CSSC HUANGPU WENCHONG SHIPBUILDING CO., LTD v. DRY BULK SERVICES LTD

HCMP 1626/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1626 OF 2016

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D E C I S I O N

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Background

1.  On 27 June 2016, the plaintiff applied on an ex parte basis for an interim worldwide Mareva injunction to freeze the defendant’s assets to the extent of US$13,742,916, with an ancillary disclosure order, in aid of arbitration proceedings in London.  The application was heard before Madam Justice Au‑Yeung that day.  The defendant appeared at the hearing and offered an undertaking in terms of the draft order pending full argument.

2.  The plaintiff filed an inter partes summons on 28 June 2016.  The defendant opposed the application.

3.  The plaintiff is a shipyard with its headquarters in Guangzhou.

4.  The defendant is a Hong Kong company engaged in the provision of ship management and chartering services and also supervises ship construction.

5.  On 18 November 2013, under four separate shipbuilding contracts with four different buyers, the plaintiff agreed to build and sell four vessels of the same type.  The four vessels have hull numbers H3067, H3068, H3069 and H3070.  The present application concerns the contracts for H3069 and H3070 with regard to which the plaintiff entered into two shipbuilding contracts with two buyers (both incorporated in the Marshall Islands), which the plaintiff alleges are nominees of the defendant.

6.  Article II, clauses 3 and 4 of the shipbuilding contracts provided for payment of the contract price by the buyers in instalments by way of telegraphic transfer.

7.  Article II, clause 6 of the shipbuilding contracts provided that the defendant shall deliver to the plaintiff an irrevocable payment guarantee in favour of the plaintiff, issued by KC Maritime Ltd to secure the buyers’ respective obligations for payment of the second, third and fourth instalments of the contract price.

8.  Article XIII, clause 1 and Article XIX, clause 1 together provided for arbitration in the London Maritime Arbitration Association in accordance with the Laws of England, applying English law.

9.  The plaintiff’s case is that, on 16 December 2013, the defendant as guarantor issued two irrevocable on‑demand guarantees in respect of the buyers’ payment obligations under the shipbuilding contracts on identical terms in favour of the plaintiff.

10.  By clause 10 of each guarantee, each guarantee is subject to a limit of US$6,871,458, being an amount equal to the sum of the second, third and fourth instalments of the contract price (US$6,786,625) and interest at the rate of 5% per annum on the instalments for a period of 90 days (US$84,833).

11.  Each guarantee shall be construed in accordance with and governed by the Laws of England and any dispute shall be referred to and resolved by arbitration in London under the rules of the London Maritime Arbitration Association.

12.  The defendant paid the first instalment due under each shipbuilding contract through KCM Treasury Limited.

13.  The plaintiff’s case is that the second instalment was due in respect of each shipbuilding contract by 6 November 2015 but the buyers defaulted.  On 26 November 2015, the plaintiff sent each buyer notice of default pursuant to Article XI, clause 2 of the respective shipbuilding contract.  Further default notices were sent in December 2015 and January 2016.

14.  The plaintiff contends that the buyers defaulted on payment of the third instalment due under each shipbuilding contract.  Notices of default were issued on 29 December 2015.

15.  By notice, dated 28 December 2015, the plaintiff demanded immediate payment of the second instalment due under each shipbuilding contract with interest from the defendant pursuant to the guarantees.  The defendant replied by email, dated 6 January 2016, alleging that there were defects in Hull 3067, which will be repeated in Hulls 3068, 3069 and 3070 and requesting a “general moratorium” on further construction of Hulls 3069 and 3070 and that the demands for payment under the guarantees be “suspended”.  The plaintiff rejected this request the next day.

16.  On 8 January 2016, the plaintiff issued written demands to the defendant, demanding full and immediate payment of each of the second, third and fourth payments due under each shipbuilding contract with interest.  The demands were stated to be pursuant to the respective Deed of Guarantee and Article XI clause 4(b)(iii) of the respective shipbuilding contract.  The defendant did not pay.

17.  By notices sent to each buyer, dated 15 January 2016, the plaintiff gave notice to rescind each shipbuilding contract pursuant to Article XI clause 4(b)(i) of each contract.  The plaintiff again demanded payment from the defendant of the second, third and fourth instalments due under each contract (in total US$6,786,625) plus interest at a rate of 5% per annum.

18.  On 25 January 2016, the plaintiff’s solicitors served a statutory demand on the defendant demanding payment of US$13,624,568.04, inclusive of accrued interest to that date.  The plaintiff has not pursued winding up.

19.  By letters dated 27 January 2016, the buyers each alleged that the contract cancellations were “uncontractual” and a repudiation of each shipbuilding contract.  The buyers stated that they accepted the repudiation and claimed a refund of US$2,714,650 each.

