THE OWNERS OF AND/OR OTHER PERSONS ENTITLED TO SUE IN RESPECT OF THE CARGO LATELY LADEN ON BOARD THE SHIP OR VESSEL M.V. “JIN YI” v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL M.V. “JIN YI”

HCAJ 119/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 119 OF 2010

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Admiralty action in rem against: the ship or vessel M.V. “JIN YI”
(IMO No. 9301756)

BETWEEN

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(Heard Together)

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J U D G M E N T

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I. INTRODUCTION

1.  In June 2008 the Plaintiff cargo owner shipped steel rebars on the Defendant shipowner’s vessel from Iskendrum in Turkey to Jebel Ali in the UAE.  The Plaintiff is a Dubai-based steel trading company. The Defendant is a Panamanian company registered in Hong Kong under Part XI of the Companies Ordinance (Cap.32). 

2.  The cargo was carried under 3 CONGEN Bills of Lading (numbered 3, 4 and 12). The Bills of Lading were issued pursuant to a GENCON Charterparty, the terms of which were incorporated into the Bills of Lading.  The Charterparty and (by incorporation) the Bills of Lading were subject to a London arbitration agreement.

3.  The Plaintiff claims that the cargo was loaded in good condition at Iskendrum, the 3 Bills of Lading having been endorsed “CLEAN ‘ON BOARD’“.  The Plaintiff complains that, upon arrival in Jebel Ali in July 2008, the cargo was in a discoloured state and not in “mill blue condition”.  The Plaintiff also contends that the cargo discharged from the vessel was several bundles short.

4.  The Plaintiff has consequently sued the Defendant both in rem and in personam.  Security has been provided by the Defendant in the in rem proceedings.  The in rem and in personam Writs were both issued in June 2010.

5.  However, the Defendant apparently did not appreciate that the in personam Writ which had been served on it directly constituted different proceedings.  The Defendant therefore failed to acknowledge service of the in personam Writ.  The result was that a default judgment on liability was entered by the Plaintiff against the Defendant in the in personam proceedings.

6.  The Defendant now applies to set aside the judgment in the in personam proceedings. 

7.  The Defendant also seeks to stay the in rem and (insofar as it succeeds in setting aside the default judgment) in personam proceedings to the Dubai Court on the ground of forum non conveniens.

II. DISCUSSION

A. Should the default judgment be set aside?

8.  In my view, the default judgment should be set aside.  The Defendant has a real prospect of successfully defending the Plaintiff’s action.

9.  A principal issue between the Plaintiff and the Defendant is whether the rusting or discolouration of the rebars took place before, during or after loading on board the vessel. 

10.  There was no discharge survey.

11.  The Plaintiff instead relies on a “CLEAN ‘ON BOARD’“ endorsement on the Bills of Lading and a pre-loading inspection report as evidence that the rebars were in apparent good order and condition immediately prior to loading. The Plaintiff concludes from such evidence that rusting occurred in the course of carriage by sea as a result of the Defendant’s default.

12.  The evidence suggests that the rebars did not become discoloured as a result of contact with seawater.  A silver nitrate test following discharge yielded a negative result.  Therefore, any rusting (the Defendant claims) would likely have been the result of exposure to fresh water either before or in the course of loading. 

13.  It is true that a pre-loading survey described the cargo as “newly produced and visually in good condition”.  The surveyors stated that they were “confirming that all bars are in clean condition without any rust at the time of loading”.  More particularly, the surveyors reported that the surface condition of the cargo was “IN ALL ROUND BLUE CONDITION WITHOUT RUST, DISCOLOURATION OR DAMAGE”.

14.  But (the Defendant argues) given the quantities of rebars carried, it is difficult to believe that the surveyors could have inspected every single rebar (as opposed to merely inspecting a random sample). If they were not in a position to check every single rebar, how (the Defendant asks) did the surveyors feel able to confirm the pristine condition of all the rebars in the terms that they did?

