NEWOCEAN PETROLEUM CO LTD v. RIO TINTO SHIPPING (ASIA) PTE. LTD

HCA 2265/2016

[2018] HKCFI 577

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2265 of 2016

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D E C I S I O N

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(For leave to appeal and vary costs order nisi)

The relevant Decision

1.  By a Decision (“Decision”) dated 20 December 2017, I ordered that:

(1)   the Leave Order be discharged;

(2)   the Concurrent Writ of Summons issued on 22 September 2016 and service of the same on the defendant be set aside; and

(3)   an Order nisi under Order 42, rule 5B(6) of the Rules of the High Court, Cap 4A, that the costs of the Summons, including the hearing on 18 May 2017 be paid by the plaintiff to the defendant, to be taxed if not agreed.

2.  I incorporate the Decision by reference.

The parties’ applications

3.  By a summons (“plaintiff’s Summons”) issued on 3 January 2018, the plaintiff applied for “leave to appeal to the Court of Appeal from[the Decision] on the proposed grounds set out in the draft Notice of Appeal appended to this Summons”.  A draft Notice of Appeal was appended to the plaintiff’s Summons.

4.  By a summons (“defendant’s Summons”) also issued on 3 January 2018, the defendant applied for an order that the cost order nisi (“Order Nisi”) be varied by the addition of “forthwith on an indemnity basis” after the word “defendant”.   

Disposal on paper

5.  The parties applied by consent to have both applications dealt with “by way of written submissions”.  Madam Justice Au-Yeung acceded to the joint application and gave directions on the filing of written submissions.

The plaintiff’s Summons

6.  I shall deal first with the plaintiff’s Summons.

Relevant authorities

7.  Section 14AA of the High Court Ordinance, Cap 4, provides that:

“ (1) Except as provided by rules of court, no appeal lies to the Court of Appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter unless leave to appeal has been granted by the Court of First Instance or the Court of Appeal.

…

(4) Leave to appeal for the purpose of subsection (1) shall not be granted unless the court hearing the application for leave is satisfied that—

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

8.  Order 11, rule 1(1)(d) of the Rules of the High Court, Cap 4A, provides that:

“ (1) Provided that the writ is not a writ to which paragraph (2) of thisrule applies, service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ—

…

(d)   the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract …”

9.  Order 1A, rules 1 and 2 of the Rules of the High Court, Cap 4A, provides that:

“ 1. Underlying objectives

The underlying objectives of these rules are—

…

(c)   to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings;”

“ 2. Application by the Court of underlying objectives

(1) The Court shall seek to give effect to the underlying objectives of these rules when it—

(a) exercises any of its powers (whether under its inherentjurisdiction or given to it by these rules or otherwise); or

(b) …

(2)   In giving effect to the underlying objectives of these rules, the Court shall always recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.”

Facts relevant to the weighing operation

10.  It is trite law that material facts mean “all facts that are relevantto the weighing operation which the court has to make in deciding whether or not to grant the order”.  The correct test is not simply whether, if the non-disclosure had not occurred, the judge would, nevertheless, ex parte, have made the order”.  See Citibank NA v Express Ship Management Services Ltd and Another [1987] HKLR 1184 per Fuad JA (as he then was) at p 1190C–E:

“ The cases show what are to be regarded as material facts in this context: ‘all facts that are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order’; per Browne-Wilkinson, J. (as he then was) in Thermax v. Schott Industrial Glass [1981] FSR 289, 298. His test has been applied in several cases. I find the decision of Goulding, J. in Wardle Fabrics Ltd. v. G. Myristis Ltd. [1984] FSR 263 to be particularly helpful for in that case the judge emphasized that the correct test is not simply whether, if the non-disclosure had not occurred, the ex parte judge would, nevertheless, have made theorder, but whether the facts not disclosed, being relevant, should have been in the scales.”

