The Owners of Cargo lately laden on board the ship or vessel "Kyriakos M" v. The Owners and/or Demise Charterers of the ship or vessel "Kyriakos M"

1994, No. AJ382

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ADMIRALTY JURISDICTION

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Admiralty action in rem against : the ship or vessel

"Kyriakos M"

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D E C I S I O N

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The History

1. This is an application by the Defendants to vary my Order dated 7th December 1994.

2. In this Action the Plaintiffs claim against the Defendants for damages for breach of duty and/or negligence and/or conversion in respect of the Plaintiffs' cargo ("the said goods") on board the ship herein ("the ship") from Ilichevsk Ukraine to Haikou, PRC. The Plaintiffs are the holder of three original bills of lading dated 15th August 1994 in respect of the said goods. The ship owners did not complete the voyage to Haikou and deliver the cargo there. The ship was arrested in Hong Kong on 3rd December 1994 upon the application of the Plaintiffs.

3. By a summons dated 5th December, the Plaintiffs applied inter parte for an order that the Defendants do discharge the goods within 24 hours of notification to discharge being given by the Plaintiffs. Before this summons was heard on 7th December 1994 as scheduled, the Defendants obtained ex parte an injunction order from J. Chan, J. on 6th December restraining the Plaintiffs from dealing with the said goods.

4. The Defendants' counterclaim against the Plaintiffs is on the ground that the said bills of lading were issued and signed by the Charterers of the vessel or their agents. They alleged that the said bills contained material misrepresentation as to the condition of the cargo upon shipment and as to the date of the shipment, namely that :-

(a) the bills are marked "clean on board" when in fact the cargo was rust, damaged with broken scrapping bends and deformation of the coils;

(b) the date of the loading was said to be 14th August, whereas loading in fact took place between 16th and 20th August.

5. The Defendants contented that it would open them to enormous claim for damages by any holder of the bills of lading notwithstanding that they might not be a party to the contract of carriage according to English or Hong Kong law.

6. The parties appeared before me on 7th December 1994. J. Chan, J.'s order was varied to permit the Plaintiffs to sell the said goods to one Wishing Long Hong Building Materials ("Wishing Long") and if the Plaintiffs were successful in such a sale to Wishing Long, then they would pay a sum of US$842,203.11 into court whereupon the Registrar would release the said bills of lading to the Plaintiffs. The aforesaid amount is the amount claimed by the Defendants as the ship owners' losses. It comprised of the delay since the ship arrived off Hainan Island on about 5th October 1994 at a daily rate of US$10,000. Up to the date of the affidavit of the Defendants' solicitors Mr Hughes on 6th December 1994, the amount would be US$620,000. In addition, the owners of the ship claimed pro rata freight at US$45 per mt. and the freight claimed would be US$222,203.11 making a total of the aforesaid figure of US$842,203.11. This was para.2(i) of my Order.

7. Under para.2(ii) of my Order the Plaintiffs also undertook to hold the Defendants harmless against claims made against the Defendants by any party under the said bills of lading, arising out of those bills of lading being clean rather than endorsed in accordance with mate's receipts and/or arising out of those bills of lading being dated 15th rather than 20th August 1994.

8. On the other hand the Defendants undertook to provide security within seven days thereof in the sum of US$200,000 to fortify their undertaking in damages given at the time of obtaining the ex parte injunction order of 6th December.

The 1st Variation

9. Originally, the Defendants applied before me for an order that the Plaintiffs should give the security in the sum of US$1.25 m or such sum as the court considers just to fortify the undertaking as embodied in para.2(ii) of my Order as aforesaid. This is the first order sought from the court.

10. In making this application, Mr Hughes, solicitor for the Defendants had made some very serious allegations against Mr Graydon, solicitor for the Plaintiffs, for misleading the court. Mr Graydon by his 4th affidavit of 28 pages explained clearly what had happened between him and his client and the buyer Wishing Long and the ultimate buyer, one New Anrong. From his meticulous explanation, I must say at the outset that I find there is absolutely no cause for the charge of misleading the court against Mr Graydon. He had done everything that the court would have expected from a solicitor. Mr Hughes's allegation that one Mr Zia of Wishing Long might not know the discrepancies between the bill of lading and the mate's receipt is of course at variance with Mr Zia's statement as produced by Mr Graydon. In this application I should not, and in fact could not, resolve the two versions. It may well be one of those cases (as in some matrimonial relationship) that both might turn out to be right and it would be wrong if one fails to recognise the situation. On one hand Mr Hughes got the impression that Mr Zia was evasive and did not categorically commit himself to clear knowledge of the discrepancies. On the other hand Mr Zia, as suggested by Mr Graydon, might in the first place, have communication problem in English and/or secondly, be reluctant to talk to a solicitor for the ship owners as he considered himself to be under no obligation to commit anything to a stranger with whom he was not dealing in the purchase of the said goods.

