PROSPER OCEAN (HONG KONG) SHIPPING LTD v. LEE SAI WAN AND OTHERS

HCCL 24/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 24 OF 2006

-------------------------

----------------------

-------------------------

J U D G M E N T

-------------------------

Introduction

1. This is the judgment upon the adjourned hearing of a strike out summons, dated 26 January 2007, which has been taken out by the 3^rd, 4^th and 5^th defendants to these proceedings.

2. There also is before the court, mounted in parallel to the strike out application, a further summons dated 10 April 2007, also taken out by the 3^rd, 4^th and 5^th defendants, for an order that an Amended Statement of Claim filed by the plaintiff during the pendency of a stay of proceedings be itself disallowed and struck out.

3. This latter application has to a substantial degree been superseded by further pleading developments, but in so far as this additional application remains upon the record it also requires decision.

The factual background

4. This is a case about the sale of a ship, the M.V. “EMIR”, to the plaintiff, Prosper Ocean (Hong Kong) Shipping Ltd (‘Prosper Ocean’), pursuant to a Memorandum of Agreement signed on 26 May 2005.

5. The registered owner and seller of this vessel was a Panamanian company, one Swallow Shipping S.A. (‘Swallow’) which, it is said, was at the material time beneficially owned by the 1^st and 2^nd defendants to these proceedings.

6. The problem which arose, and the raison d’etre for the proceedings herein, is that at the time of the sale and purchase the plaintiff was unaware of the existence of a statutory lien against the vessel which arose when a Singaporean company, one Singapore Technologies Marine Limited (‘Singapore Technologies’), issued an in rem action in Singapore on 20 January 2005 claiming the sum of S$770,000.00 against the vessel, which sum represented the invoice balance of the cost of repairs and services provided to the vessel in Singapore during the period between 10 October 2004 and 22 November 2004.

7. Pursuant to this in rem writ, the vessel was arrested in Singapore on 6 June 2006, with the result that the plaintiff purchaser, Prosper Ocean, was required to pay a sum in order to release the vessel from arrest, and thereafter, pursuant to a judgment of the Singapore High Court, ultimately to pay to Singapore Technologies the sum claimed for the unpaid repairs to the vessel.

8. The plaintiff says that the existence of this claim/lien was wrongfully concealed from it by the vendor, Swallow, by its beneficial owners, the 1^st and 2^nd defendants, and further, by the 3^rd, 4^th and 5^th defendants, the directors of Swallow at the material time.

9. Hence these proceedings, whereby the plaintiff seeks an indemnity for that which it alleges it has wrongfully been required to pay to the Singapore claimant in respect of the aforesaid repairs; had the plaintiff been apprised of the situation at the time of the sale, it is alleged, the purchase price to be paid by Prosper Ocean to Swallow necessarily would have been diminished to reflect such further sum as eventually has had to be paid to Singapore Technologies by Prosper Ocean in respect of the prior work performed upon the ‘M.V. “EMIR”.

10. This, therefore, is the broad shape of this case.  However, this is not the only litigation that has arisen as the result of these events.

Present and parallel proceedings : the current position

(a) Procedural developments in the existing action

11. The existing action, HCCL 24 of 2006, was commenced in Hong Kong by generally indorsed writ issued on 23 August 2006.

12. This writ named five defendants.  Procedurally these proceedings have followed a slightly unorthodox course.

13. The 1^st and 2^nd defendants thereto are said to be the beneficial owners of the vessel in question.  As to these two defendants, a Statement of Claim was filed on 25 October 2006. 

14. This was followed by a Defence filed on behalf of the 1^st and 2^nd defendants on 10 November 2006, which Defence was amended on 22 March 2007.  There is no Reply.

15. As far as the present applicants for the strike out are concerned, the 3^rd, 4^th and 5^th defendants herein, an entirely separate Statement of Claim was filed and served upon these defendants, qua directors of Swallow, on 28 December 2006, some six weeks subsequent to the filing of the Defence of the 1^st and 2^nd defendants, and a full two months after the Claim as mounted against these defendants.

16. It is this Statement of Claim of 28 December which was the initial subject of the defendants’ summons to strike out of 26 January 2007.

