CI v. IU

HCCT 34/2025

[2025] HKCFI 4397

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 34 OF 2025

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DECISION

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1.  Introduction

1.1  The Plaintiff (“Charterers”)[1] and the Defendant (“Owners”)  were respectively the Respondent and the Claimant in an arbitration (“Arbitral Proceedings”)  conducted under the HKMAG[2] Terms (2021)  (“HKMAG Terms”), with 2 members appointed to the arbitration tribunal (“Tribunal”). 

1.2  The Arbitral Proceedings were concerned with disputes arising from a voyage charterparty evidenced by a Fixture Note dated 6 July 2022 (“Subject Charterparty”).  By the Subject Charterparty, the Owners chartered ████ ████ ████ (“Vessel”)  to the Charterers for the carriage of phosphate rock in bulk (“Cargo”)  from Abu Ghusun, Egypt to Fangcheng, South China. 

1.3  Clause 26 of the Fixture Note provided that the parties were to refer any dispute to “ARBITRATION, IF ANY, IN HONG KONG AND ENGLISH LAW TO APPLY”. 

1.4  On 24 February 2025, the Tribunal published the First Final Arbitration Award (“Award”), by which it (1)  found that the Charterers were in repudiatory breach of the Subject Charterparty in failing to provide the Cargo for loading and (2)  acceded to the bulk of the claims pursued by the Owners. 

1.5  The pertinent factual matters underpinning the present leave application are identified at Award §§8, 10-11 and 32-36. 

1.6  First, as identified at Award §8, the Subject Charterparty came in a chain of charterparties where similar disputes were made along the contractual chain.  In gist, at the material time, UG was the head owner of the Vessel.  By a charterparty dated 11 July 2022 (“UG Charterparty”), UG chartered the Vessel to FS.  FS in turn chartered the Vessel to IS (HK)  Co Ltd (“IS”) under a charterparty dated 6 July 2022 (“FS Charterparty”).  IS then chartered the Vessel to the Owners by a charterparty dated 6 July 2022 (“IS Charterparty”). On the same date, the Subject Charterparty was entered into between the Owners and the Charterers. 

1.7  Secondly, as identified at Award §10, IS and the Owners were related group companies. 

1.8  Thirdly, as identified at Award §11, all the charterparties in the charterparty chain concerned the carriage of the Cargo from Abu Ghusun to Fangcheng and contained materially the same terms. 

1.9  Fourthly, as identified at Award §§32-36, the disputes between FS and IS under the FS Charterparty were referred to arbitration (“FS Arbitration”)  and a final arbitration award was published in 19 October 2024 (“FS Award”)  to the effect that IS (being in the position of the charterers in that arbitration)  was held liable for FS's loss and damage by reason of IS's repudiatory breach of the FS Charterparty. 

1.10  At Award §88A, the Owners were awarded not only their own loss of profit (Award §88A(ii)), but also the following losses sustained by IS:

(1)  Award §88A(i): IS’s liability to FS in the sum of US$807,329.10 being its quantified liability to FS as established in the FS Award plus interest thereon;

(2)  Award §88A(iii): IS’s loss of profit in the sum of US$8,053.20;

(3)  Award §88A(iv): IS’s liability to FS for costs of the FS Arbitration in the sum of US$91,000. 

1.11  By an Originating Summons dated 26 March 2025, the Charterers seek leave to appeal against the Award on the following question of law (“Question”):

“Whether the Tribunal has erred in law by ordering the [Charterers] to indemnify the [Owners] in respect of losses allegedly suffered by a third party, [IS], when the [Owners] faced no claim from IS in respect of such alleged losses.”

1.12  It is said that the Tribunal erred in law in holding that the Charterers should indemnify the Owners in respect of the losses suffered by IS by reason of one or more of the following 3 grounds:

(1)  The Tribunal erred in law in treating the Owners and IS as the same entity.  There is no basis to pierce the corporate veil in the present case (“Appeal Ground 1”);

(2)  The Tribunal erred in law in failing to take into account and/or pay due regard to the established legal principle that indemnity would not be ordered against the party in breach of a contract for losses which a third party may claim against the innocent party if there is no reliable evidence a claim has in fact being made by the third party.  The Tribunal ought to have rejected the claim for indemnity in respect of IS’s alleged losses (“Appeal Ground 2”);

(3)  There was no or no proper basis for the Tribunal to hold that the Charterers should indemnify the Owners for the losses suffered by IS, when IS has not threatened to claim or claimed such losses against the Owners (“Appeal Ground 3”). 

1.13  In the statement filed pursuant to paragraph 18 of Practice Direction 6.1[3] (“Amended Statement”), the Owners say that the present leave application is demurrable on the following grounds:

(1)  First, as a jurisdictional issue, the Question is not a “question of law” within the meaning of sections 5 and/or 6 of Schedule 2 to the Arbitration Ordinance Cap 609 (“AO”)  which, properly construed, is intended to encapsulate only questions of Hong Kong law.  In the present case, as noted above, Clause 26 of the Fixture Note provided that disputes arising out of the Subject Charterparty were governed by English law;

(2)  Secondly, the Question was not one which the Tribunal was asked to decide;

(3)  Thirdly, in any event, the Charterers have failed to show that the Tribunal’s decision was obviously wrong. 

