lower risk of capsize.

27.  Ultimately, having considered that the Tai Pak Restaurant Boat is not in a state where it could confidently withstand the elements of inclement weather conditions over a long period of time, I am persuaded by Ms Tong’s submission that as the sea journey to Zhongshan or Xinhui would take a day at most, whereas the Tai Pak Restaurant Boat could be left in the Shelter for a period of approximately 2 more years until the determination of the disputes, if it were not dry-docked. I agree that there is less uncertainty in having the Tai Pak Restaurant Boat transported in the sea for 1 day than to leave it in water for an indefinite period of time, and is more in line with preservation.

28.  I did enquire with Ms Tong whether the Tai Pak Restaurant Boat could withstand the sea journey given how grossly dilapidated D1 has described it to be. Ms Tong has assured me that based on expert evidence, even taking into account the current state of the Tai Pak Restaurant Boat, the overall risk of capsize or damage is still lower than leaving it in the water for an unknown extended period of time.

29.  I am therefore of the view that storing the Tai Pak Restaurant Boat on land would better preserve it.

30.  Parties then argued on whether the Tai Pak Restaurant Boat ought to be stored at Xinhui Shipyard (proposed by P) or at Jianglong Shipyard (proposed by D1). At the beginning, the choice seems to be obvious as the costs of Xinhui Shipyard (HK$2.316 million) is substantially lower than that of Jianglong Shipyard (HK$5.374 million).

31.  Ms Tong submitted that Jianglong Shipyard involves a shorter journey and hence it would make sense to store the Tai Pak Restaurant Boat there. Ms Tong threw doubt on the reliability or suitability of Xinhui Shipyard as P had failed to respond to their request for information on Xinhui Shipyard and the dry-docking arrangements. It was also submitted that the quote from Xinhui Shipyard was substantially lower than the other quotes and P had failed to explain why within 2 months Xinhui Shipyard was willing to lower the quote by 50% to the original sum.

32.  In an attempt to neutralise the effect of the difference in costs, D1 has agreed to bear the difference in storage costs between Xinhui Shipyard and Jianglong Shipyard. It was agreed by Ds that even if D1 and D2 were ultimately successful, they would not be claiming the difference in storage costs between Jianglong Shipyard and Xinhui Shipyard from P, if the Tai Pak Restaurant Boat were stored in Jianglong Shipyard.

33.  Despite that, Mr Ho insisted on Xinhui Shipyard being a better choice, as P might be able to “have an arrangement” with Xinhui Shipyard. This seems to suggest that some payment arrangement may be available which makes it more attractive to P, who would likely be responsible for the storage costs initially. However, there is no evidence supporting such an arrangement.

34.  It is obvious that each party was desperate to store the Tai Pak Restaurant Boat in a shipyard that is affiliated with them. It is unclear whether this is due to mere mistrust or genuine concern on how the Tai Pak Restaurant Boat will be stored.

35.  Having considered the arguments of parties, I am of the view that the Tai Pak Restaurant Boat should be stored in Jianglong Shipyard for the following reasons:

(1) As D1 has offered to bear the difference in costs, the choice of where to store the Tai Pak Kitchen Boat would depend on other factors.

(2) Although P had not responded to D1’s enquiry as to Xinhui Shipyard, there is no evidence suggesting that it is not sufficient for storing the Tai Pak Restaurant Boat. This is therefore a neutral factor.

(3) Being closer to Hong Kong, the time of transport is shorter and the risk of transport via sea to Jianglong Shipyard is naturally lower.

(4) Adopting a course that incurs a lower risk is naturally more consistent with the purpose of preservation.

Fortification – Applicable Principles

36.  In considering whether any additional fortification is required, Ms Tong submitted that fortification is plainly justified as there is a real risk that Ds will not be able to enforce P’s undertaking as to damages, thereby suffering significant losses arising from the Preservation Order.

37.  Mr Ho submitted that on the issue of fortification, the following principles are instructive:

(1) The court has a general power to order fortification where it appears just and proper to protect Ds by making such an order[3];

(2) Usually, merit of the parties’ case is not a necessary consideration. However, if P has a strong case, it may not appear just and proper to make the protection available to Ds[4];

(3) The burden of showing the need for fortification and the appropriate quantum falls on the party seeking fortification[5];

(4) Ds must show the likelihood of a significant loss arising as a result of the injunction, and demonstrate why they believe the other party will be unable to make good that loss[6];

(5) The damages for which P may be liable under the undertaking must be confined to loss which is “the natural consequences of the injunction”, and there is clearly a distinction between damages caused by the grant of an injunction and damages which flow from the fact of the litigation itself. Only the former type of damages are recoverable[7].

