THE DELTA PLA

HCAJ31/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO.31 OF 2002

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Admiralty action in rem against : the ship or vessel M.V. "DELTA PIA"

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J U D G M E N T

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1. This is an urgent application by the defendants and the interveners to set aside two orders made by this court on 9 April 2003, one of which was to renew the validity of the Writ, the other was to issue the Warrant of Arrest. The Vessel "Delta Pia" formerly "Delta 61" was arrested on 9 April pursuant to the Warrant of Arrest, and the present application is an urgent application to set aside those two orders, in particular for the urgent release of the Vessel. Due to the urgency of the matter the matter has come on very quickly, although I would appreciate more time to consider this matter, I think I should give judgment right away.

2. This matter arises in this way : the plaintiffs who are some large number of cargo owners, are owners of cargo carried on board the vessel "Delta 62" which was owned at the relevant time by Delta Prima Shipping Pte. Ltd (now known as Labroy Bulk Carriers Private Ltd) ("the Old Owners"). The vessel at the time was chartered on New York Produce Form to Towa Shipping Corporation which in turn sub-chartered the vessel to Deryoung Maritime Co. SA ("the Charterer"). The voyage was from Kaohsiung to Hong Kong and the Bills of Lading were all dated around 20 to 22 September 2001. The Vessel sank with loss of all cargo and the cargo owners therefore made their claim. The Writ was issued in HCAJ31/2001 on 1 February 2002.

3. On 15 July 2002, there was a change of ownership of the Vessel but the change of ownership related to the Vessel which was the sister ship of the offending ship "Delta 62" which sank. Both "Delta 61" and "Delta 62" were owned at the relevant time by the Old Owners. On 15 July 2002, the Vessel was sold and the new owners are the present Interveners Key Yang Shipping Co. Ltd and Shin Han Capital Co. Ltd.

4. The Vessel in question "Delta 61" now renamed "Delta Pia" did not come to Hong Kong during the relevant one year period when the Writ was effective. On 1 February 2003, the Writ expired because the life of the Writ was 12 months. It expired as a result of no step having been taken to renew the validity of the Writ.

5. On 9 April 2003, an application was made by Mr Rostron of the plaintiffs' solicitors for a renewal of the Writ and for a Warrant of Arrest. In support of the application, two affidavits were put before the court, the Renewal Writ Affidavit which one can find at pages 154 to 156 and in support of the arrest application, the affidavit of Mr Rostron which one can find at pages 11 to 15.

6. As a result of the undertaking given to me at the time of the hearing, a further affidavit of Mr Rostron was put in, which can be found at pages 145 to 146, and this is basically to supplement or to confirm the fact that the Vessel had not called in Hong Kong during the one year period when the Writ was valid, and therefore there was no opportunity to serve or arrest the Vessel during that one year period.

7. The application before me today centres on three points : the first point is that the court should not allow a renewal of the Writ in the circumstances that had been shown because they do not satisfy the good reason requirement in "Myrto No. 3", i.e. the House of Lord's decision in Kleinwort Benson Ltd v. Barbrak Ltd [1987] 1 AC 597, and that in any event, on the balance of hardship, the discretion should be exercised against the plaintiffs. This has been the main and most hotly debated point during the hearing.

8. The second point relied upon by the defendants and the interveners to set aside is that there had been material non-disclosure on the ex parte application because it was not made known to the court that there had been assignment of the right of the plaintiffs to the Charterer, and that there had not been a proper explanation or disclosure of the time limitation situation.

9. The third point relied upon by the applicants of the motion is that there had been material non-disclosure of the Taiwan proceedings in that in Taiwan, there had been security given by the Vessel to the Charterer's claim for indemnity in the sum of US$900,000.

10. Because the first point is crucial, I will consider it first. The House of Lords in what is now known as the "Myrto No.3" has set out very clear guideline as the principle that should properly apply for applications to renew and what it has done is to clarify the principle and to a certain extent replace what was considered the former very harsh requirement of exceptional circumstances with a slightly more flexible requirement of good reason. The well-known principle is summarized in The Hong Kong White Book at pages 62-3, but for the present purposes, it is only necessary for me to look at a short passage in the "Myrto No.3" case at page 616 where after referring to the first two categories of cases, his Lordship Lord Brandon said at page 616A :

"... Category (3) cases are where the application for extension is made at a time when the writ has ceased to be valid and the relevant period of limitation has expired. In both category (1) cases and category (2) cases, it is still possible for the plaintiff ... to serve the writ before its validity expires, and, if he does so, the defendant will not be able to rely on a defence of limitation. In category (1) cases, but not category (2) cases, it is also possible for the plaintiff, before the original writ ceases to be valid, to issue a fresh writ which will remain valid for a further 12 months. In neither category (1) cases nor category (2) cases, therefore, can it properly be said that, at the time when the application for extension is made, a defendant who has not been served has an accrued right of limitation. In category (3) cases, however, it is not possible for the plaintiff to serve the writ effectively unless its validity is first retrospectively extended. In category (3) cases, therefore, it can properly be said that, at the time when the application for extension is made, a defendant on whom the writ has not been served has an accrued right of limitation."

Further on, at pages 622 to 623, when his Lordship goes on to consider what are good reasons required for the renewal of Writ, he says :

" The question then arises as to what kind of matters can properly be regarded as amounting to 'good reason'. The answer is, I think, that it is not possible to define or circumscribe the scope of that expression. Whether there is or is not good reason in any particular case must depend on all the circumstances of that case, and must therefore be left to the judgment of the judge who deals either with an ex parte application by a plaintiff for the grant of an extension, or with an inter partes application by the defendant to set aside an extension previously granted ex parte.