See also Guangdong Yuehe Investment Holdings Co Ltd v Hongfan International Ltd HCA 391/2017, 3 March 2017, Chow J, at §§11, 12, 15 and 16:

“ 11. The principles relating to material non-disclosure are well settled. I need only refer to the recent decision of Deputy High Court Judge Kwok SC in Universal Experts Group Ltd v Zechin Technology Co Ltd, HCA 2613/2016 (24 October 2016), as follows:-

‘ 11. A party making an ex parte application has the duty to make full and frank disclosure on all material matters. The primary duty is to disclose on affidavit evidence. The duty is not discharged by making partial disclosure on oath or deposing to half truths …

12. In other words, the court is entitled to assume that the applicant acts with utmost good faith, failing which the position of the ex parte judge would be extremely difficult, if not impossible.

… ’

12. In my view, while disclosure of the details of the privatisation plan, including those matters specifically relied upon by the defendant, might not ultimately have caused the learned Deputy Judge to refuse to grant the injunction sought, they are certainly matters relevant to the weighing process which the Deputy Judge would take into account when deciding whether to grant an injunction, and if so, on what terms.

…

15. In view of (i) the possibility of third party interests being affected by the injunction, (ii) the plaintiffs’ insistence that they had made full and frank disclosure, and (iii) the absence of any evidence to explain the non-disclosure (and thus I am not in a position to find that the non-disclosure was innocent or not deliberate), I am not prepared to re-grant the injunction.

16. The costs of and occasioned by the defendant’s application to discharge the ex parte injunction shall be to the defendant, to be taxed forthwith if not agreed.”

11.  In Gulf Bank v Mitsubishi [1994] 1 Lloyd’s Rep 323, Hobhouse J considered claims for a declaration in relation to claims under Order 11, rule 1(1)(d). The learned judge effectively made it clear that sub-paragraph (d) is not restricted to claims for specific performance simpliciter.  The learned judge held that the words in sub-paragraph (d) are clearly intended to make a comprehensive reference to contractual claims and that there is no intention to exclude any category of contractual claims.  The learned judge concluded by holding that declaratory relief is directed to resolving disputes between the parties whether or not there is a subsisting cause of action for other relief:

“ The plaintiffs claim a declaration that the counter indemnity still is capable of giving rise to a liability of the defendants to indemnify the plaintiffs. No demand has yet been made by the Ministry or paid by the plaintiffs. The defendants have made allegations about the effect in Kuwaiti law of Resolution No. 148 and have advanced arguments about the effect of that resolution for the contract of counter indemnity. The contentions advanced by the defendants are very similar to a contention of frustration and on any view they raise questions of the construction of the counter indemnity under English law.

The defendants submit that a claim for a declaration such as that which has been made by the plaintiffs in these proceedings does not fall within the terms of RSC O11 r1(1)(d) because such a claim is not a claim –

… brought to enforce, rescind, dissolve, annul or otherwise affect a contract.

It is because of this submission that I have decided to give the reasons for my decision in open Court. Counsel have not been able to refer me to any reported decision which specifically decides whether a claim for a declaration that a contract is subsisting and binding upon a defendant is a claim to ‘enforce’ or ‘otherwise affect’ a contract; it is desirable that there should be an authority which states what the law is on this question and reflects the many unrecorded decision which have been given authorizing service out of the jurisdiction of proceedings claiming declaratory relief.

In my judgment the words in sub-par. (d) are clearly intended, together with the references to breaches of contract, to make a comprehensive reference to contractual claims. The language discloses no intention to exclude any category of contractual claim nor does the policy of O 11 itself. The restrictive part of sub-par (d) is that which follows and lays down criteria which the relevant contract must satisfy. Provided that the relevant contract satisfies one or more of those criteria then there is no reason in policy why any legal claim in respect of that contract should not fall within the ambit of O 11 r 1.

The claim made in the present proceedings in a claim which is properly characterized as a claim to enforce a contract. To obtain a declaration of a Court that a contract is enforceable is one of the steps in enforcing that contract. From a legal point of view, to establish that the contract is enforceable is a necessary first step in any enforcement by legal process. In practical terms, a declaration by the Court that contract is enforceable and the defendant is liable under it may often be sufficient to enable the plaintiff to effect a recovery under the contract without the need for further legal proceedings.

