SMY (HONG KONG) LTD v. THE OWNERS AND/OR DEMISE CHARACTERS OF THE SHIP OR VESSEL “SHUN AN”

HCAJ 24/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 24 OF 2012

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D E C I S I O N

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1.  The plaintiff issued a writ on 8 February 2012 to seek damages of US$3.33m against the defendant pursuant to a voyage charter arising from the defendant owner’s failure or refusal to release the cargo. This is the 2^nd ex parte application for extension of the validity of a writ.

Background

2.  The vessel had entered Hong Kong waters on 3 occasions in 2012:

(1) 20 June 2012 (Wednesday) from 5:30pm to 21 June 2012 at 7:08am (for around 14 hours);

(2) 22 March 2012 (Thursday) from 9:54am to 2:13pm (for around 4 hours);

(3) 12 February 2012 (Sunday) from 8:48am to 2:11pm (for about 6 hours).

Despite that, the validity of the writ was renewed for 12 months.

3.  The vessel had entered Hong Kong waters on 3 other occasions in 2013:

(4) 22 March 2013 (Friday) from 11:32am to 7:48pm (for around 8 hours);

(5) 6 May 2013 (Monday) from 12:57am to 5:27am (for about 5 hours);

(6) 2/7/2013 (Tuesday) from 3:16pm to 1:49am (for about 10 hours).

4.  On 29 January 2014, the plaintiff applied to extend the validity of the writ for another 12 months on the ground that:

A. It was not possible to effect service of the writ on the vessel in 2013 (“the impossibility of service ground”).

5.  As I was not inclined to extend the validity of the writ, on 30 January 2014, I directed the plaintiff to appear and make representation.

6.  Since my direction, the plaintiff’s solicitor has filed another affirmation, relying further on the grounds that:

B. Withholding of service was for the reason of avoiding unnecessary proceedings and saving costs (“the avoidance of unnecessary proceedings ground”); and

C. There would be prejudice to the plaintiff if the writ is not extended but no prejudice to the defendant (“the prejudice ground”).

7.  It transpired that before issue of the writ, the plaintiff had instituted proceedings in the Xiamen Maritime Court of Mainland China and commenced arbitration. 

8.  In the Xiamen proceedings, the vessel was arrested on 30 December 2011.  The owners of the vessel put up security in the form of real property and a guarantee from a real estate company (“the Security”).  Despite the objections of the plaintiff, amongst others, that the value of the property was subject to severe fluctuation and the financial position of the real estate company was not at all reliable, the Xiamen Court nevertheless released the vessel on 9 February 2012 against the putting up of the Security.

9.  On 4 January 2012, the plaintiff commenced arbitration proceedings against the owners pursuant to the charterparty.  The arbitration has been pursued and the parties have just finished discovery.

10.  The plaintiff is said to be concerned that the Security might not be sufficient for the plaintiff’s claim in the arbitration proceedings.  So it issued the writ with a view to obtaining further security for the plaintiff’s intended claim in case the Security fell sort of its expected value.

The legal principles

11.  Order 6 rule 8(2) empowers the court to extend the validity of a writ where there are good reasons to do so.  See also Hong Kong Civil Procedure 2014, Vol 1, para 75/3/3.

12.  A two-stage test is applied by the court, first to ascertain if there are good reasons for extending time and second to weigh all relevant factors and balance the hardship between the parties before deciding whether the writ should be extended as a matter of discretion: Kleinwort Benson Ltd v Barbrak Ltd [1987] 1 AC 597; Pacific Electric Wire & Cable Co Ltd v Hu Hung Chiu [2011] 1 HKLRD 1000, at para 17.

13.  Whether or not there was good reason in a particular case must depend on all the circumstances of that case: Kleinwort Benson Ltd v Barbrak Ltd,at 622H to 623A.

14.  No sufficient opportunity to effect service can be a good reason in the first stage.  See the Berny principles laid down in the case of The Berny [1979] 1 QB 80, followed in Hong Kong in The Chong Bong [1997] 3 HKC 579, at 590B to E, Waung J:

“In my opinion, when the ground for renewal is, broadly, that it has not been possible to effect service, a plaintiff must, in order to show good and sufficient cause for renewal, establish one or other of three matters as follows: (1) that none of the ships proceeded against in respect of the same claim, whether in one action or more than one action, have been, or will be, present at a place within the jurisdiction during the currency of the writ; alternatively (2) that, if any of the ships have been, or will be, present at a place within the jurisdiction during the currency of the writ, the length or other circumstances of her visit to or stay at such place were not, or will not be, such as to afford reasonable opportunity for effecting service on her and arresting her, alternatively (3) that, if any of the ships have been, or will be, present at a place within the jurisdiction during the currency of the writ, the value of such ship was not or will not be, great enough to provide adequate security for the claim, whereas the value of all or some or one of the other ships proceeded against would be sufficient, or anyhow more than nearly sufficient, to do so.”

15.  The plaintiff cannot rely on its own inability to prove its cause of action in rem as a justification for renewing the writ in rem: The Chong Bong, at 590G to 591D, Waung J.

16.  Saving of unnecessary proceedings and costs can also be a good reason:  Kleinwort Benson Ltd v Barbrak Ltd, at 624B to C.

