CHIMBUSCO PAN NATION PETRO CHEMICAL CO LTD v. ARKSTAR SHIP MANAGEMENT PTE LTD

HCA 1199/2015

[2019] HKCFI 57

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1199 OF 2015

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JUDGMENT

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1.  In this action the Plaintiff sues for the price of bunkers sold in Singapore by the Plaintiff to the Defendant by way of a contract dated 29 January 2014.

2.  There is no dispute that the bunkers were delivered, or that the invoice is in the correct amount according to the terms of contract.  There is also no dispute that the Defendant has not paid the amount invoiced.  The dispute arises because the Defendant alleges that the bunkers were contaminated with microbiological organisms and therefore were not of merchantable quality or reasonably fit for their purpose.  The Plaintiff denies that, and says that the evidence relied upon does not prove that the bunkers were not of merchantable quality.  In addition, the Plaintiff relies upon the terms of the Contract which, it says, prevents the claim from now being brought.  As a result, the broad issues which I have to decide are as follows:

(1) As a matter of law, and construction of the contract, are the Defendant’s claims (or defences as it prefers to call them), extinguished or barred pursuant to clause 11(b) and 26(b) of the Contract.

(2) If not, were the bunkers contaminated at the time of delivery such that they were not of merchantable quality.

(3) If so, what damages is the Plaintiff responsible for, and what is the effect of that on the Plaintiff’s entitlement to the contract price.

A.     BACKGROUND

3.  The bunkers were delivered to the vessel, the Arkstar Voyager, under delivery note number A00113 dated 1 February 2014 and an invoice, number PCI 2014168 dated 17 February 2014 in the sum of US$335,858.31 was issued.  They were delivered by a company known as Palmstone Marine Services PTE Ltd, from whom the Plaintiff had purchased the Bunkers prior to selling them on to the Defendant.  The Defendant is the managing agent for the owner of the vessel.

4.  At the time of delivery, as was required by the Contract, four samples were taken by continuous drip feed at the vessel’s manifold.  They were sealed and numbered, and two were kept by Palmstone and two were kept by the vessel.  One of those samples was tested by Maritec Pte Ltd, a well known and respected testing house, on the same day, and it did not report any defects in quality.  Insofar as the contamination is concerned, the relevant test is the “Appearance” test, and Maritec reported that as “Clear and Bright”, which would indicate a pass.

5.  In this context, paragraph 5.6 of the expert report of Mr Christopher Fisher records that ISO 8217:2005, which is the relevant international standard for testing of distillate fuel samples, states that if the distillate fuel sample submitted to testing does not appear to be “bright and clear” only then must the sample be tested for water content.  He goes on to say that a distillate fuel may fail the visual test due to the presence of water or some other contaminant.  A distillate fuel contaminated by micro-biological infection is very unlikely to be seen as “bright and clear” and hence it would not pass that test. Consequently, the appearance test is recognised internationally as being an adequate test of contamination and further testing is required only if it fails the appearance test.  I accept that evidence.

6.  It is not known what has happened to the other samples, and they have not been subsequently tested, although the evidence did suggest that Palmstone had kept the two samples that were allocated to them.

7.  The alleged contamination is said to have manifested on 10 May 2014, after the vessel had sailed from Singapore to Bahrain, undergone some upgrading work at Bahrain and then moved to her next destination at Ras Tanura.  The manifestation on 10 May 2014 was when two of the vessel’s generators broke down.  The breakdown was traced to contaminated fuel (so the Defendant says) and it is alleged that the contamination was in the bunkers which were sold by the Plaintiff in February 2014.

8.  The vessel was repaired between May 2014 and June 2014 in Damman Port, giving rise to a loss said by the Defendant to be US$652,874, Singapore Dollar 49,224, and Saudi Riyal 21,000.

