THE OWNERS OF CARGO LATELY LADEN ON BOARD THE SHIP OR VESSEL "TRUST" v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL "TRUST"

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J U D G M E N T

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Nazareth, J.A.:

1. This is an appeal by the Plaintiffs against the Order of Barnett J. made on 4th October 1991 discharging a Warrant of Arrest for the vessel "Trust" granted by the Registrar and giving the Defendants their costs of the motion for discharge.

2. The matter arose in the following way. The Plaintiffs were the owners of a cargo of steel products shipped on board the Defendant's vessel "Trust" at Antwerp in March 1991 for carriage to Hong Kong under a Bill of Lading No. 15. The vessel suffered engine failure en route and was towed to Singapore in mid-May. There she was much delayed by repairs which initially had been estimated to require only three weeks. The Plaintiffs ultimately, in August, gave instructions to their solicitors to arrange for transhipment. The cargo was then released to the Plaintiffs against an undertaking ("the Undertaking") given on their behalf. In the context of the agreement or arrangements involved, the Bill of Lading was endorsed as accomplished. The effect of the Undertaking itself appears to be in dispute. However, it seems to me to be necessary only to refer to its inclusion of a stipulation by the Plaintiffs that the contract of carriage had not become frustrated by reason of delay, and of a further stipulation and covenant by them not to sue the Defendants for direct or consequential damages by reason of delay.

3. The Plaintiffs issued a Writ on 1st October 1991 containing the following endorsement of claim:

"Damages for breach of contract. (written and/or oral) and/or duty and/or negligence by the Defendants and/or their servants and/or agents in and about the loading, handling, custody, care and discharge of the Plaintiffs' cargo of steel products and equipment and the carriage thereof on board the Defendant's ship or vessel 'TRUST' pursuant to Bill of Lading Antwerp/Hong Kong No. 015 from Antwerp to Singapore during the months of March to August 1991 which resulted in loss and/or damage and/or delay."

4. On the same day, 1st October 1991, the Plaintiffs made application for the arrest of the vessel, supported by affidavit of their solicitor. The material part of that affidavit to lead the warrant ("the Affidavit") was as follows:

" 1.     I am a solicitor ... [and] ... have the conduct of this matter on behalf of the Plaintiffs and am duly authorised to make and swear this affidavit on their behalf. Facts and matters deposed to are known to me from instructions received from Mr. Wilson Cheung and Mr. Yao of ... the Plaintiffs and from Mr. Xie Xiao Gang of the Plaintiffs' insurers ... and are to the best of my knowledge and belief true.

2.     The Plaintiffs claim is ..... [as in the endorsement of claim set out above.]

I am advised by Mr. Yao aforesaid and verily believe that the above claim has not been satisfied.

3.     The vessel to be arrested and the vessel in connection with of which the claim arose is the "TRUST" of the port Limassol, Cyprus.

4.     In my belief the person who would be liable on the claim in an action in personam is Spaceway Shipping Ltd., of Vassileos Georgiou B Avenue, Glyfada, Athens, Greece. The grounds of my said belief are that the said Spaceway Shipping Ltd. were both at the time of the voyage referred to in Paragraph 2 herein and at the time of the issue the Writ herein the owners of the ship "TRUST" beneficial owner of all the shares in the ship "TRUST". The grounds of my belief are my inspection of Lloyd's Register of Ships and List of Shipowners for the years 1990/91 and 1991/92, the entries therein and subsequent weekly supplements thereto. These disclose no change of ownership of the vessel to be arrested prior to the issue of Writ herein."

5. As indicated, the Registrar issued a Warrant of Arrest, and by Notice of Motion dated 3rd October 1991, which came before Barnett J., the Defendant applied for discharge of the Warrant upon three grounds. First, that there was no sufficient basis for the issue of the Warrant. Second, that there was no fill and frank disclosure to the Registrar as is required as a matter of law. And third, that adequate security had already been given.

6. It is convenient to first dispose of the third ground, which was rejected by the Judge and not pursued before this Court by Mr. Joseph Fok, who had also appeared for the Defendants at the hearing before the Judge. It therefore is not of concern in this appeal.

7. Before proceeding to the other two grounds, it is helpful to note the statutory and procedural provisions in point. The relevant Admiralty jurisdiction of the High Court is to be found in the following provisions of section 12A of the Supreme Court Ordinance (Cap. 4):

"12A(1)    The Admiralty jurisdiction of the High Court shall consist of

(a) jurisdiction to hear and determine any of the questions and claims mentioned in subsection (2);

..........

            (2)    The questions and claims referred to in subsection (1)(a) are

..........

(g) any claim for loss or damage to goods carried in a ship;

(h) any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship;

........

12B    .........