20.  By letters, dated 3 and 12 February 2016, the defendant’s solicitors responded to the plaintiff’s solicitors disputing the statutory demand and denying liability to pay.

21.  On 16 February 2016, the plaintiff’s solicitors issued a notice of arbitration to the defendant pursuant to the arbitration clause in each guarantee, referring disputes to arbitration in London to be conducted in accordance with the rules of the London Maritime Arbitration Association.

22.  On 23 February 2016, the plaintiff commenced arbitration proceedings against the buyers.

Legal principles

23.  The application is made under section 45 of the Arbitration Ordinance, Cap 609 and section 21M of the High Court Ordinance, Cap 4.

24.  The applicable principles have been set out by Mimmie Chan J in Top Gains Minerals Macao Commercial Offshore Limited v TL Resources Pte Ltd unrep HCMP 1622/2015, 18.11.15 at paras 18‑20, 43.  In essence:

(1)   Under sections 45(2) and (6), the court is expressly authorized to grant interim relief in aid of arbitrations which are yet to be commenced outside Hong Kong and it is not necessary for an applicant to establish a substantive cause of action in Hong Kong.

(2)   Under section 45(3), the court’s powers to give interim measures in aid of arbitrations may be exercised irrespective of whether or not similar powers may be exercised by an arbitral tribunal in relation to the same dispute.

(3)   Section 45(4) provides only that the court may decline to grant an interim measure on the ground that the interim measure sought is currently the subject of arbitral proceedings and the court considers it more appropriate for the interim measure sought to be dealt with by the tribunal.

(4)   Section 45(5) sets out the requirements for the court’s exercise of its powers in aid of arbitral proceedings outside Hong Kong.  The court may grant an interim measure only if the arbitral proceedings are capable of giving rise to an arbitral award that may be enforced in Hong Kong under the Ordinance or any other ordinance and the interim measure sought belongs to a type or description of interim measure that may be granted in Hong Kong in relation to arbitral proceedings by the court. 

(5)   Section 45(7) sets out further guidelines as to the exercise of the court’s powers, since the subsection provides that the court “must have regard” to the fact that the power is “ancillary to the arbitral proceedings outside Hong Kong” and is for the purpose of “facilitating the process of a court or arbitral tribunal outside Hong Kong that has primary jurisdiction over the arbitral proceedings”.

(6)   An applicant for interim relief in aid of arbitral proceedings, which have been or are to be commenced outside Hong Kong, is only required to show that there is a good arguable case that the arbitral proceedings outside Hong Kong are capable of giving rise to an award that may be enforced in Hong Kong.

25.  Section 21M of the High Court Ordinance, Cap 4, empowers the court to grant interim relief in aid of proceedings outside Hong Kong without requiring that the relief must be incidental to substantive proceedings commenced in Hong Kong.  It is only necessary that the proceedings outside Hong Kong “are capable of giving rise to a judgment which may be enforced in Hong Kong under any ordinance or at common law”.  (Top Gains Minerals Macao Commercial Offshore Limited v TL Resources Pte Ltd, para 22)

26.  Under section 21M(4), the court may refuse the application for interim relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from section 21M in relation to the subject matter of the proceedings concerned “makes it unjust or inconvenient” for the court to grant the application.  (Top Gains Minerals Macao Commercial Offshore Limited v TL Resources Pte Ltd, para 22)

27.  There is a two‑stage test for determining the grant of interim relief: 1) whether the facts of the case warrant the grant of interim relief if substantive proceedings were brought in Hong Kong; and 2) under section 21M(4), whether it is unjust or inconvenient for the court to grant the interim relief.  (Top Gains Minerals Macao Commercial Offshore Limited v TL Resources Pte Ltd, para 23)

28.  At the first stage of consideration, the court follows and applies the general principles governing the grant of interim relief in proceedings brought in Hong Kong. (Top Gains Minerals Macao Commercial Offshore Limited v TL Resources Pte Ltd, para 26)

29.  As summarized by Stone J in Akai Holdings Ltd (in compulsory liquidation) & ors v Ho Wing On, Christopher & ors unrep. HCCL 37/2005, 9.2.09, at paras 35‑36, the plaintiff must show:

(1)   there is a good arguable case against the defendant in respect of the claim;

(2)   the defendant has no assets or insufficient assets within the jurisdiction to satisfy the claim;

(3)   the refusal of the relief sought would involve a real risk of dissipation of the defendant’s assets in such a way that a judgment in favour of the plaintiff would go unsatisfied;

(4)   it is just and convenient to grant the injunctive relief; and

(5)   subject to the issue of the whereabouts of assets, the basic principles for the grant of a worldwide Mareva injunction do not differ from those applicable to a purely domestic Mareva injunction.