15.  There are some colour photos of the rebars apparently being loaded on board the vessel in good condition.  There are also some photos of what look like discoloured rebars being discharged from the vessel.  However, I hesitate to draw conclusions from such material without evidence as to which specific bundles of rebars corresponding with which Bills of Lading have actually been photographed.  I would also need guidance on the degree to which light conditions at the time of discharge may or may not make “blue” bundles appear to be “brown” in colour photos.

16.  There is also an issue as to whether exposure to fresh water or rain before or during loading may, due to no one’s fault, have resulted in the rebars becoming discoloured later in the course of carriage.  Thus, even on the assumption that in law the clean endorsement operates as some sort of estoppel against the Defendant in favour of the Plaintiff, the estoppel may not go so far as to protect the Plaintiff from a defence that the rebars were sufferring from a latent problem ((for example) exposure to fresh water) which only manifested itself in discolouration later.

17.  In summary, without a trial, I do not think that the possibility of the Defendant successfully resisting liability can be ruled out merely on affidavit evidence.  For that reason, I would set aside the in personam default judgment.

B. Should there be a stay for forum non conveniens?

18.  Both Writs were served by the Plaintiff as of right on the Defendant in Hong Kong.  The burden is thus on the Defendant to satisfy the Court that the Dubai Court is an appropriate forum where this case may be more suitably tried in the interests of all the parties and then ends of justice.

19.  In my view, the Defendant has satisfied that burden.

20.  Apart from the fact that the vessel is Hong Kong-registered and was arrested here and that the Defendant is an overseas company registered here, the case has little to do with Hong Kong.  Those Hong Kong-related facts do not have a material bearing on the question where this action can most conveniently be tried.  By contrast, there are at least 2 key pointers to Dubai as the more appropriate forum. 

21.  First, the cargo was delivered in Dubai and re-sold there.  Following discharge, the cargo was belatedly examined by surveyors based in Dubai.  The Plaintiff’s buyers in Dubai are alleged to have rejected the cargo as a result of their condition upon discharge.  The reasons for rejection by the Plaintiff’s buyers are disputed by the Defendant. 

22.  Second, any damages to be paid in relation to the cargo will involve reference to the market for steel rebars in Dubai.  The Defendant says that the cargo (even if discoloured) was still perfectly fit for normal use.  The real reason (the Defendant claims) for rejection by the Plaintiff or its buyers was that the market for rebars in Dubai had collapsed.

23.  Accordingly, it is likely that the trial will require the presence of Dubai-based witnesses, especially of the surveyors who inspected the cargo after discharge and possibly the Plaintiff’s buyers who rejected the rebars.  The trial will also require familiarity with market conditions for rebars in Dubai at the time of discharge. 

24.  Mr. Alexander Stock (appearing for the Plaintiff) cites other factors which he says suggest that Hong Kong is a more appropriate forum.  I am not, however, persuaded that the factors upon which Mr. Stock relies militate against Dubai as the more appropriate forum.

25.  First, Mr. Stock notes that there are factors connecting this case with Turkey.  For instance, the cargo was manufactured in Turkey and loaded onto the vessel there.  The pre-loading survey also took place in Turkey and the Bills of Lading were issued there.  Mr. Stock further observes that the Defendant’s case is that the rebars were already in discoloured or wetted condition before or at the time of loading, that is, when the rebars were still in Turkey.  In those circumstances, Mr. Stock says that evidence from Turkey-based (as opposed to Dubai-based) witnesses may be more important.

26.  While it is likely that there will be witnesses from Turkey, I do not think that mere fact renders Dubai inappropriate.  By the same token, Hong Kong would be inappropriate as a forum.  The most that can be said is that this factor is neutral in the balancing exercise which I must undertake.

27.  Second, Mr. Stock notes that many relevant documents are in English.  It appears that these documents would have to be translated into Arabic, if trial is to be in Dubai.  Oral evidence will have to be translated into Arabic, if given in English, as Arabic is the official language of the Dubai Court.

