KING FIELD SHIPYARD LTD v. TAI PAK SEA-FOOD RESTAURANT LTD AND ANOTHER

HCA 1494/2022

[2024] HKCFI 2320

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1494 OF 2022

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BETWEEN

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DECISION

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Background History

1.  For the background facts of the case, I refer to paragraphs 1 to 13 in the decision handed down on 8 April 2024 (the “Decision”). The defined terms in the Decision are adopted herein. By the Decision, this court held in favour of the Preservation Summons and ordered that in principle the Remaining Hull Parts and the Tai Pak Boats should be preserved.

Applications

2.  The following summonses were before the court:

(1) The Preservation Summons, for the terms of the Preservation Order to be granted by the Court and the amount for additional fortification (if any);

(2) Costs Variation Summons dated 22 April 2024, for P’s application to vary the costs order nisi in the Decision;

(3) Leave to Appeal Summons dated 22 April 2024, for D1 and D2’s application for leave to appeal against the Decision with draft Notice of Appeal;

(4) Speedy Trial Summons dated 11 June 2024, for D1 and D2’s application for a speedy trial of the Action.

(5) The New Evidence Summons dated 22 July 2024, for D1’s application to adduce the 4^th affirmation of Wong Tai Yu (“Wong 4^th”).

3.  At the end of the hearing on 7 August, out of the 5 summonses, only the Speedy Trial Summons, the New Evidence Summons and the Preservation Summons were dealt with due to insufficient time. As such, the Costs Variation Summons and the Leave to Appeal Summons were adjourned to another day to be heard.

The New Evidence Summons

4.  After the handing down of the Decision, parties have filed the following affirmations:

(1) P: i) the 5^th Affirmation of Ho Wing Fai (“Ho 5^th”) – this affirmation dealt with the history to the Preservation Summons in support of the Costs Variation Summons; and ii) the 6^th Affirmation of Ho Wing Fai (“Ho 6^th”) – this is in reply to the 3^rd Affirmation of Leung Hoi Wai and the 3^rd Affirmation of Wong Tai Yu filed on behalf of D2 and D1 respectively (as set out below).

(2) D2: the 3^rd Affirmation of Leung Hoi Wai (“Leung 3^rd”) – this affirmation provides information on the status of the Remaining Hull Parts, and the amount of costs that had been spent on the preservation of the Remaining Hull parts.

(3) D1: the 3^rd Affirmation of Wong Tai Yu (“Wong 3^rd”) – this affirmation deals with the state of the Tai Pak Kitchen Boat, the Tai Pak Restaurant boat and the Tai Pak Fire Separation Barge and the relevant PRC customs laws and regulations on whether the Tai Pak Kitchen Boat can leave Mainland China in its current form, the possible fines for breaching the PRC deadline for repairs. It also sets out the storage costs incurred since the Decision and other likely costs due to be incurred by reason of the Decision.

5.  Mr Ambrose Ho SC and Mr Jonathan Tsang, counsel for P, objected to Leung 3^rd, Wong 3^rd and Wong 4^th being adduced and submitted that D1 and D2 (together, “Ds”) ought to have put in all evidence necessary for the determination of the method of preservation and the likely fortification required when evidence was filed for the last hearing when the Preservation Summons was heard.

6.  Although no directions had previously been given for the filing of further evidence, I am of the view that since I had directed parties to agree on the form of preservation and the amount of additional fortification, and in light of the parties’ failure to come to an agreement, evidence on the current state of the vessel and the various options of preservation would assist the court in coming to a view on what would be the preferred mode of preservation. I would therefore grant retrospective leave for the filing of Leung 3^rd and Wong 3^rd.

7.  As to Wong 4^th, the position is different. In light of parties’ extensive arguments over correspondence on the appropriateness of the filing of Leung 3^rd and Wong 3^rd, I had already previously ordered that the admissibility of Leung 3^rd and Wong 3^rd be dealt with at the hearing and that no further evidence be filed without leave of the court. I also note that the position of Ds, together with the relevant evidence had already been clearly set out in Leung 3^rd and Wong 3^rd. Wong 4^th only served to rebut some of the evidence and to respond to new matters raised in Ho 6^th. However, it cannot be the position that whenever there are new matters raised by one side, the other side will immediately be entitled to respond. The round of evidence filed by parties already have sufficient information for the court’s consideration and determination of the appropriate form of preservation. It would thus be inappropriate to have another round of evidence and to allow Wong 4^th to be adduced.