Good reason is necessary for an extension in both category (2) cases and category (3) cases. But in category (3) cases the applicant for an extension has an extra difficulty to overcome, in that he must also give a satisfactory explanation for his failure to apply for extension before the validity of the writ expired.

The decision whether an extension should be allowed or disallowed is a discretionary one for the judge who deals with the relevant application. Jones v. Jones shows that, in exercising that discretion, the judge is entitled to have regard to the balance of hardship. In doing so, he may well need to consider whether allowing an extension will cause prejudice to the defendant in all the circumstances of the case. Once a judge has exercised his discretion, it is only a very limited grounds, too well known for it to be necessary for me to set them out here, that an appellate court will be justified in interfering with his decision."

11. It follows from the passages I have read that two matters called for decision in relation to any application for renewal, one is whether good reason has been shown, and the second is if good reason has been shown, on the exercise of discretion based on the balance of hardship whether a renewal should be granted. I will deal with the first aspect : whether good reason has been shown.

12. Good reason in relation to category (3) type of cases are, of course, much more difficult to establish and that is why the expression used was satisfactory explanation has to be given for not making a renewal application earlier.

13. Here, we have a situation where Mr Kerr for the plaintiffs has submitted it is not a category (3) case. He says it is not category (3) because it is not a time-barred situation, that there is good solid argument and, in fact, he is very confident that the law is on his side, that the plaintiffs' claim is not time-barred. For the purposes of this argument only, i.e. on the "Myrto" point, let me assume that he is right. But this is an action in rem and the unique nature of the action in rem is that when it is not a maritime lien case, the right in rem disappears against that vessel when there is a change of ownership. So, when there is a change of ownership, the new owners are subject to a great deal of prejudice if they have to face a claim brought by claimants in relation to liabilities incurred by the previous owners. The case of "Myrto No.3" did not touch upon that situation of in rem proceedings where there have been a change of ownership during the course of the one-year Writ. The Writ expires because it has not been renewed and application to renew is made after the expiry of the Writ and after the change of ownership. In my view, if this has been put before the House of Lords, they will probably consider this as either a category (4) situation, or a super-category (3), that is to say it is equivalent to a limitation defence. The reason that it is equivalent or in fact is stronger is that in the case of a limitation defence, the defendant has already accrued right of not to be further vexed by proceedings because of the limitation defence. In the case of a change of ownership situation, the new owners who have the benefit of a writ that has expired should be protected from being further vexed from that dead writ being breathed back into life by the sympathy of a court. Therefore, my approach to this very novel and it is novel because both counsel have not found any equivalent situation arising in the Admiralty judgments they have looked at is that the expression used at page 623 "unless satisfactory explanation for failure to apply for extension" can also apply to the circumstances of this case.

14. The affidavit evidence of Mr Rostron shows clearly and quite candidly how the failure to apply for renewal arose. It could be seen at paragraph 5 of his affidavit at page 155 of the bundle :

"Furthermore, the validity of the Writ expired on 1st February 2003, but unfortunately due to an administrative oversight (described below) on my part, an application for its renewal was not made. More specifically, my firm has moved offices 3 times since 18th July 2001, and it appears that at the time of, or shortly following, these relocations, I inadvertently archived the said Writ."

Throughout the hearing, the expression used to describe the reason for the failure to renew as being an oversight. To me an oversight does not amount to a satisfactory explanation. It may amount to an explanation but certainly not a satisfactory explanation and certainly it is not a good reason. Omission and carelessness on the part of the plaintiff or those acting for the plaintiff is not a good reason for renewal of the Writ. I think this sentiment is echoed in the White Book at page 63 where it shows carelessness as one of the examples of bad reason. Mr Smith for the defendants and the interveners has referred to me a number of cases where carelessness or negligence on the part of solicitors is held to be not a good reason for the renewal of the Writ. It follows, therefore, that I hold that no good reason has been shown for the renewal of the Writ and as was said in Waddon v. Whitecroft [1988] 1 WLR 309 strictly speaking, it is not necessary for the court then to consider the question of balance of hardship as to whether extension should be granted or refused. But in case I am wrong, I will say that in any event, on the balance of hardship, overwhelmingly the balance is against the plaintiffs and in favour of the defendants and the interveners. When there is a change of ownership, the prejudice to the new owners is overwhelming. If there is prejudice to the plaintiffs then they should seek proper remedies somewhere else, and I have no doubt that in this particular case, on a balancing exercise, I would in exercise of my discretion hold against the plaintiffs.

15. Mr Kerr, in his firm submission, has urged me to take courage from the decision of Potter J in The Nova Scotia. But the facts of that case are very different, and it provides me with very little guidance.

16. Secondly, he has urged me not to take such a strict view of the frailties of the solicitors and he urged this court not to be so black and white. But the question, however, is that when there is an oversight such as this, and in my view it does not matter very much whether it is an application for renewal six weeks or twelve weeks or nine months after expiry, once the Writ has ceased to exist because of oversight or carelessness on the part of those acting the plaintiffs, then there is really no scope for the court to grant indulgence to the plaintiffs, and indulgence indeed it would be, if notwithstanding the omissions of the plaintiffs, the court can deprive the new owners of an accrued right of not to be vexed further. Therefore, it seems to me, based on the "Myrto No. 3" principle, that the two orders made on 9 April must be set aside and the Vessel be released from arrest.

17. I have heard very interesting argument, especially on the second point, about material non-disclosure, but in the circumstances, it seems to me that it would not be necessary for me to say anything about those two points and I do not do so. The order, therefore, I make is that the applications are granted, the Vessel is to be released immediately with costs of the applications to the defendants and the interveners.