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

HCA 2265/2016

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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The application

1.  On 1 September 2016, the plaintiff issued the Writ in this Action (HCA 2265/2016), endorsed with a Statement of Claim, against the defendant.

2.  By Order dated 8 September 2016 made on the ex parte application of the plaintiff (“Leave Order”), the Master granted leave for the plaintiff to issue a Concurrent Writ and serve a copy of it on the defendant out of jurisdiction in Singapore.

3.  By a summons (“Summons”) issued on 10 January 2017, the defendant applied under Order 12, rule 8(1) and Oder 33, rule 7 of the Rules of the High Court, Cap 4A, for an Order that:

“ 1. The Concurrent Writ of Summons issued on 22 September 2016 and service of the same on the defendant be set aside;

2. The Order of [the Master] dated 8 September 2016 granting leaveto the plaintiff to issue the Concurrent Writ of Summons and serve the same on the defendant out of the jurisdiction in Singapore be discharged on the following grounds:-

(1) The plaintiff’s claim in this action does not fall within Order 11, rule 1(1)(f) of the Rules of the High Court and the Court had no jurisdiction to give leave for issuing and serving the Concurrent Writ of Summons on the defendant out of the jurisdiction; or

(2) Having regard to all the circumstances of the case it is not a proper case for service out of the jurisdiction within Order 11, rule 4 of the Rules of the High Court and the Court in its discretion should refuse to grant leave for such service; and/or

(3) The plaintiff failed to make full and frank disclosure in its ex parte application in respect of which [the Master] made the Order dated 8 September 2016;

3. The action and all claims against the defendant be wholly dismissedwith costs (including the costs of this application) to the defendant, to be summarily assessed.”

The background

4.  The plaintiff is a company incorporated in Hong Kong carrying on the business of sales and distribution of fuel products in Hong Kong.

5.  The defendant is a company incorporated in Singapore and is the time charterer of the Vessel MV Star Big (“Vessel”).

Transaction between OWB Far East and the defendant

6.   (1) By a Sales Order Confirmation[1] dated 27 October 2014 issued by OW Bunker Far East (S) Pte Ltd (“OWB Far East”) to the defendant, OWB Far East acknowledged receipt of the defendant’s order for 2,100 MT of Fueloil 380-OST3.5% at US$479.00 per MT, with “New Oceaniow BDN” as “supplier” for delivery to the Vessel on terms that “the sale and delivery of marine fuels described above are subject to the OW Bunker Group’s Terms and Conditions of sale(s) for Marine Bunkers” (“OWB Terms and Conditions”).

(2) There was no mention in the Sales Order Confirmation dated 27 October 2014 issued by OWB Far East to the defendant of the plaintiff’s “General Terms and Conditions for Sales and Delivery of Marine Fuel” (“Plaintiff’s Terms and Conditions”) whether of the March 2014 version or any other version, and there was no incorporation, whether by reference or at all, of the Plaintiff’s Terms and Conditions, whether of the March 2014 version or any other version.

(3) On the contrary, the Sales Order Confirmation dated 27 October 2014 issued by OWB Far East to the defendant expressly stated that the sale and delivery of marine fuels were subject to the OWB Terms and Conditions.

Transaction between OWB Far East and OWB China

7.   (1) The hearing bundles seem to contain no copy of any document in respect of the transaction between OWB Far East and OW Bunker China Limited (“OWB China”).

(2) It is alleged in §7.1 of the Statement of Claim that OWB Far East contracted with its affiliate, OWB China to “deliver or arrange for the delivery of the Bunkers to the Vessel on the standard terms of the OW Bunker Group (Edition 2013)”. 

Transaction between OWB China and the plaintiff

8.   (1) By a Bunker Sales Confirmation dated 27 October 2014 issued by the plaintiff to OWB China, the plaintiff confirmed the sale of 2,000 to 2,500 MT of IF 380 at US$477.50/MT for delivery to the Vessel. 