30.  At the second stage, when the court considers whether it would be unjust or inconvenient to grant the interim relief, there are the following considerations (Top Gains Minerals Macao Commercial Offshore Limited v TL Resources Pte Ltd, para 27):

(1)   Whether the making of the order will interfere with the management of the case in the primary court.

(2)   Whether it is the policy in the primary jurisdiction not to make worldwide freezing orders.

(3)   Whether there is a danger that the orders made will give rise to disharmony or confusion and/or risk of conflicting, inconsistent or overlapping orders in other jurisdictions, in particular the courts of the state where the person enjoined resides or where the assets affected are located.

(4)   Whether at the time the order is sought there is likely to be a potential conflict as to jurisdiction rendering it inappropriate and inexpedient to make a worldwide order.

(5)   Whether, in a case where jurisdiction is resisted and disobedience to be expected, the court will be making an order which it cannot enforce.

31.  There is a similarity in the bases of section 21M and section 45 such that the guidelines regarding the grant of relief under section 21M are relevant to the exercise of discretion under section 45.  (Top Gains Minerals Macao Commercial Offshore Limited v TL Resources Pte Ltd, para 29)

32.  With regard to the present case, there is no dispute that:

(1)   arbitral proceedings have been commenced outside Hong Kong;

(2)   the interim measure sought is not the subject of arbitral proceedings; and

(3)   the arbitral proceedings are capable of giving rise to an award that may be enforced in Hong Kong under the Ordinance or some other ordinance.

A good arguable case

33.  The plaintiff submitted that, in light of the facts set out above, it has a good arguable case.  The defendant disagrees.

34.  H3067 was completed first but, the defendant alleges, serious defects were revealed, including excessive fuel consumption, faulty stern tube design and excessive torsional vibration, for which the plaintiff has not provided any remedial plan.  H3068 allegedly has the same defects.

35.  In light of the alleged defects in the other ships, the buyers argue that there is an implied term that the plaintiff cannot demand instalment payments with respect to H3069 and H3070 when it is aware that there is a critical design flaw which would entitle the buyer to cancel the shipbuilding contract.  To contend otherwise, the buyers argue, would fly in the face of common sense, such that the buyer would be obliged to throw good money after bad.  As such, the plaintiff’s termination on 15 January 2016 is unlawful and constitutes a repudiatory breach, which the buyers accepted on 27 January 2016.

36.  The plaintiff says that H3067 does not have the alleged defects. Regarding fuel consumption, the plaintiff says that defendant’s allegation is based on an incorrect trial and the correct test, the report of which was signed by the buyer’s representative, indicates that the ship meets the contract specification.  As for the stern tube, the plaintiff states that tests revealed the stern tube’s performance as satisfactory and, again, the buyer’s representative signed test reports.  The alleged vibration problem was not reported in a statement of readiness for delivery issued by Lloyd’s Register Classification Society (China) Co, Ltd, dated 25 January 2016.  I have seen documents which appear to support the plaintiff’s position.

37.  The defendant’s allegations of defects are clearly matters for trial.  In my view, the plaintiff has a good arguable case that the instalment payments are due and payable.

38.  Regarding the guarantees, the defendant submitted that the plaintiff has serious legal difficulties. 

39.  First, the defendant submitted that, given it is not a financial institution, there is a strong legal presumption that the guarantees are not “on‑demand” guarantees such that the defendant is not liable without the plaintiff having recourse to the buyers first.  The defendant relies for this proposition on Marubeni Hong Kong and South China Limited v The Mongolian Government [2005] 1 WLR 2497.

40.  Marubeni raises a rebuttable presumption and the plaintiff’s response is that, on its proper construction the guarantees are “on‑demand” guarantees, in that the defendant is obliged to pay in accordance with a demand made in good faith by the plaintiff in accordance with the provisions of the guarantee.  The plaintiff submitted that it is not obliged to prove that the relevant instalment was due for payment and the defendant is not entitled to contend that the instalment had not fallen due for payment prior to the defendant being obliged to pay in accordance with the plaintiff’s demand.  The plaintiff submitted that its construction of the guarantees is supported by their terms which state:

(1)   the defendant irrevocably, absolutely and unconditionally guarantees the due and punctual payment of the instalments;

(2)   the defendant is acting as primary obligor and not merely as the surety;

(3)   following receipt of the plaintiff’s first written demand, the defendant shall immediately pay the sums due, without requesting the plaintiff to take any or further action, procedure or step against the buyer;

(4)   the defendant’s obligations under the guarantees are not to be affected or prejudiced by any dispute between the plaintiff and the buyers under the shipbuilding contracts; and

(5)   the defendant’s liability for interest is limited to a maximum of 90 days, so it cannot have been envisaged that there would be any great delay in payment after default as there would be if the payment was conditional upon the conclusion of any dispute over the buyers’ liability.

