INTRALINE RESOURCES SDN BHD v. THE OWNERS OF THE SHIP OR VESSEL "HUA TIAN LONG"

cacv 131/2008

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 131 of 2008

(on appeal from HCAJ NO. 59 of 2008)

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Admiralty action in rem against: the ship or vessel

“HUA TIAN LONG” (People’s Republic of China Flag)

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Date of Handing Down Reasons for Judgment: 19 June 2008

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  On 9 May 2008 Stone J made an order that the defendants should provide security in a manner acceptable to the plaintiffs, alternatively in a manner to be decided by the Registrar of the High Court, in the sum of US$65 million.  The purpose of that order was that the Hua Tian Long (“the vessel”) could be released.  On the same day, the judge refused a stay of execution.  The orders were then drawn up and the plaintiffs filed a notice of appeal.  Following directions, which were given by the Chief Judge, this appeal was ordered to be heard on 29 May 2008.

2.  On 29 May this court, having considered further evidence filed by the plaintiffs ordered that the vessel be released from arrest upon the provision by the defendants of security in the sum of US$122,412,000.  On that occasion the court indicated that it seemed appropriate that the order should be subject to the plaintiffs giving an undertaking that, in the event that the court should later decide that the value of the plaintiffs’ claim was such that the defendants ought not to have been required to provide security in the full sum in order to procure the release of the vessel, the plaintiffs would abide by any order that the court may make for the payment by the plaintiffs to the defendants of costs incurred by the defendants in providing that part of the security which the court held had been excessive.  Since the matter of the cross-undertaking had not previously been raised the plaintiffs were given an opportunity to consider the matter with liberty to apply.

3.  On the following day, the defendants applied for an order that the plaintiffs should fortify the undertaking.  Mr Sussex SC, who appeared on behalf of the plaintiffs, indicated that although his clients were prepared to give an undertaking, the giving of such an undertaking was wrong in principle.  Having heard argument on the matter this court came to the conclusion that no undertaking should be required from the plaintiffs.

4.  The full background to this matter can be gleaned from the reasons for judgment handed down by Stone J on 14 May 2008.  For the purposes of this judgment it suffices to say that the vessel with which this case is concerned is a large floating derrick or crane, which is described as a 4000 ton Revolving Construction Barge.  Although not usually in Hong Kong waters, it came to Hong Kong to salvage a sunken Ukrainian tug.

5.  The plaintiff is a Malaysian company which is in the business of providing professional engineering, project management, procurement, construction and fabrication, transportation and installation and retrofitting and commissioning activities in relation to oil and gas projects, particularly exploration projects.  The plaintiff had bid for two such projects in Malaysia for which it needed the vessel.  It is the plaintiffs’ case that it had entered a successful negotiations for the hire of the vessel but despite promises that the vessel would be available at the required time, it was not delivered because the vessel had been on-hire elsewhere.  In the circumstances the plaintiffs claimed damages in respect of breach of contract and breach of charter party and also on the basis of fraudulent, or alternatively negligent, misrepresentation.

6.  It was in those circumstances that when the vessel came to Hong Kong waters it was arrested on the 21 April 2008 upon the application of the plaintiffs pursuant to a warrant of arrest obtained by the plaintiffs and a writ in rem issued on the same day.

7.  The first matter to be heard by the court was a motion by the defendants to strike out the writ and that the action should be dismissed on the basis that the Hong Kong court did not have jurisdiction.  Reyes J dismissed that application on 30 April 2008.  The second application was an application also by the defendants that the court should determine the amount of bail bond or other security to be provided by the defendants to procure the release of the vessel.

8.  As explained by Mr Sussex, the court’s jurisdiction in respect of the release of vessels is twofold.  Under the provisions of Order 75 rule 13, the court has power to release a vessel which has been arrested.  However, the arresting party is, as was stated in The Moschanthy [1971] 1 Lloyd’s Rep. 37, “entitled to sufficient security to cover the amount of his claim with interest and costs on the basis of his reasonably arguable best case.”  The court’s power to intervene and regulate the security arises from the court’s inherent jurisdiction to prevent abuse of process.  The court has a duty to intervene when a party is acting oppressively.

