NEWOCEAN PETROLEUM CO LTD v. RIO TINTO SHIPPING (ASIA) PTE. LTD

CACV 122/2018

[2019] HKCA 485

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 122 OF 2018

(ON APPEAL FROM HCA NO. 2265 OF 2016)

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J U D G M E N T

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Hon Lam VP :

1.  I respectfully agree, for the reasons given by Cheung JA, the appeal should be allowed and there should be an order set out the end of this judgment. In light of the judgments of the English Court of Appeal and the Supreme Court in The Res Cogitans [2016] AC 1034, it is understandable why the plaintiff deemed it necessary to seek a declaration that no permission or licence was granted under the contract between the plaintiff and OWBC for the purpose of propulsion of the Vessel. The basis for such contention was pleaded at paragraph 10 of the amended statement of claim by reference to the relevant terms. Had there been such permission or licence, a claim for conversion cannot be maintained notwithstanding that title of the consumed bunker remained with the fuel supplier. This seems to me to follow from the analysis of Lord Mance JSC in the judgment of the Supreme Court at [28] to [31] and [39]. Thus, as my Lord elaborated below, the plea is part of the plaintiff’s cause of action on conversion. The Judge had erroneously misapprehended that to be a claim in contract. As regards the arguments of Mr Luxton based on the respondent’s notice, I have nothing to add to the reasons of Cheung JA in rejecting the same except to reiterate that on the evidence the plaintiff has established a good arguable case on conversion based on the mixing of bunkers which took place in Hong Kong which had been pleaded at paragraphs 15.3 and 15.5 of the amended statement of claim.

Hon Cheung JA :

I.   The appeal

2.1   The plaintiff is a Hong Kong company.  The defendant is a Singapore company.  The plaintiff issued a writ endorsed with a statement of claim in Hong Kong against the defendant.  The Master granted the plaintiff leave to serve the concurrent writ out of the Hong Kong jurisdiction on the defendant in Singapore.  

2.2   On the application of the defendant, Deputy High Court Judge Kwok SC set aside the order of the Master.  He set aside the concurrent writ and its service on the defendant.  He further refused to regrant an order allowing the plaintiff to serve the concurrent writ on the defendant again.

2.3   The plaintiff’s application for service out of jurisdiction is based on Order 11, rule 1(1)(f) of the Rules of the High Court (‘RHC’)(Cap. 4 sub leg A) namely, its claim is founded on a tort and the damage was sustained or resulted from an act committed within the jurisdiction.  

2.4   The Judge found that the plaintiff had pleaded a good arguable case on conversion but decided to set aside the order of the Master by reason of material non‑disclosure.

2.5   The plaintiff now appeals against the Judge’s decision. The defendant issued a respondent’s notice, challenging the Judge’s decision that the plaintiff had a good arguable case on conversion.

II.   The plaintiff’s case

3.1   This is another case arising from the liquidation of companies under the OW Bunkers Group. 

3.2   The defendant was the time charterer of the vessel MV Star Big (the ‘Vessel’) by a time charterparty between Donatus Marine Inc (the ‘Owner’) and the defendant dated 27 October 2010.  The defendant agreed to provide and pay for all the marine fuel (bunkers) on the vessel.

3.3   The plaintiff’s case is that the defendant had ordered the bunkers from OW Bunker Far East (S) Pte Ltd (‘OWB Far East’).  The plaintiff claimed that it was the ultimate supplier of the bunkers.  On 27 October 2014, it received an order from OW Bunker China Limited (‘OWBC’) for the supply of the bunkers. Paragraph 7 of the statement of claim pleaded that :

‘ 7. The P-OWBC [i.e. plaintiff-OWBC] Contract entered into by OWBC with the Plaintiff was part of a chain of bunker supply contracts whereby intermediate bunker suppliers contracted to deliver or arrange for the delivery of the Bunkers to the Vessel, and gave permission for the use of the Bunkers for the purpose of propulsion of the Vessel prior to payment for, and the passing of property in, those Bunkers. The intermediate bunker suppliers further impliedly undertook that they had the legal entitlement to authorize or give such permission, and that they had acquired that right from the owner of the Bunkers (in this case, the Plaintiff).’