8.  The New Evidence Summons is accordingly dismissed, with costs to P, to be taxed if not agreed, with certificate for 2 counsel. Retrospective leave is given for the filing of Leung 3^rd and Wong 3^rd.

The Speedy Trial Summons

9.  Parties are in agreement that speedy trial directions should be given. I am also of the view that in view of the circumstances of the case, including the state of the Tai Pak Boats and the substantial costs involved in preserving the Tai Pak Boats and the Remaining Hull Parts, it is appropriate to grant directions for speedy trial. Based on P’s draft speedy trial directions, after discussions with counsel, the final form of the directions are as follows:

(1) This action (“Action”) be set down for a speedy trial (“Trial”) at the earliest available date, but not earlier than 2 June 2025 with 10 days reserved before a judge (“Trial Judge”);

(2) All affidavits/affirmations filed on behalf of the parties pursuant to the Preservation Summons shall stand as evidence-in-chief unless otherwise directed by the Trial Judge;

(3) The Plaintiff shall file its supplemental list of documents and the 1^st and 2^nd Defendants shall file and serve their list of documents within 14 days from 6 August 2024, and there be inspection of documents within 7 days thereafter;

(4) The Plaintiff shall take out an application for leave to adduce expert evidence on issues of liability and quantum within 14 days from 6 August 2024;

(5) Leave for parties to exchange supplemental witness statements as to facts within 35 days from 6 August 2024;

(6) Each deponent of the affidavits/affirmations and maker of witness statements filed on behalf of the parties do attend the Trial to give oral evidence and be cross-examined failing which his or her affidavit/affirmation and witness statement shall not be admissible as evidence at the Trial;

(7) The parties do take out all interlocutory applications as may be advised within 14 days after the exchange of supplemental witness statements in paragraph (5) above;

(8) There be a Case Management Conference (“CMC”) before the Trial Judge with 3 hours reserved to be fixed not before December 2024 at which any outstanding interlocutory applications shall be dealt with;

(9) After the CMC, no further interlocutory applications shall be made without leave of the Court;

(10) The parties must inform each other and the Court forthwith if they or any of them should become aware of any matter or development that may affect the above estimated length of the Trial or the holding of the Trial on the dates fixed;

(11) A pre-trial review be fixed before the Trial Judge not later than 42 days before the commencement of the Trial;

(12) Time shall run during the summer vacation;

(13) There be liberty to apply; and

(14) Costs of this application be in the cause of the Action.

10.  I note here that since the parties have asked that the Trial be heard as soon as possible, the trial dates would be provided to them upon their attending the listing office. In these circumstances, it ought to be borne in mind that the Trial Judge may not entertain any request for adjournment and vacation of trial dates and proceed to hear the Trial despite there being any outstanding appeals to the interlocutory decisions by the time of the Trial. Parties should thus endeavour to promptly take out and deal with any interlocutory applications, and if applicable, any appeals therefrom.

Form of Preservation – Applicable Principles

11.  In considering how the Tai Pak Boats and the Remaining Hull Parts should be preserved, Mr Ho submitted that the following principles are relevant:

(1) The applicable rule for Preservation Order in every case is where the Court sees that as between the plaintiffs and the defendants there is something which ought to be done for the security of the property: Johnson v Tobacco Leaf Marketing Board[1].

(2) A Preservation Order is an order that ought to be made only for the purpose of preserving the property until the issues involved in the cause can be determined. If the order is sought in a form which involves consequences beyond the achievement of that purpose and which cannot be reversed, that is a consideration, if not precluding, at all events operating against the making of the order[2].

