NORDDEUTSCHE LANDESBANK GIROZENTRALE, SINGAPORE BRANCH v. THE OWNERS OF THE SHIP OR VESSEL “BRIGHTOIL GLORY”(Hong Kong flag)

CAMP 81/2019

[2019] HKCA 561

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 81 OF 2019

(ON AN INTENDED APPEAL FROM HCAJ NO 4 OF 2019)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the Court):

1.  This is a rolled-up hearing of an application for leave to appeal brought by the defendants and of the substantive appeal, if leave should be granted. At the conclusion of the hearing, we declined to grant leave to appeal. These are the reasons for judgment of the court.

2.  The order that is the subject of the intended appeal was made by D’Almada Remedios J on 24 April 2019.  The judge refused the defendants’ application for a further stay of the order for sale pendente lite of the VLCC[1] “Brightoil Glory” (“the Vessel”) made on 4 February 2019 by Anthony Chan J (“the Order for Sale”).  Under the Order for Sale, tenders were to be submitted by 2 pm on 28 March 2019.  The defendants issued a summons on 26 March seeking a stay of the Order for Sale for three months until 27 June 2019.  On 27 March 2019, Peter Ng J granted a stay of the Order for Sale for a shorter period, until 24 April 2019.  The plaintiff sought urgent leave to appeal against the order of Peter Ng J and this court refused leave on 28 March[2].

3.  Under the order of Peter Ng J as varied by this court on 28 March, invitation to tender for the purchase of the Vessel is to be advertised on 2 and 3 May 2019, tenders are to close on 20 May at 2 pm, with completion of the sale and purchase on 27 May 2019.

4.  On 24 April, the defendants issued a summons for a further stay of the Order for Sale until 22 May 2019, and for consequential directions that advertisement for tender is to run on 3 and 4 June, tenders are to close on 19 June at 2 pm, with completion of the sale and purchase on 26 June 2019.

5.  D’Almada Remedios J refused to grant a further stay as sought.  She also refused leave to appeal on 24 April.  The defendants renewed their application for leave to appeal before us.  Due to the urgency of the matter, we held a rolled-up hearing.

6.  This is an appeal against the exercise of discretion by the judge.  We were given to understand that oral submissions before the judge lasted well above 1.5 hours.  We have been provided a transcript of the judge’s ex tempore reasons in dismissing the application.

7.  The judge had taken into account the matters urged upon her by the defendants’ former counsel, namely, that there is substantial equity in the Vessel after satisfaction of the plaintiff’s claim, that the Vessel could be moved outside Hong Kong should any adverse weather conditions arise, and the stay is for a short period of just four weeks to enable the defendants to proceed with re-financing proposals and complete a private sale of the Vessel.  She also noted the reasons advanced by the plaintiff for opposing a further stay.

8.  The judge agreed with the submissions of Ms Rachel Lam, who appeared for the plaintiff, that to delay the court-ordered sale any further is a process of which the plaintiff would be prejudiced in that the plaintiff would find themselves in a situation where the defendants would or may continue to come back to court month after month to seek yet further stay.  The judge was taken by Ms Lam to the unsigned memorandum of agreement (“MOA”) for the proposed private sale and found force in the submissions made of the uncertainties in the proposed transaction, and the complications that may arise if there should be disputes.  The judge also noted that the Court of Appeal in refusing leave to the plaintiff to appeal against the order of Peter Ng J endorsed his approach of allowing the court-ordered sale to be delayed for a very short period.

9.  Having weighed up the various matters urged upon her on both sides, the judge did not consider it appropriate to grant the application for a further stay.

10.  The burden is on the defendants to satisfy us there are reasonable prospects of establishing valid grounds for the appeal court to interfere with the exercise of discretion of the judge on the well-established principles in Hadmor Productions v Hamilton [1983] 1 AC 191 at 220B to E.

11.  We reject the contention that the judge had misconstrued the order of Peter Ng J on 27 March 2019 as amounting to a “final order with no possibility of further extensions”.  It is apparent from a fair reading of the transcript that the judge had refused to grant a further stay because she was not satisfied it would be appropriate and justifiable to make this order.  This deals with ground 1 of the draft notice of appeal.

12.  Mr Sussex SC, who appeared in this court for the defendants, referred us to The “Myrto” [1977] 1 Lloyd’s Rep 243, the leading case on the power to order a sale pendente lite, and relied on these observations of Brandon J at 259 to 260:

(1)   The power of the court to order an appraisement and sale of a ship pendente lite is derived from its inherent jurisdiction and supplemented by Order 29 rule 4, which provides that the court may make an order for sale where the subject matter is “of a perishable nature or likely to deteriorate if kept or which for any other good reason it is desirable to sell forthwith”.

(2)   The court should not make an order for sale pendente lite except for good reason.

(3)   The question whether such an order should be made normally only arises where there has been default of appearance or defence.  In such a case, the court will commonly make an order for sale on the ground that, unless such order is made, the plaintiffs’ security for their claim will be diminished by the continuing costs of maintaining the arrest, to the disadvantage of all those interested in the ship.

(4)   Where the action is defended, and the defendants oppose the making of such an order, the court should examine more critically than it would normally do in a default action the question of whether good reason for making an order exists or not.

