HANJIN SHIPPING CO LTD v. GRAND KING SHIPPING LTD

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

1998 No. CL78

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J U D G M E N T

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1. The Plaintiff applied ex parte for a Mareva injunction and ancillary orders against the Defendant on the 21st March 1998 before Yeung, J. who granted the relief sought.

2. The endorsement of claim, issued on the 21st March 1998 is in the following terms:-

"The Plaintiff claims against the Defendant for amounts due from the Defendant to the Plaintiff under a charterparty dated on or about 10th September 1997 in respect of the vessel "HANDY BRAVE" together with interest and costs."

3. In the skeleton argument prepared by Mr Kerr before Yeung, J., under the section headed The Claim appears three paragraphs. I need only refer to paragraphs 4 and 5 and they are as follows:-

"4. See the Hughes Affidavit paragraphs 4-14.

5. It is submitted on the grounds advanced in the Hughes Affidavit that there is a good arguable case on this cause of action."

4. Under the section headed Anticipated Defences, paragraph 7 of the skeleton referred to the Hughes Affidavit at paragraph 19.

5. There are other sections in the skeleton to which I may have to return.

6. The Hughes Affidavit referred to in Mr Kerr's skeleton is one sworn on the 21st March 1998 by Andrew Sior Hughes, a partner in the firm of Richards Butler, solicitors for the Plaintiff.

7. In paragraph 3, Mr Hughes says

"The Plaintiff is claiming against the Defendant as charterer of the vessel "HANDY BRAVE" for loss and damage under a charterparty dated on or about 10th September 1997."

8. From paragraph 4 onwards, Mr Hughes refers to negotiations with the Defendant's Hong Kong Chartering broker, a Mr Lo, and to various documents in which the Defendant was, at different stages, referred to as the charterer. I have been taken through these documents by both Mr Kerr and by Mr Carolan, counsel for the Defendant.

9. In paragraph 9, Mr Hughes refers to a fax sent by Mr Shin, the Plaintiff's chartering broker, to a Mr B W Lee of the Plaintiff's Conventional Liner Team, to recap on the terms of the charterparty. The fax itself refers to "make recap of all negotiations so far". Mr Shin tells us that this fax to Mr Lee was actually sent on the 2nd September 1997.

10. The next relevant document is at p. 11 of ASH-1. This is how the document is described by Mr Hughes at paragraph 9:-

"On 12th September 1997 Mr Lo faxed the front page of the charterparty to Mr Shin (page 11 of "ASH-1"). According to Mr Shin the typed words in the boxes appeared to be from a previous charterparty in the Defendant's possession whilst the manuscript insertions were probably made by Mr Lo. I am advised and verily believe they were not made by Mr Shin or the Plaintiff. The name of the charterers in box 2.2 and at the bottom right hand corner of the charterparty is that of the Defendant. The charterparty is dated 10th September 1997. The place of arbitration in box 17 is the U.K. with English law to apply."

11. At paragraph 10, Mr Hughes says:-

"About two weeks later Mr Shin received a clean original of the charterparty (pages 12-19 of "ASH-1"). He forwarded it to Mr B W Lee of the Plaintiff for signature. Neither Mr Shin nor Mr Lee noticed that the name of the charterers had been changed to Grand King Shipping Inc. Mr B Huh, team manager of the Plaintiff's conventional liner team signed the charterparty on behalf of the Plaintiff. Mr B W Lee and Mr Shin have both advised me that notwithstanding the alteration of the charterers' name they believe the Plaintiff had chartered the vessel "HANDY BRAVE" to the Defendant, not Grand King Shipping Inc which I am advised and verily believe is a Liberian company and which in my experience is probably of no substance."