41.  After considering the submissions from both sides, I conclude that the plaintiff has a good arguable case with regard to its claims on the guarantees.  There is a good argument that, on their proper construction, the guarantees are on‑demand guarantees and thereby rebut the presumption relied upon by the defendant.

42.  Second, the defendant submitted that the guarantees are unenforceable due to lack of consideration because they were signed on 16 December 2013, after the date of the shipbuilding contracts (18 November 2013).  In response to this past consideration argument, the plaintiff relies on Classic Maritime Inc v Lion Diversified Holdings Bhd & anor [2010] 1 CLC 445, at para 46, for the proposition that, in determining whether consideration is past, the courts are not bound to apply a strictly chronological test.  If the giving of the consideration and the making of the promise are substantially one transaction, the exact order in which these events occur is not decisive.  The plaintiff submitted that Article XVIII of each shipbuilding contract makes the provision of a guarantee a condition precedent such that there exists substantially one transaction.

43.  The defendant’s counsel did not press the past consideration argument and, in any event, I consider that there is a good argument that there exists substantially one transaction.

The defendant’s assets

44.  Lai Meiping, Legal Counsel for the plaintiff alleges that the defendant has the following assets:

(1)   Seven vessels on order or under construction, which are listed in a Lloyd’s List Intelligence report, dated 21 June 2016, located in yards in China, of which the defendant is shown as the registered owner and technical manager.

(2)   Nine vessels listed in the Lloyd’s List Intelligence report of which the defendant is shown as the commercial operator and beneficial owner.  Data from a database, “Sea‑web”, dated 21 June 2016, shows the owners of these vessels providing their respective addresses as “care of” the defendant and as subsidiaries of the defendant.  The plaintiff’s counsel advised that the location of these vessels is unclear.

(3)   An Experian Credit report, dated 28 December 2015, shows that the defendant holds bank accounts with HSBC and BNP Paribas. The plaintiff submitted that the defendant is likely to have funds in these accounts and, given that the defendant is a Hong Kong company, it is likely that the accounts are in Hong Kong.

(4)   The defendant’s paid‑up share capital is HK$500,000.

(5)   An email from the Vice President, Finance of KC Maritime Ltd, dated 26 December 2013, advised that the first instalments were paid by “one of our treasury companies — KCM Treasury Limited”.  An email from a Joseph Wong of Eastern Horizon, dated 27 December 2013, advised that KCM Treasury Limited “is a 100% owned member of KCM group” and “is the company they use to house their liquidity”.  The plaintiff submitted that some of the money held by or in the name of KCM Treasury Limited may be the defendant’s asset.

45.  The plaintiff submitted that, whilst the defendant has assets in Hong Kong, they are insufficient to satisfy the claim and the defendant has assets overseas.

46.  A director of the defendant, Mr Bhatia, stated that the information gathered from Lloyd’s List Intelligence is incorrect.  The defendant is not, and never has been, the beneficial owner of any vessels.  He states also that the defendant is not, and has never been, the registered owner of the seven vessels referred to in para 44(1) above.  All of the vessels are owned by single purpose ship owning companies, states Mr Bhatia.

47.  Mr Bhatia also stated that the defendant had in place standard ship management agreements with the owners of the first four of the seven vessels listed by Lai Meiping but those contracts expired in November 2014 and March 2015.  He did not produce copies of the contracts.

48.  Mr Bhatia stated that the defendant was the commercial manager of the nine vessels referred to in para 44(2) above under standard BIMCO ship management agreements, which agreements expired in March 2016.  He did not produce copies of the agreements.  The defendant earned a small commission on commercial fixtures made under the ship management agreements but Mr Bhatia did not produce any document to support this assertion.  Mr Bhatia stated that the ships referred to in para 44(2) are not ultimately owned by the defendant.

49.  With regard to KCM Treasury Limited, Mr Bhatia stated that it does not hold any of the defendant’s assets.  Regarding the email from Joseph Wong, Mr Bhatia stated that the email is from the buyers’ brokers and not from either the buyers or the defendant.  He stated that there is no legal entity called “KCM group”.  Mr Bhatia stated that the defendant does not own and never had any assets outside of Hong Kong.