9.  On 31 May 2014 the Defendant engaged Maritec to conduct a fuel quality analysis on the fuel remaining on board.  Maritec reported on 31 May 2014 on 2 samples which had been taken from the fuel tanks (tank number 6 port and tank number 6 starboard) on 23 May 2014.  In relation to both samples Maritec reported the appearance as “Clear & Bright”, thereby indicating that the samples did not contain contamination. 

10.  The Defendant was concerned that Maritec had not conducted a bacterial test, searching for micro-bacterial contamination, and was also concerned that Maritec had been the original testing house engaged at the time of delivery of the bunkers.  As a result the Defendant engaged with another testing house, DNV Petroleum Services, to conduct further tests on further samples.

11.  The DNV reports show that:

(1) on a sample taken from tank number 6 starboard on 17 May 2014 the visual appearance is “Bright & Clear”, thereby indicating a pass;

(2) on a sample taken from the forward tank number 1 port/starboard on 17 May 2014 the visual appearance is “hazy”, thereby indicating a fail, as a result of which DNV conducted micro-bacterial testing on that sample and concluded that it was contaminated.

12.  To summarise the test results:

(1) the only test done on the sample taken at the time of delivery indicated that there was no microbiological contamination;

(2) two tests done on samples taken from both port and starboard tank number 6 in May 2014 indicate that there was no microbiological contamination;

(3) one test done on a sample taken from tank number 1 in May 2014, some three months after the bunkers were delivered, indicates that there is microbiological contamination.

13.  Mr Fisher records the following at paragraphs 7.7 and 7.8 of his report:

“ I have studied the daily maintenance records provided by Defendant, from September 2013 to the end of May 2014 (item 74 of DSLOD) in which the use of Bunker tanks is sometimes recorded. It appears that tanks 1P and 1S were last used for a transfer of fuel to tank 4C on 30.11.2013. These tanks contained 0.685 & 0.82 6 m³ of fuel before taking bunkers on 01.02.2014. It is most likely that these amounts were un-pumpable tank remains. It is possible that these remains comprised fuel and water that had settled out of previous bunker loadings. In any event the fuel supplied on 01.02.2014 appears not to have contained any water.

The quality of the fuel in the bunker tanks that were sampled and tested was different to the quality loaded on 1 February and therefore something must have been added to these tanks after the delivery.  The maintenance records show that on 11 May the fuel oil day tank and tank 4C were cleaned and fuel transfers were made but it is not clear from where to where they were made.”

B.     THE CONTRACT

14.  The terms of the contract under which the bunkers were sold are contained in the General Terms and Conditions current as of the date referred to on the Sales Confirmation dated 29 January 2014.  There is no dispute that those terms are applicable.  They contain the following relevant terms:

“ 6. Sampling

(a) The Seller shall arrange for Four (4) representative samples of each grade of Marine Fuel, to be drawn throughout the transfer of such grade of Marine Fuel. The sampling shall wherever possible be performed in the presence of both the Seller and the Buyer or their respective representatives provided that the absence of the Buyer or its representative shall not prejudice the validity of the samples taken.

…

(d) The Four (4) samples of Marine Fuel drawn shall be sealed and labelled indicating the Vessel’s name, delivery facility,product name and date of sampling and signed by the Seller’s representative and the Master of the Vessel or its authorised representative. The samples with seal number marked on BDN are considered as the only valid trading samples.

(e) Two of the samples shall be retained by the Seller’s after delivery of the Marine Fuel to the Vessel for approximately sixty (60) days, or upon request in writing by the Buyer for as long as the Buyer may reasonably require, or such period of time at the Seller’s election and the other 2 sample shall be retained by the Vessel. [sic]

…

(g) the samples stated above shall be conclusively deemed to be representative of the quality of the Products supplied to the Vessel. Any samples drawn from the Vessel’s tanks shall not be valid as an indicator of the quality supplied.

9. Payment

(a) Unless otherwise stated in the Confirmation Note, the Buyer shall pay the Seller for the Marine Fuel delivered at the price and in accordance with the instructions set forth in the Confirmation Note within 30 days after completion of delivery of the Marine Fuel to the Receiving Vessel, notwithstanding any disputes or claims.

