NEWOCEAN PETROLEUM CO LTD v. O.W. BUNKER CHINA LTD (in provisional liquidation) AND ANOTHER

HCA 381/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 381 of 2015

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D E C I S I O N

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1.  This was the 2^nd defendant’s application for leave to appeal from my decision dated 18 March 2016 (“the decision”) dismissing the 2^nd defendant’s application to set aside the order dated 27 April 2015 of Master S Lo granting the plaintiff leave to issue and serve the concurrent writ on the 2^nd defendant out of the jurisdiction pursuant to Order 11, rule 1(1)(d) and rule 1(1)(f) of the Rules of the High Court and, if necessary, exercising my discretion to re‑grant such leave.

2.  The reasons for dismissing the 2^nd defendant’s application and, if necessary, re‑granting such leave are fully set out in the decision.  I have revisited and reconsidered the decision in the light of the 2^nd defendant’s present application for leave to appeal.  Essentially, the 2^nd defendant deploys the same arguments that were made before me at the earlier hearing.  The only ‘new’ matters consist of two recent cases decided after the date of the decision.

3.  Then at the commencement of the hearing the court was also provided with a copy of the judgment of the Supreme Court dated 11 May 2016 (released in the late afternoon of the day prior to the scheduled hearing of this application) in PST Energy 7 Shipping LLC and another (appellants) v OW Bunker Malta Ltd and another (Respondents), [2016] UKSC 23 (which for convenience will hereafter be referred to as “Res Cogitans”).  As had been noted in the decision (at §§31 and 50), it was known at the date of the decision that the Supreme Court had granted leave to appeal.

4.  But as matters stood before becoming aware of the Supreme Court’s judgment, having read the draft notice of appeal, the parties’ written submissions and revisited the decision, there was nothing that caused me to have second thoughts concerning the issues arising in the decision. Subject to hearing counsel, I was not convinced that this was a proper case to grant leave to appeal on any of the grounds put forward.

5.  Although counsel made oral submissions on the effect or implications of the Supreme Court’s judgment, I decided to reserve my ruling so that the newly available judgment and its implications (if any) on the leave application could be duly read and considered.

6.  I have now had the opportunity of considering the Supreme Court’s judgment.  Notably, it endorses Males J’s analysis of the OWBM contract with the Owners, an analysis that I had adopted and followed.  The Supreme Court held (at §28) that the contract was in substance an agreement with two aspects: first, to permit consumption prior to any payment and without any property ever passing in the bunkers consumed; and second, but only if and so far as bunkers remain unconsumed, to transfer the property in the bunkers so remaining to the Owners in return for the Owners paying the price.

7.  For present purposes the most relevant passage is to be found in §39:

“… As a result, OWBM’s only implied undertaking as regards the bunkers which it permitted to be used and which were used by the Owners in propulsion prior to payment was that OWBM had the legal entitlement to give such permission. In order to be so entitled, OWBM did not need to have or acquire title to the bunkers. It merely needed to have acquired the right to authorise such use under the chain of contracts by virtue of which it had obtained the bunkers …. The issues before the court do not involve any claim that OWBM had no right to permit such use, or that the Owners are or may be exposed to any risk of double exposure, either by reason of RMUK’s claim … or on any other basis. On the presently assumed facts, therefore the Owners are simply liable for the price, albeit under a contract sui generis, which is not one of sale.” (emphasis added)

8.  Res Cogitans makes clear that:

(1)  The OWBM contract is not a contract for the sale of goods.

(2)  OWBM as the intermediate bunker supplier impliedly undertook that it had the legal entitlement to give permission for the bunkers to be consumed prior to payment.

(3)  The right to authorise such use is acquired in contract: through a chain of contracts by virtue of which OWBM obtained the bunkers.

(4)  The issue that arises in the present case, namely, where the intermediate supplier had no authority to authorise the use of bunkers prior to payment was not an issue before the Supreme Court.  That is made clear by the penultimate sentence of the extract from §39 reproduced above.

9.  One of the new cases decided since the date of the decision, namely, O’Rourke Marine Services LPvMV“CoscoHaifa” (15‑CV‑2992 (SAS) 8 April 2016) as well as the earlier Singaporean decision in Xin Chang Shu that Mr Coleman SC (counsel for the 2^nd defendant) had referred to (but which I had not specifically addressed in the decision), adopted an analysis that was based on a chain of sale of goods contracts.

10.  That analysis was different from Males J’s analysis of the contractual obligations involved flowing from the OWB terms and conditions that I had adopted.  In view of the Supreme Court’s judgment, those authorities plainly are not relevant for present purposes.

11.  So far as the decision of A Chan J in Newocean Petroleum Company Ltd v Rio Tinto Shipping (Asia) Pte Ltd, HCA 446/2015, unreported, 15 April 2016 (“the RTS case”) is concerned, it is to be noted that no leave for service out for the plaintiff’s tort claim was sought before the master despite a claim in tort having been pleaded.  Unlike the present case, leave for service out in the RTS case was obtained only for its claim in contract.

12.  Having in the RTS case refused to re‑grant an order to enable the action to continue against the defendant after discharging the Master’s order granting leave in respect of the claim in contract, A Chan J did not consider it necessary to, and did not, deal with the conversion claim.  The view the judge took was that it was open to the plaintiff (Newocean) to bring a fresh claim for conversion and apply for leave.

13.  But the conversion claim and the agency relationship established through contract are intertwined.  As reinforced by the Supreme Court’s judgment, the basis of the conversion claim in the present case stems from the implied undertaking of the intermediate bunker supplier that it “had the legal entitlement” to give permission for the bunkers to be consumed prior to payment referred to in §39 of Res Cogitans.

14.  As stated in §8(3) above, the means of acquiring that right is through contract.  For that permission to be binding, if the other contracting party were not the physical supplier but an intermediate bunker trader, it would necessarily involve a chain of contracts from the physical supplier to the end‑user.  It is in that context that the agency relationship arises: the agency relationship is necessary for the purpose of obtaining that license or permission.  That aspect was not considered and did not arise for consideration in the RTS case.

15.  That the plaintiff’s pleaded case in contract requires ‘fine‑tuning’ as Mr Sussex SC put it does not mean that a contractual claim does not presently exist.

16.  Mr Coleman SC stressed the observations of Lord Mance in Res Cogitans (at §27) to the effect that the qualification in OWBM’s terms permitting consumption for the propulsion of the vessel prior to payment “reflects a reality” and that standard terms prohibiting any use would be “uncommercial or in practice … simply ignored”.

17.  But those observations cannot dispose of the issue that arises in the present case or prevent it from arising.  Because of the assumed facts upon which Res Cogitans had proceeded, it was not an issue that arose for decision in that case.  It is an issue that has never been decided by the courts.

18.  As I am not persuaded that leave to appeal should be granted, the 2^nd defendant’s application is refused.  There is to be an order nisi of costs in favour of the plaintiff, such costs to be payable forthwith and to be taxed if not agreed.