S NET FREIGHT (HK) LTD v. NAMSUNG SHIPPING CO LTD

HCCL 13/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST ACTION NO. 13 OF 2010

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J U D G M E N T

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I. INTRODUCTION

1.  In March 2009 Star Rich contracted with S-Net (a freight forwarder) for the carriage of frozen meat from Hong Kong to Vietnam. S-Net (acting through Champion Service as agent) in turn engaged Namsung (a Korean company) to carry the goods.  The goods were stuffed into 10 containers.

2.  S-Net issued a House Bill of Lading (HBL) to Star Rich in respect of the goods.  Namsung (acting through its Hong Kong office) in turn issued a Master Bill of Lading (MBL) to S-Net.  The HBL and MBL were issued in Hong Kong.

3.  En route to Vietnam the vessel carrying the goods (the “BOHAI STAR”) was involved in a collision with another vessel (the “PACIFIC GRACE”).  As a result, 2 containers fell overboard.  Those containers and their cargo were thereafter delivered in Vietnam in severely damaged condition.

4.  Star Rich commenced an action (HCCL No.4 of 2010) against S-Net on 17 March 2010 claiming for loss of the frozen meat stuffed in the 2 damaged containers.  That action is ongoing here in Hong Kong.  Star Rich’s claim is worth about US$220,000.

5.  S-Net has brought these proceedings for an indemnity from Namsung in the event that Star Rich is successful in its action.  S-Net obtained leave from Stone J on 28 February 2011 to serve the Writ in these proceedings on Namsung in Korea.  By a Summons dated 23 February 2011 Namsung applied to set aside the leave granted by Stone J or (alternatively) to stay these proceedings to Korea.  This is the hearing of Namsung’s Summons.

6.  Namsung applies to set aside Stone J’s leave or for a stay on the following grounds:-

(1) There was material non-disclosure. Namsung says that S-Net’s affirmation evidence in support of service outside the jurisdiction failed to point out that the MBL expressly provided for Korean law to apply and for the Korean court to have exclusive jurisdiction over any disputes.

(2) S-Net should be bound by the exclusive jurisdiction clause.

(3) Korea is the more appropriate forum for the trial of this action.

II. DISCUSSION

A. Was there material non-disclosure?

7.  Let me first consider the effect on law and jurisdiction of relevant clauses in the MBL.

8.  The MBL provides as follows:-

“2. CLAUSE PARAMOUNT. As far as this Bill of Lading covers the carriage of the Goods by water, this Bill of Lading shall have effect subject to the provisions of the Commercial Code of the Republic of Korea, unless it is adjudged that any other legislation of a nature similar to the International Convention for the Unification of Certain Rules relating to Bills of Lading signed at Brussels on August 25, 1924 except Article 9 gold value clause compulsorily applies to this Bill of Lading, in which case it shall have effect subject to the provisions of such legislation, and the said Act or legislation (hereinafter called the Hague Rules of Legislation) shall be deemed to be incorporated herein. If any provision of this Bill of Lading is held to be repugnant to any extent to the Hague Rules Legislation or any other laws, statutes or regulation applicable to the contract evidenced by this Bill of Lading, such provision shall be null and void to such extent but no further.

3. GOVERNING LAW AND JURISDICTION. The contract evidenced by or contained in this Bill of Lading shall be governed by the law of the Republic of Korea as may be otherwise provided for herein, and any action against the Carrier thereunder shall be brought before the Seoul District Court in the Republic of Korea.”

9.  It will be seen that, under MBL cls. 2 and 3, it is far from evident that Korean law governs every action brought in respect of the MBL.

10.  Thus, for example, given the collision, the goods were obviously damaged while still at sea.  The shipment then being from Hong Kong to Vietnam, by Carriage of Goods by Sea Ordinance (Cap.462) (COGSO) ss.3(1) and (2), this Court must apply the Hague-Visby Rules to the carriage. Consequently, by MBL cl.2, insofar as the Hague-Visby Rules govern the rights and obligations of S-Net and Namsung, the Korean Commercial Code would not govern the carriage.

11.  Further, at first blush, MBL cl.3 might appear to make Korean law applicable to all disputes arising out of the MBL.  But that would be to ignore the words “as may be otherwise provided for herein”.  The precise intent behind those words is ambiguous.  They could conceivably mean that Korean law is to apply to the MBL only where some other body of law is not made applicable by the MBL.  MBL cl.2 would then be a situation where there is provision for some other law (such as COGSO) to apply.

12.  A normal canon of construction is that where a clause is ambiguous it should be construed contra proferentem, that is, against the party which drafted the clause or which seeks to rely on the provision.  Given the ambiguity in MBL cl.3 just identified, the latter provision should be construed against Namsung.  The MBL constitutes Namsung’s standard terms and Namsung is seeking to rely on a clause which it drafted itself. It should not be permitted to take advantage of any ambiguity in the clause.

