HAI KUO SHIPPING 1201 LTD v. EVERWIN SHIPPING (HONG KONG) CO LTD AND OTHERS

HCAJ 79/2014

[2018] HKCFI 1906

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 79 OF 2014

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R E A S O N S   F O R   J U D G M E N T

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1.  In this action, the Plaintiff, who was the owner of a bulk carrier (Vessel), claimed against the 1^st Defendant for breach of a Bareboat Charterparty dated 25 May 2012. By reason of the 1^st Defendant’s failure to pay the charterhire in accordance with the terms of Charterparty, which was a Termination Event thereunder, the Charterparty was terminated by the Plaintiff.

2.  Consequently, various payments were due from the 1^st Defendant in favour of the Plaintiff pursuant to Clause 27 of the Charterparty, including a Termination Amount; costs and expenses incurred by the Plaintiff in connection with the termination of the Charterparty and re-possessing the Vessel; and default interest (at 0.05% per day, compounded daily over 360 days[1]). Particulars of all 3 items had been provided in paras 17 to 19 of the Amended Statement of Claim. 

3.  The Vessel was later sold for US$20 million. After setting-off the sale proceeds against the payments due from the 1^st Defendant, a net outstanding sum of roughly $8.3 million (Outstanding Sum), plus interest after the 25 April 2014, remained due from the 1^st Defendant. 

4.  The 1^st Defendant was a wholly owned subsidiary of the 2^nd Defendant.  The Plaintiff claimed against the 2^nd Defendant for breach of a Memorandum of Agreement dated 25 May 2012 (Agreement).  Under the Agreement, the 2^nd Defendant was obligated to purchase the Vessel upon the occurrence of a Trigger Event (including a Termination Event under the Charterparty) and the issuance by the Plaintiff to it of a Notice of Default (which was served on the 2^nd Defendant on 10 March 2014). 

5.  Pursuant to Clause 1 of the Agreement, the purchase price was the Termination Amount and any expense incurred by the Plaintiff in connection with the exercise of its remedy under the Agreement and Clause 27 of the Charterparty.  The 2^nd Defendant had failed to pay any sum to the Plaintiff, and the Plaintiff claimed the same Outstanding Sum from the 2^nd Defendant plus interest. 

6.  The 3^rd Defendant was the sole director of the 1^st Defendant and a director of the 2^nd Defendant.  Pursuant to a Deed of Guarantee dated 25 May 2012, the 3^rd Defendant was liable for any amount due and owing to the Plaintiff under the Charterparty, claimed the Plaintiff. 

7.  The trial of this action took place on 11 July 2018.  A Notice of Trial was issued to the parties on 24 August 2017.  However, neither the 2^nd Defendant nor the 3^rd Defendant appeared at the trial.  One Mr Zhu appeared in court and said that he was a director of and represented the 1^st Defendant.  No leave from the court had been obtained by the 1^st Defendant to be represented by a director.  Therefore, there was no proper representation of the 1^st Defendant.

8.  The trial proceeded with the Plaintiff calling its evidence to prove its case.  The Plaintiff’s case was straightforward and based on contractual documents.  Given the absence of the Defendants, no defence or counterclaim was made out.  The court was satisfied that the Plaintiff had proved its case against each of the Defendants. 

9.  Clarifications were sought with the Plaintiff’s counsel on the details of the calculations of its loss and on its interest and costs entitlements.  In particular, the Agreement did not unequivocally provide for an obligation on the part of the 2^nd Defendant for default interest from 25 April 2014, nor did it clearly provide for the 2^nd Defendant’s obligation to indemnify the Plaintiff’s costs[2].  The following judgment was given in favour of the Plaintiff after clarifications :

(1) The 1^st, 2^nd and 3^rd Defendants, jointly and severally, do pay the Plaintiff the sum of US$8,262,950.93, together with interest thereon at the rate of 19.7% p.a. compounded yearly from 25 April 2014 to the date of payment, save and except that the 2^nd Defendant’s liability for interest hereunder shall not exceed the rate of prime +1% p.a. from 25 April 2014 until the date of this judgment and thereafter at judgment rate(s) until payment.

(2) The Counterclaims be dismissed.

(3) The 1^st, 2^nd and 3^rd Defendants do jointly and severally pay the Plaintiff’s costs of these proceedings, including all costs reserved, on an indemnity basis, save and except that the 2^nd Defendant’s liability for costs hereunder shall not exceed the Plaintiff’s costs of these proceedings (including all costs reserved) on a party and party basis.