17. By the date of the first hearing of this summons, on 27 April 2007, the procedural situation had changed.

18. Notwithstanding that by order dated 1 February 2007 all further proceedings in this action between the plaintiff and the 3^rd, 4^th and 5^th defendants were to be stayed pending determination of the extant strike out application, on 22 March 2007 the plaintiff filed, without leave of the court, an Amended Statement of Claim against the 3^rd, 4^th and 5^th defendants.

19. This event precipitated the second summons now before the court for decision, namely that dated 10 April 2007, which asked for an order that the amendment in question be disallowed and struck out, and that the plaintiff’s Statement of Claim against the 3^rd, 4^th and 5^th defendants be restored.

20. This second summons was largely technical in nature, and at the first hearing of the strike out application, on 27 April 2007, the parties proceeded on the basis that the subject of such strike out should be the amended Statement of Claim, whatever its juridical standing.

21. Matters did not stop there, however, because this first hearing of the application to strike out, on 27 April 2007, was adjourned in order for the plaintiff to consider what, if any, further amendments were necessary in face of the attack that was being launched against the plaintiff’s existing (and now de facto amended) pleading.

22. This resulted in service upon the 3^rd, 4^th and 5^th defendants on 18 May of a proposed “reformulated draft Amended Statement of Claim”, albeit somewhat oddly this new document, which was 21 pages long (as opposed to the 9 page amended pleading which had been filed without leave on 22 March 2007) also was intituled ‘Amended Statement of Claim against the 3^rd, 4^th and 5^th Defendants’.

23. When the strike out summons once more came on for hearing on 13 June 2007, the court was disinclined to become preoccupied with the procedural niceties, and both parties were content, and indeed expressly consented, finally to argue this strike out application upon the basis of this newly-amended, and considerably lengthier and revised, draft version of the Statement of Claim. 

24. Hence the references in the judgment following are to this latter document, and not to the existing Statement of Claim as was filed on 28 December 2006, which document had long since been superseded by two separate amendments, the second of which lies at the heart of the current debate.

(b) Parallel proceedings regarding the same subject-matter and claim

25. In addition to these proceedings, there are two parallel sets of proceedings which have been instituted in Hong Kong with reference to the same subject-matter, and which similarly seek recovery of the monies which, it is said, wrongfully have had to be paid by the plaintiff to the Singaporean claimant consequent upon the purchase of the M.V. “EMIR”.

26. First, I am told that there are arbitration proceedings extant in Hong Kong against the vendor, Swallow, by the buyer, Prosper Ocean.  Presumably these proceedings were initiated against Swallow by reason of an arbitration clause within the contractual sale documents, although given the decision to issue proceedings against these five individual defendants in this action, HCCL 24 of 2006, I am surprised that agreement was not reached between the parties to by-pass the contractual arbitration provision and to consolidate the claim against Swallow, the corporate vendor, with that against the current five individuals.

27. Be that as it may.  Save to note the existence of this parallel claim against Swallow, and the mode of proceeding therewith, the conduct of this arbitration presently is no business of this court, which currently is not seized of any aspect of the claim by Prosper Ocean against Swallow.

28. The second relevant set of parallel proceedings is, however, certainly the business of the Commercial Court.

29. In HCCL 27 of 2006 the plaintiff has issued proceedings for professional negligence against the solicitors who acted for the plaintiff in the sale transaction of the M.V. “EMIR”, Messrs Clement Ng & Co., the quantum of damage allegedly so caused by such alleged negligence being the sums paid by the plaintiff purchaser in order first, to release the vessel from arrest, and second, to satisfy the judgment debt created by the judgment of the Singapore High Court arising from the suit of Singapore Technologies against Owners/the M.V. “EMIR” in terms of the unpaid invoice for repairs to the vessel.

30. In that action it is alleged, inter alia, that the defendant firm was negligent in that it failed to make a search within the Singapore Registry in order to ascertain the existence of any in rem proceedings against the vessel in question.  In this action directions recently have been sought, and granted, for the admission of expert evidence as to the practice of Hong Kong solicitors in terms of the search of foreign registries, and presumably an application shortly is to be made to set this action down for trial.

