XCHRX DONGHWA LEASING CO. v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP "HALLA LIBERTY"

HCAJ 60/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 60 OF 1998

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Admiralty Action in rem against the ship or vessel "HALLA LIBERTY"
(South Korean Flag)

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J U D G M E N T

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1. This is an application by the intervener, Dongnama Shipping Co. Ltd, against the plaintiff, Donghwa Leasing Company, for a stay of the proceeding until such time as the Korean court has finally disposed of the dispute in Korea arising out of Article 406 of the Korean Civil Code.

2. The dispute between the parties is of long standing. The plaintiff claimed in rem against the vessel for some US$18 million, said to arise in two ways, first by reason of a lease agreement whereby the plaintiff was the lessor and the defendant was the lessee, and by reason of the failure of a breach of the lease agreement, it was eventually terminated and the plaintiff claimed against the defendant for the US$18 million.

3. It is also said that there was a mortgage whereby the vessel was mortgaged and the same sum claimed under the lease agreement was claimed under the mortgage by the plaintiff against the vessel.

4. The intervener, having itself a substantial claim in other Admiralty action against the ship (with a lower priority than the plaintiff's claim as mortgagee), came in to contest the proceedings and it is now substantially defending the present AJ60 of 1998. Pleadings had been filed which together with what are said today reveal that there are at least four possible disputes between the parties.

5. The first dispute is the Article 406 defence attacking the mortgage. This is pleaded in paragraph 12 of the defence at page 13 of the Bundle. The second defence, also attacking the mortgage is what is said to be the section 60 of the Conveyancing and Property Ordinance of Hong Kong defence whereby it is said that the mortgage was a disposition of property which was made with intent to defraud creditors and therefore liable to be avoided at the instance of the intervener.

6. The third dispute relates to the recoverability under the lease. It is said that the accelerated provision under the lease was a penalty.

7. Finally, there may, or it would seem from today's hearing, be a dispute as to whether the claim under the lease could be said to be a proper claim which is actionable in rem covered by section 12B of the High Court Ordinance.

8. The original position of the intervener on this application is that there should be a total stay of the proceedings pending the decision of the Korean court. When the application was issued in May, the Korean court at first instance had not yet decided on the matter. In September this year, the Korean court apparently had decided in favour of the plaintiff and held against the intervener on the Article 406 proceedings. The intervener had appealed and it is now going up to the Court of Appeal in Korea. This is going to take some time, and there is a disagreement between the parties as to how much time it would take.

9. From the decision of the Court of Appeal in Korea, there is the possibility of a further appeal to the Supreme Court of Korea. Again, there is a disagreement as to how long that would take. I think it is fair to say that, even taking a reasonable low estimate on the part of the intervener, the whole process up to the Supreme Court could easily take another year and a half. Therefore, it would take up to mid-2002. The evidence from the other side is that it may take a little bit longer. It is clear, however, that there is going to be considerable time before the final resolution by the Korean court on Article 406 proceedings.

10. In the course of the hearing, as the various issues are canvassed and consideration was given to the possibility of the matter proceeding in Hong Kong on some of the issues that are bound to be litigated in Hong Kong, such as the lease agreement - whether it is a penalty or not; and whether the lease claim falls within the in rem proceedings jurisdiction of the court. In the light of these matters having to be decided by the Hong Kong court in any event, it is said that whether it is right to stay the proceedings altogether.

11. The revised position of Mr Coleman, representing the intervener, is that there should be a stay covering, as a package, the dispute relating to Article 406 of the Korean Civil Code and section 60 of the Hong Kong Ordinance. It is said that the two are very much interconnected and that the Hong Kong court should wait for the final outcome of the Korean proceedings, and in the light of that and the findings of fact in the final Korean court, then to decide to act accordingly because if the intervener succeeded in Korea on the Article 406 defence, then both paragraphs 12 and 13 of the defence would no longer become live. I can see that there is much force in the argument.

12. On the other hand, it seems to me that much time would be lost by just the Hong Kong court waiting for the Korean court to decide, and that there is much the Hong Kong court can and should order the parties to do in the meantime, and that a flexible approach should be adopted by the Hong Kong court in relation to the progress of the Hong Kong proceedings, in particular in relation to the Article 406 and section 60 defences.

13. The alternative suggested was that either this court should stay as a package both defences, i.e. 406 and 60, or just stay 406. If one looks at just Article 406 first, the parties acknowledge and Mr Sussex very frankly admits that that aspect would be largely the subject of issue estoppel depending on the decision of the Korean court and he would be pleading accordingly. It is suggested that there is no sense in staying now Article 406 aspect, and the court should adopt a flexible approach, and allow it to go forward and then perhaps to review the position at a stage shortly before trial, which is estimated, in any event, not likely to be taking place much before the summer of 2001. I think there is much force in that suggestion. I am therefore reluctant, notwithstanding all the points made by Mr Coleman, to stay the Article 406 defence.

14. Having said that, then it seems to me that obviously the section 60 stay will not be granted. But assuming I am wrong on Article 406 stay and that there ought to be a stay in Article 406 aspect, I still take the view that there should be no separate stay of section 60 or, to use the language of Mr Coleman, there should not be a package stay.

15. Section 406 defence is a defence based on a particular Hong Kong statutory provision. Although there may be some amount of factual overlap between Article 406 point and section 60 point, there is nothing which should inhibit the Hong Kong court from, quite legitimately, whether now or in a year's time, trying the section 60 point (of course with the benefit of the material then available from Korea). I think Mr Sussex has succinctly pointed out that if you look at the Korean judgment at first instance that has been exhibited, there is really very little or no findings of fact in that judgment which overlap section 60, and which can be the subject of an issue estoppel.

16. At the end of the day, I suspect that the Hong Kong court will have to decide, with all the material before it, of what is the right answer to the section 60. I acknowledge, of course, Mr Coleman's point that by pushing forward section 60, the court may be putting the parties to unnecessary expense in the sense that the intervener may ultimately succeed in Korea and that the section 60 issue would become redundant as a result of the success of the intervener. But the intervener may fail in its appeals.

17. This is a balancing exercise that the court unfortunately has to undertake. It seems to me that the circumstances are such that it is far better the matter should push ahead, and then the court, as always, has the liberty to review the position shortly before the trial. In the circumstances, it seems to me that although I have the widest discretion and jurisdiction to order a stay on any terms, it is not appropriate at present to order the stay sought by the intervener either in terms of an absolute stay or in terms of the package stay as sought in the revised version by Mr Coleman.

18. The application of the intervener is therefore refused with costs.