17.  It is not normally a good reason that the plaintiff desires to hold up proceedings while some other case is tried or to await some future development. Whilst it may be good reason for a delay in service that the resultant hiatus might save costs which will undoubtedly fall on a defendant who has at all material times known of the existence of the liability, there is a “world of difference” where a plaintiff delays service in order to save itself from incurring extra expense.  See Kleinwort Benson at 620B to C; Pacific Electric Wire & Cable Co Ltd v Hu Hung Chiu,at paras 28 and 31.

18.  The presence or absence of prejudice to a party cannot by itself be a good reason. Prejudice only goes towards the exercise of the discretion in the second stage test, when the court attempts (among other matters) to balance a plaintiff’s potentially good reason against possible hardship to a defendant.  Pacific Electric Wire & Cable Co Ltd v Hu Hung Chiu, at para 35.

Ground A – Impossibility of service ground

19.  Principle 2 of the Berny principles is relevant.

20.  I do not rely on the first 3 occasions when the vessel entered Hong Kong waters as they formed part of the court’s consideration in the 1^st application for extending the validity of the writ.

21.  The plaintiff says that the practice in admiralty cases has been for service and arrest to take place at the same time.  On the 4^th and 6^th occasions, owing to the short interval of berthing in Hong Kong, it was not possible for the solicitors to prepare an application to arrest the vessel.  On the 5^th occasion, the vessel called in Hong Kong after office hours in Mainland China where the plaintiff was located and left before the plaintiff’s office re-opened.  The solicitors had difficulty contacting the plaintiff for instructions.

22.  Whilst I am satisfied that it was impossible to effect service on the 5^th occasion, I am not so satisfied in respect of the 4^th and 6^th.  There had been ample time within office hours to take instructions from the plaintiff and prepare for service of the writ.  Even if the wish to arrest is taken into account, there had been ample time within 2 years to prepare the papers for arrest.

23.  The plaintiff then submits that there was not sufficient time for the plaintiff to value the Security and instruct the solicitors to prepare the papers for arrest.

24.  Principle 3 of the Berny principles appears to be relevant.  Firstly, the Security comprised landed properties and a guarantee.  I fail to see what great fluctuation in value there could be. 

25.  Secondly, there is simply no evidence to show what the value of the vessel and the fluctuation of the value was.

26.  Thirdly, the plaintiff can hardly say that the 2 years since issue of the writ were not sufficient for it to value the vessel.

27.  The plaintiff cannot rely on its own deliberate delay as a justification for renewing the writ in rem: The Chong Bong.  Ground A is not substantiated.

Ground B – The avoidance of unnecessary proceedings ground

28.  The commencement of this action was with a view to obtaining further security from the owners.  The plaintiff may fail in the arbitration proceedings.  The Security may be sufficient to cover the plaintiff’s claim.  Effecting of an arrest of the vessel would be the last resort.  The arrest of the vessel should cause severe disruptions to its normal activities and therefore cause loss to its current owners and/or charterers.  In these reasons, the plaintiff claims that by not serving the amended writ and arresting the vessel, it avoided unnecessary proceedings and saved costs.

29.  Firstly, in my view, the issue of the writ is to litigate the dispute between the parties, not to obtain security for the plaintiff’s Xiamen proceedings or arbitration proceedings. There are other statutory provisions for the plaintiff to obtain eg an injunction in aid of foreign proceedings or arbitration proceedings.

30.  Secondly, the intention to arrest the vessel under the writ action was but an after-thought, raised only in the 2^nd affirmation in support of the present application for extension of validity of the writ.  Clearly, the plaintiff could not seek to arrest the vessel for a 2^nd time without being accused of abuse of the court process when the Xiamen court had arrested the vessel, released it and ordered security to be provided.

31.  Thirdly, the plaintiff’s desire was simply to hold up the Hong Kong proceedings while some other case is tried or to await some future development.  This is not a good reason for extending the validity: Pacific Electric Wire & Cable Co Ltd v Hu Hung Chiu.  

32.  Fourthly, the plaintiff’s delay in service was to save itself from incurring extra expense.  Kleinwort Benson is distinguishable because there were 2 different sets of proceedings involving the same plaintiff but different defendants.  The plaintiff proceeded with the first against the defendant against whom the largest claim was made so as to obtain a ruling on liability.  It issued a protective writ in the second set of proceedings so as to prevent the case from being barred by limitation.  There was good reason for withholding service of the writ in the 2^nd set of proceedings which had the effect of saving costs.  In the present case, the Xiamen proceedings, arbitration proceedings and this action involved the same parties.

33.  Ground B is not substantiated.

Ground C – The prejudice ground

34.  It is submitted that the plaintiff would suffer great prejudice because there had been 2 changes of ownership in the vessel after issue of the writ.  The plaintiff would be deprived of the opportunity to seek further security against the owners to secure its intended claims: section 12B(4) of the High Court Ordinance; The Chong Bong, at page 589 G to H.  On the other hand, there would be no prejudice to the defendant.

35.  Since the plaintiff cannot even show good reason under the first-stage, there is no need to consider prejudice in the second-stage.

Conclusion

36.  I am not satisfied that it was impossible for the plaintiff to effect service of the writ in 2013.  Nor do I consider that withholding the service was for the reason of saving proceedings and costs. It was but the plaintiff’s deliberate decision to wait whilst the arbitration proceedings are taken and that was not a good reason.  Prejudice does not come into consideration at all.  I therefore dismiss the application for extension of the validity of the writ. 

37.  I am most grateful to Mr Chen for his thorough preparation and assistance.