(b) Payment shall be made in full, without any set off, counterclaim, deduction, withholding or discount and free of bank charges.

11. Product Quality and Claims

(a) The Seller warrants that the Marine Fuel delivered under the Agreement of Sale of Marine Fuel meets the specifications for the Product as set forth in the Confirmation Note, subject to variance.

(b) In the event that the Buyer is not satisfied with the quality of the Marine Fuel delivered, he shall make an appropriate Note of Protest, any remarks on the Bunker Delivery Note and Tank Measurement Form are deemed to be invalid. And the Buyer shall formally confirm such claims to the Seller within twenty-one (21) days from the date of delivery. If any claim is not made in accordance with the foregoing procedure and within the time limit stipulated hearing, it will be deemed waived by the Buyer and that the Buyer’s right to such claims would be extinguished.

20. Limitation of Liability

(a) In no event shall the Seller be liable to the Buyer for any incidental, consequential or punitive damages. The Seller shall furthermore not be liable for damages as described above when such damages have been caused by the fault or negligence of its personnel, representatives and/or (sub) contractors.

(b) The Buyer’s exclusive remedy for any losses or damages resulting from the sale of the Marine Fuel delivered under the Agreement of Sale of Marine Fuel, including but not limited to any allegation of breach of warranty or breach of contract or negligence or strict liability, shall be limited to the price of the Marine Fuel, for which a claim is submitted.

(c) The Seller shall not be liable for any demurage or loss incurred by the Buyer due to congestion affecting the Seller’s prior commitment of bunkering barge, or for any other reasons.

25 Overseas Bunker Supply (Addendum)

(d) In the event of any discrepancy between these General Terms and Conditions and the conditions in Appendix, the conditions in Appendix shall prevail.

26. Governing Law

(a) This General Terms and Conditions and the Agreement shall be governed by and construed in accordance with the laws of Hong Kong Special Administrative Region (Hong Kong) and the parties hereby agree to submit to the exclusive jurisdiction of the Hong Kong Courts.

(b) All Claims of the Buyer shall be time-barred unless legal proceedings have been commenced before the competent court within 12 (twelve) months after the date of delivery or the date that delivery should have been made.

Appendix clause 7, Singapore

Following conditions to apply:

(a)   Delivery is in accordance with the code of practice for bunkering (SS600:2008) with the Maritime and Port authority of Singapore (MPA).”

15.  Clause 1.24.to of SS 600:2008 states:

“ In the event of any dispute with respect to the quality of bunker(s) delivered, the vessel/buyer should tender a complaint in writing to the bunker supplier within 30 days (or such extended period as may be agreed between the parties) after the bunker delivery.”

C.     ANALYSIS OF THE CONTRACT

16.  The Plaintiff relies particularly on clause 9 of the Contract to found its right to full payment of the price.  It contends that the Defendant had no entitlement to make any deduction, and in any event had not notified any dispute as to quality within the 30 day period mandated by SS600:2008.  As a result it says that any claim is deemed waived by the Defendant and its right to any such claim is extinguished.  It also says that no legal proceedings were commenced before the Hong Kong courts pursuant to the exclusive jurisdiction clause within the 12 months mandated by clause 26(b) of the Contract and hence the claim by the Defendant is time‑barred in any event.

17.  The Defendant, on the other hand, contends (in its Rejoinder) that:

(1) clauses 11(b) and 26(b) of the Contract are unreasonable and unenforceable pursuant to the Control of Exemption Clauses Ordinance (Cap 71).

(2) the Defendant was unable to issue a Notice of Protest within 30 days of the date of delivery of the bunkers because it was unable to confirm the microbiological contamination until receipt of the report prepared by DNVP dated 24 September 2014.

(3) The Defendant did indeed commence legal proceedings against the Plaintiff in Singapore on 19 September 2014, to set aside a statutory demand issued by the Plaintiff.