9.  In the present case Stone J reviewed the various heads of claim and came to the conclusion that the plaintiffs’ reasonably arguable best case amounted to approximately US$65 million.  In doing so Stone J made the calculations on the basis of an affirmation by Mr Sim Kok Beng dated 7 May 2008.  In paragraph 94 of the reasons for decision the judge said:

“94.      Cross-referencing in each case to the relevant paragraph numbers in Mr Sim’s affirmation, the position, therefore, is as follows:

(i)     Under paragraphs 11 and 12, namely the difference between the contract hire price and the substitute equipment hire price:  US$47 million;

(ii)    Under paragraph 13, namely additional costs incurred due to extension in duration of the existing projects arising from the non-delivery: US$ 5million;

(iii)   Under paragraph 14, namely incurring of additional financing costs due to extension of the existing projects duration: US$3 million;

(iv)   Under paragraph 15, namely wasted expenditure in terms of preparation for arrival of the “Hua Tian Long”: US$6 million;

(v)    Under paragraph 17, namely the interest element for the intervening period prior to trial: US$2.5 million;

(vi)   Under paragraph 18, namely potential legal costs: US$1.5 million

Total: US$65 million”

10.  The basis of the plaintiffs’ appeal was that in the original figures given to the judge, the plaintiffs had omitted one particularly important item namely:

“Costs incurred on non major equipment for example transportation barges, marine gas oil, divers costs, budget management team costs, materials, tools, pipe coating costs.”

11.  These items totalled US$69,300,000 according to the affirmation of Cheam Tow Yong filed on 16 May 2008.  On the face of the matter it would appear that such costs would be claimable and that therefore, at this stage, they would come within the category of what would constitute the plaintiffs’ reasonably arguable best case.

12.  Mr Wright, who appeared on behalf of the defendants, argued that there was nothing to substantiate that claim and he criticised the quality of the plaintiffs’ evidence.  It was also argued that the plaintiffs’ claim was not sustainable under the Admiralty jurisdiction.

13.  Whilst, of course, the plaintiffs’ claim is not supported by significant amounts of documentation, at this early stage that could not be expected.  What is clear is that, in the first place, the plaintiffs were engaged in a considerable undertaking.  Moreover, the vessel in question was a very specialised vessel which, no doubt, had quite exceptional capabilities.  The hire charges under the charter party would appear to reflect that.  Given the size of the projects which the plaintiffs had undertaken it cannot be supposed that the documentation to support the plaintiffs’ claim of this size would be other than voluminous and far greater than anything which could conceivably be filed at this stage.

14.  Reyes J had already considered the question of whether the claim came within the Admiralty jurisdiction and there had been no appeal from his decision in that regard.

15.  It was in those circumstances that, based on evidence which was not before the judge below, this court considered it right to increase the amount of security.  Because that increase was based on new material this court considered it appropriate to make an order nisi that the costs before this court on 29 May 2008 should be to the defendants.

16.  As indicated above, this court said on 29 May that it considered it would be appropriate that the plaintiffs should give an undertaking to reimburse the defendants the costs incurred in respect of providing security for amounts in excess of that which the court, when it had the full matter before it, considered appropriate.  Again, as indicated above, on the following day, the matter was referred to this court again.  On that occasion the defendants sought an order that the plaintiffs should be required to give appropriate fortification for the undertaking which the plaintiffs had indicated they were prepared to give.

17.  After hearing argument, this court came to the conclusion that it was inappropriate for the court to require the plaintiffs to give any undertaking.  The reason quite simply was that as a matter of principle the plaintiffs were entitled to the security in the shape of the arrest of the vessel.  The provision of security by a defendant as a requirement imposed by the court when it exercises the jurisdiction to release a vessel from arrest constitutes, in effect, the provision of a substitute security which is treated, in some respects, as the vessel.  It is for those reasons that when the court considers whether the plaintiff is acting in an oppressive manner and thus abusing the process of the court the yardstick by which it assesses that is that of the reasonably arguable best case.  Were it otherwise, the court might well use a different standard for assessing the appropriate amount.

18.  It was for those reasons that this court did not require the plaintiffs to give an undertaking to reimburse any costs of the defendants and, consequently, the defendants’ application for fortification was refused.

Hon Le Pichon JA:

19.  I agree.