(2) There was no mention of or reference to in the Bunker Sales Confirmation dated 27 October 2014 issued by the plaintiff to OWB China of the Plaintiff’s Terms and Conditions, whether of the March 2014 version or any other version, and the Bunker Sales Confirmation dated 27 October 2014 issued by the plaintiffto OWB China did not incorporate, whether by reference or at all,the Plaintiff’s Terms and Conditions, whether of the March 2014version or any other version.  No explanation has been offered why there was no mention of or reference to or incorporation of the Plaintiff’s Terms and Conditions.

(3) By a Purchase Order Confirmation dated 28 October 2014 issued by OWB China to the plaintiff, OWB China confirmed the purchase of 2,100.00 MT of Fueloil 380-OST 3.5% at US$477.50/MT for delivery to the Vessel.

(4) There was no mention of or reference in the Purchase Order Confirmation dated 28 October 2014 issued by OWB China to the plaintiff of the Plaintiff’s Terms and Conditions, whether ofthe March 2014 version or any other version, and there was no incorporation, whether by reference or at all, of the Plaintiff’s Terms and Conditions, whether of the March 2014 version or any other version. 

(5) There was also no mention of or reference in the Purchase Order Confirmation dated 28 October 2014 issued by OWB China to the plaintiff of the OWB Terms and Conditions.

(6) It is alleged in §§9, 10 and 11 of the Statement of claim that:

“ 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[2]. [ThePlaintiff’s Terms and Conditions] provide inter alia as follow:-

[ The pleader 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.”     

The OWB Terms and Conditions

9.   Clause “H” on “Title” of the OWB Terms and Conditions, Edition 2013, provided as follows:

“ H-1 Title in and to the Bunkers delivered and/or property rights in and such Bunkers shall remain vested in the Seller until full payment has been received by the Seller of all amounts due in connection with the respective delivery. The provisions in this section are without prejudice to such other rights as the Seller may have under the laws of the governing jurisdiction against the Buyer or the Vessel in the event of non-payment.

H-2   Until full payment of the full amount due to the Seller has been made and subject to Article G.14 hereof, the Buyer agreed that it is in possession of the Bunkers solely as Bailee for the Seller, and shall not be entitled to use the Bunkers other than for the propulsion of the Vessel, nor mix, blend, sell, encumber, pledge, alienate, or surrender the Bunkers to any third party or other Vessel.”

The Plaintiff’s Terms and Conditions

10.   Clause 11 of the Plaintiff’s Terms and Conditions, March 2014 version, 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 saleas 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.”

11.   Clause 5(a) of the Plaintiff’s Terms and Conditions 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 Buyerand 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 beenmade in full, the Marine Fuel shall be clearly identifiedas products supplied by the Seller and shall not be mixedwith any other fuel or lubricant from any third party….” 

Winding up of OWB China

12.   OWB China is a company incorporated in Hong Kong.  On OWB China’s own petition, Master M Wong ordered it to be wound up by order dated 25 February 2015.

Payment for the Bunkers in this Action

13.   It is alleged in §13 of the Statement of Claim in this Action (HCA 2265/2016) that the plaintiff:

“ has never received payment for the Bunkers. [OWB China] went into liquidation without paying for the Bunkers.”

HCA 446/2015

14.   On 3 March 2015, the plaintiff issued the writ in HCA 446/2015 against the defendant claiming the sum of US$948,802.05 “as the price of bunkers” supplied to the Vessel and/or damages for conversion.

15.   By a decision handed down on 15 April 2016, A Chan J set aside the leave order (for service out of jurisdiction) in HCA 446/2015; declined to re-grant an order and dismissed the action.  The learned judge considered it unnecessary to deal with the cause of action based on conversion.

This Action (HCA 2265/2016)

16.   4½ months later, on 1 September 2016, the plaintiff issued the Writ in this Action (HCA 2265/2016), endorsed with a Statement of Claim, against the defendant.

17.   By an affirmation affirmed on 1 September 2016, Pau Yin Ming[3] applied ex parte for leave to issue and serve a concurrent writ on the defendant out of the jurisdiction.  By an Order dated 8 September 2016, the Master granted the ex parte application.