(4) In any event Clauses 11(b) and 26(a) do not debar the Defendant from raising the defective quality of the bunkers as a defence, rather than as a claim.

C.1    The Control of Exemption Clauses Ordinance (“the Ordinance”)

18.  The Plaintiff did not file a surrejoinder and has not pleaded that clauses 11(b) and 26(b) are reasonable within the context of the Ordinance.

19.  In submissions the Defendant takes a “pleadings point”, to the effect that because the Plaintiff has not pleaded any matters relied upon in support of the contention that each clause satisfies the requirement of reasonableness, the Defendant is therefore precluded from asserting that the clauses do in fact satisfy the requirement of reasonableness.

20.  In my view the Defendant is correct in this contention, subject always to the discretion of the court to allow the point to be taken in any event.  If a clause in a contract is challenged as being unreasonable then the party seeking to rely upon the clause needs to plead and prove the reasonableness of the clause.  The reasonableness is not only a question of law, but inevitably involves questions of fact, such as those set out in Schedule 2 to the Ordinance.  The facts relied upon need to be proved, and it is not sufficient to rely (as the Plaintiff does) upon the proposition that the clauses are “clearly” reasonable. 

21.  Although it did not expressly do so, the Plaintiff may also seek to rely upon the implied joinder of issue of matters arising out of the Rejoinder. However, for the avoidance of any doubt, I do not think that the Plaintiff is entitled to do so when it is necessary to establish factual matters in order to make good its case.  In the context of the Ordinance, the implied joinder would mean that the Plaintiff does not agree that the clauses are unreasonable, but a failure to plead the factual matters it relies upon to show reasonableness is fatal.  Hence, strictly the Plaintiff is precluded from arguing and proving the factual matters which it needs to prove in order to satisfy the test of reasonableness.

22.  But that is not necessarily the end of the matter.  The court always has a discretion to allow matters to be addressed late.  In this instance the court enquired of the Plaintiff whether it wished to amend its pleading to plead the reasonableness of the clauses.  The Plaintiff declined to make any application to amend, instead preferring to rely upon its existing pleadings, and the argument that the clauses were clear.  In the circumstances I am left with no choice but to address the matter in the absence of a pleading of what I consider to be the necessary factual assertions to demonstrate reasonableness.

23.  I am very conscious that the Court of Final Appeal has been clear that a court of first instance should not allow a case to be run which has not been pleaded: Sinoearn International Limited v Hyundai-CCECC Joint Venture (2013) 16 HKCFAR 632 at [27] to [34].  Whilst there are some distinctions between this case and that case, the point remains applicable here, and I do not think that it would be appropriate for me to allow an argument to be run about the reasonableness of the clauses without the factual matters to be relied upon being properly pleaded, despite what may well be sufficient and adequate evidence having been introduced into the case at an early stage. 

24.  Therefore, albeit with some reluctance, I do not allow the Plaintiff to rely upon the unpleaded factual allegations that it must inevitably rely upon to support the proposition that the clauses are reasonable. 

25.  I note as an aside that, as has been pointed out by Counsel for the Defendant, there is some English authority for the same approach being taken in relation to the Unfair Contract Terms Act in England.  I have read and considered those authorities, but do not consider them to be binding on me, and I have addressed the matter from first principles rather than by reference to authority.

26.  In the event that I am wrong on the pleadings point, and that the Plaintiff is entitled to run an argument that the clauses are reasonable, I would have concluded that they were reasonable.  In this regard I would have taken into account:

(1) that the clauses appear to be relatively common within the industry as indicated in the witness statement of Mr Li Hau Chi;

(2) that the Singapore Code of Practice contains a clause very similar to that contained in clause 11(b);

(3) that there is good reason for such clauses, in that:

(a) the composition of distillate fuel can change rapidly over time (see for example the paper by Dow Chemicals referred to below).