13.  Similarly, the second half of MBL cl.3 might seem at first impression to give the Korean court exclusive jurisdiction over disputes arising out of the MBL.  But that would be to ignore the words “any action against the Carrier thereunder”. 

14.  The word “thereunder” is telling.  It is unlikely to mean “under the MBL”.  That is because the MBL is referred to in the immediately preceding words using the expression “herein”.  As a matter of English usage, it would be odd initially to describe a document as “here” and then later in the same sentence as “there”. 

15.  More likely, “thereunder” must mean “under the law of Korea”.  If so, given MBL cl.2, the present action would not be an action covered by the jurisdiction stipulation in cl.2.  The present action is a claim brought pursuant to the Hague-Visby Rules as made compulsorily applicable by COGSO, a piece of Hong Kong legislation.  The claim is not an action against Namsung “under the law of Korea”.  On this reading, the Korean Court would not have an exclusive (as opposed to merely concurrent) jurisdiction where the claim relates to damage suffered in the course of carriage by sea from Hong Kong to Vietnam.

16.  At the very least, the use of “thereunder” introduces an added ambiguity to MBL cl.3.  That should lead to the jurisdiction provision in cl.3 being construed in favour of S-Net and against Namsung.

17.  In light of the foregoing analysis, let me now consider whether there has been material non-disclosure.

18.  The evidence is that S-Net (as opposed to Champion Service) was unaware of the terms on the reverse of the MBL at the time when the same was issued.  S-Net had previously done business with Namsung through Champion Service.  But S-Net never focused its mind on ascertaining the precise terms of the carriage (including the Clause Paramount and Governing Law clauses just examined) on the reverse of relevant bills of lading issued by Namsung.

19.  Champion Service had notice of the relevant terms (as Champion Service placed its chop on the reverse of the relevant bills of lading).  Thus, it might be said that Champion Service had actual notice of the terms on the reverse of the MBL.  It might also be said that, as Champion Service’s principal, the actual knowledge which Champion Service had as agent is attributable to S-Net. 

20.  I appreciate that in reality it is doubtful that Champion Service subjectively focused its mind on the precise terms on the reverse of a relevant bill.  In all probability, Champion Service may have merely placed its chop on the reverse of a relevant bill as a matter of course without too much thought to the precise terms contained there.  But that does not negate the conclusion that, as a matter of objective fact, S-Net should be deemed to have had the notice which its agent had.

21.  S-Net in fact requested a copy of the reverse of the MBL from Namsung’s solicitors before S-Net applied to Stone J for service outside the jurisdiction.  In response, Namsung’s solicitors provided a copy of the reverse side of a sample Namsung bill of lading.  S-Net exhibited that sample copy to its affirmation in support of the application for service out. 

22.  Unfortunately, that sample copy exhibited was so blurred and the typeface so small as to be illegible.  No one could discern the terms of clauses 2 and 3 from the copy exhibited, much less realise that they contained terms going to governing law and jurisdiction.  For whatever reason, S-Net did not exhibit the large typeface version which Namsung’s solicitors had also helpfully provided to S-Net’s solicitors.

23.  Inexplicably, despite the large typeface version which it had obtained from Namsung’s solicitors, S-Net appears to have assumed that there was no jurisdiction or governing law clause of any kind on the reverse of the MBL.  S-Net instead suggested in its affirmation in support that the proper law of the carriage was Hong Kong law by implication.           

24.  It seems to me that, in those circumstances, there has been material non-disclosure on S-Net’s part.  At the very least, as a matter of courtesy to the Court, even ignoring the attribution of Champion Service’s knowledge as agent to S-Net as principal, S-Net’s solicitors ought to have exhibited a legible copy of the reverse side of the sample bill of lading.  Had that been done, Stone J would have had the benefit of considering the impact of clauses 2 and 3 of the sample bill of lading. 

25.  The terms of those clauses would have been material to Stone J’s decision whether or not to grant leave.  This would be so even if ultimately Stone J might have reached a similar conclusion on the effect of the clauses as the conclusion reached by me.

26.  What should be done as a result of the material non-disclosure?

27.  In the present situation, I think that it would be a waste of time to set aside the leave granted by Stone J.  That is because (as I have pointed out) I do not believe that the Korean Commercial Code (as opposed to the Hague-Visby Rules made applicable by COGSO) governs the specific claim here.  Further, for the reasons which I have given, I do not think that in this situation the Korean Court has exclusive jurisdiction. 

28.  That means there would be little point in setting aside the leave. 

29.  Under the Hague-Visby Rules as applied in Hong Kong, if Stone J’s leave were set aside for material non-disclosure, S-Net could re-apply for leave.  S-Net would still be within the time limit stipulated in Hague-Visby Rules Article III Rule 6 bis for the bringing of an indemnity action before the Hong Kong Court.  The ambiguities identified in MBL cls. 2 and 3 would still be there.  In all likelihood S-Net would again obtain leave, despite the Court’s attention being drawn to MBS cls. 2 and 3 as ought originally to have been done. 