Survey Report

18.   A Survey Report dated 30 October 2014 produced by a surveyor at the request of the agent for the Vessel stated in the Survey Report, among others, the following:

“ 1.07	Bunker supply location:	South Lamma Anchorage, Hong Kong
1.08	Pumping commenced:	0055 hrs (local mean time) on 30 October 2014
1.09	Pumping completed:	0500 hrs (local mean time) on 30 October 2014”
“ Tank No(s)	Vessel remain on board quantity before bunkering (M/tons)	Vessel remain on board quantity after bunkering (M/Tons)
Bunker P	0.589	1,063.137
Bunker S	2.257	926.564
DB P	578.079	579.213
DB S	2.213	2.159
Settling	35.413	35.326
Service	35.501	35.030
O/flow	5.446	5.357
Total	659.406	2,646.786 ”

Conversion claim under Order 11 rule 1(1)(f)

19.   In its application for leave to serve out of the jurisdiction, the plaintiff relied on Order 11, rule 1(1)(f) of the Rules of the High Court, Cap 4A, which provides that:

“ (1) Provided that the writ is not a writ to which paragraph (2) of this rule 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—

…

(f) the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction;”

20.   The defendant stressed that, for the plaintiff to succeed, the plaintiff must establish that the (tortious) damage:

(a) was sustained; or

(b) resulted from an act committed;

within the jurisdiction.

21.   The defendant sought by the Summons to dismiss the plaintiff’s claim summarily.  The defendant proceeded with its summary application, the hearing of which took place on 18 May 2017, despite the judgment of DHCJ Le Pichon in HCA 381/2015 (18 March 2016) and the judgment of the Court of Appeal in HCMP 1474/2016 (11 July 2016).

HCA 381/2015

22.   In NewOcean Petroleum Co Ltd v OW Bunker China Limited (in provisional Liquidation) & another HCA 381/2015 (18 March 2016) DHCJ Le Pichon considered clause 5(b) of the Plaintiff’s Terms and Conditions and clause H-2 of the OWB Terms and Conditions.  Her Ladyship said and decided that:

“ 5. For present purposes, I will proceed on the basis that the plaintiff’s General Terms and Conditions of Sale[4] (‘GT&C’) applied to the P–OWBC contract.

…

38. On the question whether there is a material difference in the terms of the two contracts, I consider it arguable that there is. Unlike clause H.2, arguably the two sub-paragraphs in clause 5(b) do not collectively or individually expressly authorize consumptionbefore payment and that sub-paragraph (ii) arguably militates againstconsumption before payment. Nothing in clause 5(b) appears toconfine or limit the warranty as to user contained in sub-paragraph (i)to the period prior to payment: the warranty operates and takes effectbefore as well as after payment. Further, payment does not feature at all in sub-paragraph (i).

39. Clause H.2 of the OWB terms[5] on the other hand is clearlydealing with the question of consumption during the period prior topayment, specifying what could or could not be done to the bunkers. It is an unambiguous authorization to consume the bunkers for propulsion purposes prior to payment but such authorization cannot be found in the GT&C.

40. I consider it arguable that there is a ‘material’ difference. Significantly, the two provisions are also differently structured: in the GT&C clause 5(b)(i) takes the form of a warranty as to user with no time limit; in the OWB terms clause H.2 is expressed as an exception to the restriction on the right of user before payment.

…

43. In my view, it is arguable that, as a matter of construction, clause 5(b) does not support any inference of consent.

44. In Res Cogitans[6], Males J (at §51) inferred such consent from the mere fact of delivery of the bunkers to the vessel knowing that they would or might be consumed straight away. However, the Court of Appeal[7](at §38) was critical of that approach and considered that the matter should have been left to the arbitrators to make the appropriate finding of fact.

45. For those reasons, I do not agree that it is not arguable thatthere are material differences between clause H.2 of the OWB terms and clause 5(b) of the GT&C and/or that there was no consent (express or implied) on the part of P to immediate consumption before payment. Should P ultimately prevail, it would mean that D2 has paid ING/OWBS for a consideration that has failed.

…

48. I consider it arguable on the facts that there was an act of conversion in the sense of D2’s involvement in an act that is inconsistent with the rights of the person with the possessory or proprietary rights to the bunkers by causing their delivery for immediate consumption.

