XCHRX LEVIATHAN SHIPPING CO. LTD. v. SKY SAILING OVERSEAS CO. LTD.

1998, Nos. CL192 & 193

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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The Background

1. On 3 April 1998, the parties entered into a charterparty. The plaintiff chartered the MV Amber to the defendant for a one time charter trip. Towards the end of the charter, the vessel was arrested twice in Antwerp. The first arrest was by a company called Appenbulk Shipping Gmbh (Appenbulk). The cause was said to be a breach of a sub-voyage charter between Appenbulk and the defendant. The second arrest was by Berge Maritima SA (Berge) in respect of fees payable by the defendant to Berge as port agent. These arrests constitute liens or encumbrances on the vessel.

2. The relevant parts of the charterparty provide -

"Charters to have liberty to sublet the vessel for all or any part of the time covered by this charter, but charterers remaining responsible for the fulfilment of this Charter Party."

"Charterers shall not suffer, nor permit to be continued, any lien or encumbrance incurred by them or their agents which might have priority over the title or interest of the owners in the vessel."

These Proceedings

3. On 7 August 1998, the plaintiff obtained ex parte an order requiring the defendant to provide security for the release of the vessel and another order in the form of a Mareva injunction up to a total value of US$919,189. This sum is made up by adding the amounts needed to secure the release of the vessel, daily losses, interest and costs, and the sum of US$90,879.50 in respect of outstanding hire charges.

4. On 11 August 1998, the defendant applied inter partes to set aside these orders. The grounds upon which this discharge was sought were that there had been material non-disclosure of fact and that disputes under the charterparty were subject to arbitration. The applications were adjourned until 14 August 1998 to enable the plaintiff to deal with the allegations made. The 14 August 1998 is also the return day of the Mareva order. These are the matters before me.

Material Non-disclosure

5. The only allegation of non-disclosure urged upon me by Mr Sakhrani is that relating to certain proceedings in Antwerp by the plaintiff requiring the defendant to lift the arrests or pay US$15,000 per day.

6. On 30 July 1998, the defendant's agents in Antwerp were served with a writ by the plaintiff seeking the orders mentioned above. A hearing took place before the President of the Commercial Court in Antwerp on 31 July 1998. At that hearing, the defendant argued that the arrest by Appenbulk was wrongful because that company had no contractual relationship with the defendant and no such relationship with the plaintiff. As to the arrest by Berge, the defendant argued that the plaintiff should go before the Arrest Judge. It was also argued that Belgium was not the correct forum for any claim by the plaintiff against the defendant. The defendant says that the court decided to refer the plaintiff to the Arrest Judge to deal with the arrest "and to the appropriate court or tribunal in order to decide on the merits" of the plaintiff's claim under the charterparty.

7. In the affidavits sworn by Mr Simon Davidson, the plaintiff's solicitor, in support of the ex parte applications, there was nothing said about the detail of these Belgian proceedings.

8. Mr Davidson's accepts that these proceedings were material to the consideration of the ex parte applications. His explanation for the omission to mention them is that he had prepared a draft affidavit that contained the disclosure relating to these proceedings, but, for reasons he is unable to explain, this information was deleted from subsequent drafts. This deletion was not deliberate, and he did not notice the omission when considering subsequent drafts or when swearing the affidavit. The paragraph that somehow disappeared said this -

"On Friday the 31st of July Loeff Claeys Verbeke made an application to the Antwerp court for an order that the defendant time charterer should provide security to procure a release. I have been advised by Mr Van de Vijver of Loeff Claeys Verbeke that the application was refused on Monday the 3rd of August by the President of the Commercial Court in Antwerp. The explanation from the judge was very brief, the reasons were given in three short sentences. These appear to be:

(a) Arrests are a matter on which the arrest judge has jurisdiction.

(b) One of the arrest was also made against the owner of the vessel.

(c) Discussion is really one on the merits of the claim for which arbitration proceedings must be started.

Mr Van de Vijver advised me that whilst it would be possible to appeal this decision it is unlikely that the appeal court would reach a conclusion within a number of months which plainly would be unsatisfactory whilst the vessel remains under arrest."

9. Initially, Mr Sakhrani sought to argue that there was something sinister in the omission; that it might have been deliberate. However, later, with some reluctance, Mr Sakhrani agreed that I should accept this explanation as the truth. I have no hesitation in doing so. There is no evidence to the contrary, and, if any corroboration is required, it is to be found in the first paragraph of Mr Davidson's first affidavit. There he says that the contents of his affidavit have been supplied by a number of sources, including "Mr Peter Van de Vijver of Loeff Claeys Verbeke, Antwerp lawyers acting for the plaintiff in the proceedings commenced in Antwerp.". That reference to the proceedings tells against any deliberate intention of concealing them from the ex parte judge.