31. Although not the subject of this judgment, which solely is concerned with the two summonses presently before it, it seems unfortunate, given the commonality of the factual matrix precipitating these claims, that no attempt apparently has been made by the parties to orchestrate these various claims in order that they may be disposed of expeditiously (and, I suspect, with commensurable cost benefits) before one tribunal and, preferably, at or about the same time.

(i) The strike out application : Summons dated 26 January 2007

32. The stage thus set, I turn to the ‘meat’ of the present strike out application.

33. The summons in question formally invokes the various heads of Order 18, rule 19 and/or the inherent jurisdiction of the court. 

34. I remind myself of the principles relevant to the exercise of the discretion of the court when dealing with strike out applications under the several heads of Order 18, rule 19, and I have reflected also upon such evidence as has been filed in the course of this application.

35. Mr Adrian Bell, who appears for the 3^rd, 4^th and 5^th defendants, maintains that the plaintiff cannot, and indeed does not, properly plead a case against his clients, all of whom were directors of Swallow Shipping at the material time. 

36. He argued that the plaintiff now is putting forward a “very substantially different pleading” from that which had been before the court at the first hearing on 24 April 2007, and that despite the extensive and very obvious reworking of this document, it continued to suffer from the fundamental vices of which complaint first was made.

37. Mr Bell observed that the cause of action invoked against his clients essentially is that of a plea of fraudulent misrepresentation, alternatively that the representations in question – to the fundamental effect that the vendor, Swallow, was able to deliver the vessel unencumbered – were made recklessly and without regard to the truth of such representations.

38. Mr Bell noted that the alleged representations in issue (namely, that Swallow was able to deliver the vessel without encumbrances) were three in number : first, that which was contained in the Minutes of a directors’ meeting of 1 June 2005, which document was signed by the 3^rd defendant, Wong Wai Ho; second, that which was contained in a Bill of Sale dated 1 June 2005, as signed by the 3^rd defendant; and third, that which was said to be contained in a Protocol of Delivery and Acceptance dated 3^rd June 2005, again signed by the 3^rd defendant.

39. As to these ‘representations’ allegedly made by his clients, Mr Bell’s argument may conveniently be separated into a consideration of the Minutes on the one hand, and the other two documents on the other.

40. In terms of the Minutes, he says that it is clear from their face that they contained no such representation, that even if this submission was incorrect, such could only have been a representation on behalf of Swallow, or, at the highest, by the 3^rd defendant as sole signatory thereof, that in any event there could have been no reliance thereon by the plaintiff in entering into the contract for sale of the vessel, given the chronology of the sale and purchase, and that even if there were such a representation to be divined from this document (which was denied), the pleading that the defendants were aware of the falsity thereof “does not stand scrutiny”.

41. For his part, Mr Suen argued that each of these points was incorrect, and that standing alone, or when taken together with the other two documents, the plaintiff’s case against the directors could be made out – or, more accurately, that for present purpose such a case was not demurrable upon a strike out application.

(a) The position of the 4^th and 5^th defendants

42. It is worth emphasising that as the result of the further amendments to the draft Statement of Claim – by which I mean the second, and very much extended, draft version of such amendments – it is the Minutes only which are raised as a representation as against the 4^th and 5^th defendants; thus, it seems tolerably clear that if and in so far as Mr Bell’s arguments regarding the Minutes of Meeting on 1 June 2006 are well-founded, the case against the 4^th and 5^th defendants necessarily fails at the first hurdle.

43. In this regard I take the view that Mr Bell is correct, and that the case as presently pleaded against the 4^th defendant, Leung Siu Yuen, and as against the 5^th defendant, curiously identified only as ‘Daisy’ – I have been informed from the Bar that this lady apparently is the daughter of the 1^st defendant, although if this is known to be the case it is odd that the writ has not been amended to reflect that fact – is not to be permitted to proceed on the basis of this case as currently pleaded.

44. Notwithstanding Mr Suen’s argument that the Minutes of Meeting in question are but one in a chain of documents required to be executed in order to complete the sale of the vessel, and must be regarded as part of a composite whole, I do not accept that mere directorial presence at the meeting in question – it is entirely probable, of course, that this was but a mere ‘paper minute’ – is sufficient to constitute any such representation of the character now relied upon by the plaintiff.

