ITIRO CORPORATION BVI v. THE OWNER AND/OR DEMISED CHARTERERS OF THE SHIP OR VESSEL “ANGELIC GLORY”

CACV 294 /2021

[2021] HKCA 1865

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 294 OF 2021

(ON APPEAL FROM HCAJ NO 90 OF 2020)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the Court):

Introduction

1.  This is the plaintiff’s appeal against the decision of Anthony Chan J on 13 April 2021 (“the Decision”), brought with leave granted by the judge on 28 May 2021.

2.  On 12 November 2020, the plaintiff issued a writ of summons in this action in rem with an indorsement of claim.  The claims against the defendants are for: (1) a declaration that the ship or vessel “Angelic Glory” chartered to the plaintiff under a charterparty dated 7 March 2019 (“Angelic Glory Charterparty”) was off-hired as set out in the plaintiff’s final statement of account and that the sum of US$365,410.50 remains due and owing to the plaintiff; (2) rectification of the Angelic Glory Charterparty to give effect to the common intention of the parties to that charterparty that sugar shall be a permitted cargo under it; (3) US$365,410.50 being the balance of account due and owing to the plaintiff under the Angelic Glory Charterparty; (4) further or alternatively, damages for breach of the Angelic Glory Charterparty; (5) interest; and (6) costs.

3.  On 2 March 2021, the plaintiff filed a statement of claim.  In the prayer for relief, in addition to the claims set out in the indorsement of claim (which has not been amended), the plaintiff claims £32,256 being its recoverable costs against the defendants in an arbitration commenced by the defendants against the plaintiff in London in May 2020 (“the Arbitration”), in which the defendants claimed the alleged balance of hire due to them under the Angelic Glory Charterparty and the plaintiff counterclaimed for the balance of account due and owing to it under the same charterparty.

4.  On 3 March 2021, the plaintiff filed a notice of motion for an order that judgment in default of acknowledgment of service be given for the balance of account due and owing to it under the Angelic Glory Charterparty, rectification of that charterparty to give effect to the common intention of parties that sugar shall be a permitted cargo under that charterparty; a declaration that the Angelic Glory was off-hired as set out in the plaintiff’s final hire statement and that the sum of US$343,430.75 remains due and owing to the plaintiff; further or alternatively, damages for breach of the Angelic Glory Charterparty; £32,256 being its recoverable costs against the defendants in the Arbitration; interest and costs.

5.  The notice of motion was made under Order 75 rule 21 of the Rules of the High Court, the relevant provisions of which read as follows:

“(3) Where a defendant to an action in rem fails to acknowledge service of the writ within the time limited for doing so, then, on the expiration of 14 days after service of the writ and upon filing an affidavit proving due service of the writ, an affidavit verifying the facts on which the action is based and, if a statement of claim was not indorsed on the writ, a copy of the statement of claim, the plaintiff may apply to the Court for judgment by default. …”

“(7) An application to the Court under this rule must be made by motion and if, on the hearing of the motion, the Court is satisfied that the applicant’s claim is well founded it may give judgment for the claim with or without a reference to the Registrar and may at the same time order the property against which the action or, as the case may be, counterclaim is brought to be appraised and sold and the proceeds to be paid into court or may make such other order as it thinks just.”(Emphasis supplied)

6.  By the Decision, the judge allowed all of the claims set out in the statement of claim except for these two claims, on the basis that he is not satisfied they are “well founded”.  These two claims are: (1) US$234,955, being the difference in the hire rate between the Angelic Glory Charterparty and an addendum thereto signed in September 2019 (“the Addendum”) (“Claim 1”); and (2) £32,256 being the recoverable costs of the Arbitration (“Claim 2”).

7.  This appeal is to challenge the judge’s decision in disallowing the above two claims^[1]. There are two broad grounds of appeal.  First, it is contended that the judge erred in law in applying the “well founded” threshold in Order 75 rule 21(7).  Second, the judge was plainly wrong in failing to hold that the plaintiff’s evidence met the “well founded” threshold.