50.  Mr Bhatia did not deal with the Experian report or deny that the defendant had assets in Hong Kong.

51.  The defendant’s counsel submitted the following:

(1)   The Lloyd’s List Intelligence shows the defendant as the registered owner of H3069 and H3070, which cannot be correct because these vessels are the subject of the dispute and title would not pass until delivery, which cannot happen as both parties have terminated the shipbuilding contracts.  In any event, the purchasers were the buyers, not the defendant.  The plaintiff omitted these two vessels from its list of the defendant’s assets set out in its supporting affirmation. Counsel criticized the plaintiff for not bringing this discrepancy to the court’s attention.

(2)   The information from the Lloyd’s Intelligence List is contradicted by “Sea‑web”, which shows that the defendant does not own any vessels.  Counsel criticized the plaintiff for not bringing this discrepancy to the court’s attention.

(3)   The failure to bring these discrepancies to the court’s attention constitutes material non‑disclosure such that the defendant ought to be released from its undertaking and the plaintiff’s application for an injunction denied.

52.  The plaintiff’s counsel told me that the reason the plaintiff did not refer to H3069 and H3070 was because the contracts had been repudiated, although she conceded that some mention should have been made of the position regarding those vessels.  It is clear that the plaintiff considers the Lloyd’s List Intelligence to be incorrect with regard to these two vessels.  However, I do not consider the failure to deal with these vessels to be such as to deny the plaintiff its application or to release the defendant from its undertaking because the error is apparent on the face of the document and the undertaking was given at an inter partes hearing, likewise the discrepancy between the Lloyd’s Intelligence List and Sea‑web.

53.  Nevertheless, that the Lloyd’s List Intelligence is incorrect with regard to H3069 and H3070 and different from Sea‑web does not mean that entries regarding other ships are incorrect.  It maybe that Sea‑web is wrong and not Lloyd’s List Intelligence.  The defendant’s evidence is a bare denial; no documents were produced, such as the contracts referred to.  Moreover, there was no denial that the defendant has assets in Hong Kong and the defendant’s Vice President stated that KCM Treasury Limited is one of the defendant’s treasury companies.  On balance, I am prepared to accept that the defendant has the assets referred to by the plaintiff in Hong Kong and outside of Hong Kong.

Real risk of dissipation

54.  The burden of proving a real risk of dissipation is on the plaintiff:  Re Chau Cham Wong Patrick (a bankrupt) [2016] 2 HKLRD 278, at para 43.  Bare assertions that the defendants are likely to put any asset beyond the plaintiff’s grasp and are unlikely to honour any judgment or award are not enough by themselves:  Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft m.b.H UND CO KG [1983] 1 WLR 1412, at p 1419H.

55.  The principles applicable to the determination of whether there is a risk of dissipation of assets are objective.  The applicable test has been formulated as (Great Wall Pan Asia International Investment Company Limited v Cervera Holdings Limited & anor unrep, HCCT 13/2016, 1 June 2016, per Mimmie Chan J at para 18, citing Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft m.b.H UND CO K.G.):

“... whether, on the assumption that the plaintiffs have shown ‘a good arguable case’, the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied.”

56.  There is no requirement for an applicant for Mareva relief to show that the defendant intends to deal with his assets with the purpose of ensuring that any judgment will not be met.  The court is concerned with the effect of the defendant’s conduct, as opposed to its underlying motives.  It is not necessary to show a nefarious intent on the part of the defendant:  Great Wall Pan Asia International Investment Company Limited v Cervera Holdings Limited & anor at para 19.

57.  Evidence of a defendant’s past behavior showing an “unacceptably low standard of commercial morality” entitles the court to infer and conclude that there is a sufficient risk to justify the grant of a Mareva injunction. However, the court should scrutinize the evidence with care and should not too readily infer a real risk of dissipation from a defendant’s conduct or commercial reality:  Great Wall Pan Asia International Investment Company Limited v Cervera Holdings Limited & anor at para 20.

58.  The following principles have been set out in TTMI Ltd of England v ASM Shipping Ltd of India [2006] 1 Lloyd’s Rep 401:

“... The underlying purpose of the jurisdiction is not to provide the claimant with security for its claim but to restrain a defendant from evading justice by disposing of assets otherwise than in the ordinary course of business so as to make itself judgment proof with the result that any judgment or award in favour of the claimant goes unsatisfied. The purpose is not to provide security for the claimant in respect of the claim. It is well established that it is not necessary to establish that the defendant is likely to act with the object of putting his assets beyond reach. What has to be shown is that there is, absent an injunction, ‘a real risk that the judgment or award in favour of the plaintiffs would go unsatisfied’ ... . That formulation cannot, however, be regarded as a complete statement of the law. A defendant may be likely to make perfectly normal dispositions, such as the payment of ordinary trading debts, the effect of which may be that, when any award is made, it is, in whole or in part unsatisfied when, absent those payments, it might have been satisfied or satisfied to a greater extent. Something more than a real risk that the judgment will go unsatisfied is required.