(b) the existence of water as a contaminant is a constant threat on any ship, and the water does not necessarily come only from the bunkers delivered to the ship.  It can come from numerous sources and the risk of contamination by other sources will increase over time.

(c) Significant numbers of bunkers are delivered and it would be a significant task to maintain samples for all bunkers for any time significantly longer than a month.

27.  After the conclusion of final submissions, it occurred to the court that the Ordinance might not apply in any event.  This is not a point that either party had addressed at all during the trial. 

28.  Under section 16 of that ordinance the limits imposed on the extent to which a person may exclude or restrict liability by reference to a contract term do not apply to liability arising under an exempted supply contract. Section 16(3) states that:

“ For the purposes of this section, and exempted supply contract means a contract-

(a) that is either a contract of sale of goods or a contract under or in pursuance of which the possession or ownership of goods passes;

(b) that is made by parties whose places of business (or, if they have none, habitual residences), are in different countries or territories or are in and outside Hong Kong; and

(c) in the case of which—

…

(ii) the acts constituting the offer and acceptance have been done in different countries or territories or in and outside Hong Kong; or

(iii) the contract provides for the goods to be delivered to a country or territory other than the country or territory where the acts constituting the offer and acceptance were done; or

(iv) the acts constituting the offer and acceptance were done in Hong Kong and the contract provides for the goods to be delivered outside Hong Kong”

29.  In addition section 17(1) of the Ordinance states:

“ Where the proper law of a contract is the law of Hong Kong only by choice of the parties (and apart from that choice would be the law of the jurisdiction other than Hong Kong) section 7 to 12 do not operate as part of the proper law.”

30.  Hong Kong law is applied to this contract by virtue of the choice of the parties in clause 26.

31.  In the circumstances I requested the parties to make further submissions on these sections.

32.  In relation to s16 the Defendant submitted, amongst other things, that it would be unfair to allow a point concerning s16 to be taken by the Plaintiff at this late stage, because insufficient evidence concerning the relevant issues had been adduced.  The Plaintiff contended that the Plaintiff and Defendant had places of business in different places, and that the offer and acceptance occurred both inside and outside Hong Kong.  Consequently it contended that s16 applies.

33.  I agree with the Defendant that it would be unfair now to disapply the Ordinance on the basis that S16 applies.  There has been inadequate evidence as to where the offer was made, and where it was accepted, and I am not satisfied that the evidence adequately addresses any of the matters dealt with by s16(3).  Had the point been raised earlier no doubt evidence would have been adduced, but given that it was not, I do not think that I should reach any conclusion based on s16.

34.  As far as s17 is concerned, the Plaintiff contends that it applies, and the Defendant says that it does not.  The Defendant also says that it would be unfair to allow the Plaintiff to rely upon this section given that it has been raised at the last moment.  I do not think that it would be unfair.  The matters raised by s17 require the court to address the question of what would be the proper law of the contract but for the choice of law clause.  That is ultimately a question of law, albeit one that has factual aspects.  The correct approach to the conflict of laws question of what is the proper law of the contract has been set out by Lord Collins in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569 at [53]:

“ The common law rule is that the law applicable to a contract is the system of law by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection: S Megga Telecommunications Ltd v Etowaru Co Ltd [1995] 2 HKC 761, 767, Bokhary JA (as he then was); Chitty on Contracts: Hong Kong Specific Contracts (2^nd Ed., 20008) Chapter 15 (Conflict of Laws) paras 15-006 et seq; and other authorities cited in Dicey, Morris & Collins on the Conflict of Laws (14^th Ed., 2006) Vol 2, p.1536 para 32-003, n.4. The line between the search for the inferred intention and the search for the system of law with which the contract has its closest and most real connection is a fine one which is frequently blurred. In theory, in the absence of an express choice as the first test, the court should consider as a second test whether there are any other indications of the parties’ intention, and only if there is no such indication to go on to consider the third stage, namely with what system of law the contract has its closest and most real connection. But in practice the same result can be reached by the application of the second or third tests, and frequently the courts move straight from the first stage to the third stage. This is largely because the tests of inferred intention and close connection merged into each other, and because before the objective close connection test became fully established the test of inferred intention was in truth and objective test designed not to elicit actual intention but to impute an intention which had not been formed; Dicey, p1539 para 32-006.”