8.  We allowed the appeal at the conclusion of the hearing.  These are our reasons for allowing the appeal.

The “well founded” threshold

9.  Before judgment in default can be obtained for an action in rem, the threshold requirement in Order 75 rule 21(7) is that “the Court is satisfied that the applicant’s claim is well founded”.  This is not materially different from the English equivalent in the Civil Procedure Rules being rule 61.9(3)(a)(iii), which provides that there must be “evidence proving the claim to the satisfaction of the court”.

10.  Mr Lavesh Kirpalani, who appeared for the plaintiff, submitted that the appropriate standard of evidence required in this context is “prima facie evidence” to substantiate the allegations in the statement of claim, and that such supporting evidence need not be definitive or conclusive.  He contended that the judge erred in law in requiring the plaintiff to prove its allegations by a standard higher than prima facie evidence.

11.  We do not think it is appropriate or necessary to put a gloss over the words “well founded” as submitted by counsel, as the meaning of these words in this particular context is quite clear.

12.  The specific purpose of requiring the applicant to satisfy the court that the claim is well founded and accurate is to ensure that the default judgment does not compromise the rights of any other party who may have an in rem claim against the arrested vessel which is to be sold and the proceeds paid into court.  Hence the court should endeavour to ensure that on this ex parte application in which the court would read evidence and hear submissions only from one side, the applicant’s claim is properly proved and its decision based on evidence which it considers satisfactory (The Carmania II [1963] 2 Lloyd’s Rep 152 at 153; The Kuzma Minin [2020] 2 Lloyd’s Rep 617 at §44; Hong Kong Civil Procedure 2021, vol 1, §75/21/5). 

13.  In construing an equivalent provision, the Federal Court of Malaysia in The Fordeco Nos 12 and 17 [2000] 1 MLJ 449 at 463 helpfully referred to the meaning of “well founded” in the Oxford Concise Dictionary as “based on good evidence; having a foundation in fact or reason”.  This seems to be a good working definition. 

14.  For the court to be satisfied that the claim is well founded, the verifying affidavit must state “such facts as are necessary to substantiate the claims in the statement of claim” (Roscoe’s Admiralty Jurisdiction and Practice (5^th ed) p 286). 

Claim 1: if the plaintiff’s evidence met the “well founded” threshold

15.  The plaintiff’s case in respect of Claim 1 pleaded in the statement of claim may be summarised as follows:

(1) The Angelic Glory Charterparty was contained in a fixture recap of 7 March 2019 (“the Angelic Glory Recap”) which incorporated into the Angelic Glory Charterparty the terms of a charterparty previously agreed between the parties on 31 January 2019 for a sister vessel “Angelic Peace” (“the Angelic Peace Charterparty”).

(2) The Angelic Peace Charterparty was contained in a fixture recap dated 31 January 2019 (“the Angelic Peace Recap”) which provided that the Angelic Peace Charterparty was on the same terms as a previous Angelic Glory charterparty entered into between the parties in April 2015 (“the 2015 Charterparty”), save for the alterations set out in the Angelic Peace Recap.  Among the alterations was a modification to clause 63 of the 2015 Charterparty, which was to the effect that Group C cargoes were allowed.  Sugar is a Group C cargo.

(3) No working copy of the Angelic Peace Charterparty (by which the Angelic Peace Recap and the 2015 Charterparty were merged to produce one proforma contract with accompanying rider clauses) was collated by the brokers involved and, by mistake, an unamended 2015 Charterparty was attached to the Angelic Glory Recap.

(4) The common intention of the parties was that the Angelic Glory Charterparty incorporated the Angelic Peace Charterparty, including the provision in the Angelic Peace Recap which made sugar a permitted cargo under the Angelic Glory Charterparty.  The plaintiff claims rectification of the Angelic Glory Charterparty to give effect to this common intention of the parties.

(5) In breach of the Angelic Glory Charterparty, the defendants declared in August 2019 that sugar was not a permitted cargo and alleged that carriage of sugar cargo would require an enhanced rate of hire.  The plaintiff was left with no alternative but to sign the Addendum which provided for an enhanced rate.