Just and Proper to Make an Order for Fortification

38.  P is a company with HK$10,000 in share capital and no known sizeable and liquid assets. Despite D1 and D2 having raised their doubts on P’s financial standing, P has not produced any documentary evidence such as bank statements or management accounts that could refute that doubt. All Mr Ho could point to is that P is an ongoing business rather than a shelf company. I agree with Ms Tong that this is a bare assertion and does not provide sufficient comfort to Ds.

39.  In light of the amount of costs required for the storage of the Tai Pak Boats and the Remaining Hull Parts, the fact that P can pay for its own legal costs and that it had previously paid HK$500,000 does not provide sufficient assurance for the loss Ds would suffer if they are ultimately successful.

40.  I agree that it is just and proper for P to provide fortification or make upfront payment for the natural consequences of the Preservation Order.

Amount of Fortification

The Remaining Hull Parts

41.  It was previously agreed that the Remaining Hull Parts would remain to be stored in Hong Kong at P’s costs. I do not think there is any basis for P to now renege from the prior agreement that such costs would be borne by P, as this was the basis on which P obtained the 28 April Order.

42.  As to the HK$528,000 that had been incurred and borne by D2 for the tugging, lifting and handling and storage before P took over, I agree that these costs are natural consequences of the Preservation Order and should be paid by P into court as fortification.

The Fire Separation Barge

43.  It has been agreed that the Fire Separation Barge be stored in Hong Kong on land, and the storage costs be initially paid by P. No separate fortification is therefore required.

The Tai Pak Kitchen Boat

44.  As analysed above, I am of the view that keeping the Tai Pak Kitchen Boat in Zhongshan Shipyard is the appropriate way to preserve it pending resolution of the disputes between parties. The storage costs of HK$301,125 is a direct consequence of the Preservation Order and should be paid by P directly or into court as fortification.

45.  The fact that it was D1 who had moved the Tai Pak Kitchen Boat to Zhongshan does not affect the reality that it will need to be preserved and stored, wherever it is situated. P has not shown an alternative where the Tai Pak Kitchen Boat can be stored at a lower cost if it had not been moved to Zhongshan by D1.

Tai Pak Restaurant Boat

46.  As I am of the view that the Tai Pak Restaurant Boat should be stored in Jianglong Shipyard, the storage costs of 1.5 years of HK$2,316,800 (being the costs of Xinhui Shipyard as D1 has agreed to bear the costs difference) should be paid by P into court as fortification.

Other Sums

47.  D1 also seeks the following by way of fortification:

(1) Unpaid amounts for the Kitchen Repair Works: HK$3,436,470;

(2) Estimated Mainland customs penalties: HK$384,072.37 to HK$739,168.67;

(3) Loss of rental income: HK$17,658,594;

(4) Costs of funding: HK$1,968,126;

48.  I am not persuaded that P should pay fortification for these 4 categories.

49.  As analysed above, I am of the view that the Kitchen Repair Works and the Mainland customs penalties are not natural consequences of the Preservation Order.

50.  The costs of funding and rental income projection are based on many assumptions and they are too remote to be considered as a natural consequence of the Preservation Order. There will be no provision for fortification for these categories.

51.  Ds have also sought provision for maintenance costs and security costs. I am of the view that these costs would need to be incurred anyway without the Preservation Order and are thus not natural consequences of the Preservation Order.

Summary of Fortification

52.  In summary, the amount to be paid by P directly to the relevant merchant or into court by way of fortification is as follows, such amount should be paid into court within 35 days hereof:

Item	Amount
The Remaining Hull Parts	HK$ 528,000
Tai Pak Kitchen Boat	HK$ 301,125
Tai Pak Restaurant Boat	HK$ 2,316,800
Total:	HK$ 3,145,925

Costs

53.  I make a costs order nisi for the costs of the hearing on 6 August 2024 to be costs in the cause, with certificate for 2 counsel, to be taxed if not agreed.