12.  P proposed that:

(1) In relation to the Tai Pak Kitchen Boat, it should continue to be stored in its current condition at the shipyard in Zhongshan (“Zhongshan Shipyard”) pending determination of the Action.

(2) In relation to the Tai Pak Restaurant Boat/Fire Separation Barge, the two vessels should either:

(a) continue to remain in the Shelter pending determination of the Action; or

(b) be dry-docked: (i) for the Tai Pak Restaurant Boat, be dry-docked in Xinhui, PRC; and (2) for the Fire Separation Barge, be dry-docked in Hong Kong with Harbour Shipping Limited.

The costs of dry-docking both vessels shall be borne by P first, subject to P’s right to claim against Ds for loss and damages if P prevails after trial.

(3) In relation to the Remaining Hull Parts, P proposes that the same be stored in Hong Kong at P’s costs first.

13.  Ds proposed the following:

(1) For the Tai Pak Kitchen Boat, D1 be permitted to complete the remaining repairs, reinforcement and refurbishment works (the “Kitchen Repair Works”) at Zhongshan Shipyard and then arrange for it to be returned to Hong Kong; and

(2) For the Tai Pak Restaurant Boat and Fire Separation Barge, commencement of full-scale repair of the same (the “Restaurant and Fire Barge Repair Works”) at Zhongshan Shipyard, or alternatively, dry-docking in Zhongshan.

(3) For the Remaining Hull Parts, D2 agrees to store them at P’s proposed shipyard in Hong Kong provided (i) P can show its entitlement to use such shipyard and adequate third-party insurance coverage is maintained; and (ii) P agrees to pay for all storage costs (as previously agreed) and not to tamper with the Remaining Hull Parts.

Discussion – Form of Preservation

14.  Mr Ho submitted that D1 and D2’s proposals for the Kitchen Repair Works and the Restaurant and Fire Barge Repair Works clearly and directly contradict with “preservation”. It was submitted that in proposing such works to be completed or undertaken respectively, Ds are in fact taking advantage of the situation (which is due to Ds’ own making) in asking the court to grant an order to allow D1 to continue or commence substantial works on the Tai Pak Boats under the guise of preservation.

15.  Ms Sara Tong SC with Mr William Wong, counsel for Ds, submitted that given the dilapidated condition of the Tai Pak Boats, having them undergo repair work is conducive to and necessary for their preservation. Ms Tong further stressed that as D1 remains the registered legal owner of the Tai Pak Boats and bears legal responsibility for them, it should be allowed to carry out works as they wished.

16.  Most of the disputes on repairs concerned the Tai Pak Kitchen Boat, which had been taken to Zhongshan Shipyard for repairs since March 2023. Ms Tong submitted that the Kitchen Repair Works had been substantially completed but such works had been grounded to a halt due to the Preservation Order. It was also said, with the support of a legal opinion that, in not completing such works before the prescribed deadline, D1 is being put in danger of infringing Mainland laws, incurring hefty penalties and tarnishing its credibility with the Mainland customs authorities. Ms Tong further submitted that no useful purpose can be served for the Tai Pak Kitchen Boat to remain in its current half-repaired state, as it cannot return to Hong Kong in such state. In any event, any issue of “uniqueness” of the Tai Pak Kitchen Boat is done and dusted in any event, as most of the demolition work has been completed, at a time before the Preservation Summons was taken out in April 2023.

17.  I am of the view that the Kitchen Repair Works and the Restaurant and Fire Barge Repair Works should not be continued or commenced for the following reasons:

(1) The Kitchen Repair Works and the Restaurant and Fire Barge Repair works are clearly beyond “what ought to be done for the security of the property”.

(2) Preservation in the present context must mean to maintain the status quo, rather than to maintain the Tai Pak Boats to a standard or state as desired by D1.

(3) Ms Tong repeatedly stressed that D1 is the legal owner of the Tai Pak Boats and as such they should not be restricted to exercise their rights as owners to carry out repairs as they wished. However, one must note the history of the proceedings and various events to consider the question of whether D1 should be allowed to continue and complete the Kitchen Repair Works “as owner” in context:

(a) P has alleged as early as 7 November 2022, when the Statement of Claim was filed, that D1 should have transferred the legal title of the Tai Pak Boats to P pursuant to the Agreement.