1.14  I have received helpful submissions from Ms Cherry Xu representing the Charterers and Mr Douglas Lam SC (leading Ms Clara Wong)  for the Owners. 

1.15  The present leave application is made pursuant to section 6 of Schedule 2 to the AO which, by virtue of Article 26 of the HKMAG Terms, the parties have agreed to opt in.  There is no dispute between counsel on the applicable principles, which principles have been summarized by Mimmie Chan J in CS v HKR [2025] 2 HKC 340:

“[2] Under s 6(3)  of the [Schedule 2 to AO], the Court ‘must’ determine an application for leave to appeal without a hearing unless it appears to the Court that a hearing is required. Under s 6(4), leave to appeal is only granted if the Court is satisfied of three cumulative conditions. These are that (a)  the decision of the question will substantially affect the rights of one or more of the parties; (b)  the question is one which the arbitral tribunal was asked to decide; and (c)  on the basis of the findings of fact in the award, the decision of the tribunal on the question is ‘obviously wrong’, or the question is one of general importance and the decision of the tribunal is ‘at least open to serious doubt’[4].

[3] In this regard, I wish to repeat the observations made in P v C [2019] HKCFI 2625, [2019] HKCU 4155, at paras 4 to 5:

‘4. It has to be borne in mind that an application for leave to appeal on a questionof law arising out of an award is a filtering process. As highlighted in the decision of Mustill J (as His Lordship then was)  in Vinava Shipping Co Ltd v Finelvet AG (The ‘Chrysalis’)  [1983] 1 Lloyd’s LR 503, the court at the first stage, of the application for leave, gives effect to the policy whereby ‘the interests of finality are placed ahead of the desire to ensure that the arbitrator’s decision is strictly in accordance with the law.’ As His Lordship explained:

‘Some examination of the merits takes place at this stage, because the stronger the applicant’s case for saying that the arbitrator was wrong, the better his prospect of obtaining leave to appeal. But the examination of the law is summary in nature and does not lead to any definite conclusion. The exercise is discretionary throughout; the mesh of the filter is fine; and it must, I think, he recognized that some cases will be caught in the filter which would, if the appeal had been allowed to go forward, result in a decision that the award could not stand.’

5. The judgment in The Chrysalis also contains a helpful summary on the 3 stages of an arbitrator’s process of reasoning, with the reminder that only the second stage of the process is the proper subject matter of any appeal on law:

‘(1)  The arbitrator ascertains the facts. This process includes the making of findings on any facts which are in dispute.

(2)  The arbitrator ascertains the law. This process comprises not only the identification of all material rules of statute and common law, but also the identification and interpretation of the relevant parts of the contract, and the identification of those facts which must be taken into account when the decision is reached.

(3)  In the light of the facts and the law so ascertained, the arbitrator reaches his decision.’’ (emphasis added)

2.  The Award

2.1  In my view, the following findings in the Award are pertinent to the present deliberation:

(1)  At Award §9, the pertinent terms of the Subject Charterparty were set out;

(2)  As mentioned above, at Award §11, the Tribunal noted that the charterparties of the charterparty chain (ie the UG Charterparty, the FS Charterparty, the IS Charterparty and the Subject Charterparty)  contained materially the same terms but with differentials in freight rates and demurrage rates;

(3)  At Award §48, the Tribunal concluded that the Charterers were in repudiatory breach of the Subject Charterparty and the Owners accepted the Charterers’ repudiatory breach and terminated the Subject Charterparty;

(4)  Importantly, at Award §49, the Tribunal found and concluded that the Charterers’ repudiatory breach caused the Owners to be unable to perform their contractual obligations under the IS Charterparty, which in turn caused IS and FS to be unable to perform their contractual obligations under the FS Charterparty and the UG Charterparty respectively, as all the charterparties along the chain were on materially the same terms.  Subject to the Charterers' arguments which were dealt with (and rejected)  in the subsequent paragraphs of the Award, the Tribunal considered that the Owners’ loss and damage claimed were loss and damage caused as a result of the Charterers' breach;

(5)  In particular, the Owners’ loss and damage pursued in closing were set out at Award §§37 and 39, which included the heads of damages set out at §1.10 above;

(6)  The first argument raised by the Charterers and rejected by the Tribunal at Award §§50-59 was premised on remoteness.  As regards the rate differentials in the charterparties, the Tribunal found at Award §58 that there was no suggestion that the UG Charterparty and the FS Charterparty were not arm’s-length transactions and the freight rate concluded in the IS Charterparty was a market rate as it was only slightly higher[5] than the freight rate agreed in the Subject Charterparty.  At Award §59, the Tribunal found that it was within the reasonable contemplation of the Charterers that there was a charterparty chain and that their repudiatory breach would not only cause the Owners to incur a loss of profit on the difference in freight rates between the Subject Charterparty and the IS Charterparty, but also liability up the charterparty chain.  Such liability included the Owners’ liability to IS in respect of IS’s own loss of profit and damage in the amount of IS’s liability to FS under the FS Award. The Tribunal further found that losses from other owners higher up the charterparty chain were not too remote and were foreseeable;