3.4   OWBC in turn entered into a contract with its affiliate OWB Far East to deliver or arrange for the delivery of the bunkers to the Vessel. At about the same time, OWB Far East contracted with the defendant to deliver or arrange for the delivery of the bunkers to the Vessel.

3.5   The plaintiff pleaded that in its contract with OWBC, the plaintiff was to retain title to the bunkers pending payment, and that pending payment in full for the bunkers, such bunkers would be clearly identified as product supplied by the plaintiff and kept separate from any other fuel or lubricant.  The plaintiff did not authorise, permit or license the use of the bunkers pending payment for, or the passing of property in, such bunkers. 

3.6   The plaintiff pleaded that the defendant purported to give permission to the owner to use the bunkers for the purpose of propulsion of the Vessel pending payment and the passing of title to the bunkers but, in fact, the plaintiff had never given permission to its customer OWBC and accordingly neither OWB Far East nor the defendant had the authority to grant such permission to their respective buyers or to the owner.

3.7   The plaintiff further pleaded that it had never received payment for the bunkers.  OWBC went into liquidation without paying for the bunkers.  In the premises the bunkers, while they existed, remained the property of the plaintiff.  The plaintiff pleaded its case on conversion of the bunkers as follows :

‘ 15. The Defendant asserted rights inconsistent with the Plaintiff’s rights as owner of the Bunkers by, impliedly or expressly, by itself or through its agents or servants:

15.1   Permitting and facilitating the Bunkers to be taken on board the Vessel, without informing the Owner and its agents or servants that it had not paid for the Bunkers, and therefore had no right to use or consume the Bunkers pending payment for, and the passing of title to, such Bunkers;

15.2   Permitting and facilitating the Owner and its agents or servants, in those circumstances, to consume or use the Bunkers for the purpose of propulsion of the Vessels pending payment for, and the passing of title to, such Bunkers;

15.3   Permitting and facilitating the Owner and its agents or servants, in those circumstances, to mix the Bunkers with other fuel on board the Vessel;

15.4   Undertaking that it had the right to grant such permission; and

15.5   Failing to procure the Owner and its agents or servants to segregate the Bunkers on board the Vessel.’

3.8   The plaintiff claimed damages against the defendant for conversion in a sum of US$948,802.05 which is made up as follows :

1)   Quantity of Bunkers actually supplied: 1,987.02 MT

2)   Unit price per MT: US$477.50

3)   Total: 1,987.02 MT x US$477.50 = US$948,802.05

3.9   The plaintiff relied on its General Terms and Conditions for Sales and Delivery of the Marine Fuel dated March 2014 (the ‘General Terms and Conditions’) which expressly provided that the terms thereof shall apply to the sale and delivery of marine fuel oil, marine diesel fuel, gas oil and similar products (‘Marine Fuel’) by the plaintiff or by any subsidiary of NewOcean Energy Holdings Limited (in each case the ‘Seller’) to a third party customer (the ‘Buyer’) buying from the Seller, whether as principal, agent, broker or otherwise.

3.10   Clause 1(c) further provides that :

‘ If the Buyer is not the owner of the vessel being supplied (the “Vessel”), these General Terms and Conditions, wherever applicable, also constitute conditions for acceptance of delivery of the Seller’s Marine Fuel by the Vessel and the acknowledge that delivery of Marine Fuel to the Vessel is made on the financial credit of the Vessel. Any Vessel taking delivery of such Marine Fuel and its owner (if not being the Buyer) shall be deemed to have unconditionally accepted these General Terms and Conditions before commencement of the delivery, by authorized personnel of the Vessel signing on the Bunker Requisition Form, Tanker Measurement Form, or any other document relating to delivery of Marine Fuel to the Vessel.’

