BRIGHT SHIPPING LTD v. CHANGHONG GROUP (HK) LTD

HCAJ 3/2018

[2018] HKCFI 2474

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 3 OF 2018

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D E C I S I O N

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1.  This is the application of the Defendant (Changhong) for stay of these proceedings on the ground of forum non conveniens.

Background

2.  This action concerns a collision at sea between Changhong’s cargo vessel, CF CRYSTAL (Crystal), and a tanker owned by the Plaintiff (Bright Shipping), SANCHI (Sanchi).  The collision took place at around 19:50 hours on 6 January 2018 (Beijing time) at a location about 125 nautical miles from Changjiang Kou Light Ship in the East China Sea. 

3.  Crystal flied the Hong Kong flag and her port of registry was Hong Kong.  She was laden with nearly 64 m.t. of sorghum cargo and was on a voyage from Port Kalama in the USA to Port Machong, Guangdong, PRC. Her crew were all Chinese nationals.  She was managed by Changfeng Shipping Holding Ltd (Changfeng), a company incorporated in Hong Kong.      

4.  Sanchi flied the Panamanian flag.  Her crew were Iranian and Bangladeshi.  At the time of the collision, she was loaded with 115,000 tonnes of natural gas condensate and was on her way from Iran to South Korea.  She was managed by an Iranian company, National Iranian Tanker Co (NITC), which has a representative office in Shanghai.

5.  Changhong is a Hong Kong incorporated company with a registered office in Hong Kong.  Bright Shipping was incorporated in Belize.  The evidence before the court does not show that Bright Shipping had any business operation other than owning Sanchi. 

6.  Sanchi exploded immediately upon collision and both vessels caught fire.  Crystal managed to reverse her engine and escape the fire.  Her crew abandoned the vessel but returned to successfully extinguish the fire on board.  Afterwards, she safely proceeded to and berthed at Zhousan, Zhejiang, PRC.

7.  Sanchi kept burning and drifting after the collision.  Eventually, she sunk at a location around 151 nautical miles southeast of the point of collision on 14 January 2018.  Tragically, none of her officers or crew survived the accident.

8.  Pollution resulted from the collision in the form of spilt bunkers and natural gas condensate.  Some of the pollutant made landfall in the PRC as well as Japan. 

9.  The Mainland authorities had been heavily involved in all aspects of the aftermath of the collision, including investigation and pollution issues.  Following the collision, a multi-national task force, led by the Shanghai Maritime Safety Administration (MSA) (with participants from Hong Kong, Islamic State of Iran and Panama), carried out an investigation.  On 11 May 2018, a 191 page report of the joint investigation dated 10 May 2018 (Report) was submitted to the International Maritime Organisation.  The Report is publicly available via the website of the Organisation.  

10.  The collision was followed by a number of legal actions, including Changhong’s proceedings against Bright Shipping and NITC in the Shanghai Maritime Court (SMC) and this action.  These inter-ship actions were commenced simultaneously on 9 January 2018. 

11.  On 9 January 2018, Changhong also applied to establish in the SMC two limitation funds, one for personal injury and one for property.  On 30 January 2018, Changhong brought an action in the SMC against NITC as cargo shipper and a Korean entity as cargo consignee in respect of the collision.

12.  In addition, the insurers of Crystal’s cargo brought an action in the SMC against, Changhong, Bright Shipping and NITC in respect of the loss of cargo on Crystal.  There are also cargo claims against Changhong.  Further, there are emergency response and pollution related claims, two of such actions involve Bright Shipping. 

13.  So far, Bright Shipping has not submitted to the jurisdiction of the Mainland court in any of these proceedings. 

14.  This is an in personam collision action brought against Changhong.  There is no dispute that the jurisdiction of this court was invoked by the Bright Shipping as of right, having served these proceedings on Changhong at its registered address in Hong Kong. 

Issues

15.  What underpins the jurisdictional dispute before the court is the very different tonnage limitation in the Mainland and in Hong Kong.  The relevant monetary limit applied in Hong Kong is roughly 3.6 times of those in the Mainland.

