THE OWNERS OF AND/OR OTHER PERSONS AND ANOTHER v. THE OWNERS AND/OR DEMISE CHARTERERS

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Admiralty Action in Rem against the ship "TAI WAH NO. 18"

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REASONS

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1. This is an application by the Defendants to set aside the Judgment made on the 31st July 1995 in default of acknowledgment of service by the Defendants. At the conclusion of the hearing, I set aside the Default Judgment with costs to the Defendants and I indicated that I would hand down my reasons later. I now hand down my Reasons.

2. The Defendants are the owners of the lighter Tai Wah No. 18 ("Lighter"). On the 28th day of June 1994, in the course of discharging from the Lighter onto the shore 17 crates of machines belonging to the Plaintiffs, an accident occurred in the course of the lifting of the last crate, resulting in the machine falling down and being badly damaged. The Plaintiffs therefore brought the claim against the Defendants.

3. On 4th July 1995 the Writ in Rem in this Admiralty Action was issued against the Lighter and on the same day the Lighter was arrested and the Writ in Rem was served by the Chief Bailiff on the Lighter. The Plaintiffs were represented by Messrs Clyde & Co. ("Clydes"). The Defendants solicitors. Messrs Holman. Fenwick & Willan ("Holmans") immediately came onto the scene and negotiations took place between Clydes and Holmans (Mr. Philip Mo dealing with this matter), finally leading to Holmans furnishing a letter of guarantee resulting in Clydes agreeing to the release of the Lighter. On the 7th of July 1995, Holmans on behalf of the Defendants and as their solicitors filed the release papers, countersigned by Clydes consenting to the release of the Lighter. Holmans as solicitors for the Defendants also signed that day the Undertaking to pay the Chief Bailiff's charges and expenses relating to the arrest.

4. Unfortunately, Mr. Mo of Holmans erroneously believed that acknowledgment of service was filed with the release papers as would normally be done in this sort of situation. Through some slip this was not done. Holmans on behalf of the Defendants had overlooked the filing of an Acknowledgment of Service. This slip must have been obvious to Clydes or to any reasonably competent solicitor practising in this area of litigation. This is not a case where the owners have allowed the vessel to continue to be arrested without putting up any security or where it could be thought that the owners might possibly be allowing the action go by default as not being worthwhile fighting the proceedings. In an Admiralty Action in Rem, when shipowners have gone to the trouble and great expense of arranging for solicitors to negotiate for the release of the vessel and then furnish substantial security to obtain the release of their arrested vessel, it is inconceivable that they would not be contesting the action.

5. Time for the acknowledgment of service having expired Clydes on 27th July 1995 (a Thursday) duly issued a Notice of Motion pursuant to Order 75 rule 21(3) for Default Judgment returnable barely one and half working days later on the 31st July 1995 (a Monday). This Notice of Motion was supported by an Affidavit of Mr. Samuel Ngo filed on the 26th July 1995 and the Points of Claim filed on the 27th July 1995. What is relevant and vitally important is that Clydes had chosen not to serve the Notice of Motion and the supporting documents on either Holmans or the Lighter, which is a Hong Kong licensed lighter, No. 21329V with its normal mooring or operation in the Yaumatei Typhoon Shelter. The reason for Clydes not serving the Motion papers is obvious, as Clydes did not wish the Motion to be defeated by Holmans filing an Acknowledgment of Service. On 31st July 1995 at the hearing of the Motion, the Defendants were absent and I gave Default Judgment to the Plaintiffs. Armed with this Judgment, Clydes then proceeded to enforce it by writing on 2nd August 1995 to Holmans demanding payment under the Guarantee. Holmans immediately responded and asked for a stay of execution and for setting aside of the Judgment.

6. The setting aside application was duly made and on the hearing of the application, the first question raised at the invitation of the Court is whether the Judgment was regular or irregular. The jurisdiction of the Court in an Admiralty Action in Rem to enter Judgment in default of Acknowledgment of Service is governed by Order 75 rule 21(3) and the mode of application is dictated by Order 75 rule 21(7). They provide as follows:-

It is clear from the above provisions that an application in an action in Rem for Judgment in default of Acknowledgment of Service must be by way of Motion. The question for the Court is whether the Motion must be served or as Mr. Fok for the Plaintiffs submits, can be made ex parte.

7. Order 75 rule 34 and Order 8 rules 1 and 2 of the Rules of Supreme Court are relevant on the question of Notice of Motion. Order 75 rule 34 provides:-

Order 8 rule 1 and rule 2 provide:-

"1. Application

          The provisions of this Order apply to all motions subject in the case of originating motions of any particular class, to any special provisions relating to motion of that class made by these rules or by or under any written law.