(b) It can thus be seen that from the commencement of this litigation, in November 2022, the ownership of the Tai Pak Boats, including the Tai Pak Kitchen Boat, was already in dispute.

(c) Despite that, D1 had caused the Tai Pak Kitchen Boat to be moved to Zhongshan Shipyard without prior notice to P in about March 2023 for necessary repairs.

(d) Upon discovery of the removal of the Tai Pak Kitchen Boat, P had written to Ds’ solicitors by letter dated 31 March 2023 asking for preservation of the same pending determination of the action. At that point, the 2^nd quotation from Zhongshan Shipyard had just been issued and the works had not yet started.

(4) D1 had chosen to embark upon and to expand the scope of the repair works despite knowing full well P’s objection and dispute of D1’s ownership. Against such context, the fact that D1 is currently the legal owner of the Tai Pak Boats is of little weight when the issue of ownership is the exact issue in dispute.

(5) Ms Tong submitted that in practice, there is no utility for the Tai Pak Kitchen Boat to remain in Zhongshan and the completion of the Kitchen Repair Works is necessary and to all parties’ benefit due to:

(a) the necessity of obtaining an operating licence from HKMD before the Tai Pak Kitchen Boat can return to Hong Kong waters; and

(b) the deadline for the completion of the Kitchen Repair Works and the removal of the Tai Pak Kitchen Boat from the Mainland before January 2025.

(6) The uniqueness of the Tai Pak Kitchen Boat had always been stressed and mentioned by P. There is also no dispute that the value of the Tai Pak Boats stem from the special restaurant boat licences (the “Restaurant Boat Licence”) which would no longer be issued by HKMD. When P discovered that the Tai Pak Kitchen Boat was removed from the Shelter, P was informed by D1’s solicitors by letter dated 14 April 2023 that it had been removed for repairs that were necessary to deal with the “very serious water seepage”. This P did not object to, save as to stress that the Tai Pak Kitchen Boat should be preserved.

(7) However, from the photographs available, it can be seen that the “necessary repairs” undertaken by D1 in effect was a complete tearing down and gutting out of all the interior of the Tai Pak Kitchen Boat, leaving just the metal exterior and some internal partitions.

(8) One of the reasons why P strongly objects to the Kitchen Repair Works is the fact that there is no evidence showing that approval had been sought from HKMD on the extensive repairs and rebuilding that had been done to the Tai Pak Kitchen Boat. P says that this would potentially jeopardise the Restaurant Boat Licence.

(9) Notice No. 215/2023 issued by HKMD provides:

“If the intended alteration is of such an extent that will render the particulars stated in any documents referred to in section 75(a) of the Merchant Shipping (Local Vessels) (Safety and Survey) Regulation (Cap. 548G) inaccurate, but not to the extent that it will render the vessel a new vessel, the owner shall … apply for a written permission before making any alteration to the vessel.”

(10) The only approval that had been granted by HKMD by letter dated 24 July 2023 concerned the addition of watertight bulkheads in the underdeck compartments.

(11) D1 relied on an opinion from Mr Lloyd, a marine consultant and a surveyor authorized by HKMD and contended that the Kitchen Repair Works including the paint job, the installation of railings, doors and ladders, the water pipe system, the ceiling heat insulation, electrical wiring system and kitchen equipment did not require any approval from HKMD as they are not of a nature that will alter the enclosed space and principal dimensions of the Tai Pak Kitchen Boat.

(12) However, according to Mr Lloyd, approvals from HKMD are necessary for obtaining an Operating Licence, which is required before the Tai Pak Kitchen Boat can return to Hong Kong waters, as it will no longer be possible to apply for a “Permission for Laid-Up Vessel”. Part of the requirements for obtaining an Operating Licence includes satisfying the stability assessment, the inspection of the hull, watertightness inspection and the insulation resistance test. There is no dispute that the result of a stability assessment is a crucial consideration regarding a vessel’s safety and the stability assessment can only be performed after the construction is at least 90% completed. As such, although it may be said that approval is not necessary for carrying out the alteration, effectively an approval is still required as a result of the alteration because of the need to obtain an Operating Licence. It is only upon the fulfilment of all the requirements that a Certificate of Survey will normally be issued. I am thus of the view that in effect, approval will be needed as a result of the substantial overhaul of the interior of the Tai Pak Kitchen Boat and it is not a matter of certainty that the completion of the Kitchen Repair Works would definitely pass all the necessary requirements.