3.11   Clauses 5 and 11 are also relevant :

‘5. CREDIT OF VESSEL AND ACKNOWLEDGE BY THE OWNER OF THE VESSEL

 (a) Marine Fuel delivered under a Sales Contract is expressly sold on the financial credit of the Vessel to which the Marine Fuel is delivered, in addition to the promise of the Buyer to pay.  The Buyer warrants and the owner of the Vessel acknowledges that the Seller shall have the right to assert a maritime lien, attachment or claim against the Vessel, its appurtenances and accessories in favour of the Seller for all sums owing by the Buyer under the Sales Contract together with incidental cost, charges, taxes and interests and expenses.  Such remedy shall be in addition to, and not in limitation of, any other remedies available to the Seller.

 (b) Without affecting the generality of item (a) above, the Buyer and the owner of the Vessel (if not being the Buyer) warrants that the Marine Fuel to which the Vessel is supplied shall:

(i)    be for the operation of the Vessel and the Vessel only; and

(ii)   before payment of the price of the Marine Fuel has been made in full, the Marine Fuel shall be clearly identified as product supplied by the Seller and shall not be mixed with any other fuel or lubricant from any third party

and that the Seller shall have the sole option to: (aa) pursue any claim or claims for payment due to sale and deliveries made under a Sales Contract in any court or tribunal in any jurisdiction; and (bb) take such other action or actions as the Seller in its sole and unfettered discretion considers necessary and any court or tribunal in any state or country to enforce, safeguard or secure the Seller’s rights in respect of the Marine Fuel supplied to the Vessel and the payment of the price, including but not limited to the arrest, seizure, attachment or other process against the Vessel.

 ...

 11. PASSING OF RISK AND RETENTION OF TITLE

Subject to any provision to the contract in the Sales Contract and/or the Bunker Requisition Form:

 (a)   The Seller shall retain the legal and equitable title to the Marine Fuel which shall only pass to the Buyer when the seller has received in full the price and all amounts due in connection with the respective delivery.

 (b) Prior to the Seller receiving the price and all amounts due referred to in sub-paragraph (a) hereof, the Buyer shall hold the Marine Fuel and/or the price and/or any proceeds of sale as bailee and/or trustee for the Seller without prejudice to the Seller’s right to assert a maritime lien, attachment or claim against the Vessel more particularly set out in Clause 5 hereof.

 (c) The Seller has accepted the order for delivery on the Buyer’s undertaking to authorize the Seller to give notice to the receivers and/or the Vessel, to which the Marine Fuel has been delivered, of the Seller’s right and title to the Marine Fuel and/or the price and/or sale proceeds as the Principal and/or Beneficiary.’  (emphasis added)

III.   Decision of the Judge

1)   Good arguable case on conversion

4.1   The Judge held the plaintiff has a good arguable case on conversion.  First, he relied on the judgment of Deputy High Court Judge Le Pichon in NewOcean Petroleum Co Ltd v. OW Bunker China Limited (in provisional liquidation) & Another (HCA no. 381 of 2015) (dealing with a similar clause 5(b) in transactions involving another company of the OW Bunkers Group) in which she held :

‘ 38. ... arguably the two sub-paragraphs in clause 5(b) do not collectively or individually expressly authorize consumption before payment and that sub-paragraph (ii) arguably militates against consumption before payment. Nothing in clause 5(b) appears to confine or limit the warranty as to user contained in sub-paragraph (i) to the period prior to payment: the warranty operates and takes effect before as well as after payment. Further, payment does not feature at all in sub-paragraph (i).

....

43.   In my view, it is arguable that, as a matter of construction, clause 5(b) does not support any inference of consent.

....

48.   I consider it arguable on the facts that there was an act of conversion in the sense of D2’s involvement in an act that is inconsistent with the rights of the person with the possessory or proprietary rights to the bunkers by causing their delivery for immediate consumption.

...

 49.   The loss to P is realised upon consumption of the bunkers.  Although Mr Coleman SC submitted that having bunkered up, the vessel would depart on a voyage it does not follow that no part of the loss would have occurred within the jurisdiction.  Whether the loss or what part of it was realised within the jurisdiction raises an issue of fact.

 ...