2. Notice of motion

On a plain reading of these provisions, it seems to me that Order 8 rule 2 applies to all notices of motion but that in respect of certain particular notices of motion in Admiralty Action in Rem there are the additional requirements of Order 75 rule 34. I reach this conclusion by the following steps. I start with the clear language of Order 8 rule I which makes Order 8 applicable to all motions and as we are not dealing with any originating motions, there is no necessity for me to look at other special provisions relating to originating motions. I then turn to Order 8 rule 2 and again by its language, there is nothing to exclude this particular motion of the Plaintiffs issued on 27th July 1995 from the general operation of the provision. Service of the Default Motion of the Plaintiffs is therefore clearly required by Order 8 rule 2 for the exception clearly does not apply as this is not a situation of extreme urgency justifying application by ex parte. Does Order 75 rule 34 make any difference to the clear requirement of inter partes notice. By rule 34, the following are required to be done in respect of a notice of motion in an admiralty action in rem:-

These are the 3 requirements of all notices of motion in actions in rem except for notices of motion for default judgments. It is to be noticed that rule 34 does not expressly require the service of the notice of motion on the other side. There was no such express requirement in rule 34 because Order 8 rule 2 already makes this necessary and all that Order 75 rule 34 does is to impose the additional requirement to give 2 clear days notice also to the caveators, namely parties who have an interest in the ship and who had entered their interests in the Caveat Book. What is sought to be done in respect of the default judgment exception in rule 34 is to provide that in relation to notice of motion for default judgment, the additional requirements of rule 34 do not apply, but it certainly does not mean that in relation to such notice of motion, there is no necessity to serve the notice of motion. There is nothing in the language of the Order 75 rule 34 to exclude the operation of Order 8 rule 2 and it would indeed bring about the most bizarre result if Order 75 rule 34 is construed to exclude Order 8 rule 2 for then where is the requirement in all admiralty actions in rem to serve the other side (not caveators) with 2 clear days notice. I am further fortified in this reading of Order 8 as the governing order for admiralty actions in rem by the notes at 75/34/1 of the White Book at page 1319. My first conclusion is that on the construction of the relevant provisions of the Rules, the Plaintiffs' Notice of Motion of the 27th July 1995 ought to be served on the Defendants or their solicitors, Holmans.

8. There are however other and even stronger grounds for the Court to hold that. Notice of the Motion for Default Judgment ought to be served. I start with the general proposition that when an application affecting the other party is made to Court then justice requires that notice is to be given to the affected party and that must be the norm and exceptions would have to be clearly justified. In relation to applications for Default Judgment where provision is made in the rules expressly making it necessary for applications to court for default judgment (as contrasted with administrative steps taken under Order 13 or Order 19), the presumption that notice ought to be given to the affected party must be even stronger. All applications for default judgment (whether of non compliance with order for pleadings or discovery) should fall under this general principle unless by the express words of the rules an exception is made.

9. It is agreed by the parties that there is no express intention in the rules that default judgment motions should be ex parte although it is perfectly open for such express intention to be clearly stated in the rules (see for example Order 29 rule 1(2) and Order 16 rule 2(1)). In the absence of such express intention, I do not see how it is permissible for the Court to construe or to infer from Order 75 rule 21(7), rule 34 and Order 8 rule 2 an implied intention that default judgment motion can be by way of an ex parte motion.

10. The argument at the hearing focused on the motion for no-appearance default judgment and no special attention was paid to the situation of no-defence default judgment motion. In fact a similar situation applies, namely that application to court is required under Order 75 rule 21(4) for no-defence default judgment and rule 21(7) also requires such application to be made by motion. Even Mr. Fok in his very firm submission did not suggest that in no-defence default judgment motion, service is not required. In fact an examination of the history of the change of rules will show that:-

the requirements of the rules of court were that copy of notice of Motion in relation to Admiralty matters under Order 75 must be served on all the other parties to the proceedings (see also McGuffie on Admiralty Practice in British Shipping Laws, paragraph 634) and that it had always been considered necessary to serve such Motion on the defendants in an application for no-defence default judgment. If this is right then I can see no basis in either logic or principle why in respect of no-appearance default judgment motion, service should be singled out as being not required. My second conclusion is that on principle, service of Notice of Motion by the Plaintiffs is required.

11. I now turn to the third consideration, namely whether there is anything in the authorities or the textbooks to lead me to a contrary view. Mr. Fok (who appeared for the first time in this matter) with his usual courtesy and helpfulness referred me to:-

12. In the case of Yimen (unreported Judgment dated 3rd September 1991 in AJ 379/90) Mr. Justice Mayo was misled into a contrary conclusion by his erroneous acceptance and assumption that Order 8 was directed only to originating processes and by the lack of full arguments on the proper construction of the various relevant rules. Some consideration was given in the Yimen judgment to the prevailing practice and to the notes in the prescribed form of the Acknowledgment of Service. In my view, in relation to the notes in the prescribed form, the overriding consideration must be the provisions of the rules of the Supreme Court which are subsidiary legislation and which the Court is obliged to apply. If there is any conflict between the Rules and the notes, the Rules must prevail.