    (4) In the case of any such claim as is mentioned in section 12A(2)(e) to (q), where -

(a)    the Claim arises in connection with a ship; and

(i)that ship, if at the time when the action is brought the relevant person is either the beneficial owner of that ship as respects all the shares in it or the charterer of it under a charter by demise; or

(ii)any other ship of which, at the time when, the action is brought, the relevant person is the beneficial owner as respects all the shares in it.."

It is not in dispute that the Plaintiffs' claim falls within one or both of paragraphs (g) and (h). Application for a warrant for arrest of a vessel is provided for in O 75 r 5 of the Rules of the Supreme Court, the relevant provisions of which are as follows:

"5(1)    After a writ has been issued in an action in rem a warrant in Form No. 3 in Appendix B for the arrest of the property against which the action or any counterclaim in the action is brought may, subject to the provisions of this rule, be issued at the instance of the plaintiff or of the defendant, as the case may be.

.........

(4)    A warrant of arrest shall not be issued until the party applying for it has filed an affidavit requesting issue of the warrant together with an affidavit made by him or his agent containing the particulars required by paragraph (8) so, however, that the Court may, if it thinks fit, allow the warrant to issue notwithstanding that the affidavit does not contain all those particulars.

.........

(8)    An affidavit required by paragraph (4) must state -

    (a)    in every case -

(i)    the nature of the claim or counterclaim and that it has not been satisfied and, if it arises in connection with a ship, the name of that ship; and

(ii.)    the nature of the property to be arrested and, if the property is a ship, the name of the ship and her port of registry; and

    (b) in the case of a claim against a ship in rem by virtue of paragraph (10) -

(i)    the name of the person who would liable on the claim in an action in personam ("the relevant person"); and

(ii)    that the relevant person was when the cause of action arose the owner or charterer of, or in possession or in control of, the ship in connection with which the claim arose; and

(iii)    that at the time of the issue of the writ the relevant person was either the beneficial owner of all the shares in the ship in respect of which the warrant is required of (where appropriate) the charterer of it under a charter by demise; and

..........

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            (10) The claims against a ship in rem coming within the provisions of sub-paragraph (b) (whether or not the claim gives rise to a maritime lien on that ship) are -

..........

8. Upon the first ground, Mr. Fok submitted to the Judge, as he did to this Court, that the Affidavit did not comply with the requirements of O 75 r 5(8)(a)(i) because it did not disclose the nature of the Plaintiffs' claim and that its second paragraph (i.e. the endorsement of claim there reproduced) was vague and did not condescend to the amount which the Plaintiffs sought to recover. Also that the application for the Warrant was not supported by evidence of loss, e.g. surveyors reports, nor did the Applicant exhibit the Bill of Lading which had been endorsed in a manner that suggested it was accomplished by other than the voyage contracted for. Had all these been drawn to the attention of the Registrar, he submitted, the Registrar may well have thought twice before agreeing to issue a warrant.

9. Upon the second ground, he submitted that the documents showing that the Bill of Lading was accomplished, the extent of damage, the Undertaking and the fact that the Defendants' P & I Club had given salvage indemnities totalling approximately US$4.3 million, should have been disclosed.

10. Mr. Clifford Smith, who represented the Plaintiffs, likewise both below and before this Court, abandoned the claim for delay and opposed Mr. Fok's submissions upon grounds that can conveniently be gathered from the judgment of Barnett J., who dealt with those matters in the following way:

"    For the Plaintiffs, Mr. Smith referred me to three authorities, The Saint Elefterio (1957) P. 179, The Moscanthy (1971) 1 Lloyds Rep. 37, and The Harima [1987] HKLR 770, the last being a decision of the Court of Appeal. Relying upon those authorities, Mr. Smith said that it is important to distinguish between questions of jurisdiction, and questions of the merits of a plaintiff's claim. The merits of a plaintiff's claim, he said, are of no concern to the Court when application is being made for the issue of a warrant to arrest the vessel. He said the court is concerned only with whether there is a cause of action which allows the plaintiff to invoke the Court's Admiralty Jurisdiction, and in particular to commence an in rem action.

    Provided a plaintiff shows a cause of action recognised by Section 12B of the Supreme Court 'Ordinance, an action in rem may be brought. He submitted that the endorsement of claim and the Plaintiffs' solicitor's affidavit showed claims falling under paragraphs (g) and (h) of Section 12A(2) of the Supreme Court Ordinance, and that they are therefore caught by Section 12B(4), that is to say they give rise to an action in rem. whether or not those claims are well-founded is not a matter, he emphasizes, with which the Court is concerned at this stage. Whether or not the documents which were not disclosed to the Registrar undermine the Plaintiffs' claim is a matter for trial in due course.