30.  Accordingly, there would be no point in wasting everyone’s time (including that of the Court) by making S-Net go through the process of re-applying for leave as a mere formality.  It would be more appropriate in my view to impose some sort of sanction in relation to the incidence of the costs of the application for leave to serve out.  In this connection, I shall hear counsel on possible costs sanctions at the end of this Judgment.

B. Should there be a stay on account of an exclusive jurisdiction clause?

31.  It follows from the analysis in Section II.A that MBL cl. 3 would not here operate as an exclusive jurisdiction clause. There is no cogent basis for granting a stay to the Korean Court as a contractually agreed forum of exclusive jurisdiction.

32.  Even if MBL cl.3 amounted to an exclusive jurisdiction clause, the clause would not be conclusive on the question of a stay.  The Court retains a discretion to refuse a stay where there are compelling reasons for a case to be heard here.  See The “EL AMRIA” [1981] 2 Lloyds Rep 119.

33.  If MBL cl.3 were an exclusive jurisdiction clause, I would nonetheless refuse a stay on the ground that, in any event, the exact same circumstances underlying the loss of the cargo will have to be investigated by this Court at the trial of Star Rich’s claim against S-Net.  It makes sense from the viewpoint of saving time and money for there to be a single investigation of the relevant circumstances in one (as opposed to two) jurisdictions. 

34.  I am particularly concerned that, if there were to be 2 trials in relation to the damaged cargo, one in Hong Kong between Star Rich and S-Net and another in Korea between S-Net and Namsung, there would be a real risk of the 2 legal forums arriving at inconsistent decisions.  That would be inimical to the interests of justice.

35.  The existence of Star Rich’s Hong Kong proceedings (which S-Net has said that it will be applying to consolidate with these indemnity proceedings) must be a compelling factor against the strict enforcement of any exclusive jurisdiction stipulation in MBL cl.3.

36.  Mr. Colin Wright (appearing for Namsung) has suggested that Star Rich may itself bring proceedings against Namsung in Korea.  Accordingly, I should (Mr. Wright says) disregard Star Rich’s Hong Kong proceedings as a cogent factor militating against a stay.  But I am unable to accept that argument.  Of course Star Rich can always bring proceedings in Korea.  Although Star Rich has intimated that it may do so, it has so far not done so.  It would therefore be pure speculation for me to assume that, if I grant a stay, Star Rich will inevitably bring proceedings in Korea and all issues relating to the loss of cargo can be litigated in a single jurisdiction.

C. Should there be a stay on the ground of forum non conveniens?

37.  First, I do not accept Mr. Wright’s submission that S-Net has no good arguable case and so no leave at all should have been granted in the first place. 

38.  As bailee, it is incumbent upon Namsung to explain why goods bailed to it were not delivered to the consignee in the same order and condition as when received.  In the absence of proper explanation, a bailor in the position of S-Net will invariably succeed. 

39.  Mr. Wright has indicated that Namsung will be relying on the error of navigation exception in the Hague-Visby Rules.  But he has not condescended into particulars as to how the collision occurred and precisely what error of navigation was involved.  I am therefore unable to determine at this stage whether or not Namsung has a complete defence to S-Net’s indemnity claim.

40.  Second, as between Korea and Hong Kong as the proper and appropriate forum for litigation of this dispute, the factors in favour of Hong Kong as the venue for the trial of this action are overwhelming. 

41.  At the risk of being repetitive, let me spell out some key factors: 

(1) S-Net is a Hong Kong company.

(2) The MBL was issued here by Namsung’s Hong Kong agent.

(3) The shipment originated from Hong Kong. By COGSO, the Hague-Visby Rules as promulgated in Hong Kong are compulsorily applicable. It is unclear in light of MBL cl.2 what (if any) significant role the Korean Commercial Code would play in this Court’s deliberations.

(4) The crew on board the vessel may have been partly Korean, but the evidence is that they regularly visit Hong Kong on Namsung’s vessels. To the extent that crew members are required to give evidence on the circumstances of the conclusion, they are likely to be readily available as witnesses here.

(5) Most critically, there is the fact of Star Rich’s proceedings. I note that Star Rich’s claim is for a relatively modest amount (about US$220,000). Accordingly, I do not think that it would be just for this Court by the grant of a stay to compel S-Net to expend significant amounts of time and money to litigate this matter in 2 jurisdictions.

42.  I conclude then that, however one regards this matter, in the interests of all concerned and in furtherance of the ends of justice, especially insofar as time and expense are concerned, it would be more suitable for S-Net’s indemnity action to be tried here in Hong Kong.

III. CONCLUSION

43.  Namsung’s application to set aside and for a stay is dismissed.  I shall hear the parties on costs and consequential orders.