(7)  The second argument raised by the Charterers and rejected by the Tribunal at Award §§60-65 was that the Owners had no legal standing to seek relief against the Charterers for the losses suffered by IS.  This aspect forms the subject matter of the present leave application, as the Appeal Grounds are directed at Award §§62-65.  I shall return to this aspect below;

(8)  The third argument raised by the Charterers and rejected by the Tribunal at Award §§66-71 was the Charterers’ argument that FS and UG had failed to take all reasonable steps to mitigate their alleged losses.  At Award §§68-69, the Tribunal agreed with the Owners that, as a matter of law, the Charterers had no standing to dispute the fact of IS’s liability to FS as determined in the FS Award, and since it was not alleged by the Charterers that the Owners had failed to mitigate, that was the end of the matter.  Further and in any event, the Charterers’ allegation was not supported by evidence as there was no evidence showing whether there was an available market for UG and/or FS to fix a substitute cargo and there was also no evidence showing what other steps that could and should reasonably have been taken by UG and/or FS for mitigation and the amount of loss that could have been reduced if those steps were taken;

(9)  The fourth argument raised by the Charterers and rejected by the Tribunal at Award §§72-76 was whether the parties had entered into a settlement agreement in respect of further demurrage claimed by the Owners.  At Award §75, the Tribunal found that no settlement agreement had in fact been reached to settle the Owners’ claim for damages in respect of their liability to IS due to the Charterers’ repudiatory breach of the Subject Charterparty.  In the alternative, the Tribunal found that even were the settlement agreement in existence, the Charterers did not fulfil the condition precedent to effect the requisite payment by the stipulated time;

(10)  The fifth issue dealt with by the Tribunal at Award §§77-85 was whether the costs claimed by FS in the FS Arbitration were unreasonable and excessive. At Award §85, the Tribunal found that since IS agreed to settle FS’s costs at US$91,000 (against the claimed sum of US$103,842), that agreement signified the reasonableness of the level of settlement in the eyes of the payor, ie IS.  The Tribunal was of the view that the agreed sum might be on the high side but did not seem excessive or unreasonable in an arbitration like the FS Arbitration. The Tribunal therefore found that the Owners were entitled to its claim for US$91,000, being their liability to IS’s liability for FS’s costs of the FS Arbitration;

(11)  As a result, the Tribunal awarded to the Owner, inter alia, the sums set out at §1.10 above.

2.2  Returning to Award §§60-65 which form the subject matter of the present leave application, it is convenient to set them out in full in view of the arguments advanced by the Charterers:

“[60] Another argument put forward by the Charterers in this arbitration was that the Owners had no legal standing to advance the following claims against the Charterers:

(1)  Loss of profit alleged by IS

(2)  FS liability incurred by IS

Their case was that the Owners were only entitled to advance claims against the Charterers for liabilities and damages suffered by the Owners under the Charterparty. They said that while there might be instances when a charterer might be held liable for damages suffered by a head owner in a charterparty chain, such damages could only be claimed against the charterer by the disponent owner with whom it directly entered into a charterparty. In the present case, the Owners and IS were two separate legal entities with separate legal personalities. They contended that it could at best only be said that IS had allegedly incurred loss of profit and FS liability. However, it was different from saying that the Owners bore that same liability and suffered the same losses because there existed the IS Charterparty whereby IS was the disponent owner and the Owners were the charterers. They argued that we, the arbitrators of this reference, were not in a position to make any determination of liability between the Owners and IS since we had no jurisdiction in relation to the IS Charterparty. They therefore said that the Owners were not in a position to claim any monetary damages or seek a declaration of indemnity against them for the loss of profit and the FS liability on behalf of IS.

[61] We must confess our difficulty in understanding the Charterers' argument. As the Owners rightly said, our jurisdiction under the Charterparty was to determine what losses and damages had been suffered by the Owners because of the Charterers' repudiatory breach of the Charterparty. This would require us to determine the Charterers' liability owed to the Owners as a result of their repudiatory breach, including the Owners' liability up the charterparty chain. This was what the Owners had pleaded in paragraph 18(3)(C)  of their Claim Submissions… As noted above, all the charterparties along the chain contained materially the same terms. The breach of the Charterers caused the Owners to breach the terms of the IS Charterparty, and in turn placed IS in breach of the FS Charterparty and FS in breach of the UG Charterparty. The loss of profit by IS and the FS liability incurred by IS were liabilities owed by the Owners under the IS Charterparty and were therefore damages caused to the Owners by the Charterers' repudiatory breach. It was not suggested by the Charterers that the chain of causation was broken. Their criticism was based on remoteness which we have already dealt with in the above.”