11. In any event, in this application I am only concerned with whether there is any cause shown by the Defendants to vary my Order in light of what has happened after the Order was granted. Under para.1 of the summons, the Defendants now seek for an order that the said sum of US$842,203.11 paid into court by the Plaintiffs do also stand as security against which the Plaintiffs' undertaking in the aforesaid para.2(ii) of my Order. The Defendants say that when New Anrong produced the bills of lading and requested delivery of the cargo, they were not prepared to confirm by signing para.3 of the confirmation documents which reads :-

"3. Confirm that we waive any claims against the owners and/or managers and/or agents of the 'Kyriakos M' which we may have arising [sic.] out of the issue of clean, ante-dated bills of lading in respect of the above assignments."

Instead New Anrong acknowledged that the condition on the cargo on shipment was in accordance with the copy mate's receipt attached to the confirmation which contained certain endorsements.

12. The Defendants contended that in the absence of such a waiver it is possible that a claim may be made against the vessel at some future date by a buyer in China. However, it is quite clear by the said confirmation that the ultimate buyer New Anrong had sight of the clear copy of the mate's receipt before delivery of the goods was obtained and this was confirmed by the aforesaid confirmation signed by New Anrong. As the bills of lading had already been presented to the Defendants, there could not be any other party who might make claims covered by the aforesaid Plaintiffs' undertaking. Here I do accept Mr Jat's submission for the Plaintiffs that the suggestion that the Defendants are still exposed to such potential claims is fanciful. Accordingly, the first application of the Defendants is refused.

13. Further, I would also like to point out that the waiver in the aforesaid para.3 of the confirmation was wider than necessary because the Plaintiffs' sub-buyer was asked to waive not only claims against the owners but also to the managers and agents of the vessels. As the true facts have not been determined by any court, it would be unreasonable to expect New Anrong to accept :-

(1) that the bills of lading were in fact ante-dated; and

(2) the Defendants' denial of responsibility.

The 2nd Variation

14. The second application of the Defendants was to reduce the aforesaid amount of security in the sum of US$200,000 fortifying the Defendants' undertaking in damages, pursuant to my Order granting liberty to both parties to apply to reduce or increase that amount. The basis of the application is that the Plaintiffs, in spite of repeated requests and demands from the Defendants' solicitors, failed to quantify the amount of damages they suffered or would have suffered. The Defendants submitted that the only damages the Plaintiffs might arguably suffer by reason of the ex parte injunction order for a short period of time was the reduction in the purchase price of the said goods by US$5 per mt., thus giving the Plaintiffs a possible claim of about US$25,000 only.

15. However, even up to the date of the hearing before me on 21st December 1994, the Plaintiffs have not been paid by the buyer under the letter of credit. It is not clear what will have happened to the purchase money. In any event, I am satisfied that the Plaintiffs would arguably have suffered the following items and amounts of damages :-

(1) Difference in the sale price of US$25,000 which was conceded by the Defendants;

(2) Cost of financing payment into court : the Defendants paid the aforesaid amount into court in an interest bearing account earning at the rate of only 4.75% whereas the bank interest rate was at 9.5%. Assuming the matter would continue for two years, then they would have suffered US$842,203.11 x (9.5% - 4.75%) x 2 years = US$80,000;

(3) Potential claim by one Mr Stahl for commission. This agent did not get paid in terms of its commission in the sum of US$50,000. On the side of the Plaintiffs they said Dao Heng Bank had decided to withhold this amount of payment from the payment to them under the letter of credit. The Defendants however said that their information was Dao Heng Bank would pay this amount. The matter cannot be resolved by these two different versions and I am not in a position to say whether Dao Heng Bank will be paying this amount. Mr Stahl has already threatened to deduct this amount from the business dealings with the Plaintiffs and if so, the Plaintiffs would have suffered such an amount;

(4) The costs incurred by the Plaintiffs as a result of the injunction - there have already been five hearings with lengthy affidavits and exhibits. The Plaintiffs estimated that their costs would be in the amount of the US$50,000 and this would likely be an under-estimate;

(5) The delay of payments from 12th December which the Plaintiffs say they would have been paid if not because of the injunction and by 21st December, this would be about US$2,700 at the rate of US$300 per day.

16. The total amount would be about US$207,000. This figure, in my view, is more or less the amount of US$200,000 imposed by the court and I cannot see any reason for varying this amount as sought by the Defendants.

The 3rd Application

17. Lastly, the Defendants seek to lift the Caveat entered by the Plaintiffs under O 75, r.14 to prevent the vessel from being released from arrest in High Court Action AJ414 of 1994. I do accept Mr Jat's submission for the Plaintiffs that there was no indication the Defendants are seeking the imminent release of the vessel. The Plaintiffs have a good claim against the vessel which the Plaintiffs are entitled to secure by way of entering a Caveat against its release. The Plaintiffs' potential claims are not limited to those mentioned in the aforesaid 4th affidavit of Mr Graydon but included losses under the original sale of contract to the original buyer, one Steelways, caused by the Defendants' failure to deliver the cargo at Haikou and/or delay in delivering the cargo. Accordingly, such an application is also refused.

Conclusion

18. In conclusion, I am not satisfied that the Defendants had made out any case for variation of my Order and their summons is therefore dismissed with costs to the Plaintiffs.

19. There are also two summonses issued by each parties seeking security for costs against the other party. As contended by Mr Jat's, there is no urgency in the matter and by consent they are adjourned sine die with liberty to restore for argument if any of the parties wish to do so.