(13) If D1 had carried out only the approved works which concerned only the addition of watertight bulkheads in the underdeck compartments, the current difficulty faced by D1 and the uncertainty in the issue of an Operating Licence would not exist，or at least be much lower, as the interior of the Tai Pak Kitchen Boat would remain the same.

(14) On the issue of potential penalties for breach of the Mainland regulations, according to the legal opinion relied upon by Ds (“Ds’ Legal Opinion”), the deadline for moving the Tai Pak Kitchen Boat out of Mainland falls on January 2025. If the Tai Pak Kitchen Boat does not leave, the penalty would be the imposition of import duties.

(15) Ms Tong submitted that the relevant regulation is Article 6 of the “Measures for the Administration of Temporary Import and Export of Goods by the Customs of the People’s Republic of China” (《中華人民共和國海關暫時進出境貨物管理辦法》第六條) (the “Regulation”):

“暫時進出境貨物除因正常使用而產生的折舊或者損耗外，應當按照原狀復運出境、復運進境。”

(Translation: For goods which are temporarily imported and exported to the country, apart from depreciation or wear and tear arising from their normal use, they shall be transported out of the country and transported into the country in their original states.)

(16) From the wording of the Regulation, it seeks to regulate the temporary import and export of goods into and out of the Mainland. One can see that a guarantee/security is payable upon the goods entering into Mainland, and if the same goods leave the Mainland, subject to depreciation due to normal wear and tear, the security will not be forfeited as duties. On the contrary, if the goods do not leave the Mainland before the deadline, such goods will be subject to duties and penalties.

(17) The legal opinion relied on by P (“P’s Legal Opinion”) is of the view that the Tai Pak Kitchen Boat does not fall within the definition of “goods” (貨物) and as such the Regulation is inapplicable to the present scenario.

(18) I tend to agree that the situation of the Tai Pak Kitchen Boat entering the Mainland for repairs does not seem to fit in as an “import and export of goods”. However, it is not disputed that the Tai Pak Kitchen Boat had paid a security/guarantee in the amount of RMB 284,593.70. From the payment slip, it can be seen that the “goods” referred to is the Tai Pak Kitchen Boat itself. On the face of it therefore, the entry of the Tai Pak Kitchen Boat into Mainland waters had attracted payment of security.

(19) According to Ds’ Legal Opinion, the items inside the Tai Pak Kitchen Boat had been declared upon entry into the Mainland. However, as the machinery and equipment had been removed and not yet re-installed, it cannot leave Mainland waters:

“當前太白廚房船的狀態與進境申報時點的狀態並不一致 …在當前太白廚房船未完成恢復原狀工作的情況下，太白廚房船將基於其現狀違反前述規定，而被海關監管部門禁止按照《中華人民共和國海關暫時進出境貨物管理辦法》復運出境。”

(Translation: Currently, the state of the Tai Pak Kitchen Boat is not consistent with its state declared upon entering the country… At present, the state of the Tai Pak Kitchen Boat has not yet been restored to its original working condition. Since its current state violates the aforesaid stipulation, the Tai Pak Kitchen Boat will be prohibited from being transported out of the country by the monitoring authorities of the Customs pursuant to the “Measures for the Administration of Temporary Import and Export of Goods by the Customs of the People’s Republic of China”.)

(20) Ds’ Legal Opinion does not address on what is “恢復原狀” (restored to its original working condition) and whether the completion of the Kitchen Repair Works can be described as “恢復原狀” when all the appliances will be replaced, and the layout inside the Tai Pak Kitchen Boat, including the location of hobs are completely changed.