45. On their face the ‘Minutes’ do not vouchsafe the alleged representation, and in principle I accept the view espoused in Gore Brown on Companies, at pp 15-24, that :

“	…mere presence at the meeting at which the minutes setting forth the resolutions relating to the wrongful act were read and signed will probably not create liability in a director who took no part in the wrongful act…”

46. In short, therefore, it seems to me that the plaintiff cannot begin to get home against the 4^th and 5^th defendants if, as I believe to be the case, the Minutes do not establish against these directors the existence of the relevant representation which the plaintiff invokes as the primary building block in order to establish liability against these two defendants.

47. In this connection I do not think that Mr Bell’s ‘reliance point’ – which, at first blush appeared to hold some promise – is as strong as he would have it, given the relevant chronology, and not least in light of the fact that, as Mr Suen also has pointed out, the existence of an ‘Addendum No 1’ to the contract (created after other financial encumbrances were identified and taken into account in the transaction) operates so to remove the potential thrust of any ‘reliance’ argument.

48. However, I do agree with the additional contention that, at least so far as the 4^th and 5^th defendants are concerned, there appears to be little cogent basis on which specifically to plead fraud/knowledge of falsity on their part. 

49. Of necessity such a plea is based upon inference only, and although for the purpose of this decision I do not have to decide this aspect of the matter, it strikes me that Mr Suen has some difficulty in raising an inference either as to fraudulent knowledge or as to recklessness of the truth of the representation allegedly (and in my view incorrectly) to be contained within the Minutes.

50. As Mr Bell has pointed out, it is the plaintiff’s primary pleaded case that it was the 1^st and 2^nd defendants who were the persons having ultimate control of the vendor, Swallow Shipping, nor is there any allegation or evidence that the 4^th and 5^th defendants had any involvement whatever with E-Maritime, which was the local Singaporean entity charged with supervising the repairs to the vessel, the non-payment of which has precipitated this litigation.

51. Looked at in the round, therefore, and reminding myself that this is but an interlocutory strike out, with the commensurate application of applicable principle before the plaintiff is to be “driven from the judgment seat”, I have concluded that with regard to the 4^th and 5^th defendants the plaintiff’s case as currently framed is not to be permitted to stand : in short, there is no actionable representation, in my view, arising on the face of the Minutes, and on the face of the present pleading, it remains highly arguable whether the plaintiff is able properly to establish the necessary element of actual knowledge or lack of belief in the truth of the alleged representation, which is a vital ingredient in an action for deceit.

52. Nor do I consider that the situation is, or can be, rectified by the alternative plea of procurement, which in my view suffers from like problems to those occurring in terms of the existing plea of fraudulent/reckless misrepresentation against the 4^th and 5^th defendants, whilst as a matter of law the plea as is maintained in terms of collateral warranty in my view cannot stand, not least because as Mr Bell pointed out (and as Mr Suen did not, I think, dispute), the alleged representations were all made after the plaintiff purchaser had entered into the contract for sale, and thus in law could not have constituted the collateral warranties as alleged.

53. Accordingly it follows from the foregoing that the 4^th and 5^th defendants have succeeded in their application with regard to the existing (and latest) version of the ‘Amended Statement of Claim’ – it seems to me not greatly to matter which head of Order 18, rule 19 is thus invoked, given that on the face of the pleading and in light of the available evidence the case against these two defendants is in my judgment unsustainable – and if and in so far as this version has not been filed (as appears to be the case), the plaintiff is not to be permitted to file the document in the form which has been the subject of argument upon this application.  It must follow also, given that it appears that the plaintiff no longer wishes to rely thereon, that the Statement of Claim as initially filed as against the 4^th and 5^th defendants, which document precipitated the summons of 26 January 2007 to strike out, itself must be struck out as against these defendants. 

54. Accordingly, the case against the 4^th and 5^th defendants is to be struck out.  I so order.

(b) The position of the 3^rd defendant

55. I do not consider the position of the 3^rd defendant to be as relatively straightforward as was the case with the 4^th and 5^th defendants; to the contrary, it is clearly distinguishable on the primary facts.

