HSBC BANK PLC v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL “APELLIS”

HCAJ 63/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 63 OF 2016

Admiralty action In Rem against the ship or vessel “Apellis”

(IMO No. 9467976) registered at the Port of Panama

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R E A S O N S   F O R   J U D G M E N T
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1.  This is the application of the Plaintiff (HSBC) by Notice of Motion dated 28 March 2017 (Notice of Motion) pursuant to O.75, r.21(3) and (7) for judgment in default of acknowledgment of service in the principal amount of US$10,175,000 plus contractual interest from 8 September 2015 to 8 March 2016 (US$145,678.87) and post judgment interest on the principal amount under s.49 of the High Court Ordinance (Ordinance).

2.  This is an action in rem and the Writ was served on the Vessel on 5 August 2016.  The Vessel was sold on the application of HSBC and pursuant to an Order of the court made on 30 August 2016.  The Defendant Owners did not appear to put up security or contest the proceedings or the application for sale.  It appears that they have no further interest in these matters.

3.  The Notice of Motion is supported by an Affirmation of Eleni Vrettou dated 15 March 2016 (Affirmation).  A Statement of Claim was filed on 17 March 2017.  Subject to the question whether the Notice of Motion has to be served, it appears that the preliminary requirements of r.21(3) are met.  It is, however, for HSBC to satisfy the court that its claim is “well founded” (r.21(7)).

4.  The material facts can be briefly stated as follows.  In these proceedings, HSBC seeks to enforce a Secured Loan Agreement dated 8 October 2010 and a First Preferred Ship Mortgage dated 29 October 2010 pursuant to s.12A(2)(c) of the Ordinance due to the defaults on the part of the Defendant.  The amounts of outstanding principal and interest as at 8 March 2016 had been set out in §§14 to 18 of the Affirmation and a Certificate of Outstanding Indebtedness exhibited thereto.

5.  The amount of outstanding principal alone exceeds the sale proceeds of the Vessel and her bunkers, namely, US$9,428,030[1].  HSBC therefore restricts its claim to those set out in para 1 above.  

6.  I see no reason to doubt the validity of HSBC’s claim, and there is no indication of any other party who has a claim ranked higher in priority to that of HSBC.  I am therefore satisfied that HSBC’s claim is well founded.

Whether service of the Notice of Motion is required

7.  O.75, r.21 provides for judgment by default in admiralty actions.  Under O.75, r.21(7), an application must be made by Motion.  However, with the exceptions of O.75, r.33 and r,34, there is no special practice in Admiralty proceedings in regard to Motions: see Hong Kong Civil Practice 2018, vol 1 (HKCP), rubric 75/34/1.

8.  The general provisions governing originating and other motions are to be found in O.8.  The Notice of Motion belongs to the latter type.  It is a motion for judgment. 

9.  An originating motion is served in the same way as a writ of summons: HKCP, rubric 8/5/4.  The relevant provisions are to be found in O.10, r.1(1) to (4) and r.5(2). 

10.  In respect of “other motions”, with the exception of ex parte motions, they are required to be served on “the parties affected thereby”, subject to the court’s discretion to make an ex parte order under the motion where it is justified by the circumstances.  However, the ex parte order is liable to be set aside on the application of any party affected by it: see O.8, r.2.

11.  There is no requirement for other motions to be personally served on the persons affected.  They may be served by way of ordinary service pursuant to O.65, r.1 and r.5. 

12.  O.65, r.9 provides that no service is required in certain cases, including the case where the person to be served is in default as to acknowledgement of service, subject to any contrary direction of the court or contrary provisions under the rules.  I agree with Mr Alder, who appeared for HSBC, that prima facie HSBC may rely on O.65, r.9 and is not required to serve the Notice of Motion on the Defendant. 

13.  However, in The Tai Wah 18 [1996] 4 HKC 725, Waung J held that on the true construction of O.8, r.2 and O.75, r.34, where judgment in default of acknowledgment of service was sought it was necessary to serve the notice of motion on the defendant. 

14.  In a later case, The Blue Ridge [2010] 2 HKLRD 285, Reyes J observed (§33) that it was sufficient for the purpose of obtaining default judgment against the res to produce a copy of the writ together with the bailiff’s endorsement giving details of service on the res. However, it appears that the observation was an obiter dictum. Mr Alder was one of the counsel in that case and he informed this court that the point was not fully argued.

15.  I am grateful to Mr Alder for bringing the attention of this court to the English Court of Appeal judgment in The Iran Nabuvat (11 January 1991, 1991 WL 11779940) where the necessity to serve a default judgment motion on the defendant was considered.  Leggatt LJ held (p.5) that :

“… the writ of summons in an action in rem expressly warns defendants by saying ‘if you fail to satisfy the claim or to lodge an acknowledgement within the time stated, the plaintiffs may proceed with the action and a judgment may be given without further notice to you’[2]. The defendants having failed to lodge an acknowledgement of service, judgment was given without further notice to them. In my judgment there was in those circumstances no need to serve a notice of motion under the RSC Order 75, rule 21(3) on the defendants or anyone else. As a matter of practice it had only to be filed in the Admiralty Registry.”

16.  In the same judgment, Dillon LJ held (p.4) that :

“… under Order 74 rule 21(3) it is provided that after the expiration of a certain period, and upon filing an affidavit proving due service of the writ, and an affidavit verifying the facts on which the action is based, and a copy of a statement of claim if not endorsed on the writ, the plaintiff may apply to the court for judgment by default.

  … Mr Justice Sheen was right in treating this judgment as a regular judgment and in rejecting the view, insofar as canvassed before him, that the application for summary judgment should have been made on application inter-partes and not, as it was on the face of the notice of motion which came before Mr Justice Hobhouse, as an ex-parte application to which there was no respondent.”

17.  With great respect, I am persuaded that The Tai Wah 18 was decided per incuriam because neither O.65, r.9 nor The Iran Nabuvat was drawn to the attention of the court[3].  In my view, O.65, r.9 would undermine the conclusion reached by the court in The Tai Wah 18 based on the true construction of the relevant rules.  Further, the general presumption that an application had to be served on the affected parties (see The Tai Wah 18, 729I to 730G) is questionable when an affected party had abandoned his interest in the matter, as in the case of a defendant who had failed to acknowledge service.  

18.  In light of O.65, r.9 and The Iran Nabuvat, I agree with Mr Alder that there is no requirement to serve the Notion of Motion.  This conclusion is fortified by O.75, r.21(9) which gives the court the power to set aside a default judgment. 

Conclusions

19.  Accordingly, at the conclusion of the hearing I gave judgment in the terms sought in the draft judgment with amendments, and the costs awarded to HSBC were summarily assessed. 

20.  I am grateful to Mr Alder for his able assistance.