Thus in a case in the Court of Appeal of Ontario — Chitel v Robart [1982] 3 OR (2d) 513 at 532‑533, the court said:

‘The applicant must persuade the court by his material that the defendant is removing or there is a real risk that he is about to remove his assets from the jurisdiction to avoid the possibility of judgment, or that the defendant is otherwise dissipating or disposing of its assets, in a manner clearly distinct from his usual or ordinary course of business or living, so as to render the possibility of future tracing of the assets remote, if not impossible in fact or in law.’”

59.  The plaintiff referred to the following allegations to establish a real risk of dissipation of assets.

60.  On 2 February 2016, one week after the statutory demands were served on the defendant, “KC Maritime 2016 Ltd” was incorporated in Hong Kong.

61.  On 15 March 2016, “KC Maritime 2016 Ltd” changed its name to “KC Maritime Hong Kong Ltd”, which, the plaintiff says, is a name strikingly similar to the defendant’s name.

62.  On 24 March 2016, the defendant changed its name from “KC Maritime Limited” to “Dry Bulk Services Limited”.  The plaintiff’s counsel stated that the defendant had been filing submissions in the arbitrations using the former name.  Online searches of the name “Dry Bulk Services Limited” do not reveal any information to suggest that it actively trades or that business is being solicited under this name.

63.  On the defendant’s website:

(1)   “KC Maritime Limited” has been changed to “KC Maritime Hong Kong Ltd”.  After the first reference was made to “KC Maritime Hong Kong Ltd”, subsequent references were made to “KC Maritime”.  Previously, “KC Maritime Ltd” was referred to as “KC Maritime”.

(2)   There is no reference to the defendant by either its former or new name.

(3)   “KC Maritime Hong Kong Ltd” is referred to as the commercial manager of the defendant’s fleet.  The Fleet List on the website of KC Maritime Hong Kong Ltd includes the fleet of which the defendant was the beneficial owner and commercial operator.

(4)   The “Press Room” section of the website contains news clippings which actually pertain to the defendant.  The plaintiff asserts that it appears KC Maritime Hong Kong Ltd is being held out as though it is the defendant.

(5)   The “Contact Us” section refers to KC Maritime Hong Kong Ltd as the “Head Office”, with the same address, telephone and fax numbers and email address as the defendant.  The direct contacts of KC Maritime Hong Kong Ltd appear to be the same as those of the defendant.

(6)   In the “Key Business Relationship” page of the website, it is stated that KC Maritime Hong Kong Ltd has “key relationships” with major international corporations including the plaintiff.  The plaintiff submitted it is doubtful whether this new entity can establish such key relationships, given it is only incorporated in February 2016.  The plaintiff asserts that it has not had any relationship with the new entity and it appears that KC Maritime Hong Kong Ltd is being held out as if it is the defendant.

64.  KC Maritime Hong Kong Ltd has recently replaced the defendant as a member of the Hong Kong Ship Owners’ Association.

65.  Most of the key management of the defendant resigned in late December 2015, when the defendant was disputing liability under the contracts and guarantees.  Some of these persons moved to KC Maritime Hong Kong Ltd:

(1)   Mr David Eldon resigned as a director of the defendant on 16 December 2015.

(2)   Mr Sham L Chellaram resigned as a director of the defendant on 22 December 2015.  He is described as Chairman of KC Maritime Hong Kong Ltd.

(3)   Mr Vikram S Chellaram resigned as a director of the defendant on 22 December 2015.  Mr Roger Marshall resigned as a director of the defendant on 22 December 2015.  They are shown as directors of KC Maritime Hong Kong Ltd on the website.

(4)   Searches of the Companies Registry do not show Mr Chellaram or Mr Marshall as directors of KC Maritime Hong Kong Ltd.

(5)   When three of the defendant’s directors resigned on 22 December 2015, Mr Vikrant S Bhatia was appointed a director of the defendant.  He was described as the defendant’s CEO.  He is also the founder director of KC Maritime Hong Kong Ltd, and appears to be its CEO.

(6)   Mr Vikrant S Bhatia also appears to control and represent “KC Maritime Holdings Ltd”, the founder shareholder of KC Maritime Hong Kong Ltd.  Mr Bhatia signed and issued two Notices of Cancellation, dated 27 January 2016, on behalf of the buyers in the capacity of “Attorney‑in‑Fact”.

(7)   Mr Vipin Sachdeva was the Vice President (Fleet) of the defendant as recently as 17 March 2016.  He is a founder director of KC Maritime Hong Kong Ltd.