56. I say this because in the instance of the 3^rd defendant, Mr Wong Wai Ho (whom, I am now told, is the father of the 5^th defendant, ‘Daisy’), there is no doubt but that he is directly privy to all three ‘representations’ are alleged against him : Mr Wong, qua Chairman, was the signatory to the Minutes of the directors’ meeting of 1 June 2005, but, in addition, he was the signatory to the two additional documents which are prayed in aid as constituting representations that the vessel to be sold was free from encumbrance; there is no debate but that these documents expressly contain such representation.

57. In this context the Bill of Sale dated 1 June 2005, which is averred to constitute the second actionable representation, bears the signature of Mr Wong, and contains within it the covenant from the Vendors (Swallow Shipping) to the Purchasers (Prosper Ocean) that “we have power to transfer the Vessel and title thereto in manner aforesaid and that the same is free from all debts, incumbrances and maritime liens.”

58. This was followed by a Protocol of Delivery and Acceptance, again signed by Mr Wong Wai Ho for and on behalf of Swallow Shipping, which recites that Swallow Shipping has sold and delivered at the port of Zhoushan, China on 3 June 2005 at 1308 hrs to Prosper Ocean “all its title, rights and interest and shares in and to the Panamanian registered bulk carrier “EMIR” … free and clear from all charters, encumbrances, taxes, mortgages, maritime liens/claims and or any other debts of whatsoever nature pursuant to the terms of the Memorandum of Agreement dated 26 May 2005…”

59. The Minutes apart, it is these latter two documents which represent the 2^nd and 3^rd fraudulent and/or reckless representations which are prayed in aid by the plaintiff purchaser, and with regard to which (in contrast to the 4^th and 5^th defendants) the 3^rd defendant is shown to play a central role.

60. For my part I have no difficulty, for present purposes at least, in accepting these two documents as containing such representations, and thus for the purpose of the present debate the questions arising are whether these representations were made by Mr Wong solely for and on behalf of Swallow, whether there was causative reliance thereon, and whether there can be shown to be an arguable case as to the relevant degree of knowledge of the falsity of the representation relied upon, given that it is common ground that the pre-existing repair debt of Singapore Technologies was unknown to the plaintiff at the time of sale.

61. Consideration of these questions raises substantially similar issues to those raised in the context of the position of the 4^th and 5^th defendants, and the supervening (and sole) question for purposes of the present strike out application is whether what is undoubtedly a more ‘focused’ case against the 3^rd defendant is susceptible to being struck out at this stage.

62. This has occasioned a degree of reflection.

63. Clearly there are specific representations in place here, although I bear in mind the assertion that such are said to have been made solely for and on behalf of Swallow; equally, however, I do not think that Mr Bell’s ‘reliance point’ is dispositive of the issue : as earlier noted, had knowledge of the Singapore Technologies lien been in the ‘mix’, and known to the plaintiff at this time, presumably no difficulty would have been occasioned by the incorporation of such within an ‘Addendum No 2’, the first such Addendum being that of 26 May 2005 which specifically dealt with the position of other outstanding debts such as those incurred for the provision of bunkers for the vessel.

64. At the end of the day, it seems to me that whether the plea ultimately can survive against the 3^rd defendant depends upon whether at this stage, and in light the available evidence, the plaintiff’s pleaded position as to the 3^rd defendant’s awareness of falsity of the representations and/or recklessness can be considered clearly demurrable, thereby permitting this case against the 3^rd defendant to proceed to trial in its present form.

65. This strikes me as borderline. 

66. The arguable case in this regard perhaps is somewhat stronger against the 3^rd defendant in contrast to the 4^th and 5^th defendants, albeit I bear in mind the evidence that has been filed by Mr Wong Wai Ho that it is “vigorously denied” that there was ever any awareness on his part or on the part of his co-directors that there was any residual debt to Singapore Technologies, pointing out that the request for such repairs to the vessel as had been effected was made at the request of Swallow, and that the matter of the repairs had been handled primarily by Swallow’s Singaporean agent, E-Maritime Pte Ltd.

67. In the amended pleading now under consideration the plaintiff seeks to overcome this submission by raising what it clearly regards as strong inference(s) from the surrounding circumstances (see in particular the detailed pleading within paragraph 13(2) of the proposed Amended Statement of Claim), and, albeit with a degree of hesitation, I have concluded that I should decline at this interlocutory stage to strike out this case in terms of the 3^rd defendant, who clearly was the moving force on Swallow’s Board : vide his leading role in terms of the documentation required and formally produced for the sale and purchase of the vessel.