16.  In this application, Changhong contends that: (a) the overwhelming “centre of gravity” of this case is in Shanghai, the SMC is an available and experienced specialist court which is dealing with pollution and civil claims arising from the collision and will apply various legislation based on international conventions, and it would not be reasonably open to this court to hold that substantial justice cannot be obtained in the SMC; and (b) the questions of inter-ship liability and assessment of Changhong’s loss are going to be tried in its proceedings against Bright Shipping in the SMC in any event (lis alibi pendens).

17.  Bright Shipping’s case is that the collision took place on the high seas and there is no natural forum to determine such a collision.  Changhong’s case does not get pass the stage 1 requirement to establish that the SMC is “clearly and distinctly” more appropriate than Hong Kong court to determine the inter-ship disputes: see The “Spiliada” [1987] AC 460.

18.  Further, even if Changhong succeeds in discharging its burden for the stage 1 analysis, the significant difference in tonnage limitation applied in Hong Kong and the Mainland is a decisive personal juridical advantage in favour of refusing a stay.

Law

19.  The Spiliada is the seminal authority on forum non conveniens (FNC).  There are many authorities which contain a distillation of the principles expounded in that case.  I refer to the summary adopted by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364, §51 :

“1. The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action ie in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

2. In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

3. If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

4. If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.”

Location of the collision

20.  It is common ground that the collision took placed outside PRC’s territorial waters.  Although the location lied within international waters, there is no dispute that it was within PRC’s exclusive economic zone (EEZ) pursuant to the United Nation Convention on the Law of the Sea (UNCLOS) to which the PRC acceded in 1997.

21.  Article 3 of UNCLOS provides that the breadth of the territorial sea does not exceed 12 nautical miles.  The collision position was thus far beyond the territorial seas of the PRC.  Article 55 of UNCLOS defines the EEZ as an area beyond and adjacent to the territorial sea.  Article 57 provides that the breadth of the EEZ shall not extend beyond 200 nautical miles.

22.  It appears that the point of collision also lied within the EEZ of Korea and Japan.  It was within 155 miles of Jeju, South Korea and 190 miles of Me Shima, Japan. 

Appropriate forum

23.  Appeared on behalf of Bright Shipping with Mr Yu, Mr Sussex SC submitted that there is no natural forum for a collision in international waters.  Consequently, it is accepted that Hong Kong is not the natural forum for the inter-ship litigation.  However, Bright Shipping is entitled to bring this action as of right given that Changhong is a Hong Kong company. 

24.  Mr Sussex relies on the dicta of Lord Goff in The Spiliada at p.477C-D :

“[T]here are cases where no particular forum can be described as the natural forum for the trial of the action. Such cases are particularly likely to occur in commercial disputes, where there can be pointers to a number of different jurisdictions … or in Admiralty, in the case of collisions on the high seas. I can see no reason why the English court should not refuse to grant a stay in such a case, where jurisdiction has been founded as of right.”

25.  The court was also referred to Meeson and Kimbell, Admiralty Jurisdiction and Practice, 5^th edn, [7.15] and the observations made by Sheen J in The “Coral Isis” [1986] 1 Lloyd’s Rep 413 at 416 :

“The same cannot be said of an action arising out of a collision in international waters between two ships of different nationality. It must frequently happen that when such a collision has occurred no Court can properly be described as “the natural forum” or even “a natural forum”. The reasons are self-evident. The two ships may be registered in different countries; their owners or managers may be companies incorporated in yet other countries; the master and crew may be nationals of still different countries; after the collision the ships may go into repair yards in other countries …”

26.  Mr Sussex pointed out that in most collision cases where it was concluded that some other forum was the natural forum for the action, the court had found that the collision occurred in foreign territorial waters: see The “Al Khattiya” [2018] 2 Lloyd’s Rep 243, §43 per Bryan J.