12. The next few paragraphs details the cause of the dispute, but paragraph 13 has some relevance to the issue of the identity of the charterer. It reads as follows:-

"On 19th January 1998 the Plaintiff prepared an invoice showing an amount of US$1,264,825.58 payable in respect of freight, deadfreight and demurrage at Owendo. Attached to the invoice is a laytime statement dated 12th January 1998 showing the demurrage incurred at Owendo. I am advised by Mr B W Lee and verily believe that the invoice and laytime statement were prepared by a junior member of the Conventional Liner Team who inserted Grand King Shipping Inc's name on both simply because that was the name which appeared on the signed charterparty. Mr B W Lee only became aware towards the end of January 1998 that, contrary to the fixture negotiations, Grand King Shipping Inc as opposed to Grand King Shipping Ltd had been named as the charterer in the charterparty. When he noticed this, Mr Lee advised Mr Shin. Mr Shin has told me that he had no prior knowledge that the name of the charterer had been switched."

13. Under the section headed Possible Defences, the question as to the possible dispute as to the identity of the charterer is not further mentioned. But in paragraph 17, Mr Hughes says this:-

"There does not appear to be any dispute that the Plaintiffs were the party named as the owners/chartered owners/disponent owners in the charterparty. In the circumstances, I verily believe there can be no doubt that the Plaintiff has title to sue. However, it appears from their fax of 17th March 1998 that the Defendant will be disputing whether they are the charterers under the charterparty. In the circumstances outlined in paragraphs 5-9 above, I believe all the pre-fixture negotiations between the brokers proceeded on the basis that Grand King Shipping Ltd of Hong Kong were the charterers. Although I understand Mr Lo is not now prepared to acknowledge this in writing, I am advised by Mr Inglis and verily believe that Mr Lo verbally confirmed to him that all the communications in respect of the fixture referred to Grand King Shipping Ltd and that he prepared a draft charterparty showing Grand King Shipping Ltd as the charterers which he sent to the Defendant for signature. The Defendant said they would prepare the charterparty themselves and sent the charterparty to Mr Lo already signed in the name of Grand King Shipping Inc. Mr Lo did not notice that the identity of the charterer had been changed and forwarded the charterparty to Poseidon who in turn passed it on to the Plaintiff for execution without noticing the switch. I verily believe that the terms of the charterparty were agreed before the charterparty itself was executed by the parties."

14. On the afternoon or perhaps the early evening of the 26th March 1998, the Defendant gave notice in general terms of an application to discharge the Mareva order the next day. On the morning of the 27th March 1998, Mr Carolan for the Defendant handed to Mr Kerr for the Plaintiff his skeleton submissions as well as an affirmation of Kwok Chi Leung.

15. The matter came before me later on that morning when Mr Kerr sought an adjournment which, after hearing submissions, I granted up to yesterday morning continuing the effect of the injunction in the meantime.

16. During the course of the submissions in support of his application for an adjournment, Mr Kerr, who had by then seen Mr Kwok's reference to two addenda to the charterparty dated respectively the 23rd September 1997 and 23rd December 1997, both signed on behalf of Grand King Shipping Inc as the charterers, puts the Plaintiff's case on the identity of the charterer and the contractual document clearly and realistically. Those submissions were expanded upon yesterday and today.

17. Basically, Mr Kerr submitted that the Plaintiff was not relying on the actual charterparty signed on or dated the 10th September 1997 as such. That document, according to Mr Kerr, was merely evidence of the terms agreed between the Plaintiff and the Defendant, which was always the proposed charterer and that terms had already been agreed by those representing the Plaintiff and the Defendant, so that even if the actual charterparty dated the 10th September 1997 was not signed by or on behalf of the Defendant, it did not matter. And anything else signed after the 10th September 1997 is not relevant since the parties had already been identified and agreed before or on the 10th September 1997.

18. Mr Kerr dealt with this rather difficult point both ably and engagingly. He may or may not be correct as a matter of legal analysis. I can certainly see obstacles in his path, but that is not really a matter of moment at this stage.

19. Far more troubling and important is the fact that the two addenda, which I have already mentioned, to the charterparty, referred to in Mr Kwok's affirmation, which identify the charterer as Grand King Shipping Inc was not before the court when the matter was before Yeung, J. on the 21st March 1998.