(21) I am of the view that even assuming the Regulation applies to the Tai Pak Kitchen Boat’s entry into the Mainland, there is at the moment uncertainty on whether, even after the Kitchen Repair Works are completed, the Tai Pak Kitchen Boat can leave the Mainland as anticipated by D1.

(22) There were a total of 10 quotations in relation to the Kitchen Repair Works. They spanned from 7 February 2023 to 8 April 2024. It can thus be seen that the initial quotation did not contemplate a complete demolition and overhaul. Instead, the decision to carry out the Kitchen Repair Works was reached in stages.

(23) I thus agree with Mr Ho’s submission that whatever difficulties and predicament that D1 currently finds itself to be in is its own doing: the original scope of works, i.e. the addition of watertight bulkheads in the underdeck compartments had already been completed latest by the end of 2023. If no further works had been commissioned and embarked upon, the Tai Pak Kitchen Boat could have left by now. It was only due to D1’s decision to completely revamp the interior of the Tai Pak Kitchen Boat that led to further time being required for the completion of the Kitchen Repair Works. I thus do not see why any potential infringement of the Regulation, or such potential costs or penalty for the delay can be attributed to the Preservation Order for which P ought to provide fortification.

18.  Based on the above, I agree with Mr Ho’s submission that the Kitchen Repair Works ought not to continue and the Tai Pak Kitchen Boat ought to remain in Zhongshan Shipyard at the daily storage cost of RMB 500. Such costs should first be borne by P and subsequently shall be costs in the cause of the Action.

Tai Pak Restaurant Boat - On Land or in Water?

19.  Parties agree that the Fire Separation Barge should be stored on land in Hong Kong with Harbour Shipping Limited and P shall first bear the costs of such storage, such costs to be in the cause of the Action.

20.  That leaves the question of how should the Tai Pak Restaurant Boat be stored.

21.  Mr Ho’s primary position was that the Tai Pak Restaurant Boat should be kept in the water in its current position at the Shelter. D1 will be permitted to carry out genuine repairs/maintenance to it. It was submitted that this proposal is consistent with the nature and purpose of preservation and is practical in view of the stable condition of it. Further, this option is the least costly for both parties.

22.  As an alternative, P suggested storing the Tai Pak Restaurant Boat on land in Guangdong Fengyang Shipping Development Co Ltd in Xinhui (“Xinhui Shipyard”). This involves towing the Tai Pak Kitchen Boat via open sea to Xinhui.

23.  Ms Tong’s position was that the Tai Pak Restaurant Boat is almost 63 years old and is in a grossly dilapidated state and there is a danger of it capsizing if left in the Shelter. D1’s expert, Mr Lloyd, is of the opinion that the underwater section is likely to be in a severely deteriorated condition and suffer from corrosion, leaks and structural issues. There is also concern that during typhoon seasons and severe weather conditions the risk of capsizing is increased.

24.  Ms Tong also pointed out concerns of public health and safety from the presence of asbestos leaking into the Shelter, if the Tai Pak Kitchen Boat were to remain in the water.

25.  D1 therefore suggested towing the Tai Pak Restaurant Boat to be stored on land in Zhongshan with Jianglong Shipbuilding Co Ltd (“Jianglong Shipyard”). This involves towing the Tai Pak Kitchen Boat via open sea to Zhongshan.

26.  History has shown that capsizing could happen both in the Shelter (as happened to the Jumbo Kitchen Boat in June 2022) or in the open sea during transport (as happened to the Jumbo Restaurant Boat also in June 2022). It is thus not possible to statistically gauge which option poses a lower risk of capsize.

27.  Ultimately, having considered that the Tai Pak Restaurant Boat is not in a state where it could confidently withstand the elements of inclement weather conditions over a long period of time, I am persuaded by Ms Tong’s submission that as the sea journey to Zhongshan or Xinhui would take a day at most, whereas the Tai Pak Restaurant Boat could be left in the Shelter for a period of approximately 2 more years until the determination of the disputes, if it were not dry-docked. I agree that there is less uncertainty in having the Tai Pak Restaurant Boat transported in the sea for 1 day than to leave it in water for an indefinite period of time, and is more in line with preservation.