13. Finally I turn to the practice, referred to in the Yimen judgment and commented upon in the various textbooks, such as Meeson on Admiralty Jurisdiction and Practice, McGuffie on Admiralty Practice, Roscoe on Admiralty Jurisdiction and Practice. Various comments were offered or stated in these textbooks as to the practice of not serving the Motion for Judgment in default of appearance. In so far as it might be practice based on different rules of court then this old practice provides me with no guidance. But in so far as this practice was based on no rule of court, again it is of no assistance to me. In so far as this practice was contrary to the then governing rules of the court, clearly no court could or should permit such practice to prevail over rules of the court. As was said by Edmund Davies, L.J. in Astrovlanis S.A. v Linard (The Gold Sky) [1972] 2 Q.B. at page 622F-G:-

"...but my respectful comment on that observation must be that if the practice, however venerable, is indeed contrary to the Rules of the Supreme Court, it is difficult to see how there can exist any reasons which a judge called upon to administer the law in accordance with those very rules can properly regard as reasons of substance."

In my judgment any practice which permits ex parte application to be made on Default Judgment Motion cannot stand against the overriding provision of Order 8 rule 2 and Order 75 rule 21(7) and if there is a perception that such practice does exist then this perception should be corrected and the practice stopped.

14. In the circumstances, my conclusion on the basis of:-

all lead me to the judgment that notice of application for default judgment ought to have been given by Clydes to Holmans and in its absence the Judgment must be set aside for irregularity.

15. Having reached this conclusion of irregularity, strictly speaking it is not necessary for me to go on to consider the second question argued, namely whether the Defendants have shown a defence on the merits in the sense of having a real prospect of success. Out of deference to the arguments addressed to me and mindful of the fact that this matter will be going on to trial. I will try to delve as little into the merits of the case as possible and merely state briefly my views on the materials put before me.

16. The case of the Defendants on the merits is simple. They admit they are bailees but say that on the evidence put before the court they have shown a reasonable case of the accident happening without any fault or negligence on their part. Therefore they have at least a real prospect of success in the Premier Fashion v Li Hing Chung [1994] 1 HKC 213 sense and in the circumstances the Judgment ought to be set aside. The Plaintiffs dispute this and contend that notwithstanding the evidence filed by the Defendants, the Court should nevertheless hold that the Defendants have absolutely no real prospect at all of being successful. I do not wish to prejudge the issue but looking at it at the interlocutory stage I am bound to say that I find it very easy to accept the submissions of Mr. Jat for the Defendants.

17. It seems to me important to bear in mind that this is really an accident case with dispute of facts as to exactly what happened with the lifting of the crate and what steps were taken before the lifting, in the lifting and what caused the breakup of the crate and the falling down of the machine. This is not the usual situation of a commercial dispute where the court might be able to say with the assistance of contemporaneous documents and the commercial reality prevailing whether a party's story or allegation of the defendant is so inherently improbable as to have no reasonable prospect of success. We are concerned here with an accident where much will depend on the interaction between the disputed factual evidence on the accident and the disputed expert evidence on packaging and its adequacy, on the proper manner of lifting crates and on inferences and opinions as to the causes of the accident and the breakup of the crate. I do not see in this kind of situation, how any court is able to say that the evidence presented by the Defendants has no prospect of being believed.

18. Without in any way prejudging the case. I will merely mention here some of the salient features of the evidence which the Defendants have put before the Court:-

19. Mr. Fok attacks the quality of the Defendants' evidence and compares such evidence to the evidence of the Plaintiffs. It may well be true that the case of the Defendants is not strong but that does not mean that the Defendants have no real prospect of success. If, ultimately the outcome of the case may depend on whether the cause of the accident was due to slings being incorrectly placed on the crate or the derrick being operated carelessly or the inadequacy of packing or reasons yet unknown, then in my view on the material put before me, there is every likelihood that the Court at the end of the day could find in favour of the Defendants in the sense that the Defendants have shown that the loss of the Plaintiffs was not caused by any lack of care by the Defendants. In the circumstances, it seems to me that in addition to my finding on the first question of irregularity of the Judgment in favour of the Defendants, on the second question of defence on the merits. I must also hold in favour of the Defendants. The Default Judgment entered by the Plaintiffs against the Defendants on the 31st July 1995 must therefore be set aside with costs to the Defendants.