20. Whatever may have been the rights and wrongs as to who the parties are to the charterparty, these two contractual addenda were clearly material in my judgment to the weighing process which had to be conducted by the Judge hearing the ex parte application. They are, after all, contractual documents between the parties, whether the events dealt with in them ultimately took place or not.

21. Mr Kerr has striven valiantly to mould the Plaintiff's case to get around these two addenda. He has done so with great skill, but even his efforts cannot avoid highlighting the fact that Yeung, J. heard an application on evidence which was, at best, incomplete.

22. I do not, of course, criticise in any way Mr Kerr or Mr Hughes. Mr Hughes was not shown the two addenda. Solicitors are sometimes put into a very difficult position when faced with a mountain of material and having to take instructions from different witnesses, some of whom may or may not be within the jurisdiction. And the matter is, of course, usually urgent.

23. However, if the evidence before the court on the ex parte stage is incomplete in a material particular or actually or even potentially misleading, then urgency and voluminous documentation are seldom adequate justification for serious omissions and I regard these two addenda as very material documents, since, unlike invoices, which may have passed through junior staff, they actually embody contractual obligations and it would take some explanation as to how the identity of the charterer on all three contractual documents were missed. The explanation in the Plaintiff's evidence and the evidence in reply is hardly persuasive.

24. The law on this matter is accurately summarised in Brink's Mat Ltd. v. Elcombe, [1988] 1 WLR 1350, which is referred to by Mr Carolan in his skeleton argument. The facts need not detain us, but there are various passages in the judgment which bears citation in full. Ralph Gibson, LJ had this to say at p. 1356 in the paragraph beginning at above the letter F:-

"In considering whether there has been relevant non-disclosure and what consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following. (1) The duty of the applicant is to make "a full and fair disclosure of all the material facts:" see Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, 514, per Scrutton L.J.

(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy M.R., at p. 504, citing Dalglish v. Jarvie (1850) 2 Mac. & G. 231, 238, and Browne-Wilkinson J. in Thermax Ltd. v. Schott Industrial Glass Ltd. [1981] F.S.R. 289, 295.

(3) The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour [1985] F.S.R. 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J. of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. v. Robinson [1987] Ch. 38; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade L.J. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 92-93.

(5) If material non-disclosure is established the court will be "astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure ....is deprived of any advantage he may have derived by that breach of duty:" see per Donaldson L.J. in Bank Mellat v. Nikpour, at p. 91, citing Warrington L.J. in the Kensington Income Tax Commissioners' case [1917] 1 K.B. 486, 509.

(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.

(7) Finally, it "is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded:" per Lord Denning M.R. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms.

"when the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant ....a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed:" per Glindewell L.J. in Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc., ante, pp. 1343H-1344A."

25. Balcombe, LJ also made some pertinent observations at p. 1358 as follows:-

"The courts today are frequently asked to grant ex parte injunctions, either because the matter is too urgent to await a hearing on notice, or because the very fact of giving notice may precipitate the action which the application is designed to prevent. On any ex parte application, the fact that the court is asked to grant relief without the person against whom the relief is sought having the opportunity to be heard makes it imperative that the applicant should make full and frank disclosure of all facts known to him or which should have been known to him had he made all such inquiries as were reasonable and proper in the circumstances.

The rule that an ex parte injunction will be discharged if it was obtained without full disclosure has a two-fold purpose. It will deprive the wrongdoer of an advantage improperly obtained:see Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, 509. But it also serves as a deterrent to ensure that persons who make ex parte applications realise that they have this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty. Nevertheless, this judge-made rule cannot be allowed itself to become an instrument of injustice. It is for this reason that there must be a discretion in the court to continue the injunction, or to grant a fresh injunction in its place, notwithstanding that there may have been non-disclosure when the original ex parte injunction was obtained: see in general Bank Mellat v. Nikpour [1985] F.S.R. 87, 90 and Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc., ante, p. 1337, a recent decision of this court in which the authorities are fully reviewed. I make two comments on the exercise of this discretion. (1) Whilst, having regard to the purpose of the rule, the discretion is one to be exercised sparingly, I would not wish to define or limit the circumstances in which it may be exercised. (2) I agree with the views of Dillon L.J. in the Lloyds Bowmaker case, at p. 1349C-D, that, if there is jurisdiction to grant a fresh injunction, then there must also be a discretion to refuse, in an appropriate case, to discharge the original injunction."