The same conclusion is arrived at by looking at the question from the other way round. It is not uncommon that a party to a contract comes to the court and seeks a declaration that he is not bound by the contract. For example an insurer or reinsurer may seek a declaration that he was entitled to avoid the contract and is under no further liability under it. A party may seek a declaration that the other party has repudiated the contract or that the contract has been frustrated. Any such declaration ‘affects’ the contract. That is the purpose of making the claim for such a declaration. It creates a legal obstacle in the way of the enforcement of the contract by the other party. Just as a negative declaration affects a contract, so can a positive declaration. A claim for a negative declaration cannot be described as a claim to enforce a contract; it is the converse of that. It is a claim which affects a contract. Claims for either type of declaration fall within the opening words of sub-par (d).[1]

…

Declaratory relief is directed to resolving disputes between the parties whether or not there is a subsisting cause of action for other relief.  Where the dispute relates to the validity or effect of a contract and the Court is asked to make a binding declaration of the parties’ rights under or in relation to that contract, the claim is a claim to enforce the contract or at the least to affect it in some way.  There is no reason to put a claim for a declaration into a different jurisdictional category from other types of claim.[2] ”

The plaintiff’s case about its contract with OWB China as pleaded in the Statement of Claim

12.  The plaintiff pleads in some length its contract with OWB China and the terms thereof.  It is alleged in §§9, 10 and 11 of the Statement of Claim that (emphasis added):

“ 9. The Plaintiff expressly contracted with [OWB China] that the Plaintiff was to retain title to the Bunkers pending payment, and that pending payment in full for the Bunkers, such Bunkerswould be clearly identified as product supplied by the Plaintiff and kept separate from any other fuel or lubricant. In the premises, the Plaintiff did not authorise, permit or license the use of the Bunkers pending payment for, or the passing of property in, such Bunkers.

10. In support of the matters pleaded in Paragraph 9 above the Plaintiff will rely on its General Terms and Conditions for Sales and Delivery of the Marine Fuel dated March 2014 (the ‘[Plaintiff’s Terms and Conditions]’) to which the Plaintiff will refer for their full terms, true meaning and effect. [ThePlaintiff’s Terms and Conditions] provide inter alia as follow:-

[ The Statement of Claim went on to quote clauses 1(a), (b) & (c); 2(c); 3(a); 4(a); 5(a) & (b); 11(a), (b) & (c); and 15.]

11. The [Plaintiff’s Terms and Conditions] formed part of the [plaintiff–OWB China] Contract notwithstanding the fact that the Bunker Sales Confirmation did not expressly incorporate the [Plaintiff’s Terms and Conditions]:

11.1 It is standard industry practice that each bunker supplier will have its own terms and conditions which apply to orders placed with each bunker supplier and [OWB China] was aware of this practice.

11.2 It was agreed orally or by conduct in around 2014 on more than one occasion between Mr Alvin Wong (on behalf of [OWB China] and Mr Cheung Ting Pong (on behalf of the Plaintiff), that the [Plaintiff’s Terms and Conditions] would apply to all future sales.  The Plaintiff sold and [OWB China] purchased bunkers upon the understanding the [Plaintiff’s Terms and Conditions] applied to each of the Plaintiff’s contracts of sale.”         

13.  As noted above, the Statement of Claims pleads Clause 11 of the Plaintiff’s Terms and Conditions, March 2014 version, which provided that:

“ 11. Passing of risk and retention of title

Subject to any provision to the contract [sic] in the Sales Contract and/or the Bunker Requisition Form:

(a) The Seller shall retain the legal and equitable title to the Marine Fuel which shall only pass to the Buyer when the seller [sic] has received in full the price and all amounts due in connection with the respective delivery.