[62] The Charterers contended that there was a gap in the chain of liability as there was no established liability between IS and the Owners. Their argument seems to suggest that the Owners' liability to IS under the IS Charterparty could only be ascertained through an arbitration award. We disagree. We do not consider that the establishment of liability flowing from the Charterers' breach would be affected by the facts that the Owners and IS were related parties and that there was no arbitration award between them. In Occidental Chartering Inv v Progress Bulk Carriers Ltd [2012] EWHC 3515 (Comm)  on which the Owners relied, Cooke J said that:

“[36] … There is no need for any arbitration award to establish liability if that liability is plain from the terms of the back-to-back charter parties, which it is”

“[38] …There was no need for OSC to demand reimbursement from OCI if OCI was liable to it for damages, but in any event such a demand would readily be implied. There was a clear legal liability under OSC/OCI re-let charter for breach of the safe port warranty... The establishment of the breach of warranty was therefore sufficient up and down the chain of charter parties to establish the recoverability of costs as a head of damage...”

[63] The situation we are facing here is similar to that of Occidental Chartering Inv v Progress Bulk Carriers Ltd [2012]. The Charterers tried to distinguish Occidental Chartering Inv v Progress Bulk Carriers Ltd (2012] from the present case by saying that the two companies involved in Occidental Chartering Inv v Progress Bulk Carriers Ltd [2012] were treated as one and the same company by the respondent of that case and what Cooke J said as quoted above must be read in this context. We do not consider it material to the decision in Occidental Chartering Inv v Progress Bulk Carriers Ltd [2012]. The two Occidental companies in question were still separate legal entities. Like the present case, they were related companies, and their relationship was based on an internal relet charter between them. The internal relet charter was on materially back-to-back terms to all the other charters in the chain which meant that there was no issue about passing liability from one Occidental company to another. The arbitrators in that case were concerned by the absence of any arbitration between the two Occidental companies or any express agreement between them to pass on the legal liabilities arising in the head charter party arbitration. They considered that "this gap in the chain of references" seemed to be fatal to the passing of the claim for costs as damages down the line of charterparties. Cooke J did not agree with the arbitrators and decided that there was no need for any arbitration award to establish liability between the two Occidental companies before such liability could be passed down the charterparty chain. In our view, Occidental Chartering Inv v Progress Bulk Carriers Ltd (2012] is relevant to our present case and we see no reason why the same logic should not apply here.

[64] The Owners' claim for losses and damages, including their liability to IS under the IS Charterparty, had been submitted to us for determination. We consider that we have jurisdiction to determine whether the Owners had suffered losses and damages in the amount of their liability under the IS Charterparty to IS. There was no need for the Owners to prove their legal liability under the IS Charterparty to IS by way of an arbitration award. In our view, the legal liability of the Owners under the IS Charterparty had been sufficiently proven by the Owners by establishing that their breach of the IS Charterparty was due to the Charterers' repudiatory breach of the Charterparty…

[65] Since we have jurisdiction to determine whether the Owners had suffered losses and damages in the amount of their liability under the IS Charterparty to IS, it is not necessary for us to consider the Charterers' arguments on whether the Owners could seek declaratory relief. In any event, the declaratory relief was no longer required by the Owners as the FS Award had been published.”

3.  Merits of the Appeal Grounds

3.1  I propose to first deal with the merits of the Appeal Grounds.  For the reasons set out below, I am of the view that the Appeal Grounds do not meet the merit threshold and the foregoing conclusion is dispositive of the present leave application. 

(i)   The applicable merit threshold

3.2  The first issue to be decided is whether the Question is one of general importance, the answer to which informs on the relevant merit threshold: CS §2 cited at §1.15 above.  Ms Xu submits that the Question concerns whether a tribunal can lawfully make an indemnity order against a defaulting party based solely on the potential for third-party claims that have not actually been asserted, and the same question is likely to arise in future cases. 

3.3  I do not agree with Ms Xu.  In my view, the Question is context-specific.  The “disqualifying” condition posed in the Question is that an order for indemnification is not permitted when the Owners “faced no claim from IS in respect of such alleged loss”.  The relevant context which the Tribunal took into account is that the relationship between the Owners and IS was based on an internal relet charter between them which was on materially back-to-back terms (Award §63).  Another context which the Tribunal took into account is that, in the present case, IS’s liability to FS had been quantified by the FS Award and its costs liability to FS had been ascertained by a settlement reached between them.

3.4  The Tribunal at Award §§62 and 63, after referring to Occidental §§36 and 38, held that, in the specific factual context of the present case, Occidental was relevant since “the situation we are facing here is similar to [Occidental]”.  It is plain from the Award that the Tribunal’s conclusions that (1)  there was no need from any arbitration award to establish liability if that liability was plain and (2)  there was no need for IS to demand reimbursement from the Owners and in any event such a demand would readily be implied were based on the specific context, namely the liability was plain from the terms of the back-to-back charterparties and the establishment of the Charterers’ breach was sufficient up and down the chain of charterparties to establish recoverability.  I would add that I agree with Mr Lam that the Question cannot be answered as a pure legal question in vacuum and, even on Ms Xu’s argument (as to which see further below), much depends on whether a party in the position of the Charterers is deprived of the opportunity to be heard insofar as the claim by the third-party affects their rights.