 51.   In my view, P has shown that it has a good arguable case against D2 for the tort of conversion within RHC Order 11, rule 1(1)(f) and that there is a serious issue to be tried.’  

4.2   The Judge further referred to the decision of this Court in NewOcean Petroleum Co Ltd v. OW Bunker China Limited (in provisional liquidation) & Another (HCMP 1474/2016) where the 2^nd defendant in HCA 381 of 2015 applied for leave to appeal against DHCJ Le Pichon’s decision in HCMP 1474/2016.  This Court declined to grant leave to appeal on the conversion claim :

‘ 9. The crucial point here is whether the plaintiff has made out a good arguable case of a claim in conversion so that leave to serve out of the jurisdiction should be granted under Order 11 rule 1(1)(f). As Mr Sussex has acknowledged, this is a case which raises complicated issues of law and fact. For the court to exercise its ‘long arm’ jurisdiction under Order 11 rule 1, all that is required at this stage is for the plaintiff to establish a good arguable case that falls within one of the limbs in that provision. Mr Coleman sought to argue that a good arguable case does not exist in relation to the claim in conversion. This is an attempt to dismiss the claim summarily and does not have reasonable prospects of success in view of the fact that the claim relies on the reasoning of Males J in the Res Cogitans case ([2015] 2 Lloyd’s Rep 563), and that reasoning has the endorsement of the English Court of Appeal ([2016] 1 Lloyd’s Rep 228) and the Supreme Court ([2016] UKSC 23).’

4.3   Second, the Judge (proceeding on the basis that it is not unarguable that the plaintiff’s Terms and Conditions applied to the contract between the plaintiff and OWB China) held that the plaintiff was also relying on the mixing of the bunkers in its conversion claim.  The Judge referred to the evidence on the mixing of the bunkers when they were pumped to the Vessel in Hong Kong.  

4.4   Third, in respect of the defendant’s contention that no consumption of the bunkers took place within the jurisdiction (this is relevant to the defendant’s argument of whether the damage was sustained in Hong Kong or the tort which resulted from an act committed in Hong Kong), the Judge held that :

‘ There is no direct evidence on what fuel was in fact consumed within the jurisdiction. This is a factual issue for trial. The defendant has not established the factual basis for what was tantamount to a striking out application.’

2)   Material non-disclosure

4.5   The Judge then held that as the plaintiff had expressly stated that its case for service out of jurisdiction is based on tort and not contract, there was material non‑disclosure by the plaintiff because of item (1) of the relief claimed (‘prayer (1)’) in the statement of claim which pleaded that :

‘ (1) A declaration that by the terms of its contract with [OWB China] and/or (insofar as such terms were binding on the Defendant) with the Defendant, the Plaintiff did not authorize or grant a permission or licence to use the Bunkers for the purpose of propulsion of the Vessel pending payment for, and the passing of property in, such Bunkers;’

4.6   The Judge held that because of this prayer the plaintiff’s claim is arguable a claim in contract.  He held that :

‘ 42. …Such claim was premised on “the terms of its contract with [OWB China] … (insofar as such terms were binding on the Defendant).” The plaintiff went so far as to rely on “the terms of its contract … with the Defendant”.

43.   In my judgment, it was at least arguably a claim in contract and prayer (1) should have been expressly drawn to the attention of the Master in the plaintiff’s application for leave, in view of what Pau Yin Ming asserted in §66 of the plaintiff’s grounding affirmation and in view of the decision of A Chan J referred to in §15 above.

44. There was material non-disclosure and I set aside the Leave Order.

45.   I decline to re-grant an order.  Material non-disclosure is a serious breach of the duty of full and frank disclosure in applications where the court relies on the applicant to draw attention to all material matters.  There is no explanation for the non‑disclosure, the plaintiff simply denying that there was no non-disclosure.  This will not do.  What made matters worse was that the plaintiff is a repeat offender.  A Chan J held in §43 of his Decision in HCA 446/2015 that the material non-disclosure there was “indefensible”.’