(b) Prior to the Seller receiving the price and all amounts due referred to in sub-paragraph (a) hereof, the Buyer shall hold the Marine Fuel and/or the price and/or any proceeds of sale as bailee and/or trustee for the Seller without prejudice to the Seller’s right to assert a maritime lien, attachment or claim against the Vessel more particularly set out in Clause 5 hereof.

(c)   The Seller has accepted the order for delivery on the Buyer’s undertaking to authorize the Seller to give notice to the receivers and/or the Vessel, to which the Marine Fuel has been delivered, of the Seller’s right and title to the Marine Fuel and/or the price and/or sale proceeds as the Principal and/or Beneficiary.”

14.  The Statement of Claim also pleads Clause 5(a) of the Plaintiff’s Terms and Conditions which was a provision conferring on the plaintiff the right to assert a maritime lien against the vessel and was expressed to be binding upon the buyer as well as the owner.  Sub-clause (b) reads:

“ (b) Without affecting the generality of item (a) above, the Buyer and the owner of the Vessel (if not being the Buyer) warrants that the Marine Fuel to which the Vessel is supplied shall:

(i) be for the operation of the Vessel and the Vessel only; and

(ii)   before payment of the price of the Marine Fuel has been made in full, the Marine Fuel shall be clearly identified as products supplied by the Seller and shall not be mixed with any other fuel or lubricant from any third party….” 

Prayer (1) in the Statement of Claim

15.  After pleading the Plaintiff’s Terms and Conditions as terms of the contract between the plaintiff and OWB China and after quoting a substantial number of clauses in the Plaintiff’s Terms and Conditions as noted above, the Statement of Claim contains Prayer (1) which was a claim by the plaintiff against the defendant:

“ (1) A declaration that by the terms of its contract with [OWB China] and/or (insofar as such terms were binding on the Defendant) with the Defendant, the Plaintiff did not authorize or grant a permission or licence to use the Bunkers for the purpose of propulsion of the Vessel pending payment for, and the payment for, and the passing of property in, such Bunkers.”

The plaintiff’s contention in support of the plaintiff’s Summons

16.  The plaintiff argued that:

“ Thus, the proper construction to be placed on Prayer (1) of the Statement of Claim is that the Plaintiff seeks a declaration that itdid not give any permission, authority or licence that the Defendant can rely upon as excusing its use of the bunkers. Therefore, even if the Defendant attempts to argue that any terms of the Plaintiff’s contract with [OWB China] were somehow binding as between the Plaintiff and the Defendant, the Defendant will not be able to show that it contained a permission which was binding on the Plaintiff (as the owner of the bunkers).” [3]

“ It is not a claim in contract.” [4]

Whether a claim under Order 11, rule 1(1)(d)

17.  The claim in prayer (1), read with the averments in the Statement of Claim on the plaintiff’s contract with OWB China, including the pleaded terms of the Plaintiff’s Terms and Conditions, is properly characterized as a claim to enforce a contract: 

To obtain a “declaration that by the terms of its contract with [OWB China] and/or (insofar as such terms were binding on theDefendant) with the Defendant, the Plaintiff did not authorize or grant a permission or licence to use the Bunkers for the purpose of propulsion of the Vessel pending payment for, and the payment for, and the passing of property in, such Bunkers” is one of the steps in enforcing the contract. 

Where the Court is asked to make a binding declaration of the parties under or in relation to that contract, the claim is a claim to enforce the contract.  The plaintiff’s contention that:

“ the Plaintiff did not authorize or grant a permission or licence to use the Bunkers for the purpose of propulsion of the Vessel pending payment for, and the payment for, and the passing of property in, such Bunkers”

is premised upon the plaintiff–OWB China contract which it seeks to “enforce” by a declaration. 

18.  Applying Gulf Bank v Mitsubishi, there is a claim to enforce a contract within the meaning of Order 11 rule 1(1)(d). It is material non-disclosure not to draw express attention to the claim for the declaration.  It is incorrect for the plaintiff to assert (repeatedly) there is no claim in contract.