35.  When addressing s17 of the Ordinance it is inevitable that the third test is the appropriate test, because the section requires the court to ignore the choice of law that the parties have expressed in the contract. Therefore the court can only look at what law the contract has the closest and most real connection with.  In a simple contract for the purchase of Bunkers, I do not see that it is unfair to the Defendant to address this question even though it has been raised late.  Other than a bare assertion, the Defendant has not raised any specific complaint about the alleged unfairness.

36.  The first factor that the Defendant highlights is that the parties have chosen not only a choice of law, but also an exclusive jurisdiction, namely Hong Kong.  It says this points to Hong Kong law as the proper law.  The difficulty with this argument is that choice of law and jurisdiction are addressed in the same clause, and the two are joined by the conjunction “and”:

“ This General Terms and Conditions and the Agreement shall be governed by and construed in accordance with the laws of Hong Kong Special Administrative Region (Hong Kong) and the parties hereby agree to submit to the exclusive jurisdiction of the Hong Kong Courts.”

37.  In my view, on a proper reading of this clause the exclusive jurisdiction of the Hong Kong courts is chosen for the very reason that the parties have agreed that Hong Kong law should apply to the contract.  It therefore seems to me inappropriate that I should construe the forum selection part of the clause as indicating any intention separate from the express choice of law.  The two are inextricably linked, and in my view it is appropriate that, when considering the question under section 17 of the Ordinance, I should disregard the choice of forum as being indicative of what would otherwise be the proper law of the contract. 

38.  It is accepted by the Defendant that if I do not accept its argument in relation to the jurisdiction clause, then the only other candidate for the proper law of the contract is Singapore law.  That acceptance was clearly correct because there are various factors which would point to the contract having the closest and most real connection with Singapore.  The following have been relied upon by the Plaintiff:

(1) The Defendant is a company incorporated in Singapore.  In my view this is a neutral factor.

(2) The Vessel was anchored in Singapore at the time of delivery.  This is a factor which demonstrates a connection to Singapore. 

(3) The bunkers were delivered and accepted in Singapore, via a Singaporean supplier Palmstone Marine Services Pte Ltd.  This too is a strong factor indicating a close and real connection with Singapore.

(4) The parties mutually agreed to apply the Singapore Code of Practice for Bunkering (SS 600:2008) as the applicable standard for the provision of the bunkers.  This is also a strong factor indicating a real and close connection to Singapore. 

39.  Overall, I am satisfied that the jurisdiction with which the contract has the closest and most real connection is Singapore, and therefore absent an express choice of law the contract would be governed by Singapore law.

40.  The Defendant then goes on to argue that under Singapore law there are similar provisions to the provisions of the Ordinance.  It seeks to suggest that because there are such provisions under Singapore law, and the Plaintiff has failed to establish that the clauses are reasonable, it ought not to be permitted to rely upon them in any event.

41.  In my view this argument is misplaced.  There is unquestionably an express choice of law in the contract, namely Hong Kong law.  I am not asked to decide what might be the position under Singapore law if that express choice had not been made.  I have to apply Hong Kong to the contract and, under section 17 of the Ordinance, when applying Hong Kong law I have to decide what the proper law of the contract would have been had there not been an express choice of Hong Kong law.  If the answer to that simple question is that the proper law would not be the law of Hong Kong, then, as a matter of Hong Kong law, section 17 disapplies the restrictions on exemption clauses set out in the Ordinance.

42.  In my view, absent the choice of law clause, the proper law of the contract would be Singapore law.  Consequently section 17 of the Ordinance is engaged and, as a matter of Hong Kong law, there are no restrictions upon exclusion clauses.