26. And, lastly, Slade, LJ, made these comments at pp. 1358-1359:-

"These appeals raise a number of different questions arising out of the application of what is sometimes known as the principle of Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486. I have had the advantage of reading in draft the judgments of Ralph Gibson and Balcombe L.JJ. I respectfully agree with them, both in their analyses of the principle and in its application to the facts of the present case. The principle is, I think, a thoroughly healthy one. It serves the important purposes of encouraging persons who are making ex parte applications to the court diligently to observe their duty to make full disclosure of all material facts and to deter them from any failure to observe this duty, whether through deliberate lack of candour or innocent lack of due care.

Nevertheless, the nature of the principle, as I see it, is essentially penal and in its application the practical realities of any case before the court cannot be overlooked. By their very nature, ex parte applications usually necessitate the giving and taking of instructions and the preparation of the requisite drafts in some haste. Particularly, in heavy commercial cases, the borderline between material facts and non-material facts may be a somewhat uncertain one. While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think the application of the principle should be carried to extreme lengths. In one or two other recent cases coming before this court, I have suspected signs of a growing tendency on the part of some litigants against whom ex parte injunctions have been granted, or of their legal advisers, to rush to the Rex v. Kensington Income Tax Commissioners [1917] 1 K.B. 486 principle as a tabula in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially the only hope of obtaining the discharge of injunctions in cases where there is little hope of doing so on the substantial merits of the case or on the balance of convenience."

27. I have set out these principles in some detail because the question is not simply whether the order granted by Yeung, J. should be discharged, but whether I should make a similar order on the inter partes summons before me should I decide to discharge the ex parte order.

28. Having given the matter careful consideration and having re-read the evidence, during the adjournment yesterday evening, I have come to the conclusion that the ex parte order must be discharged. The omission to refer to the two addenda is a serious one. They are very material and they go to the crux of the case as to who the charterer is. If they had been disclosed to the Plaintiff's lawyers, I have no doubt that they would have been before the court on the ex parte application.

29. For the same reasons, I cannot think it right to make a similar order in the Plaintiff's favour on its inter partes application. The principles upon which such a discretion is to be exercised I have already set out in the passages quoted. Mr Kerr also refers me to dicta in Shenzhen Universal Enterprises Industry and Trade Company Supplies and Another v. Wei Bun Trading Co. Ltd. [1989] 1 HKLR at p. 470, a judgment of the Court of Appeal in Hong Kong. My discretion not to grant inter partes relief does not depend on the omission being deliberate. If the omission is sufficiently serious, as I have no doubt it is, the matter is at large and I am vested with a discretion.

30. Although I am not able to say that the omission to refer to the two addenda is deliberate, I note that the evidence in reply does not really explain why the identity of the charterer on them was similarly missed. The addenda of the 23rd December 1997 was actually prepared by the Plaintiff. And it was only when the Plaintiff's solicitors issued its statutory demand on the 17th March, 1998 that the Defendant was referred to in terms as the charterer.

31. Even if I were minded to entertain the Plaintiff's inter partes summons, and I have heard the parties in full, I would not have granted the relief sought. The Plaintiff is faced with the formidable task of seeking rectification of the charterparty dated the 10th September 1997 when it and the two subsequent addenda also refer to Grand King Shipping Inc. as the charterer. Mareva relief, even in this day and age, is not a matter of course.