54.  I thank counsel for their able assistance.

Mr Ambrose Ho, SC leading Mr Johnathan Tsang, instructed by CFN Lawyers, for the Plaintiff

Ms Sara Tong, SC leading Mr William Wong, instructed by Mayer Brown, for the Defendants

HCA 1494/2022

[2024] HKCFI 898

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1494 OF 2022

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D E C I S I O N

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Background History

1.  The Tai Pak Restaurant Boat, Tai Pak Kitchen Boat and Tai Pak Fire Separation Barge (the “Tai PakBoats”) and the Jumbo Kitchen Boat (together, the “4 Boats”) were formerly part of the well-known Tai Pak Floating Restaurant and Jumbo Floating Restaurant respectively. The Tai Pak Boats are owned by the 1^st defendant (“D1”) and the Jumbo Kitchen Boat was owned by the 2^nd defendant (“D2”). At all material times the 4 Boats held licences issued by the Hong Kong Marine Department (“HKMD”) which allow them to be permanently moored at the Aberdeen South Typhoon Shelter (the “Shelter”). It is the plaintiff’s case that such licences to permanently station at the Shelter will no longer be issued.

2.  The plaintiff (“P”), D1 and D2 entered into an agreement dated 19 May 2022 entitled “船舶處理服務合同” (the “Agreement”). Under the Agreement:

(1)  D1 and D2 agreed to pay HK$5.4 million to P as the “handling fees” (處理費) for the 4 Boats.

(2)  D1 and D2 would pay P HK$600,000 as deposit for the “handling fee” (處理費) (the “Deposit”) within 7 working days of the execution of the Agreement.

(3)  P would pay HK$1 as consideration for each of the 4 Boats.

(4)  D1 and D2 need to assist P in applying for a certificate of ownership of the 4 Boats and an application for the name transfer for the food licence.

(5)  On the day after the transfer of each of the 4 Boats, P would need to provide the relevant proof to D1 and D2. D1 and D2 would need to pay P HK$1.2 million as an instalment of the handling fee (the “Instalment”) within 7 working days of receipt of such proof of transfer.

(6)  If any of the 4 Boats is not transferred within the respective deadline stipulated (31 May 2022 and 31 July 2022), the Agreement would be terminated and D1 and D2 would have no further obligation to pay the Instalment.

3.  Between 20 May 2022 to 26 May 2022, P and D1 and D2 had paid the HK$1 consideration for the Jumbo Kitchen Boat and the Deposit respectively, and further attended the HKMD’s offices to lodge the documents required for transferring the Jumbo Kitchen Boat to P.

4.  On 31 May 2022 (the deadline stipulated for the transfer of the Jumbo Kitchen Boat), P was informed by D2’s representative (a Mr Chan) that the HKMD had approved the documentation for the transfer. Whilst it is agreed by parties that eventually the transfer of the Jumbo Kitchen Boat was not completed, it is not clear what step was missing or which party was at fault. P alleged that D2 had failed to physically attend the offices of the HKMD to confirm the transfer and registration of the Jumbo Kitchen Boat and to physically deliver the Jumbo Kitchen Boat on that day. On the other hand, D2 alleged that it was P who had breached its obligation in failing to register for the transfer of the Jumbo Kitchen Boat.

5.  Less than 1 day later, at around midnight of 1 June 2022, D2 notified P that the Jumbo Kitchen Boat had capsized in the Shelter.

6.  The transfer of the Tai Pak Boats also did not materialise before the stipulated deadline of 31 July 2022.

7.  By a writ endorsed with a statement of claim issued on 7 November 2022, P commenced the present action against D1 and D2 based on the Agreement. It is pleaded that P had purchased the 4 Boats to take advantage of their unique identity and planned to refurbish them and operate them as restaurants again in the Shelter. P alleges that there is an implied term that Ds shall do all things necessary to enable the transfer of ownership and/or actual ownership of the 4 Boats. It is alleged that D1 and D2 had breached the Agreement in failing to deliver the Jumbo Kitchen Boat and Tai Pak Boats and to assist P to arrange for the transfer of ownership of the Tai Pak Boats. P claims specific performance of the Agreement and seeks damages for the alleged breaches.

8.  In relation to the Tai Pak Kitchen Boat, P discovered on 29 March 2023 that it had disappeared from the Shelter. P was subsequently informed that the same had been towed away much earlier on 7 March 2023 to Zhongshan, Mainland China for repairs, and has been torn down to its bare shell.

9.  In around April 2023, D2 began demolishing the Jumbo Kitchen Boat. D2 explained that this was done pursuant to directions from the HKMD to raise the capsized Jumbo Kitchen Boat from the water.

10.  P thus issued a summons dated 25 April 2023 (the “Preservation Summons”), and sought until determination of the action, or such further order of the Court, or with the written consent of P:

(1)  As against D1, preservation orders for the Tai Pak Boats.