27.  I do not take the view that the occurrence of the collision in international waters necessarily precludes the court from concluding that Shanghai is clearly and distinctly more appropriate than Hong Kong as the forum for the inter-ship action.  On the other hand, it is clearly an important factor in the present exercise to evaluate whether Shanghai has the most real and substantial connection with the inter-ship action. 

28.  I remind myself of the dicta of Recorder Ma SC (as he then was) in Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250, at 255B-C :

“The burden is on the defendant to show that the courts of Nevada are clearly or distinctly more appropriate than the Hong Kong courts for the trial of the action. Mere convenience is not enough nor is it enough simply to point to factors which connect a case or the parties to any particular jurisdiction. The approach in forum non conveniens applications is not just an exercise in loading up with factors which point to any particular jurisdiction. The court is required to focus on the appropriateness of a forum from the point of view of the trial of the action. This would in part explain the need to identify the particular court in favour of which the action is to be stayed, for it is to the appropriateness of that court for the trial that the court’s attention is directed.”

29.  The evaluation requires the court to focus on the inter-ship action.  It is not controversial that the primary issues for trial in such action are (a) the inter-ship apportionment of liability for the collision and (b) assessment of the parties’ respective quantum of loss.

30.  On the liability issue, it cannot be seriously doubted that with the availability of the Voyage Data Recorder (VDR) data from Sanchi (those of Crystal was lost) and the Report, which contains a detailed summary of the evidence collected from the investigation, the most important evidence is readily available in documentary form.

31.  In The “Peng Yan” [2008] 5 HKLRD 418, §§25-27, Reyes J summarised the approach of the court in assessing liability in a collision that was investigated by maritime authorities :

“… I doubt that much (if any) evidence can usefully be obtained from the crew many months after the event. In contrast, the collision was thoroughly investigated by the MD[1] and MSA shortly after the accident occurred. I suspect that the evidence supporting their reports (including records of interviews with The Peng Yan third officer) will be more useful to any trial judge.

That body of evidence from the MD and MSA will likely be largely agreed for the purposes of trial. That will mean that the task of the Court will essentially be hearing submissions on how such evidence is to be assessed from the standpoint of the law generally and the International Regulation for the Prevention of Collisions at Sea 1972 specifically.

  That body of evidence would likely be available to both the Hong Kong and Ningbo Courts.”

32.  The decision of Reyes J was affirmed by the Court of Appeal: [2009] 1 HKLRD 144, §18(5) per Ma CJHC :

“[I]t was far from clear in any event what relevant testimony would come from crew members. The main evidence going to the issue of the respective fault of both ships would come from the reports of the incident compiled by the Hong Kong Marine Department and the Shenzhen Maritime Safety Administration.”

  And at §34:

“Here, the careful analysis undertaken by the Judge directed at what was likely to occur at trial (which analysis was not really challenged on appeal) clearly justified his conclusion it could not be shown that the Ningbo Maritime Court was clearly or distinctly the more appropriate forum for the trial of the disputes.”

33.  As regards the assessment of damages, Bright Shipping’s suggestion that all of the evidence on quantum is likely to be available to this court is not contradicted.  The vast majority of contracts, invoices and receipts concerning the claim of Sanchi for loss arising from the collision are in the English language.  The evidence of the value of Sanchi is likely to come from international experts adopting a market comparables approach and, in relation to Crystal, international surveyors (including surveyors based in Hong Kong) who had inspected the vessel at a shipyard on 1 February 2018.

34.  Changhong’s case that SMC is clearly and distinctly the more appropriate forum rests heavily on lis alibi pendens. In addition, a number of factors had been identified by Mr Coleman SC, who appeared with Mr Alder on behalf of Changhong, as pointing in favour of SMC as the appropriate forum. 

35.  These factors included the lack of commercial operation in Hong Kong in respect of both Changhong and Changfeng; Crystal was managed by the Shanghai operation of the latter; and Crystal’s crew, as well as 2 independent witnesses, are based in the Mainland. 

36.  I do not believe that these factors, on proper analysis, assist Changhong’s case.  It can readily be seen that it would be more convenient to Changhong that the inter-ship action be tried in the Mainland, but it does not follow that Shanghai is clearly and distinctly more appropriate than Hong Kong. 