32. I have already referred to the way Mr Kerr puts the Plaintiff's case, but the dispute and difference on such a fundamental issue as to the identity of the charterer is such that I am unable to say that the Plaintiff has a good arguable case. The Rhodian River, [1984] 1 LLR 373, a judgment of Bingham, J., as he then was, referred to by Mr Kerr, sets out the relevant principles on rectification and the onus is not a light one. It is compounded when all three contractual documents are to the same effect on the question of the identity of the charterer. I note also Mr Carolan's submission that there is no common intention that the Defendant was to be the charterer because that was never the intention of the Defendant and, therefore, rectification is not available.

33. I need only say that the Plaintiff will have some formidable hurdles to surmount on this issue as well. In Ninemia Maritime Corporation v. Trave (The 'Niedersachsen') [1983] 2 Lloyd's Report, 600, at p. 605, Mustill, J., as he then was, described a good arguable case as "one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success". When the matter reached the Court of Appeal, reported at [1983] 1 WLR 1412, Kerr LJ, delivering the judgment of the court, approved of the formulation of the Plaintiff having to show a good arguable case and went on, at p. 1417, to say

"Although other, and perhaps slightly stronger, words have been used in other cases, the defendants did not challenge this formulation of the present appeal. We respectfully agree with it, but would add that this aspect of the evidence before the court should not be looked at in isolation when deciding whether or not to exercise the discretion to grant a Mareva injunction."

34. Further down the page, his Lordship continued:-

"It follows that the evidence, including the evidence on the second question posed by the judge to which we turn in a moment, must be looked at as a whole. A "good arguable case" is no doubt the minimum which the plaintiff must show in order to cross what the judge rightly described as the "threshold" for the exercise of the jurisdiction. But at the end of the day the court must consider the evidence as a whole in deciding whether or not to exercise this statutory jurisdiction."

35. I also bear in mind Mr Carolan's analysis of the documents and his submission that until the actual charterparty was executed, there was no concluded contract and what was in the pre-contractual negotiation documents is irrelevant. There is also force in Mr Carolan's submissions that Mr Lo was never clothed with the requisite authority, actual, ostensible or usual, to act for the Defendant in relation to the current charterparty in dispute, whatever may have been the position vis-à-vis an earlier charterparty which turned out to be abortive.

36. I have considered the whole of the evidence, including all the evidence in reply. It does not, in my judgment, in any material way bolster the plaintiff's case on the fundamental issue of the identity of the charterer.

37. Mr Carolan also submitted that there was insufficient evidence to support the assertion of risk of dissipation of assets. His submissions are summarised on pp. 5-7 of his written skeleton argument, which in turn summarised the Plaintiff's evidence. Mr Kerr's detailed submissions are more than adequately contained in his excellent skeleton submissions put before me yesterday.

38. In the light of my views on the issue of the material non-disclosure and the consequence thereof and my holding that there is no good arguable case, it is perhaps not necessary for me to consider these further submissions on dissipation. But I have heard the parties fully, and it may be worth making a few observations on this issue as well. I have to say, however, that I find the Plaintiff's case on this issue not without difficulties, and I am by no means convinced that it has overcome this hurdle either. I am not prepared to proceed on the basis that there was a deliberate and dishonest switch by the Defendant of the identity of the charterer as Mr Kerr has urged me to do. Nor do I find that a $2 company, controlled by Chinese interests sufficiently suspicious, even taking into account the late registration, I believe it was in 1997 in October, of the trust deed dated 1993.

39. Sharing an office with another, mortgaging assets to secure banking facilities, these take the matter no further. I am, however, troubled by Mr Lo's telling the Plaintiff at the beginning of the negotiations that the Defendant owned two vessels when it does not, but, all told, I am not satisfied that the Plaintiff has shown a good arguable case of a risk of dissipation of assets by the Defendant. Suspicion is one thing. Legitimate inferences from the evidence is quite another. The latter is not sufficiently borne out on the papers.

40. In the circumstances, the order granted by Yeung, J. on the 21st March 1998 and continued by me on the 27th March and again yesterday is discharged and the Plaintiff's inter partes summons issued on the 21st March 1998 is dismissed.

41. Before I ask both of you to address me on anything else, may I express my gratitude to both of you for the assistance you have given me in this interesting but rather difficult application.