28.  As between Hong Kong and Dubai, this factor points marginally in favour of Hong Kong where English is one of the Court’s official languages.  But I do not think this factor outweighs what I have identified as the key pointers to Dubai, namely, the convenience of having a trial in Dubai in order to cater for the attendance of Dubai-based witnesses and the examination of market conditions in Dubai.  This case involves a shipment to the UAE and so Dubai would be a self-evident forum.  A corollary is that at least some engagement with Arabic (whether as the language of documentation or the language in which Dubai-based witnesses would be more comfortable) will be inevitable at trial (wherever it takes place).

29.  Third, Mr. Stock suggests that the Dubai Court will not apply English law, even though that law (by reason of the arbitration agreement) is the proper law of the Bills of Lading.  Mr. Stock submits that Hong Kong should be the appropriate forum because the Court here will apply English law and is more experienced in its application.

30.  I am not able to accept this as a relevant factor. 

31.  The Plaintiff’s evidence is that “[i]n principle, the law in the UAE recognises the parties’ right to elect a choice of law clause”.  The Plaintiff’s UAE law expert then asserts that “it is (in practice) almost impossible to apply foreign law to a transaction in connection with an action heard before the UAE Court”.  Why is it “impossible in practice”? According to the expert, it is “because almost invariably there will be a dispute as to the effect of the foreign law, the courts will find that the foreign law has not been proven and ... will apply the local law to the substance of the matter”.   

32.  But, as the Defendant’s expert counters, “[t]he argument as to the applicability, substance and effect of a foreign law is like any other argument”.  A Court (whether in Hong Kong, Dubai or elsewhere) will deal with a dispute as to applicable foreign law in the same manner as it would deal with any other contentious matter of fact.  The party relying on a foreign law principle may or may not persuade the Court.  If the party fails to persuade, it would be because the Court disagrees with the party.  It would not be because “in practice” the Court does not apply foreign law.

33.  In this instance, there appears to be no dispute that English law governs. The English law on bills of lading and the carriage of goods by sea is well-established.  That body of law has been exhaustively commented upon in world famous textbooks.  It is hard to see how, aided by proper submissions, a Court (whether in Hong Kong or Dubai) would have real difficulty in identifying that law and applying the applicable law.

34.  By way of fallback position, Mr. Stock submits that, if this case is stayed to Dubai, the Plaintiff would be deprived of legitimate personal or juridical advantages.

35.  Those advantages which may be lost (Mr. Stock suggests) are as follows:-

(1) The Dubai Court will find that the Defendant is the wrong party to sue.

(2) There is no general discovery in Dubai.

(3) The Dubai Court will likely resort to court-appointed experts, even though the expertise of the latter in maritime matters is dubious.

(4) Costs would not be recoverable in Dubai and pre-action interest is not likely to be granted.

36.  Of the foregoing matters, it seems to me that only item (1) could possibly constitute a deprivation of a legitimate advantage.

37.  Item (2) is a common feature of civil (as opposed to common) law jurisdictions such as Dubai.  The evidence is that, as with most civil law jurisdictions, Dubai has no general discovery, although it does allow for specific discovery.  A party can apply for specific documents to be disclosed. 

38.  As for item (3), it is common for civil law jurisdictions to resort to court-appointed experts.  There is nothing odd about such a facility.  That an expert is good or bad in a particular field is a hazard which one is as likely to encounter in common as much as in civil law jurisdictions.

39.  Item (4) is a feature of many civil and some common law jurisdictions.  It would be invidious to hold that a legal system is somehow “better” only because it allows more or less full recovery of costs and pre-action interest.  I do not regard the Plaintiff as being denied a “legitimate” advantage by being made to litigate a case in an appropriate forum where pre-action interest and costs are not recoverable.

40.  That leaves item (1).

41.  On this Mr. Stock relies on 2010 decisions of the Dubai Court of First Instance and Court of Cassation in a case involving the same voyage as here, but relating to Bill of Lading No.5.  That Bill of Lading (as here) had been signed by the voyage charterer as agent “for and on behalf of the Master”.  Cargo owners complained about their steel cargo being discoloured on discharge in the UAE.  They sued the Defendant.  The Defendant claimed that the wrong party had been sued.