10. So, I accept, the non-disclosure by Mr Davidson was unintentional. I do not classify it as "innocent" because that implies a lack of blameworthiness, and there was undoubtedly a lack of care here. Of course I accept that this kind of mistake does happen from time to time in the best of practices, but that does not mean that, when they do happen, the consequences of the mistake should not ensue. The cases are full of entreaties that practitioners making applications seeking draconian orders of this nature exercise the utmost care in preparing the papers. And there is no avoiding the fact that Mr Davidson swore affidavits, which he should have read carefully before doing so, that omitted information that he knew about and that he accepts was material information. That cannot be overlooked. I find that the non-disclosure was not "innocent" as envisaged by Ralph Gibson, LJ in Brink's Mat v Elcombe [1988] 1 WLR 1350 at 1357C -

"Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty of the applicant to make all proper inquiries and to give careful consideration to the case being presented."

11. That requirement "to give careful consideration to the case being presented" must apply as much to a careless omission of material facts as to a failure to realise that a relevant fact is pertinent. In the Brink's Mat case, Slade, LJ said, at 1359 -

"[The principle] serves the important purposes of encouraging persons who are making ex parte applications to the court diligently to observe their duty to make full disclosure of all material facts and to deter them from any failure to observe that duty, whether through deliberate lack of candour or innocent lack of care."

12. In Behbehabi v Salem [1989] 1 WLR 723, at 736, Nourse LJ referred to this principle and said that "an innocent lack of due care in a material and important respect" was within it.

13. In the Brink's Mat case, Balcombe, LJ, at 1358F, said that the discretion vested in the court to continue the injunction or to grant a fresh injunction in its place "is one to be exercised sparingly". Similar views have been expressed in other cases. For example, in Mattel Inc v Tonka Corporation [1992] FSR 28, at 46, Deputy Judge Andrew Li, QC (as he then was) said "Although in a case where the misstatement was not deliberate, the court has a discretion not to discharge, it is a discretion which has to be exercised with great caution".

14. What was it in this case that the ex parte judge did not know, but should have been told? In brief, this was that the plaintiff had already made an application similar to one of the applications before the judge in the place where the vessel was under arrest, that this application had failed and that judge of that place had referred the plaintiff to the arrest judge as far as the arrests were concerned and to arbitration as far as the merits of the dispute was concerned.

15. It seems to me that these facts did have a substantial measure of importance to the issues before the ex parte judge.

16. In this context, I express the view that the plaintiff's case for the mandatory injunction to order the defendant to furnish bail or security to secure the release of the vessel was not particularly strong. The relief that the plaintiff was seeking sounded essentially in money. There does not appear to be any reason why the plaintiff could not have provided what was required to release the vessel, and then claim damages from the defendant. In other words, I cannot see any argument against the view that the plaintiff had an adequate remedy in damages. Mr Haddon-Cave suggests that damages is not an adequate remedy when the plaintiff cannot recover them from the defendant. But the efficacy of the injunction depended on the defendant's financial ability to provide the security. If it could do that, why could it not pay damages?

17. There was another weakness in the plaintiff's case that I will mention further later in a different context. This was that the plaintiff was applying for a Mareva injunction when the defendant had had adequate opportunity of dissipating its assets if it wished to do so.

18. I mention these matters because it seems to me that the weaker the plaintiff's case, the more important are the facts that should have been made known to the ex parte judge for the purpose of his weighing exercise.

19. In this case, if the ex parte judge had known that the plaintiff had already applied for a similar order in the jurisdiction in which the vessel had been arrested - an obviously appropriate jurisdiction - and had been told to apply for relief to the specialist judge who had ordered the arrest, he might well have thought that the plaintiff should do this, or, at least, he might have inquired into why the plaintiff had not done so.

20. Next, if the ex parte judge had been told that a court in an appropriate jurisdiction had already referred the parties to arbitration to settle their dispute, he might have decided to respect that decision, which, I believe, would apply to Hong Kong as well as Belgium, and insisted that the plaintiff take its case to the dispute resolution process that it had agreed upon. This is particularly so in the light of the fact that it seemed that the plaintiff's case could have been founded solely on damages.

21. And further, the fact that there had been proceedings in the Belgian courts was itself, in my view, highly relevant to the ex parte judge's weighing process. He was being asked to grant draconian remedies, including an unusual mandatory injunction. He had a discretion to exercise. He had to be satisfied that the grant of these remedies was appropriate in all the circumstances.

22. The judge might have thought that it was approaching being oppressive for the plaintiff to commence proceedings elsewhere, and, when it failed to get the order it wanted, to seek these remedies in this court. Certainly, it seems to me, that the judge would have been obliged to give serious consideration to this point when weighing the scales.

23. The judge might also have thought that it was not appropriate for the plaintiff to give warning to the defendant of its intention to pursue it by litigation and then apply to this court ex parte for a draconian order on the basis that there was a real risk of dissipation of assets. The judge could well have said - "If the defendant intended to dissipate its assets to avoid its liability to you, the Belgian proceedings have given it plenty of warning of your intention to pursue it, and it has had plenty of time to do what you wish to prevent it from doing. If it has done so, it is too late. If it has not done so, the probability is that it does not intend to do so."