Facts relevant to the weighing operation

19.  Whether or not there is a claim to enforce a contract within the meaning of Order 11, rule 1(1)(d), prayer (1), read with the averments in the Statement of Claim on the plaintiff’s contract with OWB China, including the pleaded terms of the Plaintiff’s Terms and Conditions, are certainly matters relevant to the weighing operation and should have been in the scales.

20.  For reasons given above, I am not satisfied that the appeal has a reasonable prospect of success. 

21.  I am also not satisfied that there is some other reason in the interests of justice why the appeal should be heard.

Underlying objective

22.  If I am wrong in holding that there is a claim within the meaning of Order 11, rule 1(1)(d), and if I am also wrong in holding the prayer (1), read with the averments in the Statement of Claim on the plaintiff’s contract with OWB China, including the pleaded terms of the Plaintiff’s Terms and Conditions, should have been in the scales, I would still have refused the application for leave to appeal,

23.  To give effect to the underlying objective of promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings, I would refuse the application.  The plaintiff should have applied to the Master for leave.

§20 of the plaintiff’s Reply Submissions on the issue of leave to appeal

24.  §20 of the plaintiff’s Reply Submissions on the issue of leave to appeal states that:

“ Furthermore, it is understood that the Plaintiff placed before the Court an amended Statement of Claim which made it beyond doubt that the Plaintiff was not advancing a claim in contract against the Defendant, but that was not adverted to in the Judgment.”

25.  (1)   There is no ground of appeal in the draft Grounds of Appeal on an “amended” Statement of Claim or a draft amended Statement of Claim. 

(2)   There is no reference to a (draft) amended Statement of Claim in the Plaintiff’s Written Submissions on the issue of leave to appeal. 

(3)   It is not permissible for the plaintiff to raise a new point in reply as it seeks to do by §20. 

Dismissal of the plaintiff’s Summons

26.  I dismiss the plaintiff’s Summons.

27.  I make an Order nisi under Order 42, rule 5B(6) of the Rules of the High Court, Cap 4A, that the costs of the plaintiff’s Summons be paid by the plaintiff to the defendant forthwith, to be taxed if not agreed.

The defendant’s Summons

28.  The defendant seeks to vary the Order Nisi by:

(1)   making costs taxable and payable forthwith; and

(2)   taxing costs on an indemnity basis.

Costs “forthwith”

29.  When I made the Order Nisi, I took the view that the word “forthwith” was not necessary and the parties in whose favour costs were awarded were entitled to immediate taxation and payment of their costs. My views were based on Xcelom Ltd v BGI-Hongkong Co Ltd (No 2)[2017] 1 HKLRD 436 at §§21 – 24.  I intended that the defendant should be entitled to immediate taxation and payment of its costs.

30.  Mr Nick Luxton drew my attention to:

(1)   Big Boss Investment Ltd v So Lai Kei [2010] 1 HKLRD 793, Registrar Au-Yeung (as she then was); and

(2)   Dyson Technology Ltd and another v German Pool Group Company Ltd and others HCA 838/2011, 19 September 2014, To J.

31.  I am persuaded by Big Boss Investment and Dyson Technology that the word “forthwith” is necessary if costs are to be taxable forthwith.

32.  I will vary the Order Nisi by the addition of “forthwith” after the word “defendant”.

Indemnity costs

33.  The defendant failed in its contention on the conversion claim.  On a rough and ready basis, the defendant was awarded costs on a party and party basis.

34.  I am not persuaded to vary the Order Nisi to award indemnity costs.

Disposition of the defendant’s Summons

35.  I vary the Order Nisi by the addition of “forthwith” after the word “defendant”.

36.  As for costs of the defendant’s Summons, both parties have been partly successful and partly unsuccessful – the defendant having succeeded on the “forthwith” point and the plaintiff having succeeded on the “indemnity costs” point.  I make an Order nisiunder Order 42, rule 5B(6) of the Rules of the High Court, Cap 4A, that each party pays its own costs of the defendant’s Summons.  This is to give effect to the underlying objective of promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings by avoiding the costs and procedure of a taxation.