42.  At first instance the Dubai Court held (in translation):-

“It is established by law that the liability of the owner of a vessel is a contractual liability to the consignee or its representative to deliver the cargo in good condition, but such liability will not be available unless the bill of lading in connection with the cargo is issued by the owner or the master of the vessel employed by such owner (kindly refer in this respect to the judgment issued by the Dubai Court of Cassation in the Appeal for Cassation No. 268/1997 Civil and the Appeal for Cassation No.293/1997 Civil, issued on 8.11.1997).

In addition, the crucial issue to determine the actual marine carrier is through the particulars of the bill of lading ....

Or, on the other hand, the provision of Article 316 of the Civil Transaction Law indicates that any person in possession of things that require special care to avoid their risk will be liable for such risk unless unavoidable....

....

In addition, Article 316 of the Civil Transaction Law also provides that any person in control of mechanical tools will be liable for any damage caused by such tools....

On the ground of the above, it is established from the papers ... that the said Defendants are the owners of the vessel, which carried the cargo, as the subject matter of the suit, and that they chartered the vessel to the Third Defendant as set out in the above [time] charterparty. Therefore, the owners of the vessel are not liable, which liability is vested in the new charterer. On the ground of the above, the Court decides that the owners of the vessel are not liable for the damage of the cargo, particularly as the bill of lading did not refer at all to any connection between the said Defendants (as owners of the vessel) or their agents or representatives with the disputed right....”

43.  The Dubai Court of Cassation upheld the Court of First Instance.

44.  According to Mr. Stock, the likelihood is that the Dubai Court will follow the foregoing precedent and hold that the Defendant is not the proper party for the Plaintiff to have sued.  Instead, the Dubai Court might well say (Mr. Stock reasons) that the vessel’s time charterer should have been sued.  That would run contrary to the ordinary principles of English shipping law (Mr. Stock contends) under which an owner of a vessel under time charter remains liable under a bill of lading signed on behalf of the master. 

45.  The difficulty (Mr. Stock stresses) is that the Plaintiff is now time-barred from suing the time charterer.  To stay the case to Dubai could therefore (Mr. Stock concludes) potentially deprive the Plaintiff of a remedy due to the Dubai Court’s erroneous application of English law in the Bill of Lading No.5 case.

46.  I am not persuaded by the argument.

47.  The facts of the 2010 case are unclear. 

48.  According to the judgment of the Dubai Court of Cassation, the vessel was time chartered by Timeplus Limited to Korea Line Corporation for a period of between 23 and 25 months.  It is possible (no evidence has been adduced before me on the matter one way or the other) that the vessel was under a time charterparty by demise. In which case, it is possible that, as the Dubai Court held, Bill of Lading No.5 was signed for the Master acting on the orders of a demise charterer.

49.  In light of the sparse evidence on the question, I am not prepared to speculate on whether the Dubai Court was right or wrong in its decision in relation to Bill of Lading No.5.  The burden is on the Plaintiff to adduce sufficient evidence on the denial of a legitimate juridical advantage.  I am consequently unable to conclude that the Plaintiff would be deprived of a legitimate juridical advantage in the sense suggested by Mr. Stock. 

50.  Whether the Bills of Lading here were signed on behalf of the Master acting on behalf of owners or demise charterers would be a question of fact.  It all depends on the evidence adduced before the Court.  In those circumstances, depending on the evidence adduced by the Plaintiff in relation to the Bills of Lading here, I do not see that the Dubai Court will necessarily follow its previous decision apparently based on different evidence.

51.  I note that the Defendant has made clear to this Court that it is prepared to submit to the Dubai Court’s jurisdiction and it waives any possibility of claiming time bar in Dubai.

III. CONCLUSION

52.  The in personam default judgment is set aside.  There will be a stay of the in rem and in personam actions to the Dubai Court.  I shall now hear the parties on costs and consequential orders.