37.  It has to be said that the location of witnesses, in the absence of specificities about the relevance and importance of their evidence, is of little weight.  Further, in this age, the location of witnesses is rarely a real obstacle.  In the worst case, evidence may be given via video link.

38.  Furthermore, Hong Kong court is well-placed and experienced in dealing with cases involving Mainland witnesses, documents in Chinese and Mainland law. 

Lis alibi pendens

39.  The evidence of Changhong is that Mainland court has, and has accepted, jurisdiction over the collision, being one which took place within PRC’s EEZ.  Such evidence is not disputed.  A jurisdictional challenge was indeed made by NITC before the SMC, which was rejected.  The decision of the SMC had been upheld on appeal.   

40.  However, Mr Sussex submitted that there is inconsistency between the relevant law of the Mainland and the provisions of UNCLOS (in particular, Articles 55, 56 and 58 which set out the specific legal regime over the rights of exploration, exploitation and conservation of natural resources of the EEZ by costal states and the rights of other states to lawful use of the sea, including the freedom of navigation), and that the SMC does not have jurisdiction over the inter-ship claim as a matter of international law. 

41.  In The “Chou Shan” [2014] FCAFC 90, §102, the Full Court of the Federal Court of Australia held in respect of a collision that took place in the EEZ of the PRC that the lex causae was not PRC law.  Whilst noting that the law of the coastal state applied if the activity giving rise to damage was “closely connected with the exercise [of a state’s rights over the EEZ under UNCLOS]” (§90), the Court held that the activity concerned was the “freedom of both parties to navigate under Arts 58 and 90” and it was not relevant that pollution was caused by the collision.  It was held that the “closest and most direct analogue” to a collision in the EEZ was a collision “on the high seas”, in respect of which the general maritime law as administered in the forum applies (§92).

42.  For the present purpose, I do not believe that this court is required to resolve the suggested inconsistency or SMC’s jurisdiction over the collision as a matter of international law.   

43.  Mr Sussex also submitted that any judgment obtained from the SMC would not be recognised in Hong Kong or common law jurisdictions applying similar conflict of laws rules.  Apart from the lack of jurisdiction over the inter-ship claim, the SMC has not established in personam or in rem jurisdiction over Bright Shipping.  Thus, SMC’s jurisdiction would not be recognised as a matter of Hong Kong conflicts rules, and its judgment would not be enforceable.  This court was referred to Johnston, The Conflict of Laws in Hong Kong, 3^rd edn, [9.055]-[9.066] and [9.075].   

44.  There is certainly force in the submissions over the enforceability of SMC’s judgment against Bright Shipping.  However, I agree with Mr Coleman that Changhong cannot be looking to enforce any judgment against Bright Shipping in Hong Kong as it has no identified asset here, and that this court should not endeavour to predict (or guess) how matters will unfold after judgment. 

45.  As a matter of general principle, multiplicity of proceedings is not of itself a material factor for consideration of FNC but there might be exceptional cases where such proceedings may cause unusual hardship to a defendant: see Nan Tung Bank v Wangfoong [1999] 2 HKC 606, CA, at 610H-611A.

46.  Further, it is not unusual for there to be parallel proceedings in collision cases.  In The “Peng Yan”, supra, §23, Ma CJHC observed that :

“Further, as cases like The Kapitan Shvetsov (at p.217(2)) and Caspian Basin Specialised Emergency Salvage Administration v Bouygues Offshore SA (No 4) [1997] 2 Lloyd’s Rep 507 (at p.525(2)) show, the existence of parallel proceedings in admiralty matters is by no means unusual, nor should the mere existence of such by itself incline a court towards staying an action on the ground of forum non conveniens …”

47.  In this case, the inter-ship proceedings before the SMC have not been served on Bright Shipping.  The proceedings are therefore at the initiating stage, and of little relevance: see LN v SCCM, unrep., CACV 62/2013, 4 June 2013, §§20 and 24, per Cheung JA. 