24. I do not know, of course, whether or not these matters would have been decisive. I cannot know that, and the defendant does not have to show this. If it were so that the ex parte judge thought that the plaintiff's case was close to the borderline for one reason or another, including a belief that damages might be an adequate remedy and the problem about showing the likelihood of a future dissipation of assets, consideration of the points I have mentioned might well have been crucial.

25. In these circumstances, I believe it would be quite wrong for me to exercise my discretion to continue the orders or to grant fresh orders in their place.

Arbitration

26. The defendant also seeks the discharge of the orders on the ground that the parties have agreed to refer all their disputes to arbitration.

27. By clause 55 of the charterparty, the parties agreed that "Any dispute arising under this Charter to be referred to arbitration in Hong Kong." Each party was to appoint an arbitrator "and should they be unable to compromise, the decision of an umpire selected by them to be final."

28. On 7 August 1998, the plaintiff had appointed an arbitrator but the defendant had not. It was for this reason, and also "given the nature of the relief sought", that the plaintiff said that it applied for relief to the court rather than the arbitral tribunal. The defendant has now appointed an arbitrator and the tribunal is ready to sit. If it is so that the plaintiff applied to this court for relief because of the nature of that relief, one must wonder why the plaintiff thought it advisable first to seek other relief in the Belgian courts, and come to this court only when that failed.

29. Section 6(1) of the Arbitration Ordinance (Cap. 341) applies Article 8 of the Model Law to both domestic and international arbitration. This Article provides -

"A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."

30. Under this provision, the court has no discretion. The action begun by the plaintiff's writ must be referred to arbitration. Indeed, as I have said, it would seem that the parties have already been referred to arbitration by the Antwerp court.

31. I do not know if the arbitration agreement here is domestic or international. It is probably international, but it does not matter. If it is international, Article 9 of the Model Law applies. This says -

"It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure."

32. Whether it is domestic or international, Part 1A applies. Section 2GB, within this part, provides -

"(1) When conducting arbitration proceedings, an arbitral tribunal may make orders or give directions dealing with any of the following matters -

(a) . . .

(b) requiring money in dispute to be secured;

(c) . . .

(d) . . .

(e) . . .

(f) granting interim injunctions or directing other interim measures to be taken."

33. Under section 2GC, a Court or judge has the same powers in relation to any particular arbitration, and subsection (5) and (6) provide -

(5) The powers conferred by this section can be exercised irrespective of whether or not similar powers may be exercised under section 2GB in relation to the same dispute.

(6) The Court or judge of the Court may decline to make an order under this section in relation to a matter referred to in subsection (1) on the ground that -

(a) the matter is currently the subject of arbitration proceedings; and

(b) the Court or the judge considers it more appropriate for the matter to be dealt with by the relevant arbitral tribunal."

34. There must be some doubt whether or not an arbitral tribunal may make orders under section 2GB that bind persons other than the parties to the arbitration, but this possible restriction is not relevant here. The plaintiff did not seek, and was not granted, orders that were binding on anyone other than the defendant.

35. So, notwithstanding that the plaintiff's action is referred to arbitration, the court has jurisdiction to deal the applications for interim relief. The question is whether or not the court should exercise this jurisdiction when the arbitral tribunal has the same powers. For a long time now, the courts have leaned in favour of making the parties who have agreed to settle their disputes by arbitration stick to that method of dispute resolution rather than resorting to litigation when it suits them to do so. The 1996 amendments to Chapter 341 have underlined that approach by removing the court's discretion in relation to the action and by enlarging the powers of the arbitral tribunal. The legislature has provided for the intervention of the courts, but, in my view, this jurisdiction should be exercised sparingly, and only where there are special reasons to utilise it. A special reason would be where the arbitral tribunal does not have the power to grant all the relief sought in a single application. Rather than apply to the tribunal for some of the relief and to the court for the other relief, it would obviously be more appropriate for the application to be made in its entirety to the court. But there is, in this case, no valid reason why the main dispute should be referred to arbitration, but the dispute regarding interim relief should be decided by the courts. The tribunal has the power to grant all the relief claimed.

36. In the result, the dispute relating to the relief sought by the plaintiff should also be referred to arbitration, and it seems to me for this reason also the orders should be discharged, without fresh orders.

The Merits

37. Because this is also the return day of the ex parte orders, the overall merits of the applications are relevant, but, in the light of my findings on the application for discharge, it is not necessary to go into these merits except insofar as I have already done so.

The Result

38. For the reasons I have given, I order that the orders of 7 August 1998 be discharged. The orders have not yet been implemented so it is not clear to me what damages thereby the defendant could have suffered. Nevertheless, if it alleges that it has suffered damages, it is entitled to an inquiry into them, and so order.

The Costs

39. I have heard no argument as to costs. The defendant seeks an order for costs on an indemnity basis. My preliminary view is that such an order is not justified. I am inclined to think that the order should be that the plaintiff pay the defendant's costs on the usual basis. I make an order nisi accordingly.