3.5  For the above reasons, I disagree with Ms Xu’s submission that the Question is of general importance, and for the reasons adumbrated below, it is my view that the Appeal Grounds do not show that the Tribunal’s conclusion was obviously wrong.  In any event, even were I incorrect in my conclusion on the applicable merit threshold, I would still come to the conclusion that the Appeal Grounds do not show that the Tribunal’s decision is at least open to serious doubt. 

(ii)  Appeal Ground 1

3.6  Appeal Ground 1 complains that the Tribunal erred in law in treating the Owners and IS as the same entity.  In her written submissions, Ms Xu submits that, in the absence of a claim made by IS against the Owners, the Tribunal had effectively treated the losses incurred by IS as if such losses were automatically the losses of the Owners thereby conflating the two as if they were the same entity. 

3.7  I agree with the position taken by the Owners:

(1)  First, as is plain from Award §§60 and 63, the Tribunal was well aware of the Charterers’ argument that the Owners and IS were separate legal entities;

(2)  Secondly, Ms Xu has not attempted to deal with the Tribunal’s findings at Award §§37, 39, 49, 59, 68-69 and 85 referenced at §2.1 above, where the Tribunal held that the Charterers’ repudiatory breach caused the Owners to incur liability to IS in respect of IS’s own loss of profit and damage in the amount of IS’s liability to FS under the FS Award.  

3.8  In Occidental, OCI was the plaintiff, OSC was the third party and PBC was the defendant and in positions analogous to the Owners, IS and the Charterers respectively in the present case.  As observed at §36:

“… The claim made by OCI against PBC is a claim for damages based upon the breach of the safe port warranty. That is a breach for which the Arbitrators found that CNAN was liable to PBC, PBC was liable to OCI, (sub silentio that OCI was liable to OSC), and OSC was liable to the registered owners.... The … breach which gave rise to damages in respect of the cost of repair and associated cost … are passed on down the line of charter parties. There is no difference in character between these heads of damages. There is no need for any arbitration award to establish liability if that liability is plain from the terms of the back-to-back charter parties, which it is. PBC expressly eschewed any argument based on remoteness, foreseeability or causation in relation to such damages. There remained nothing to be proved, save the reasonableness of the costs incurred which were claimed down the string of charter parties. The registered owners’ costs had been assessed by the arbitrators in a Costs Award and, in the Second Award itself, the arbitrators found that, with a minor exception, the costs of OSC and OCI were reasonably incurred and would not have been disallowed (save for photocopying charges), had they found that the claim worked in principle.” (emphasis added)

3.9  Viewed thus, the Tribunal's basis for awarding to the Owners' the losses suffered by IS was based squarely on its finding against the Charterers' arguments on remoteness, which argument was not pursued by PBC in Occidental.

3.10  There is considerable force in the position set out at Amended Statement §§19-20, namely, as regards the issue of the Owners’ liability owed to IS, the complaint that the Tribunal erred in effectively treated the losses incurred by IS as if such losses were automatically the losses of the Owners represents a misreading of the Award.  The Charterers’ complaint, if directed at the quantification of such losses, is equally without merit given the Tribunal’s reject of the Charterers various arguments including those on mitigation (§2.1(6)  above)  and reasonableness (§2.1(10)  above).

3.11  By reason of the above matters, I have come to the firm conclusion that Appeal Ground 1 does not meet either of the merit threshold. 

(iii)  Appeal Grounds 2 and 3

3.12  Ms Xu relies principally on Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297 and Freight Connect (S)  Pte v Paragon Shipping Pte Ltd [2016] 1 Lloyds Rep 184. 

3.13  In Trans Trust, the defendants contracted to buy from the plaintiffs a quantity of steel which the plaintiffs were to purchase from A, a Belgian company to whom the manufacturers of the metal had given an option to buy.  Neither the plaintiffs, defendants, nor A, were in a position to provide the money necessary to obtain delivery of the steel.  It was a term of the contract that payment by the defendants should be by cash against shipping documents from a confirmed credit to be opened at Brussels bank, in favour of A.  The defendant failed to procure the opening of the credit and eventually repudiated the contract.  The plaintiffs thereupon claimed from the defendants, as damages from breach of contract, the profit which they would have made if the transaction had been carried through.  They also claimed to be indemnified by the defendants against damages which A might subsequently claim and recover against them.  It was admitted that the market price of steel at the time of reputation was substantially higher than the contract price.  The trial judge held that the loss of profit claimed was not too remote.  The trial judge also granted the declaration claimed by the plaintiffs that they should be indemnified against any damages that might be recovered against them by A.  On appeal, it was held, relevantly, that the defendant had no knowledge that A depended on the credit in order to get the goods themselves and therefore it could not have been in the contemplation of the parties that A might have a claim for a special damage against the plaintiffs and that even if that head of damage was recoverable it would not be correct to make a declaration of indemnity. 