IV.  My view

1)   Cause of action is tort and not contract

5.1   In my view, the Judge had misunderstood the plaintiff’s case on prayer (1).  It is plain that the plaintiff’s case as pleaded is based on conversion (hence a claim founded on tort within the ambit of Order 11, rule (1)(f)) and not contract.  Notwithstanding the reference to contract in prayer (1), the plaintiff’s claim remains to be a conversion claim.  The reference to contract is simply for the purpose of showing that the plaintiff had not given permission to the use of the bunkers before payment thereby removing a defence to conversion. Support for this view is found in another case concerning company of the OW Bunkers Group, namely, PST Energy 7 Shipping LLC and Another v. O W Bunker Malta Ltd and Another (The “Res Cogitans”) [2015] 2 Lloyd’s Rep 563.

5.2   The summary of facts of that case is as follows :

1)   On 31 October 2014 the owners of the vessel Res Cogitans (the owners) contracted with OW Bunker Malta Ltd (OWBM) for the supply of bunkers at a price of US$443,800.  The delivery date was 3 or 4 November 2014.  The contract provided that the physical supplier of the bunkers would be ‘Rosneft’ and that payment would be made within 60 days from the date of delivery.  OWBM assigned its right to payment to its bank, ING Bank NV (ING).  Notice of the assignment was duly given.

2)   On the same day OWBM contracted with its Danish parent company.  OW Bunker & Trading AS (OWBAS), to supply the bunkers.  OWBAS in turn contracted with Rosneft Marine (UK) Ltd (Rosneft), a UK company. The OWBAS/Rosneft contract required OWBAS to make payment in the sum of US$416,000.  Rosneft in turn contracted with its Russian subsidiary, RN‑Bunker Ltd, and it was the latter company which supplied the bunkers to the vessel at Tuapse in the Black Sea on 4 November 2014.

3)   All the contracts included a retention of title clause in favour of the supplier, a provision that payment would be due a fixed number of days after delivery, and gave permission for the shipowner to consume the bunkers in the meanwhile.

4)   Payment from OWBAS to Rosneft in the sum of US$416,000 was due by 4 December 2014 while payment from the owners to ING was due by 3 January 2015.  Neither payment was made, although Rosneft paid RN‑Bunker on 18 November 2014.

5)   On 6 November 2014 OWBAS announced that it was commencing insolvency proceedings. OWBM was not currently in insolvency proceedings.

6.  ING brought arbitration proceedings against the owners claiming payment of the US$443,800 due under the contract between OWBM and the owners in its capacity as assignee of OWBM’s rights under that contract.

7.  On the determination of preliminary issues the arbitrators held that the bunker supply contract was not a contract of sale to which the Sale of Goods Act applied.  ING’s claim to payment was a straightforward claim in debt which was not subject to any requirement as to the passing of property in the bunkers to the owners at the time of payment. If, contrary to their conclusion, the contract had been a contract of sale to which the Sale of Goods Act applied, the conditions in section 49 of the Act were not satisfied because the provision for payment to be made within a fixed period after delivery did not satisfy the requirement that ‘the price is payable on a day certain’.

8.  The owners appealed to the UK High Court.

5.3   Males J dismissed the appeal.  It is only necessary to refer to a short passage in his judgment which is relevant to the issue of permission to use the bunkers before payment :

‘ 46. In these circumstances the question arises, as already mentioned, what was the consideration for the money payment which the owners agreed to make if it was not the transfer of title? In my judgment the true nature of the parties’ bargain was that OWBM would deliver or arrange for delivery of the bunkers, which the owners would be immediately entitled to use for the propulsion of the vessel. As Mr Robert Bright QC for OWBM submitted, the permission or licence to use the bunkers conferred by clause H.2 necessarily meant, not only that OWBM itself gave such permission but that OWBM was or would be in a position to give such permission to the owners on behalf of whichever entity in the supply chain was or would become the owner of the bunkers. To adapt what was said in Rowland v Divall, what the owners were paying for was the right to consume the bunkers and not an unlawful possession which exposed them to the risk of an action at the suit of the true owner. At the date when the bunkers were delivered that true owner was RN‑Bunker, but when Rosneft paid RN‑Bunker on 18 November it became the owner of whatever bunkers then remained unconsumed. Such permission given by the owner of the bunkers would be an effective defence, at the rate as a matter of English law, to any claim against the owners for conversion.’ (emphasis added)