    I accept Mr. Smith's broad statement of the principles as indeed does, I think, Mr. Fok. I further accept that the endorsement on the writ and the solicitor's affidavit on their face are sufficient to found jurisdiction in rem. But they are only barely sufficient and, in my judgment, suitable only for the most straightforward of claims.

    The Plaintiffs' claim here is not straightforward. I am satisfied that if the Registrar had had disclosed to him the material which is now available he would have thought very hard indeed about whether the Plaintiffs really have a claim justifying an in rem action. In other words, the documents and information now brought to the notice of the Court were material to the exercise of the Registrar's function and discretion and should have been disclosed to him. So, I find for the Defendants on this basis, that is, that there was failure to make full and frank disclosure."

11. Mr. Smith submitted before this Court that having rightly accepted the principles he contended for, and also that the endorsement and Affidavit on their face were sufficient to found jurisdiction in rem, the Judge was wrong to conclude that "the documents and information ... brought to the notice of the Court ere material to the exercise of the Registrar's function and discretion and should have been disclosed to him". In particular he submitted that all four matters that the Defendants contend should have been disclosed, are concerned with the merits of the claim, not with jurisdiction, and therefore did not have to be disclosed. For the latter proposition he relies, as indicated in the judgment of Barnett J., upon the following three authorities.

12. In The St. Elefterio Wilmer J. held that the words "the person who would be liable on the claim in an action in personam" [which also appear in section 12B(4)(b) of the Supreme Court Ordinance] mean "the person who would be liable on the assumption that the action succeeds", and that unless the action was frivolous or vexatious "the plaintiffs are entitled to bring it and to have it tried, and that, whether or not their claim turns out to be a good one, they are entitled to reserve that claim by proceeding in rem" (at page 186).

13. In The Moscanthy Brandon J. (as he then was) held that the question whether the Court has jurisdiction to entertain the claim in rem must be answered "by reference to the nature of the Plaintiff's claim as put forward, without reference to the further point whether it is likely to succeed or not", and went on to say that it was open to the Defendant to apply for a stay on the grounds the Plaintiffs' case was vexatious in the sense that it was hopeless beyond doubt, but if the Plaintiffs' case is arguable even though difficult in fact and law, their action should be allowed to proceed to trial; this last principle applies, he said,

"as much to an action in rem as to an action in personam, even though the former involves a defendant in providing security and maintaining it until the action is determined, while the latter does not" (at page 42).

14. Hunter J., as he then was, in The Harima, (1986) AJ Folio 132 (unreported), relying in part upon the foregoing dicta, said at page 12 of his judgment:

    "It seems to me that on an application for a warrant under O 75 r 5, the Court's first concern is to see whether the facts alleged prima facie bring the plaintiffs within one or other of the relevant subsections in section 20(2) [i.e. now section 12A of the Supreme Court Ordinance]. That is the main purpose of the filtering process established by Rule 5."

15. The Defendants have not filed a Respondent's Notice. Mr. Fok accepts the legal propositions contended for by Mr. Smith and referred to by the Judge. However he submits that the Judge was right in holding that there was a failure to make full and frank disclosure in that, first, documents and information should have been disclosed; and second that the endorsement of claim and the Affidavit were inadequate.

16. It is not in dispute that there was a duty upon the Plaintiffs to make full and frank disclosure of material facts: The Harima (1987) HKLR 770, 773 (CA).

17. Mr. Fok's first submission is that the Undertaking is a complete defence to the claim for delay, that therefore it is not a question of the merits of such a claim, but rather that there is no claim at all, and that accordingly the undertaking should have been disclosed. I think that is too facile a view of the matter and that any reliance upon the Undertaking inescapably raises the question of the merits of the claim for delay. On the principles accepted by the Judge, and as I understand the position, also by Mr. Fok, those merits cannot be called into question in the context of an application for a warrant of arrest. The material facts that have to be disclosed are determined by what is "material to the granting or refusal of the ex parte application for the issue of the warrant": the Cynthia G 1984 AJ Folio No. 367 per Clough J. (as he then was); The Harima [1987] HKLR 770, 775 G (CA) per Sir Alan Huggins V-P. It follows that the Undertaking was not required to be disclosed in pursuance of the duty to make full and fair disclosure.

Mr. Smith relied also upon the following dictum of Hunter J., at page 13 of his judgment in the same context of discharge of a warrant of arrest:

"If it is being asserted that the claim is demurrable, that must be asserted properly and openly by the defendant on the appropriate application, and you do not reach the same result by the indirect or backdoor route of a process of non-disclosure."

18. I accept that as correct in principle, upon which, in my view, it is not open to the Defendants on the application to discharge this warrant to assert that the claim for delay is demurrable or to attempt to achieve the same result by the backdoor route of non-disclosure.