…

49. The loss to P is realised upon consumption of the bunkers. Although Mr Coleman SC submitted that having bunkered up, the vessel would depart on a voyage it does not follow that no part of the loss would have occurred within the jurisdiction. Whether the loss or what part of it was realised within the jurisdiction raises an issue of fact.

…

51. In my view, P has shown that it has a good arguable case against D2 for the tort of conversion within RHC Order 11, rule 1(1)(f) and that there is a serious issue to be tried.”

HCMP 1474/2016

23.   The 2^nd defendant in HCA 381/2015 sought leave to appeal against DHCJ Le Pichon’s decision in respect of the claim in conversion.  Her Ladyship refused the 2^nd defendant’s application for leave to appeal.  The 2^nd defendant renewed its application for leave to appeal to the Court of Appeal.  The Court of Appeal declined to grant leave to appeal on the conversion claim, holding at §9[8] that:

“ 9. The crucial point here is whether the plaintiff has made outa good arguable case of a claim in conversion so that leave to serveout of the jurisdiction should be granted under Order 11 rule 1(1)(f). As Mr Sussex has acknowledged, this is a case which raises complicated issues of law and fact. For the court to exercise its ‘long arm’ jurisdiction under Order 11 rule 1, all that is required at this stage is for the plaintiff to establish a good arguable case that falls within one of the limbs in that provision. Mr Coleman sought to argue that a good arguable case does not exist in relationto the claim in conversion. This is an attempt to dismiss the claim summarily and does not have reasonable prospects of success in view of the fact that the claim relies on the reasoning of Males J inthe Res Cogitans case ([2015] 2 Lloyd’s Rep 563), and that reasoning has the endorsement of the English Court of Appeal ([2016] 1 Lloyd’s Rep 228) and the Supreme Court ([2016] UKSC 23).”

24.   The judgment of DHCJ Le Pichon on the conversion claim effectively disposed of (substantially) all the arguments of the defendant urged in support of the Summons.  Her Ladyship was considering the same contract terms — the Plaintiff’s Terms and Conditions and OWB Terms and Conditions.  The Court of Appeal declined to grant leave to appeal on the conversion claim.  Needless to say, the Court of Appeal judgment is binding on me.  This is conclusive against the defendant.

25.   The defendant’s case on the conversion claim does not have reasonable prospects of success and fails.

Retention of title and prohibition against mixing

26.   There is another reason why the defendant’s attempt to summarily dismiss the conversion claim fails.

27.   Both the Plaintiff’s Terms and Conditions and OWB Terms and Conditions prohibited mixing of the bunkers: 

(1) Clause 5(b)(ii) of the Plaintiff’s Terms and Conditions provided that 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”; and

(2) Clause H-2 of the OWB Terms and Conditions provided that “… the Buyer agreed that it … shall not be entitled to … mix … the Bunkers …”.

28.   By §15.1, §§15.3 – 15.4 and §16 of the Statement of Claim, the plaintiff complained that:

“15. The Defendant asserted rights inconsistent with the Plaintiff’s rights as owner of the Bunkers, by impliedly or expressly, by itself or through its agents or servants:

…

15.3 Permitting and facilitating the Owner and its agents or servants, in those circumstances, to mix the Bunkers with other fuel on board the Vessel;

15.4 Undertaking that it had the right to grant such permission; and

15.5 Failing to procure the Owner and its agents or servants to segregate the Bunkers on board the Vessel.

16. In the premises, the Defendant converted the Bunkers to its own use.”

It is plain that the plaintiff was also relying on “mixing” in its conversion claim.  The plaintiff was not relying solely on consumption of the fuel.

29.   For the purposes of the present interlocutory application, I will proceed on the basis that it is not unarguable that the Plaintiff’s Terms and Conditions or OWB Terms and Conditions applied to the contract between the plaintiff and OWB China[9].