5.4   The Court of Appeal dismissed the appeal by the owners.  However, it also held that on the facts of the case, it was not necessary for Males J to deal with the issue of permission to consume the bunkers before payment.  The relevant part of the judgment by Moore-Bick LJ which discussed the question of permission to consume the bunkers is as follows :

‘ 38 In those circumstances I think the judge was wrong, strictly speaking, to hold that it was necessary for him to decide whether on the assumed facts OWBM had succeeded in obtaining the permission of RMUK for the owners to consume the bunkers, (or, as I would prefer to put it, whether OWBM effectively authorised the owners to consume the bunkers so as to bind RMUK and any other suppliers in the chain). The owners’ case before the arbitrators was that they were not liable to pay OWBM because the contract was one for the sale of goods and property in the goods had not passed to them. They do not appear to have advanced the alternative argument that, if the nature of the contract was that for which OWBM contended, they were not liable to pay because they had not been authorised to consume the bunkers in a manner which bound RMUK and other suppliers in the chain. Whether they should be allowed to do so at this stage is probably a matter that ought to have been left to the arbitrators.’ (emphasis added)

5.5   The Supreme Court dismissed the further appeal by the owners.  Likewise, it held that because of the nature of the case the issue before the Court did not involve any claim OWBM had no right to permit the use of the bunkers before payment.  The relevant part of the judgment which deals with permission to use the bunkers is in the judgment of Lord Mance JSC. Lord Mance first dealt with the true nature of the transaction between the parties.

‘ 28 In these circumstances, OWBM’s contract with the owners cannot be regarded as a straightforward agreement to transfer the property in the bunkers to the owners for a price. It was in substance an agreement with two aspects: first, to permit consumption prior to any payment and (once the theory of a nanosecond transfer of property is, rightly, rejected) without any property ever passing in the bunkers consumed; and, second, but only if and so far as bunkers remained unconsumed, to transfer the property in the bunkers so remaining to the owners in return for the owners paying the price. But in this latter connection it is to be noted that the price does not here refer to the price of the bunkers in respect of which property was passing, it refers to the price payable for all the bunkers, whether consumed before or remaining at the time of its payment.’

5.6   Lord Mance then discussed why the issue of permission in that case was not relevant :

‘ 39. In short, the essential nature of the bargain is as I have stated in para 28 of this judgment. As a result, OWBM’s only implied undertaking as regards the bunkers which it permitted to be used and which were used by the owners in propulsion prior to payment was that OWBM had the legal entitlement to give such permission. In order to be so entitled, OWBM did not need to have or acquire title to the bunkers. It merely needed to have acquired the right to authorise such use under the chain of contracts by virtue of which it had obtained the bunkers. As regards bunkers in existence at the time of any payment, OWBM would of course have to have had or at least be able to pass title. Had they been unable to do so, then, maybe, the owners could have treated OWBM as in breach of condition and terminated the contract, though they would at the same time have had to refrain from further use of the bunkers. OWBM would then have been unable to maintain a claim for the whole price, and would have had to assert either a contractual or a restitutionary claim (it is unnecessary to consider which) to pro rata payment for the bunkers consumed. But none of this is relevant, and for that reason it was not explored in submissions. What happened was quite different. No payment was ever tendered by the owners. The owners simply continued to use the bunkers under the contractual liberty until they were all consumed. So far as material, no basis appears for treating the contractual liberty as ending with the 6o-day period for payment, if payment was not then made; so long as the contract remained in force, the liberty would continue on its face until payment or complete consumption of all the bunkers supplied. The issues before the court do not involve any claim that OWBM had no right to permit such use, or that the owners are or may be exposed to any risk of double exposure, either by reason of RMUK’s claim (never so far as appears formally pursued) or on any other basis. On the presently assumed facts, therefore the owners are simply liable for the price, albeit under a contract sui generis, which is not one of sale.’ (emphasis added)