3.14  The proposition which Ms Xu seeks to derive from Trans Trust is the passage (underlined below)  set out a page 303 (per Somervell LJ)  :

“… The problem can be shortly stated. B sues C for breach of contract. The court holds that B is entitled as against C to recover damages in respect of B’s liability to A arising out of C’s breach of contract. At the time of the hearing B is not in a position to call evidence to quantify the damage. There may be some cases in which the court can state a principle which makes the subsequent qualification of this damage simple. On the other hand, difficult questions may arise, depending, for example, (1)  on any variation of the terms of the contract between B and C as between B and A, (2)  on the question whether A took the steps which should have been taken to mitigate damage. No declarations ought to prejudice or preclude a proper determination of these issues, on which the defendants should be entitled to be heard. It might, as it seems to me, be more satisfactory if there were liberty to apply for directions as to the determination of these issues, if any, and quatification of damages under this head as between plaintiffs and defendants, should disputes arise. Some order in this form, at any rate, in some cases might be more satisfactory than a declaration in the form ordered.”

3.15  Trans Trust was applied in Freight Connect.  In Freight Connect, the charterer (appellant)  chartered a vessel from a disponent owner (respondent)  for the carriage of goods.  The disponent owner in turn entered into an agreement with the owner (FLS)  to charter the vessel on similar terms.  Due to the charterer’s failure to provide certain shipping documents, no cargo was eventually loaded on the vessel.  The disponent owner then commenced proceedings against the charterer, seeking inter alia an order for the charterer to indemnify it against the head owner’s potential claim against the disponent owner.  The trial judge granted the order.  On appeal, the Singapore Court of Appeal set aside the indemnity order.  Ms Xu relies on the following paragraphs in Freight Connect:

“[48] … the respondent has adduced no reliable evidence that FLS has in fact made any claim in writing against the respondent…

[49] … counsel for the respondent … accepted that FLS had yet to make a claim against the respondent.

[50] It was on this evidence that the respondent claimed an indemnity and the judge granted the order of indemnity. The judge cited no authority in support of her decision to order the indemnity, and no authority was cited to her on whether or when a declaration or an order for an indemnity in the terms of the order actually given ought to have been given in present circumstances.

[§§51 and 52 then referred to passage in Trans Trust cited above and continued as follows].

[52] … Denning LJ also held that in the event where the liability of the seller to a third party was within the contemplation of the parties, but had not yet been assessed, the proper order was to reserve that head of damages. It was further observed that judgment could be entered for the damages already ascertained, leaving the rest to be ascertained later by the same or another judge (at page 307). On this basis, Denning LJ arrived at the conclusion that "it would not be correct to make a declaration of indemnity". In the subsequent English decision of Deeny v Gooda Walker Ltd (in liquidation)  [1995] 1 WLR 1206, Philips J followed Trans Trust and deferred dealing with the claimants' future losses until it had been determined.

[54] … Trans Trust has stood even longer, and is still good law in England. Accordingly, we are of the view that in principle and/or good practice, the judge erred in granting the order of indemnity on the facts of this case. Furthermore, the form of the indemnity order appears openended as it does not expressly provide for the appellant to be joined as a third party in the event that FLS commences proceedings against the respondent for payment of freight and/or detention charges.

[55] In Eastern Oceanic, the Federal Court affirmed the decision of the High Court to reserve the damages the plaintiff might have to pay third parties, with liberty to apply for directions when the real issues can be determined and damages quantified. In the present case, we do not think that a reservation is necessary. It is not necessary for any action by FLS to be heard before the judge. No claim has been made. If and when FLS brings an action against the respondent, it will no doubt join the appellant as a third party to the proceedings.”

3.16  Ms Xu submits that the Tribunal committed the error identified in the above cases, by ordering the Charterers to indemnify the Owners for IS’s loss when IS has not made or threatened any claim against the Owners.  In particular, the Tribunal failed to pay any or due regard to the risks inherent in such a premature order of indemnity, which precludes proper argument which may be raised if and when IS ever formulates and makes a specific claim against the Owners.  By doing so, the Tribunal deprived P of the right to be heard properly on the difficult questions as identified in Trans Trust.  In her reply written submissions, Ms Xu contends that it is unclear whether there was a variation of terms and waiver between IS and the Owners which limited the Owners’ liabilities towards IS and there is therefore a real risk that the Owners would obtain an unjustified windfall.

3.17  Ms Xu further contends that the Tribunal erred in relying on Occidental, since that case was decided in the unique context where the defendant had agreed to treat the plaintiff and the third party as the same company for the purpose of the arbitration.  It was only until at a later stage that the defendant made contrary submissions that they were different entities.  In the present case, the Charterers has always maintained that the Owners and IS were separate entities. 

3.18  I am unable to accept Ms Xu’s submissions for the following reasons.

3.19  First, as pointed by Mr Lam, the cases relied on by Ms Xu are concerned with an order for indemnity.  In the present case, the Tribunal awarded damages rather than any free-standing indemnity.  The considerations in the cases cited by Ms Xu against an order of indemnity are therefore not engaged.