13.  He pointed out that the present case was not a case of default of appearance or defence.  The defendants acknowledged service of the writ in rem within time on 1 February 2019.  The defence was also served within time on 25 March.  It was due to error that the defendants’ solicitors were not notified of the hearing before Anthony Chan J on 4 February, when the Order for Sale was made.

14.  The judge had dismissed similar arguments based on The “Myrto” because the issue before her was not an appeal from the Order for Sale.  Mr Sussex submitted that if the Order for Sale was wrongly made or prematurely made, that represented a “powerful reason” why this order should not take immediate effect.  He contended it is wrong in principle for the judge not to take this into account in exercising her discretion.

15.  We do not think the judge was in error in rejecting the above arguments for these reasons.

16.  The application for an order for sale pendente lite before Anthony Chan J was not made on the basis that it was a case of default of appearance or defence.  The fact that this was not a default situation is immaterial.  According to the supporting affirmation for that application, it was made on the grounds that 11 of the 15 owned vessels within the Brightoil group of companies have been arrested, that the ship-owning business of the group has “irretrievably collapsed”, and that given the level of outgoings and expenditure of the Vessel, the interests of the parties would be served if the Vessel was sold without further delay.  And given the very large size of the Vessel, it is important for safety reasons that a court sale is completed before the onset of the typhoon season.  As there is no appeal against the Order for Sale, it would not be right to act on the hypothesis that this order was wrongly made or prematurely made.

17.  This deals with grounds 2 to 5 of the draft notice of appeal.

18.  The judge was apparently concerned that the Vessel may be at risk in the imminent typhoon season, such concern was heightened by the fact that the Vessel had dragged anchor during the recent flash storm on 20 April 2019.  This consideration is now of more limited relevance, as an agreement was reached on 6 May 2019 among all relevant parties at the Marine Department that the Master of the Vessel is to receive weather routing reports, and if he considers anticipated weather to pose a danger, he is to be at liberty to sail the Vessel out of Hong Kong to ride out the storm, and to return to Hong Kong when such danger has passed.  This is covered by ground 8 of the draft notice of appeal.

19.  We take note of the point made by Ms Lam that the very act of allowing the Vessel to leave Hong Kong could itself cause delay and disruption to any adjourned sale process.

20.  Leaving aside the safety concerns, there are still other matters to be considered in the balancing exercise whether it would be appropriate to grant a further stay.  The burden is on the defendants to satisfy the court that a further stay is warranted.

21.  Peter Ng J granted a stay short of four weeks on the last occasion in March mainly because he was given to understand that the Brightoil group have reached an “advance stage” in a proposed re‑financing, which was based on a defined list of assets including the Vessel, and if the assets of the group should change due to the court-ordered sale of the Vessel, there were fears that might prejudice the proposed re-financing.  He decided to suspend the sale process for a short period to allow the defendants a limited opportunity to pursue the proposed re-financing, having satisfied himself that the substantial equity in the Vessel ought to be sufficient to pay for the costs of maintaining the Vessel in the interim without impairing the plaintiff’s security for its claim.

22.  Since then, the proposed re-financing has made some progress.  When the application came before D’Almada Remedios J in April, there was an unsigned MOA.  There is now before this court a draft umbrella agreement and a draft bareboat charterparty.  The umbrella agreement relates to all 15 vessels owned by the Brightoil group.  There will be a separate MOA and bareboat charterparty for each vessel.  At the moment, there is still nothing binding on any party.

23.  The latest development is a proposal to carve out the private sale of the Vessel and to complete financing on the Vessel prior to the rest of the fleet.  On a best-case scenario, it is suggested by the defendants that the accelerated private sale could progress within nine days.  However, completion is still contingent upon a host of conditions precedent, as emphasised by Ms Lam.  It is not entirely clear if the proposed sale of the Vessel can be carved out of the wider arrangement regarding the other vessels which involve other creditors.  And there is no guarantee that the payment of the purchase price for the Vessel would be forthcoming within the nine-day period as suggested, if the other creditors should take issue with the wider re-financing.

24.  Moreover, the MOA is subject to English choice of law and jurisdiction clauses.  If the private sale falls through or is postponed, the parties to that agreement would go to England to resolve any disputes, leaving the effect of the Order for Sale in limbo, and the plaintiff’s rights under that order may be prejudiced.  This would further complicate the situation.

25.  In the event the private sale falls through, the court would be re-advertising the court-ordered sale for a third time.  Prospective buyers who have wasted time and money acting on the earlier invitations to tender may not wish to participate in a third round of tendering.  There is also the consideration of the volatility in the shipping markets.

26.  The plaintiff had addressed the judge on the uncertain and unsatisfactory nature of the proposed re-financing, which could go awry at any juncture at the mercy of various third parties.  There is no material change in that regard.

27.  Ultimately, the court is faced with a choice between a certain, orderly court-ordered sale process and a private sale riddled with uncertainties and potential mishaps.

28.  We are not persuaded that the judge’s rejection of a further stay to give yet another opportunity to the defendants to pursue a private sale is plainly in error.  There is no reasonable prospect to interfere with the exercise of her discretion in refusing a further stay.

29.  We have therefore refused leave to appeal and ordered the defendants to pay the plaintiff’s costs of this application.