(2)  As against D2, a preservation order for the Jumbo Kitchen Boat as currently represented by several cut-up parts of its hull (the “Remaining Hull Parts”).

11.  On 28 April 2023, and after a contested inter partes hearing, Lisa Wong J granted an interim-interim preservation order for the Remaining Hull Parts pending the substantive determination of the Preservation Summons (the “28 April Order”). The Remaining Hull Parts are now being stored on a vessel at P’s cost.

12.  The application for preservation orders for the Tai Pak Boats was not dealt with on 28 April 2023. The Tai Pak Restaurant Boat and the Tai Pak Fire Separation Barge remain at the Shelter in the water.

13.  P now seeks:

(1)  To continue the 28 April Order until final determination of the Action; and

(2)  An order to preserve the Tai Pak Boats.

Applicable Principles

14.  Parties accept that the applicable principles are as set out in Gentle Soar Ltd v CMBC Capital Finance Ltd & Ors[1]:

“(i) There is property which is bona fide the subject matter of the cause or matter, or as to which any question may arise;

(ii) Something ought to be done for the security of that property[2], because for example damages may not be an adequate remedy;

(iii) Unlike application for a Mareva injunction, no risk of dissipation needs to be demonstrated;

(iv) Even if there has been delay in making an application which may lead to refusal of a freezing injunction, a proprietary injunction may nonetheless be granted;

(v) An enquiry into the relative merits of rival claims is not necessary. In respect of the merits of the claim, the party seeking the preservation order only needs to show that there is a serious issue to be tried on the merits on the normal American Cyanamid principles;

(vi) If the opposing party seeks to show that there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out;

(vii) There is no strict requirement for an undertaking as to damages where the Court grants a proprietary injunction or a preservation order, albeit that the Court may require such an undertaking “where the circumstances warrant”; and

(viii) There is no need for P to show that damages would not be an adequate remedy.”

15.  Mr Ambrose Ho SC, senior counsel for P, submitted that as a fundamental principle, the court at the interlocutory stage would take whichever course that appears to carry the lower risk of injustice if it should turn out that it is wrong[3].

16.  Ms Eva Sit SC, senior counsel for D1 and D2, submitted that although adequacy of damages is not a necessary element, it is one of the factors the court may take into account, and the court will usually refuse to grant a preservation order if damages would be an adequate remedy[4].

Serious Issue To Be Tried on Enforceability of Agreement by Specific Performance

17.  The primary basis on which P claims interlocutory relief to preserve the Tai Pak Boats and the Remaining Hull Parts pending judgment or further order is its entitlement to specific performance of the Agreement as the final relief in this action.

18.  Ms Sit submitted that P has failed to show a serious issue to be tried on P’s ability to enforce the Agreement by specific performance, as it has failed to disclose any real prospect of succeeding in its claim. It is submitted that the Preservation Summons is misconceived as the Agreement was not a sale and purchase for the 4 Boats, but rather, an agreement for P, a shipyard, to provide disposal services for the 4 Boats at the consideration of HK$5.4 million. The transfer of ownership was only ancillary to the provision of services to enable P to lawfully take control of the 4 Boats which were regulated for public safety reasons by the HKMD.

19.  In support of her submissions, Ms Sit relied on the following:

(1)  It is clear from the name of the Agreement (“船舶處理服務合同”), that this was an agreement for P to provide services to D1 and D2 in the context of P being a shipyard and D1 and D2 paying P a substantial sum of $5.4 million, and NOT a contract for the sale and purchase of the 4 Boats.

(2)  The fact that the 4 Boats were at the material time no longer run as restaurants and were idle, attracting huge potential liabilities to their owners needs to be taken into account. This provides the context as to why D1 and D2 were willing to pay P HK$5.4 million to dispose of the 4 Boats for them.

(3)  As D1 and D2 were required to pay P a sum of HK$5.4 million and P only had to pay a nominal sum of HK$1 per boat, the payment terms clearly indicated that D1 and D2 required the services of P, as opposed to a sale of the 4 Boats to P.

(4)  P’s obligation under the Agreement included towing the 4 Boats away from the Shelter, contradicting any allegation that P could utilise the mooring rights attached to the 4 Boats.