3.20  Secondly and perhaps more significantly, the cases cited by Ms Xu stand for the proposition that a party in the position of the Charterers should not be deprived of the opportunity to be heard.  In the present case, the Charterers advanced wide-ranging grounds to oppose the Owner’s claim in respect of IS’s losses, including IS’s failure to mitigate, one of the difficult questions identified in Trans Trust. The damages awarded by the Tribunal were made after the Tribunal’s rejection of all of the grounds advanced by the Charterers.  Ms Xu is therefore driven to contend that it was possible that there was a variation of terms and/or waiver between IS and the Owners.  Given the plethora of arguments run by the Charterers before the Tribunal, there is in my view very little scope for the Charterers that they were deprived of the opportunity to be heard.  The suggestion now made by Ms Xu that there was a variation/waiver between IS and the Owners was specifically not run by the Charterers in the Arbitral Proceedings and it seems to me for obvious reasons - given that IS’s liability had been determined by the FS Award, it is commercially absurd to suggest that IS and the Owners (being related companies)  would agree on a variation or waiver which had the effect of relieving the Charterers from liability (whether in whole or in part).

3.21  Thirdly, unlike Freight Connect where the upstream owner (FLS)  had not made a claim against the disponent owner (the respondent), the upstram owner (FS)  in the present case did commence proceedings against IS and obtained the FS Award.  As noted by Ms Xu, the position taken by the Owners in the Arbitral Proceedings was that IS did not commence arbitration (and a fortiori not made a claim)  against the Owners because they were related companies.  In my view, it cannot be said that the Tribunal decision to draw parallel with Occidental (where OCI and OSC, as here in the case of the Owners and IS, were related companies within the same group)  that such a demand would readily be implied can be said to be either obviously wrong or open to serious doubt.

3.22  Fourthly, as pointed out by Mr Lam, the Charterer’s attempt to distinguish Occidental is far from convincing.  As the Tribunal pointed out at Award §63, this fact is wholly immaterial as the Court in Occidental was well alive to the separate legal personalities of OCI (plaintiff)  and OSC (third-party)  by the time the matter came before it (§§9, 11, 14, 25, 38), yet still concluded that it was unnecessary in principle for OCS to have first demanded any reimbursement from OCI, or established OCI’s liability to it by an arbitral award, before OCI could further claim against the defendant for its loss (based on its potential liability to OSC).

3.23  For the above reasons, I am far from being satisfied that Appeal Grounds 2 and 3 have the effect of showing that the Tribunal’s decision is obviously wrong or is at least open to serious doubt.

3.24  Given my conclusion, it is strictly unnecessary for me to deal with the other arguments raised by Mr Lam.  For completeness, I will deal with them briefly.

4.  Whether the Question was one which the Tribunal was asked to decide

4.1  Mr Lam observes that the Tribunal was only asked to decide whether the Owners’ liability to IS had to be first established by an arbitral award and not whether or not IS had made a claim against the Owners.

4.2  It is true that the conclusion set out at Award §64 was that there was no need for the Owners to prove their legal liability by way of an arbitration award.

4.3  However, as pointed out by Ms Xu, the submissions made by the Charterers to the Tribunal included questioning the correctness of the proposition that a demand was not necessary from the third party to demand reimbursement from the innocent party if the innocent party was liable to it for damages.  It seems to me that was why the Tribunal felt the need to cite Occidental §38 at Award §62.  Were Mr Lam correct, the Tribunal would only have to cite Occidental §36.

4.4  I therefore do not agree with Mr Lam that the Question was not one which the Tribunal was asked to decide.

5.  Jurisdictional Challenge

5.1  Mr Lam submits that, where, as here, the Award raises question of foreign law (in this case English law)  no appeal can lie to the court under Schedule 2 of the AO, as a question of foreign law is not a question of law within the meaning of sections 5 and 6 of Schedule 2 to the AO.

5.2  Mr Lam relies on Schwebel v Schwebel [2010] EWHC 3280 §14:

“Section 82(1)(a)  of the Act defines "question of law" as meaning “for a court of law in England and Wales, a question of the law of England and Wales". In the case of Reliance Industry Ltd v Enron Oil & Gas Ltd [2002] 1 LL Rep 645, the Commercial Court held that, if no question of English law arises, there is no power in the English court to grant leave to appeal under Section 69(1). It follows that this Court cannot entertain an appeal under the Arbitration Act on a question of law, where the law being applied by the arbitrator(s)  is a law other than the law of England and Wales. It is clear from the arbitration agreement between the parties in this case and the text of the award itself that the arbitrators (or Dayanim in this case)  have applied Jewish Law, as they were bound to do under the arbitration agreement. There is a good policy reason why the English Courts will not entertain appeals in relation to foreign law. That is because the English courts dispense English law and could only rule on foreign laws on the basis of evidence advanced before the Court.” (emphasis added)