19. I conclude therefore that the Plaintiffs did not fail to make full and frank disclosure in not. disclosing the Undertaking.

20. The other matters the Defendants contended should also have been disclosed, all go to the merits of the action and therefore do not avail the Defendants on their second ground of non-disclosure. I would add that, in my view, the Plaintiffs' claims are clearly not frivolous or vexatious.

21. I recognise, however, that non-disclosure has also been raised in the different context of the Defendants' first ground, to which I now turn, i.e. that there was no sufficient basis for the issue of the warrant, in particular that the Affidavit did not comply with the requirements of O 75 r 5(8)(a)(i) in not disclosing the nature of the Plaintiffs' claim, the endorsement of claim being vague and not condescending to the amount claimed.

22. With reference to the requirements of O 75 r 5(8) (a) that "the nature of the claim ... and that it has not been satisfied" should be stated, Mr. Fok pointed to an example of the way that is done in British Shipping Laws Vol. 6 Forms and Precedents 329 p. 203. That example does set out the way a claim arises and verifies belief in certain aspects, as Mr. Fok submitted, somewhat more fully than does the affidavit before this Court in those two respects. But it can be seen that in those two respects, the immediately succeding example in that work does not, nor does the outline form of affidavit at page 1221 of the Supreme Court Practice 1991 Vol. 1 paragraph 75/5/9, to which Mr. Smith pointed. I am accordingly not persuaded that anything more than r 5(8) (a) itself suggests is required. While the affidavit could undoubtedly have described the nature of the Plaintiffs' claim and verified it more fully, the requirements of O 75 r 5 seem to me to have been met by the Plaintiffs' affidavit, a fortiori in the light of the purpose for which it must be required i.e. the filtering process established by O 75 r 5 of which the main purpose is to see whether the facts bring the Plaintiffs within one of the relevant paragraphs of section 12A(2) of the Supreme Court Ordinance. In the latter regard, as mentioned, it is not in dispute that the claim falls within one or both of paragraphs (g) and (h) of section 12A (2).

23. Mr. Fok further submitted in the present context that the application was inadequate and deficient, regardless of the issue of non-disclosure. As the Judge observed, this submission in support of the first ground, overlapped the second ground of failure to make full and frank disclosure and is difficult to address separately. However, Mr. Fok submitted that the Plaintiffs?Affidavit was inadequate and deficient for the following reasons:

1.    It merely recited verbatim the endorsement of claim in the Writ.

2.    It made no mention whatsoever of what the claim was for, merely mentioning "loss and/or damage and/or delay" without stating "what loss or damage, loss or damage to what, or what delay".

3.    It did not even exhibit the Bill of Lading on which the action was brought.

4.    No facts were deposed to relating to the nature of loss or damage said to have resulted from the Defendants' alleged breach or the alleged delay.

24. He submitted that the Judge's statement that in some cases there will be a need for greater particularity in the affidavit to lead a warrant for arrest, must be correct as a matter of common sense, and added that this is good law and practice; that merely reproducing the endorsement of claim can only be sufficient in the clearest of cases, this not being such a case.

25. Having already addressed and rejected the complaints of non-disclosure of material facts and of non-compliance with O 75 r 5(8)(a), I reiterate that I have some difficulty in grasping this as a separate complaint. In the particular circumstances before me, it is difficult to see how the foregoing four reasons could justify this further submission if, cumulatively and individually, they do not succeed upon the earlier submissions, and moreover, all go to the merits of the claim.

26. I am therefore unable to accept that any of the documents or information brought to the notice of the Court below, or indeed to the notice of this Court, and not disclosed to the Registrar, should have been disclosed to him. In particular, the Judge's implicit finding, in which I concur, that the requirements of O 75 r 5 were complied with by the application and Affidavit, leaves no room that I can see for them to be regarded as deficient, a fortiori upon the basis of the claim not being "straightforward". A basis, I would add, for which no authority was brought to the attention of this Court.

It follows that for all the foregoing reasons, I am satisfied that there was no failure to make disclosure of a material fact and that the affidavit cannot be said to be deficient or inadequate in the manner contended for. I would accordingly allow the appeal, set aside the Order of Barnett J. dated 4th October 1991, and order nisi that the Plaintiffs are to have their costs of the appeal and of the motion below.

Penlington, J.A.:

27. I agree.

Liu, J.:

28. I agree with the conclusion reached by my Lords for allowing the appeal with costs. I only wish to add that what was required of the Plaintiffs was the stating of the respective nature of their heads of claim as maintained before the Registrar, that the question of material non-disclosure did not arise and that none of the grounds of non-disclosure in this appeal may be entertained at the filtering stage.