20.  Ms Sit further submitted that specific performance is a discretionary remedy and the granting of such remedy is guided by principles. It is submitted that in the circumstances of the present case, such a remedy will not be granted:

(1)  It was expressly provided that if the timetable was not complied with, the Agreement would terminate immediately. There was no difference whether the failure to complete was due to P’s or D1 and D2’s fault. As such, P is precluded from seeking specific performance as the Agreement had been terminated already.

(2)  The fact that there is in existence an automatic termination mechanism and an express recognition of consequence is a complete bar to a request for specific performance.

(3)  As the Agreement had been terminated with effect from 1 June 2022, there was no further obligation in relation to the Tai Pak Boats. Without a valid enforceable contract, the court will not act in vain.

(4)  Parties have entered into an express contractual bargain on the consequences of breach. The Agreement has stipulated that in the event that D1 and D2 were at fault, the Deposit paid will be forfeited. Conversely, if P were at fault, D1 and D2 could demand a pro rata return of the Deposit. As there is express provision in the Agreement governing the scenario where each party is at fault and the respective consequence of breach, there can be no room for P to seek specific performance.

(5)  As the amount of damages have been expressly set out and agreed upon, it is clearly an adequate remedy.

21.  Mr Ambrose Ho SC, senior counsel for P on the other hand submitted that whether the Agreement was for the sale and purchase or for disposal services of the 4 Boats is a matter to be resolved at trial. In any event, Mr Ho relied on the following to argue that there is a serious issue to be tried on whether P is entitled to specific performance of the Agreement:

(1)  The dispute on whether P or D2 was in breach first is to be resolved at trial.

(2)  D2 was arguably in breach by failing to transfer and/or deliver the 4 Boats to P and by failing to maintain the Jumbo Kitchen Boat in a safely moored state.

(3)  If they had been in breach, D1 and D2 cannot rely on Clause D(2) to say that the Agreement had been terminated by reason of the prevention principle. In Kensland Realty Ltd v Whale View Investment Ltd & Anor[5], the purchaser of a landed property complained that its inability to complete in time was due to the vendor’s fault, as it has failed to give split-cheque instructions in good time. The claim for specific performance of the contract of sale by the vendor was allowed. In the present case, Mr Ho submitted that D1 and D2’s failure to complete before the deadline was the direct cause of the lapsing of the completion before the 31 May 2022 deadline. As a result, it is argued that D1 and D2 are prevented from relying on the automatic termination clause.

22.  Mr Ho further submitted that damages would not be sufficient as:

(1)  the 4 Boats and their HKMD licences are invaluable and unique, especially their rights to permanently station at Aberdeen.

(2)  the 4 Boats also have a unique identity and history attached to them and are not readily replaceable.

(3)  The Remaining Hull Parts are also invaluable to P as they can be used to reinstate the Jumbo Kitchen Boat and/or to investigate the cause of the capsizing incident.

Discussion – Serious Issue to be Tried

23.  Ms Sit, in submitting that there is simply no serious issue to be tried, needs to demonstrate and persuade the court that the claim should be struck out[6]. This is a high threshold. The court needs to be satisfied that the claim is obviously unsustainable and it must be impossible, not just improbable for the claim to succeed.

24.  I am mindful that in examining whether there is a serious issue to be tried, I should not embark on a trial run of P’s claim and D1 and D2’s defence and come to a conclusion on whether I think P’s claim should fail. That, as submitted by Mr Ho, is a task for the trial judge. At this juncture, the court can only decide whether it is impossible for P’s claim to succeed at trial.

25.  Despite the force of Ms Sit’s very persuasive arguments, I am ultimately of the view that the high threshold of “impossible for the claim to succeed” is not met in the present case because:

(1)  It cannot be decided at this juncture which party was in breach of the Agreement. If it is ultimately found that D1 and D2 had deliberately failed to complete their obligation in the completion of the transfer of title of the Jumbo Kitchen Boat on 31 May 2022, the prevention principle might apply so that D1 and D2 cannot take advantage of the automatic termination clause of the Agreement.

(2)  It is arguable that despite the fact that the sale and purchase of the 4 Boats was not the main subject matter in the Agreement, the transfer of the 4 Boats is clearly something that P would have been entitled to under the Agreement, and as such it is open for P to insist on the transfer of the 4 Boats to be specifically performed, as part of the bargain.

(3)  I agree with Mr Ho that due to the uniqueness of the 4 Boats and the fact that the licences attached to them are irreplaceable, it is arguable that damages would not be an adequate remedy and specific performance is required.

26.  As such, I am of the conclusion that “the impossible to succeed” hurdle is not met and there is a serious issue to be tried as to whether the Agreement was specifically enforceable.