5.3  The issues presented by the jurisdictional challenge, in particular in the context of maritime arbitration such as the present case, has been identified by the learned editors of Arbitration In Hong Kong: A Practical Guide, 5^th Ed at §§23.099:

“Hong Kong maritime arbitration tribunals frequently decide disputes involving charterparties and other contracts that are governed by English law. The arbitrators will all be conversant with English law which, in matters of shipping case law, is to all intents and purposes the same as Hong Kong law. Prior to 1997, English common law was statutorily applied in Hong Kong, and thereafter the Basic Law has, by art 84, provided that Hong Kong courts may refer to case law precedents from “other common law jurisdictions”. Neither the Hong Kong courts nor Hong Kong arbitrators need expert evidence to enable them to understand those common law case precedents. So, from an arbitration perspective at least, when a tribunal decides a question of English law, the tribunal will be doing just that, as opposed to deciding a question of fact having, for example, received expert evidence as to a foreign law. However, as a matter of statutory interpretation of Sch 2 of the Arbitration Ordinance, it remains to be seen whether a Hong Kong court will interpret the power to hear an appeal on a “question of law” as being limited to a “question of Hong Kong law”.” (emphasis added)

5.4  The position advocated by Mr Lam is in gist as follows.  He says that Hong Kong court can only rule on foreign laws on the basis of the evidence advanced, as foreign law is always a question of fact.  Thus, it plainly could not have been the legislative intent for the court to decide, on an appeal of the present nature, to conder and assess competing expert evidence on foreign law before it can determine whether a tribunal’s decision applying foreign law is obviously wrong.

5.5  Conversely, Ms Xu points out that in Schwebel, the English court held that it has no power to grant leave in respect of a question of Jewish law because the relevant statutory provision restricts a question of law to a “question of law of England and Wales” and the same restriction is not found in the AO.  She says that restricting “question of law” in sections 5 and 6 of Schedule 2 to the AO to questions of Hong Kong law would dimmish Hong Kong’s appeal as an international arbitration hub.  She submits that, on a proper construction of section 6 of Schedule 2 to the AO, the phrase “question of law” includes questions of foreign law.

5.6  In my view, the governing law of an arbitration is not determinative.  I do not accept Mr Lam’s submission that in every situation where the governing law of an arbitration is not Hong Kong law, an appeal against the award invariably falls outside the scope of sections 5 and 6 of Schedule 2 to the AO. In my view, the construction argued by Mr Lam would unjustifiably exclude a number of tolerably established categories of “question of law”.

5.7  One can envisage a range of situations.  On the one hand, an arbitration may be governed by a system of law which is truly “exotic” such that the foreign law can only be proved by expert evidence (and therefore truly a question of fact).  However, even in that situation, a question of law may still arise.  P v C [2019] HKCFI 2625 §19 is an authority for the proposition that an Edwards v Bairstow error on a factual finding, whilst limited in scope, is nevertheless still within the scope of an appeal under sections 5 and 6 of Schedule 2.

5.8  On the other end of the spectrum is a case (such as the present one)  as described by the learned editors of Arbitration in Hong Kong: A Practical Guide (§5.3 above).  As pointed out by Ms Xu, Beard v Revenue and Customs Commissioners [2025] EWCA Civ 385 is an authority for the proposition that a tribunal’s decision on foreign law can give rise to an error of law:

“To the extent that the relevant legal system is one that applies an approach similar to that under English law, the application by a lower tribunal or court of its own skill and experience will necessarily require the application of legal principles… Inherent in that process, therefore, must be the scope for error which can properly be characterized as an error of law, as Lord Radcliffe contemplated. So while an appellate court or tribunal is not in the same position as the fact-finding tribunal, if it considers that that tribunal has erred in its application of legal principles then it would be able to conclude that it made an error of law.”

5.9  Where the Hong Kong statutory regime is such that the phrase “question of law” is, in contrast with the English position, without any restriction or limitation, it seems to me whether an appeal falls within the rubric of section 5 and 6 of Schedule 2 to the AO necessarily depends on the nature of the complaint, and the exercise is examine whether the complaint constitutes a question of law in the eyes of the Hong Kong court (such as the examples given in the preceding two paragraphs).  In my judgment, the fact that the governing law of an arbitration is not Hong Kong law does not automatically preclude the court from entertaining an appeal (or an application for leave to appeal)  made under those sections.

5.10  In the context of the present case, had it been necessary, I would have held against the Owners’ jurisdictional challenge.

6.  Conclusion

6.1  As I have found that the Appeal Grounds do not meet the requisite threshold, the OS is dismissed.  There is no reason why costs should not follow the event.  In view of the outcome where the Owners have failed some of the arguments on discrete issues, it seems to me that a fair order is that the Charterers should pay to the Owners 70% of the costs of the OS on an indemnity basis.  Junior counsel for the Owners appeared on a complimentary basis.  I grant a certificate for senior counsel.  The foregoing costs order is on a nisi basis.

6.2  The Owners have provided their Statement of Costs.  The Charterers are to provide their Statement of Opposition within 7 days hereof.  I will thereafter conduct summary assessment on the papers.