68. As earlier noted, I consider this issue to be essentially borderline, but in the exercise of my discretion, and after carefully weighing all the circumstances, I have decided to permit the case against the 3^rd defendant to proceed to trial.

69. To this, however, I would add the rider that whilst this is a case in which the interlocutory attempt to strike out the case against the 3^rd defendant ultimately has not prevailed, in my view, and in light of the evidence which appears available to be called, it seems evident that the plaintiff should give careful thought indeed to the prospect of success should the case against the 3^rd defendant now be pressed to trial.

70. Given that I have declined the application to strike out the case against the 3^rd defendant, I will permit the plea of procurement to continue to lie against him, but for the like reason as earlier outlined I nevertheless strike the plea, as also mounted against this defendant, in terms of the alleged collateral warranty.

Order

71. In light of the foregoing, therefore, I grant the application to strike out as made on behalf of the 4^th and 5^th defendants, but refuse the like application made on behalf of the 3^rd defendant.  In so far as may be necessary (and I hope that it is not) I will hear counsel as to be appropriate form of the Order consequent upon the application.

72. In terms of consequential directions, I give leave to the plaintiff to file and serve within 14 days of the date hereof (for the avoidance of doubt time is not to run in the Summer vacation) an Amended Statement of Claim against the 3^rd defendant.

73. I further direct that the 3^rd defendant do file and serve his Defence within 21 days of such service of such Amended Statement of Claim, and that the plaintiff is to file and serve its Reply thereto, if any, within 14 days thereafter.

74. I express the hope that if and in so far as the decision now is made to proceed with this litigation against the 1^st, 2^nd and 3^rd defendants (I bear in mind that in correspondence the plaintiff requested that there be a general stay of this action, at least pending the result of the Singapore High Court proceedings against Swallow Shipping), that a constructive attempt be made to synchronise the progress of this action against these three defendants in terms of the completion of pleadings and thereafter discovery; if and in so far as such be necessary I will entertain an early directions hearing to ensure the orderly conduct of this case.

75. As to costs, I make an order nisi that the costs of and occasioned by this application, and of this action, be paid by the plaintiff to the 4^th and 5^th defendants, such costs, to be taxed if not agreed.

76. As to the costs of and occasioned by this strike out application as against the 3^rd defendant, after considering the circumstances in which the application was mounted, I make an order nisi that the costs of this application are to be plaintiff’s costs in the cause, such costs to be taxed if not agreed.

(ii) The 3^rd, 4^th and 5^th defendants’ application by summons dated 10 April 2007 pursuant to RHC Order 20, rule 4

77. Mention was made of this subsidiary application at the outset of this judgment.

78. The provenance of this application – which is essentially no more than a matter of good housekeeping – is that, for reasons which are not entirely clear, but which in the event do not greatly matter – the plaintiff chose to file the first version of the ‘Amended Statement of Claim’ in face of an order that there be a stay of proceedings pending resolution of the application to strike out by the 3^rd, 4^th and 5^th defendants.

79. As matters have transpired, and not least due to the good sense of both counsel, this initial amendment largely has been ignored in the context of these proceedings, given the existence of the second, and considerably more extensive draft pleading which was sent to the defendants under cover of a letter dated 18 May 2007 from the plaintiff’s solicitors, and more importantly, with the consent of the parties used as the basis for argument on the strike out, it being accepted that for such purpose the original Statement of Claim, together with the first amended version as purportedly ‘filed’, for all practical purposes could be ignored.

80. During argument on this application the existence of this summons barely has been mentioned.  However, this application remains extant, and must be ruled upon.

81. Accordingly, I formally grant the application made by the 3^rd, 4^th and 5^th defendants, by summons dated 10 April 2007, in terms of paragraph 1 thereof, and as to costs make an order nisi in terms of paragraph 2 thereof, such costs to be taxed if not agreed, with the express proviso that no costs of this application are to be regarded as having been incurred in the hearings on 27 April and 20 July 2007, which hearings focused almost exclusively upon the issue of the intended strike out application.