Discussion - Balance of Convenience

27.  Ms Sit submitted that in any event, on the balance of convenience, the application should be refused:

(1)  There is no dispute that ownership of the Jumbo Kitchen Boat had remained with D2 at the time of its capsize. D2 thus proceeded with the salvage operations as demanded by the HKMD as owner of the Jumbo Kitchen Boat, at its costs, which have already run up to millions of dollars.

(2)  The fact that the Tai Pak Boats are of a certain vintage means that there may be imminent need for repairs and there are potential sinking risks. Granting a preservation order would in effect be requiring D1, the legal owner of the Tai Pak Restaurant Boat and the Tai Pak Fire Separation Barge, to leave them in the water at the request of P, who is a non-owner, with no legal liability for anything that might happen to the 4 Boats in the meantime.

28.  In answer to Ms Sit’s argument, Mr Ho submitted that if P prove to be ultimately successful in its claim, the fact that D1 and D2 refuse to transfer the title to the 4 Boats to P and continue to be exposed to the potential liability is their own doing. They could choose to transfer the title of the Tai Pak Boats and the Remaining Hull Parts to P at any time if they wished. This should not go to the balance of convenience.

29.  I am of the view that the issue of the continuous accumulation of repair costs is ultimately a matter affecting the precise form of how the Tai Pak Boats and the Remaining Hull Parts are to be preserved and the amount of the fortification on the undertaking as to damages, rather than a matter affecting whether a preservation order ought to be granted on a balance of convenience.

30.  As to balance of convenience, Mr Ho submitted that in relation to the Remaining Hull Parts, D2 would suffer no prejudice for the 28 April Order to be continued, as the Remaining Hull Parts are being stored at P’s costs. As regards the Tai Pak Boats, the preservation order aims to protect the existing layout, structure and nature corresponding to their respective unique licence(s) granted by the HKMD and would not prevent D1 from carrying out genuine repairs to the same for the purpose of maintaining their safety and seaworthiness by obtaining relevant prior approval from HKMD. On the other hand, the potential loss of the Tai Pak Boats and the Remaining Hull Parts is irreversible and cannot be compensated by damages.

31.  Therefore, weighing up the potential prejudice to D1 and D2, which can be measured in terms of money and time, as against the potential prejudice to P, which cannot be compensated by damages, as the Tai Pak Boats and the Remaining Hull Parts could potentially be disposed of if no preservation order is in place, I agree with Mr Ho that the balance of convenience lies in favour of granting a preservation order over the Tai Pak Boats and the Remaining Hull Parts.

32.  Based on the above, I am of the view that in principle, a preservation order in relation to the Tai Pak Boats and the Remaining Hull Parts ought to be granted.

Form of Preservation Order and Amount of Fortification

33.  Ms Sit submitted that additional fortification should be ordered against P, if preservation orders were to be granted because:

(1)  as to the Tai Pak Kitchen Boat, D1 had entered into a contract for the repair with a 3^rd party (amounting to about HK$7 million) and if it is ordered that further works are to be stopped, D1 would stand to suffer losses.

(2)  There is also evidence that the amount so far expended by D2 that is referrable to the 28 April Order have already come to HK$1 million in connection with the Jumbo Kitchen Boat.

(3)  There is no dispute that the Tai Pak Restaurant Boat and the Tai Pak Fire Separation Barge would be exposed to considerable risks if left in the water. The form of preservation would directly affect how much additional fortification should be ordered, if any.

34.  I agree with Ms Sit that additional fortification may be required depending on the form of preservation. E.g., should the Tai Pak Restaurant Boat and the Tai Pak Fire Separation Barge be removed from water and be stored on land and the likely costs arising therefrom. I would therefore direct that parties do try to agree on the form of preservation and the amount of additional fortification required (if any) within 21 days hereof, failing which, a hearing should be fixed before me with 3 hours reserved.

35.  For the avoidance of doubt, the status quo of the Tai Pak Boats and the Remaining Hull Parts should be preserved in the meantime.

Costs

36.  I make a costs order nisi for the costs of the hearing on 7 March 2024 to be costs in the cause, with certificate for 2 counsel, to be taxed if not agreed.

37.  I thank counsel for their able assistance.

Mr Ambrose Ho, SC leading Mr Johnathan Tsang, instructed by CFN Lawyers, for the Plaintiff

Ms Eva Sit, SC leading Ms Sheena Wong, instructed by Mayer Brown, for the Defendants