30.   According to the Survey Report referred to in §18 above, pumping of the Bunkers commenced at 00:55 hours on 30 October 2014 and completed at 05:00 hours on the same date. The Vessel was within the jurisdiction throughout the pumping period.  At the end of the period, the position in relation to Bunker P and Bunker S was as follows:

“ Tank No(s)	Vessel remain on board quantitybefore bunkering(M/tons)	Vessel remain on board quantityafter bunkering (M/Tons)
Bunker P	0.589	1,063.137
Bunker S	2.257	926.564 ”

31.   This meant that:

(1) 1,063.137 M/Tons – 0.589 M/Tons = 1,062.548 M/Tons of the Bunkers had been mixed with 0.589 M/Tons of (unknown) substance in Bunker P; and

(2) 926.564 M/Tons – 2.257 M/Tons = 924.307 M/Tons of the Bunkers had been mixed with 2.257 M/Tons of (unknown) substance in Bunker S.    

The identity of the Bunkers had been lost upon mixing and it was not possibleto identify, retrieve or return the Bunkers.  The amount of Bunkers which had been mixed with unknown substance(s) or fuel totalled 1,062.548 M/Tons + 924.307 M/Tons = 1,986.855 M/Tons.  I remind myself that the amount of the Bunkers sold by the plaintiff to OWB Far East was 2,100 M/Tons.

32.   The defendant argued that it was not possible to completely empty fuel oil from a tank.  Assuming without deciding that it was so, mixing the Bunkers with what remained in Bunkers P and S before bunkering was still arguably in breach of Clause 5(b)(ii) of the Plaintiff’s Terms and Conditions and Clause H-2 of the OWB Terms and Conditions, as both prohibited any form of mixing, with no allowance for what remained in containers before pumping.  In any event, there is no evidence that what remained in Bunkers P and S before bunkering could not be emptied.

33.   Thus, the plaintiff had a good arguable case as pleaded in §§15 and 16 of the Statement of Claim.

No consumption of the Bunkers within the Jurisdiction

34.   For the reasons above, I hold that the plaintiff has a good arguable case on conversion.

Bunkers could not have been consumed when sailing from Hong Kong

35.   Nevertheless, I shall deal briefly with the contention that no consumption of the Bunkers took place within the jurisdiction. 

36.   The defendant contended that the Bunkers could not have been consumed when sailing from Hong Kong as this would have breached the ship owner’s own procedures and the International Safety Management Code.  There is no direct evidence on what fuel was in fact consumed within the jurisdiction.  This is a factual issue for trial.  The defendant has not established the factual basis for what was tantamount to a striking out application.

37.   Irrespective of whether consumption took place within the jurisdiction, the plaintiff had a good arguable case of conversion based on mixing of the Bunkers with unknown substance(s) or fuel and this mixing took place within the jurisdiction. 

Material non-disclosure of the plaintiff’s claim in contract in the ex parte application for leave

38.   It is trite that the plaintiff must make full and frank disclosure in its ex parte application.

39.   In the grounding affirmation for the ex parte application, Pau Yin Ming stated in §66 of his affirmation dated 1 September 2016 that:

“ Be that as it may, the appeal in CACV 156/2016 has no bearing on the application in the present case because the Plaintiff is not relying on Order 11 Rule 1(1)(d) or any claim in contract in the present proceedings.”

40.   What Pau Yin Man did not say was that prayer (1) in the Statement of Claim 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:”

41.   This claim, somewhat convoluted, is (at least arguably) a claim in contract.  It seeks:

A declaration “by the terms of its contract with [OWB China] and/or … with the Defendant …”

42.   Such claim was premised on “the terms of its contract with [OWB China] … (insofar as such terms were binding on the Defendant).”  The plaintiff went so far as to rely on “the terms of its contract … with the Defendant”.

43.   In my judgment, it was at least arguably a claim in contract and prayer (1) should have been expressly drawn to the attention of the Master in the plaintiff’s application for leave, in view of what Pau Yin Ming asserted in §66 of the plaintiff’s grounding affirmation and in view of the decision of A Chan J referred to in §15 above.

44.   There was material non-disclosure and I set aside the Leave Order.

45.   I decline to re-grant an order.  Material non-disclosure is a serious breach of the duty of full and frank disclosure in applications where the court relies on the applicant to draw attention to all material matters.  There is no explanation for the non-disclosure, the plaintiff simply denying that there was no non-disclosure.  This will not do.  What made matters worse was that the plaintiff is a repeat offender.  A Chan J held in §43 of his Decision in HCA 446/2015 that the material non-disclosure there was “indefensible”.

Order

46.   I order 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.