28.  I did enquire with Ms Tong whether the Tai Pak Restaurant Boat could withstand the sea journey given how grossly dilapidated D1 has described it to be. Ms Tong has assured me that based on expert evidence, even taking into account the current state of the Tai Pak Restaurant Boat, the overall risk of capsize or damage is still lower than leaving it in the water for an unknown extended period of time.

29.  I am therefore of the view that storing the Tai Pak Restaurant Boat on land would better preserve it.

30.  Parties then argued on whether the Tai Pak Restaurant Boat ought to be stored at Xinhui Shipyard (proposed by P) or at Jianglong Shipyard (proposed by D1). At the beginning, the choice seems to be obvious as the costs of Xinhui Shipyard (HK$2.316 million) is substantially lower than that of Jianglong Shipyard (HK$5.374 million).

31.  Ms Tong submitted that Jianglong Shipyard involves a shorter journey and hence it would make sense to store the Tai Pak Restaurant Boat there. Ms Tong threw doubt on the reliability or suitability of Xinhui Shipyard as P had failed to respond to their request for information on Xinhui Shipyard and the dry-docking arrangements. It was also submitted that the quote from Xinhui Shipyard was substantially lower than the other quotes and P had failed to explain why within 2 months Xinhui Shipyard was willing to lower the quote by 50% to the original sum.

32.  In an attempt to neutralise the effect of the difference in costs, D1 has agreed to bear the difference in storage costs between Xinhui Shipyard and Jianglong Shipyard. It was agreed by Ds that even if D1 and D2 were ultimately successful, they would not be claiming the difference in storage costs between Jianglong Shipyard and Xinhui Shipyard from P, if the Tai Pak Restaurant Boat were stored in Jianglong Shipyard.

33.  Despite that, Mr Ho insisted on Xinhui Shipyard being a better choice, as P might be able to “have an arrangement” with Xinhui Shipyard. This seems to suggest that some payment arrangement may be available which makes it more attractive to P, who would likely be responsible for the storage costs initially. However, there is no evidence supporting such an arrangement.

34.  It is obvious that each party was desperate to store the Tai Pak Restaurant Boat in a shipyard that is affiliated with them. It is unclear whether this is due to mere mistrust or genuine concern on how the Tai Pak Restaurant Boat will be stored.

35.  Having considered the arguments of parties, I am of the view that the Tai Pak Restaurant Boat should be stored in Jianglong Shipyard for the following reasons:

(1) As D1 has offered to bear the difference in costs, the choice of where to store the Tai Pak Kitchen Boat would depend on other factors.

(2) Although P had not responded to D1’s enquiry as to Xinhui Shipyard, there is no evidence suggesting that it is not sufficient for storing the Tai Pak Restaurant Boat. This is therefore a neutral factor.

(3) Being closer to Hong Kong, the time of transport is shorter and the risk of transport via sea to Jianglong Shipyard is naturally lower.

(4) Adopting a course that incurs a lower risk is naturally more consistent with the purpose of preservation.

Fortification – Applicable Principles

36.  In considering whether any additional fortification is required, Ms Tong submitted that fortification is plainly justified as there is a real risk that Ds will not be able to enforce P’s undertaking as to damages, thereby suffering significant losses arising from the Preservation Order.

37.  Mr Ho submitted that on the issue of fortification, the following principles are instructive:

(1) The court has a general power to order fortification where it appears just and proper to protect Ds by making such an order[3];

(2) Usually, merit of the parties’ case is not a necessary consideration. However, if P has a strong case, it may not appear just and proper to make the protection available to Ds[4];

(3) The burden of showing the need for fortification and the appropriate quantum falls on the party seeking fortification[5];

(4) Ds must show the likelihood of a significant loss arising as a result of the injunction, and demonstrate why they believe the other party will be unable to make good that loss[6];

(5) The damages for which P may be liable under the undertaking must be confined to loss which is “the natural consequences of the injunction”, and there is clearly a distinction between damages caused by the grant of an injunction and damages which flow from the fact of the litigation itself. Only the former type of damages are recoverable[7].