66.  KC Maritime Hong Kong Ltd appears to deal with the plaintiff as if it is the defendant in respect of the contract for H3068.

67.  The plaintiff asks the court to infer from the above that:

(1)   the defendant is being replaced by a recently incorporated entity, KC Maritime Hong Kong Ltd, to carry on the defendant’s business as if the new entity is the defendant;

(2)   the defendant (having assumed a completely different name not associated with “KC Maritime” at all) ceased active trading; and

(3)   the beneficial ownership and commercial management of the defendant’s fleet has been or is in the process of or will be transferred from the defendant to KC Maritime Hong Kong Ltd.  The defendant’s business opportunities, reputation and goodwill are likewise transferred or will be transferred to the new entity.

68.  The plaintiff submitted the result will be that the defendant will be rendered judgment proof, making worthless any awards made against it in the arbitrations.

69.  The defendant’s answer is that the establishment of KC Maritime Hong Kong Ltd was part of a long‑planned restructuring and any proximity to the timing of the plaintiff’s claim is purely coincidental.  There is no evidence that such constitutes an unjustifiable act.  The defendant has been pro‑active in the arbitration proceedings, engaging solicitors and leading counsel to deal with the cases both in England and Hong Kong.

70.  For the defendant, Mr Bhatia stated:

(1)   The website is the website of the companies within the KC Maritime group of companies and not just the website of the defendant or KC Maritime Hong Kong Ltd.

(2)   K C Maritime Hong Kong Ltd assumed the role of commercial manager of certain vessels (referred to in para 44 above) under the standard BIMCO ship management agreement form for the vessels after the existing ship management agreements expired.  In other words, whereas the defendant was previously the commercial manager of the vessels, KC Maritime Hong Kong Ltd has taken that role.

(3)   The defendant denies that KC Maritime Hong Kong Ltd is holding itself out as KC Maritime Ltd.

(4)   It is not correct that directors of the defendant resigned on 16 and 22 December 2015.  This was part of the long‑standing commercial reorganization.

(5)   He does not “control” KC Maritime Holdings Ltd.

(6)   Mr Sham L Chellaram is not described as the Chairman of KC Maritime Hong Kong Ltd and neither Mr Vikram S Chellaram nor Mr Marshall are directors of KC Maritime Hong Kong Ltd.  These directors are not listed as such in the Companies Registry because they are not directors KC Maritime Hong Kong Ltd.

(7)   Dry Bulk Services Ltd is a private company and it has not been replaced by KC Maritime Hong Kong Ltd.

(8)   Employees of KC Maritime Hong Kong Ltd have significant relationships with the plaintiff’s parent company, CSSC, and it is legitimate for CSSC’s logo to appear on the website.

71.  In any event, the defendant submitted, even if there was a scheme to render the defendant judgment proof, KC Maritime Hong Kong Ltd was established in February 2016 such that an injunction would be ineffective.

72.  The element of concern is the restructuring, which the defendant admits.  However, apart from Mr Bhatia’s bare assertion that this was part of a long‑planned commercial reorganization, no evidence was produced to demonstrate the purpose and nature of the reorganization.  One would expect that there would be some evidence of a long‑planned reorganization, for example, internal communications or meeting minutes.

73.  As noted above, there is evidence the defendant has assets.  A restructuring or reorganization may dispose of assets.  The question is whether the disposal is otherwise than in the ordinary course of business.  Given that there is only Mr Bhatia’s bare assertion that the restructuring was long‑planned and in light of the coincidence in timing of the restructuring with the arbitrations, I consider there is a real risk that the defendant will dispose of its assets to avoid the possibility of judgment or render the possibility of future tracing of the assets remote in fact or in law.

74.  Regarding the defendant’s counsel’s submission that, as the restructuring took place in February 2016, an injunction would be too late to be effective, I am not prepared to assume that an injunction would be too late or there is a lack of urgency.

Judicial comity

75.  The defendant submitted that it is neither just nor convenient to grant the injunction in the present case because the plaintiff’s decision to apply for a Mareva injunction in Hong Kong short‑circuits the procedural protection available at the seat of arbitration, England.

76.  The defendant’s counsel referred me to section 44 of the English Arbitration Act 1996, which provides for the exercise of the English Court’s powers in aid of arbitration:

“(3) If the case is one of urgency, the court may on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.

(4) If the case is not one of urgency, the court shall act only on the application of a party to the arbitral proceedings (upon notice to the other parties and to the tribunal) made with the permission of the tribunal or the agreement in writing of the other parties.”