D.     THE EFFECT OF CLAUSES 11(B) AND 26

43.  The effect of clause 11(b), with the substitution of 30 days as set out in SS 600:2008 in the place of 21 days, is that if no Note of Protest has been delivered within 30 days of the date of delivery then any claim is deemed waived and the right to such a claim is extinguished.

44.  There is no dispute that there was no Note of Protest.  Consequently I am satisfied that any claim of the Defendant is waived and extinguished.

45.  The Defendant runs two arguments to counter this point. 

46.  First it says that clause 11 (b) only waives and extinguishes a claim, but does not prevent the bringing of a defence to a claim for the price.  It says that the claim of non-merchantable quality of the fuel is a defence rather than a counterclaim.  It therefore says that clause 11(b) does not apply.

47.  I do not accept this argument.  Under clause 9 (a) of the contract the Defendant is obliged to pay the full price without any “set off, counterclaim, deduction, withholding or discount”.  Therefore, as a matter of contractual construction, there is no basis upon which there can be any set off amounting to a defence to the price.  The only way in which the Defendant is entitled under the contract to recover any loss (including the payment of the contract price) that it has suffered as a result of defective bunkers is by bringing a claim for the inadequate quality. In order to do so it must serve a Notice of Protest within 30 days of the date of delivery.  If it does so then it remains obliged in any event to pay the contract price, but it preserves a right to claim damages.  There is nothing inherently wrong with such contractual provisions, and indeed they occur in many similar contracts.  However in the absence of a Notice of Protest which complies with the contract the Defendant has no entitlement to bring a claim for damages, and no option other than to pay the Price.

48.  Secondly the Defendant says that it could not have known that the bunkers were defective within the 30 day period because the micro‑bacterial contamination had not become apparent.  This argument depends upon a conclusion that the microbacterial contamination was indeed in the bunkers at the time of delivery.  As will become clear from my discussion below I do not accept that.  However even if I were wrong, and the bacteria was present at the time of delivery there is no evidence that it could not have been discovered. The only evidence is that it was not, in fact, discovered.  That is a very different proposition.  The Defendant has not adduced any evidence that it was not possible to discover the bacterial infection within the 30 day period specified in clause 11(b). Consequently I reject this argument on the face of the evidence.

49.  However, and for the avoidance of doubt, I do not believe this proposition would amount to a legitimate reason to avoid the effect of clause 11(b). Clause 11(b) is clear in its terms that absent a Notice of Protest the claim is extinguished.  I do not see that there is any way to circumvent this provision.

50.  As to clause 26, it requires proceedings to have been commenced “before the competent court within 12 months after the date of delivery”.  The competent court is clearly the Hong Kong court.  No proceedings were commenced in Hong Kong within the 12 month period, and therefore I am satisfied that “All claims of the buyer shall be time‑barred”.  The Defendant has no entitlement to bring the claim is that it now brings by way of counterclaim in these proceedings.

51.  For the above reasons I dismiss the Defendant’s Counterclaim, and hold that the matters set out in the Counterclaim do not amount to a defence to the claim.

52.  That in itself is sufficient to deal with the action.  But I should also go on to deal with questions about the contamination, and address whether the Defendant has, in any event, established that the contamination was caused by Bunkers that were not of merchantable quality.

E.     THE CONTAMINATION

53.  I have already set out the results of the various tests that were undertaken.  Of four tests taken on fuel from this vessel only one indicates microbacterial contamination, and that was a sample taken three months after the bunkers were delivered, not in the prescribed method in that it was not taken from the manifold of the vessel at the time of delivery, and it was taken after considerable distance had been travelled by the vessel. 

54.  Added to that is:

(1) the evidence from Mr Fisher concerning the movement of fuel between various tanks in the intervening period, which I accept is a likely event on a ship of this nature.