Just and Proper to Make an Order for Fortification

38.  P is a company with HK$10,000 in share capital and no known sizeable and liquid assets. Despite D1 and D2 having raised their doubts on P’s financial standing, P has not produced any documentary evidence such as bank statements or management accounts that could refute that doubt. All Mr Ho could point to is that P is an ongoing business rather than a shelf company. I agree with Ms Tong that this is a bare assertion and does not provide sufficient comfort to Ds.

39.  In light of the amount of costs required for the storage of the Tai Pak Boats and the Remaining Hull Parts, the fact that P can pay for its own legal costs and that it had previously paid HK$500,000 does not provide sufficient assurance for the loss Ds would suffer if they are ultimately successful.

40.  I agree that it is just and proper for P to provide fortification or make upfront payment for the natural consequences of the Preservation Order.

Amount of Fortification

The Remaining Hull Parts

41.  It was previously agreed that the Remaining Hull Parts would remain to be stored in Hong Kong at P’s costs. I do not think there is any basis for P to now renege from the prior agreement that such costs would be borne by P, as this was the basis on which P obtained the 28 April Order.

42.  As to the HK$528,000 that had been incurred and borne by D2 for the tugging, lifting and handling and storage before P took over, I agree that these costs are natural consequences of the Preservation Order and should be paid by P into court as fortification.

The Fire Separation Barge

43.  It has been agreed that the Fire Separation Barge be stored in Hong Kong on land, and the storage costs be initially paid by P. No separate fortification is therefore required.

The Tai Pak Kitchen Boat

44.  As analysed above, I am of the view that keeping the Tai Pak Kitchen Boat in Zhongshan Shipyard is the appropriate way to preserve it pending resolution of the disputes between parties. The storage costs of HK$301,125 is a direct consequence of the Preservation Order and should be paid by P directly or into court as fortification.

45.  The fact that it was D1 who had moved the Tai Pak Kitchen Boat to Zhongshan does not affect the reality that it will need to be preserved and stored, wherever it is situated. P has not shown an alternative where the Tai Pak Kitchen Boat can be stored at a lower cost if it had not been moved to Zhongshan by D1.

Tai Pak Restaurant Boat

46.  As I am of the view that the Tai Pak Restaurant Boat should be stored in Jianglong Shipyard, the storage costs of 1.5 years of HK$2,316,800 (being the costs of Xinhui Shipyard as D1 has agreed to bear the costs difference) should be paid by P into court as fortification.

Other Sums

47.  D1 also seeks the following by way of fortification:

(1) Unpaid amounts for the Kitchen Repair Works: HK$3,436,470;

(2) Estimated Mainland customs penalties: HK$384,072.37 to HK$739,168.67;

(3) Loss of rental income: HK$17,658,594;

(4) Costs of funding: HK$1,968,126;

48.  I am not persuaded that P should pay fortification for these 4 categories.

49.  As analysed above, I am of the view that the Kitchen Repair Works and the Mainland customs penalties are not natural consequences of the Preservation Order.

50.  The costs of funding and rental income projection are based on many assumptions and they are too remote to be considered as a natural consequence of the Preservation Order. There will be no provision for fortification for these categories.

51.  Ds have also sought provision for maintenance costs and security costs. I am of the view that these costs would need to be incurred anyway without the Preservation Order and are thus not natural consequences of the Preservation Order.

Summary of Fortification

52.  In summary, the amount to be paid by P directly to the relevant merchant or into court by way of fortification is as follows, such amount should be paid into court within 35 days hereof:

Item	Amount
The Remaining Hull Parts	HK$ 528,000
Tai Pak Kitchen Boat	HK$ 301,125
Tai Pak Restaurant Boat	HK$ 2,316,800
Total:	HK$ 3,145,925

Costs

53.  I make a costs order nisi for the costs of the hearing on 6 August 2024 to be costs in the cause, with certificate for 2 counsel, to be taxed if not agreed.

54.  I thank counsel for their able assistance.