5.7   The Res Cogitans case was referred to by this Court in HCMP 1474/2016.  It was also referred to by the Judge in his judgment.  In contrast with the situation in The Res Cogitans, the plaintiff in this case expressly pleaded that there was no permission being given to consume the bunkers before payment.  The is the basis of the plaintiff’s case on conversion.  The reference to contract in Prayer (1) is merely for the purpose of showing that the plaintiff had not given such permission. If the cause of action relied upon by the plaintiff is not based on contract, it cannot be guilty of non‑disclosure at all.  It is irrelevant for the purpose of the present case that the plaintiff had been found guilty of material non‑disclosure in another High Court action, namely, HCA 446/2015.  What matters is the present case.

5.8   Mr Luxton for the defendant referred to the case of Gulf Bank KSC v Mitsubishi Heavy Industries Ltd [1994] 1 Lloyd’s Rep 323 in which the dispute arose from a transaction which included a contract whereby the defendants were to supply a plant to the Kuwaiti Ministry of Electricity and Water, and ‘advance payment guarantee’ issued by the plaintiffs to the Ministry and a letter of counter‑indemnity given by the defendants to the plaintiffs in consideration of the plaintiffs issuing the guarantee.  The plaintiff sought, amongst other things, the following declaration :

‘A declaration that on the true construction of the defendants’ counter indemnity to the plaintiffs contained in the defendant’s letter to the plaintiffs dated 10 March 1989 and in the events which have happened the defendant is and remains liable to indemnify and hold the plaintiff harmless against any and all payments made by the plaintiff to the Ministry of Electricity and Water, Government of Kuwait (MEW) under or pursuant to the Advance Payment Guarantee issued by the plaintiff in favour of MEW of 22 March 1989 in the sum of Kuwaiti Dinars 27,740,072.78.’

5.9   The defendants there argued that the writ was improperly served on them in Japan because the plaintiff’s claim did not fall within the terms of Rules of Supreme Court, Order 11, rule 1(1)(d) because such a claim is not a claim ‘... brought to enforce, rescind, dissolve, annul or otherwise affect a contract.’  Hobhouse J held that :

‘ In my judgment the words in sub-par. (d) are clearly intended, together with the references to breaches of contract, to make a comprehensive reference to contractual claims. The language discloses no intention to exclude any category of contractual claim nor does the policy of O. 11, itself. The restrictive part of sub-par. (d) is that which follows and lays down criteria which the relevant contract must satisfy. Provided that the relevant contract satisfies one or more of those criteria then there is no reason in policy why any legal claim in respect of that contract should not fall within the ambit of O. 11, r. 1.

  The claim made in the present proceedings is a claim which is properly characterized as a claim to enforce a contract. To obtain a declaration of a Court that a contract is enforceable is one of the steps in enforcing that contract. From a legal point of view, to establish that the contract is enforceable is a necessary first step in any enforcement by legal process. In practical terms, a declaration by the Court that contract is enforceable and that the defendant is liable under it may often be sufficient to enable the plaintiff to effect a recovery under the contract without the need for further legal proceedings.’

5.10   In my view, the context of a case is important. The view of Hobhouse J, while relevant to that case, is not applicable to the context of this case when the plaintiff’s cause of action is on conversion.  The matter can be tested in this way.  Even if the plaintiff had not pleaded prayer (1), in order to establish its claim on conversion, it is clearly entitled to refer to the contract to show that no permission had been given without changing the true nature of its claim. The mere fact that prayer (1) was pleaded would not change it either.  Further, as Mr Sussex submitted, this cannot be a contractual claim because the plaintiff did not even include OWB China as a party to the action.