77.  Counsel submitted that, as there was no urgency with regard to the present application, the plaintiff ought not to have its injunction in the absence of either the permission of the arbitral tribunals or the agreement in writing of the defendant.

78.  As I do not agree that the application is not urgent, neither the arbitral tribunals’ permission nor the defendant’s agreement was required and there is no element of “short‑circuiting” the procedures in England.

Cross‑undertaking

79.  The plaintiff offers undertakings to the court in terms of the Schedule to the draft order.

80.  The plaintiff is a People’s Republic of China state‑owned enterprise.  The plaintiff states that it has a paid‑up share capital of RMB19,737,985,420,000.  Its immediate parent company is CSSC Offshore & Marine Engineering (Group) Co Ltd (“CSSC”), a company listed on the Hong Kong Stock Exchange.  Lai Meiping asserts that the plaintiff is of sufficient financial standing to give the undertaking.

81.  The defendant contends a cross‑undertaking provided by the plaintiff would be insufficient.  The reliance on paid‑up capital is unhelpful in the absence of accounts.  The defendant also submitted there would be difficulty in enforcement; the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements between Parties Concerned applies to choice of court agreements, ie, agreements concluded by the parties to a specified contract and specifying the courts in either Hong Kong or the Mainland as the court to determine the dispute between the parties.  There is no choice of court agreement in the present case.  The defendant also contends that it is notoriously difficult for foreign parties seeking to enforce awards, judgments or undertakings against state owned enterprises before Mainland courts. 

82.  The defendant submitted that any undertaking ought to be provided by the plaintiff’s Hong Kong listed parent and fortified either by cash or a first class international bank bond.

83.  The legal principles applicable to fortification have been succinctly summarized by Mr Justice To in Felix Tschudi v Million Miles Global Limited unrep, HCA 318/2013, 12.2.14, at para 26:

“... The court has a general power to order fortification where it appears just and proper to protect the defendant by making such an order. Usually, merit of the parties’ case (sic) is not a necessary consideration. However, if the plaintiff has a strong case, it may not appear just and proper to make the protection available to the defendant. The burden of showing the need for fortification and the appropriate quantum falls on the party seeking fortification, ... . He must show the likelihood of a significant loss arising as a result of the injunction, and demonstrate why he believes the other party will be unable to make good that loss. The court will approach these issues by taking a broad view of the evidence, usually without the need of a detailed enquiry. Whilst there is no obligation on the plaintiff to give full and frank disclosure of his own financial means, circumstances might arise where the absence of financial disclosure by a plaintiff might entitle adverse inference as to his ability to meet his cross‑undertaking in damages to be drawn.”

84.  In my view, the defendant has not discharged its burden of showing the need for fortification or the appropriate quantum because it has not produced any evidence of the likelihood of significant loss arising as a result of the injunction:

(1)   There is no evidence that restrained funds are committed for any particular purpose or that it would suffer loss if funds were not available.

(2)   The available evidence is that the plaintiff is an operating shipyard and there is no evidence that it would be unable to pay damages.

(3)   Apart from Mr Bhatia’s assertion:  “I understand that it is notoriously very difficult for foreign parties” to enforce undertakings in PRC courts, there is no evidence that that is the case.

85.  For these reasons, I am not prepared to order fortification. Also I do not agree that the plaintiff’s parent company, CSSC should give the cross undertaking; it is not party to this application and I consider fortification by the plaintiff will be sufficient.

Exceptions

86.  The plaintiff has no objection to the following exceptions to the injunction:

(1)   a maximum of HK$25,000 per week for ordinary business expenses; and

(2)   all reasonable legal expenses of the two London arbitrations.

Conclusion

87.  For the reasons given above:

(1)   I grant a Mareva Injunction in terms of the draft order submitted to court on 14 December 2016, as amended by me, over the assets of the defendant worldwide, in aid of two arbitrations commenced by the plaintiff against the defendant in London, United Kingdom, before Mr Simon Gault and Sir Bernard Eder QC (the “Tribunal”) in respect of two Guarantees, dated 16 December 2013 and 24 December 2013 respectively, pursuant to sections 45(2) and (5) of the Arbitration Ordinance (Cap 609) and sections 21L and 21M of the High Court Ordinance (Cap 4) and Order 29, rule 1 and rule 8A of the Rules of the High Court (Cap 4A).

(2)   This Order does not prohibit the defendant from spending HK$25,000 per week towards its ordinary and proper business expenses.

(3)   All reasonable legal expenses incurred by the defendant in respect of the arbitration proceedings referred to in paragraph 40 of the 1^st Affirmation of Lai Meiping filed on 27 June 2016 are excepted from this Order.

88.  I make a costs order nisi that the costs of these proceedings be to the plaintiff.