(2) the evidence in the Engine Logbook, which the Defendant’s expert Mr Choppalli Rao accepted (although sought to explain away), to the effect that on several occasions between 1 February 2014 and May 2014 the engineering crew of the vessel recorded that they had drained water from the system of the day tank (which is, as I understand it, tank number 1). That evidence supports the proposition that water existed in the tank independently of the quality of the fuel delivered in the bunkers.  Both experts accepted that ships fuel tanks often get water in them, and need to have it extracted. 

(3) The evidence contained in the Dow Chemicals paper appended to Mr Fisher’s report which states (at page 29 of the bundle):

“ Microbiological sample should always be processed as soon as possible after sampling, since the number and diversity of bacteria and fungi will continue to change after collection. Sample should be kept on ice between collection and analysis, whenever possible. Samples analysed after 30 hours have little resemblance to the bulk fluid from which they were drawn.”

55.  In all the circumstances it is inherently unlikely that the single test in this case which indicates contamination is sufficient to establish on the balance of probability that the bunkers delivered on 1 February 2014 were not of merchantable quality.

56.  To counter this, Mr Wright, counsel for the Defendant, has suggested:

(1) that microbiological contamination is always present in fuel simply by virtue of the contact that the fuel has with the air.  This proposition may, or may not, be correct, but Mr Wright has no evidence of it other the general proposition accepted by Mr Fisher that air contains contamination and that fuel comes into contact with air.  Those two propositions do not necessarily add together to allow the conclusion that the fuel becomes contaminated when it comes into contact with the air. Further and in any event, the proposition causes Mr Wright the problem that if the level of microbiological contamination created when fuel comes into contact with air renders the fuel of unmerchantable quality, then every single bunker ever delivered anywhere in the world would be of unmerchantable quality, because they all come into contact with the air.  I do not accept the proposition.

(2) The testing done on the other samples did not include testing for microbiological contamination and therefore is not evidence of the lack of any microbiological contamination.  Mr Wright therefore suggested that the only evidence relating to microbiological contamination was the one test which proved it was present and the court should therefore find that it existed in the bunkers.  The problem with this proposition is the evidence of Mr Christopher Fisher, which I have accepted, that the international standard requires only the appearance test to be undertaken, and if the appearance test is passed with a “Bright and Clear” appearance no further testing is required. Therefore I do not accept that in order to demonstrate the lack of any microbiological contamination it is necessary specifically to test for it.  I do not accept Mr Wright’s submissions in this respect. 

(3) That the water (which is a necessary ingredient for the multiplication of any microbacterial contamination) may have entered the fuel on its journey between the shoreside tanks and the vessel.  This is of course possible, but I am not prepared to draw the conclusion that this is in fact what happened.  The Defendant bears the burden of proof and this mere suggestion as to a possible source of the water is insufficient to counteract the weight of evidence which points to the proposition that the fuel was of merchantable quality at the time that it was delivered.

57.  In all the circumstances therefore, I am of the view that the Defendant has not established that the bunkers delivered were not of merchantable quality.

F.     QUANTUM OF DAMAGES

58.  In the light of the conclusions that I have reached above I do not need to proceed to reach any view on the quantum of damages suffered.

59.  However, in case I am wrong in my conclusions, I note that the Plaintiff has not challenged the damages claimed, other than to put the Defendant to proof.  I am satisfied that the Defendant has established the loss it has claimed as set out in the witness statement of Mr Kuah.

G.     DISPOSITION

60.  For the reasons given above the defence is not made out and the Counterclaim is dismissed.

61.  The Plaintiff is entitled to Judgment in the sum of US$335,858.31, plus interest. 

62.  I have not received submissions on interest and so on a nisi basis I assess interest at Prime plus 1% from a date 30 days after the date of the invoice until the date of Judgment and at the Judgment Rate thereafter.

63.  I make a costs order nisi that the Defendant is to pay the costs of the Plaintiff to be taxed if not agreed.

64.  If either party wishes to suggest that the interest rates, or period, should be different or that the costs order should be different, they are to make written submissions within 14 days of the date of handing down of this Judgment.