2)   The respondent’s notice

5.11   It is convenient at this stage to deal with the respondent’s notice.  Mr Luxton for the defendant challenged the Judge’s decision on conversion.  I have already set out the Judge’s reasons for holding the plaintiff has a good arguable case on conversion which I agree.  I have also addressed the true nature of the plaintiff’s claim.  Mr Luxton argued that the plaintiff had not shown a prima facie case that it was the owner of the bunkers.  He referred to Newocean Petroleum Company Ltd v OW Bunker China Ltd [2016] 3 HKLRD 892 in which Deputy High Court Judge Manzoni SC stated that in order for the plaintiff’s claim to fall within Order 11, rule 1(1)(f), the plaintiff must establish a good arguable case, inter alia, that ‘the title in the bunkers remained with it’ (paragraph 43).  DHCJ Manzoni had referred to The Res Cogitans at first instance and in the Supreme Court, which specifies that an intermediate supplier must obtain permission to consume from the true owner of the bunkers (paragraphs 35 to 38).  He argued that the plaintiff did not provide any documentary evidence regarding how or when it acquired title to the bunkers.  On the contrary, the evidence showed that the bunkers were supplied to the Vessel from the ‘Feoso Leader’, which was a bunker barge ‘employed by the plaintiff’.  The bunker barge was owned by the Feoso Group, one of the leading physical suppliers of bunkers in Hong Kong.  The bunker delivery note was issued by OW Bunker China, rather than the plaintiff.  The effect is that OW Bunker China and not the plaintiff was the ‘bunker supplier’ for regulatory purposes.  Such evidence is consistent with the plaintiff being an intermediate supplier of the bunkers. 

5.12   Apart from merely challenging the ownership of the plaintiff, the defendant was not able to provide any clear and uncontroversial evidence that the plaintiff was not the owner.  In my view when the Court deals with an application for service out of the jurisdiction, it is not to conduct a mini trial of the action such as whether the plaintiff is indeed the owner of the bunkers.  At this stage, the Court merely has to look at the pleadings by which the plaintiff has pleaded it was the owner of the bunkers.  Implicit in this plea is that the plaintiff has a proprietary title or possessory title to the bunkers which is relevant to its case on conversion.  The matters referred to by Mr Luxton are matters that are fit for investigation at the hearing of this action. 

5.13   Further for the purpose of argument, even if the plaintiff is not the immediate supplier who gave the permission, as Mr Sussex SC for the plaintiff pointed out, in The Res Cogitans the Court of Appeal [38] and Supreme Court [39] referred to the requirement that the permission so given must bound all the suppliers in the chain of contracts.  How the permission bound the plaintiff is a point that clearly merits consideration and not simply brushed aside in a summary application to set aside the service of the writ.

5.14   Mr Luxton then argued that under Order 11, rule 1(1)(f) RHC, there are two alternatives – the claim is founded on a tort and (i) the damage was sustained in Hong Kong, or (ii) the tort resulted from an act committed in Hong Kong.  The first alternative (damage sustained in Hong Kong) requires some significant damage to have been sustained in the jurisdiction. The second alternative (tort which resulted from an act committed in Hong Kong) requires that the act complained of was substantial and efficacious to the damage sustained: Metall und Rohstoff AG v Donaldson, Lufkin & Jenrette Inc [1990] 1 QB 391 at 437D-F.  He argued that no damage was sustained in Hong Kong and no act which resulted in the tort was committed in Hong Kong.  He referred to the evidence which showed that bunkers were not consumed within the jurisdiction. 

5.15   With respect, this is another matter which should be properly tried.  In my view, the plaintiff’s case on conversion has been sufficiently pleaded for the purpose of the application for service out of the jurisdiction.

3)   Discretion exercised afresh

5.16   In my view, the Judge had wrongly exercised his discretion because of his misunderstanding of the plaintiff’s case on conversion.  There clearly is no proper basis for the Judge to set aside the Master’s order by reason of non‑disclosure.  In view of the Judge’s wrong exercise of discretion, this Court is entitled to exercise the discretion afresh and dismiss the defendant’s application to set aside the service of the writ. 

V.   Conclusion

6.   Accordingly, I would allow the plaintiff’s appeal and dismiss the respondent’s notice of the defendant.

VI.   Costs

7.   I would make an order nisi that the plaintiff is to have the costs of its appeal and of the respondent’s notice.