48.  In respect of the host of other actions in Shanghai, 3 of which involve Bright Shipping (see para 12 above), I agree with Mr Sussex that they are of little relevance for the present purpose – an evaluation of the appropriate forum for the inter-ship action – notwithstanding that there are advantages for all the disputes arising from the collision to be deal with in one place in terms of convenience, saving of costs and possibly consistent findings. 

49.  Whilst I am concerned about the possibility of inconsistent findings if the inter-ship dispute is litigated in 2 jurisdictions, this does not of itself render Shanghai the appropriate forum, nor would it constitute unusual hardship to Changhong in the context of a collision in international waters.  

50.  Finally, Changhong relies heavily on The “Chou Shan”, supra, which was also a case involving a collision in the EEZ of the PRC.  The jurisdiction of the Australian court was invoked by arresting “Chou Shan” in Australia.  With respect, I do not believe that The “Chou Shan” is of much assistance to Changhong’s case.

51.  Most importantly, the Australian court applied a rather different test from that of The “Spiliada” for the stay application, namely, whether Australia was a “clearly inappropriate forum”.  As the Full Court explained, under the Australian test “[t]he focus is upon the chosen local forum – its advantage and disadvantages, rather than on a true comparative analysis” (§§57-58, 77, 81) (see also the observation of the Court of Appeal in DGC v SLC [2005] 3 HKC, §22, about the Australian approach being different). 

52.  It appears that lis alibi pendens was a major factor in the Court’s determination to stay the Australian proceedings in favour of the Ningbo Maritime Court in the Mainland (McKerracher J at §§148, 149 and 158(f); Full Court at §§29-30, 36 and 61). 

53.  There is considerable force in Mr Coleman’s submission that the undesirability of the same issues being tried in different courts at the same time is so obvious and should be avoided.  On the other hand, the test applied by the Hong Kong Court is different (see paras 45 to 47 above).  It appears that under Australian law, it is prima facie vexatious and oppressive for identical issue or the same controversy to be litigated in different countries, and that the courts “should strive” to avoid that situation (see Henry v Henry (1996) 185 CLR 571, per Dawson, Guadron, McHugh and Gummow JJ at p 591).

54.  In addition to the fact that the SMC inter-ship proceedings have not been served on Bright Shipping, it should not be overlooked that Changhong is being sued in its place of incorporation.  I am unable to see any unusual hardship to Changhong in the circumstances of this case.

55.  For these reasons, I am driven to the conclusion that Changhong has failed to discharge its burden for the stage 1 analysis and this application must fail. 

56.  Out of deference to counsel, I would mention very briefly my view on 2 factors which would have led me to decline a stay in this case in the stage 2 analysis.  Firstly, the significant disparity in the tonnage limitation.  I am inclined to agree with Mr Sussex that this court is bound by Court of Appeal authorities to the effect that a significant difference in tonnage limitation applied in Hong Kong and the competing jurisdiction is a very important, if not decisive, personal juridical advantage in favour of refusing a stay: see The “Adhiguna Meranti” [1987] HKLR 904, at 922B-F per Hunter JA and The “Kapitan Shvetsov” [1997] HKLRD 374, at 380J, 318D-F and 382A and G, per Litton VP.

57.  Secondly, it is uncontroversial that all PRC claims subject to limitation must be brought against the limitation funds within a time limit, which had expired on 9 June 2018.  Hence, an inter-ship action by Bright Shipping brought in Shanghai now will not result in an effective remedy.  I do not believe that Bright Shipping can be criticised for allowing the time limit to lapse or for forum shopping.  Apart from the lack of natural forum for the collision, it was (and is) entitled to bring these proceedings against Changhong at its place of incorporation, and to take into account the disparity in the tonnage limitation.

58.  In the premises, I do not believe that substantial justice will be done in Shanghai. 

Conclusions

59.  For these reasons, this application is dismissed with a costs order nisi in favour of Bright Shipping and a certificate for 2 counsel.

60.  I am grateful to counsel for their assistance.