(6) The Addendum was unenforceable for want of consideration. Further or alternatively, it was unenforceable for economic duress.

16.  In support of the case as pleaded, the plaintiff adduced the following evidence:

(1) The Angelic Glory Recap which contained the provision: “O/W AS PER OWNERS CP PROFORMA (ATTACHED) MV ANGELIC PEACE – ITIRO 31 JAN 2019 WITH LOGICAL AMENDMENTS” and had attached to it an unamended 2015 Charterparty.

(2) The Angelic Peace Recap which contained this provision amending the 2015 Charterparty: “CLS 63 INSERT “2 CARGOES OF BAUXITE” OTHERWISE AS PER OWS PROFORMA CP “ALL OTHER CARGOES GROUP C ARE ALLOWED” ”.

(3) Email exchanges between the plaintiff’s broker Barry Rogliano Salles Athens (“BRS”) and the defendants’ broker 14 Knots SA on 30 January 2019

From BRS to 14 Knots SA at 15:53 hours: “cls 63 insert “3 cargoes of bauxite, 2 cargo of non-oily” add “sulphur.  All other cargoes group C are allowed” ”

From 14 Knots SA to BRS at 17:03 hours: “cls 63 insert “2 cargoes of bauxite” otherwise as per ows proforma cp ‖ All other cargoes group C are allowed ‖ OK”

(4) Skype exchanges between BRS and 14 Knots SA on 6 March 2019

From BRS to 14 Knots SA at 10:31 hours: “9500^[2] subs 24 hours for abt 4-7 mos. add com, otherwise same as CP Angelic Peace – Itiro – logically amended – firm 5 minutes”

From 14 Knots SA to BRS at 10:34 hours: “That s ok pls confirm”

From BRS to 14 Knots SA at 10:35 hours: “ok so 9500 is confirmed?”

From 14 Knots SA to BRS at 10:35 hours: “Yes”

From BRS to 14 Knots SA at 10:52 hours: “And warranties i have taken from Angelic Peace fixture   CP we can use from the last fixture as it has already been created”

(5) Witness statement of Dimitris Kompolias of BRS dated 21 January 2021

Mr Kompolias stated that after the Angelic Peace Recap was issued, due to a clerical mistake the sentence “All other cargoes group C are allowed” set out in the Angelic Peace Recap and email negotiations exchanges was not added to clause 63 of the working copy of the Angelic Peace Charterparty.  Mr Kompolias was involved in the negotiations of the Angelic Glory Charterparty and the terms discussed were based on the terms of the Angelic Peace Charterparty.  Hence, the Angelic Glory Recap stated “O/W AS PER OWNERS CP PROFORMA (ATTACHED) MV ANGELIC PEACE – ITIRO 31 JAN 2019 WITH LOGICAL AMENDMENTS”.  The Angelic Glory Recap did not contain any reference to clause 63 and no amendments to clause 63 were discussed during the negotiations.

(6) Email exchanges in August 2019 regarding the carriage of a cargo of sugar and the Addendum

17.  We are satisfied on the above evidence there is a well-founded claim it was the common intention of the parties that the Angelic Glory Charterparty incorporated the provision in the Angelic Peace Charterparty which made sugar a permitted cargo under the Angelic Glory Charterparty, and it was due to a clerical mistake that the unamended 2015 Charterparty was attached to the Angelic Glory Recap.  There is a proper claim in law for rectification of the Angelic Glory Charterparty and the Addendum would not be enforceable for want of consideration and/or economic duress.

18.  We would differ from the judge that Claim 1 does not meet the “well founded” threshold on the totality of the evidence before the court. We order the defendants to pay the plaintiff the difference in hire rate in the sum of US$234,955^[3] with interest at prime rate up to the date of judgment and thereafter at judgment rate until payment and grant a declaration that the Angelic Glory Charterparty be rectified to give effect to the common intention of the parties that sugar shall be a permitted cargo under it.

Claim 2: if the plaintiff’s evidence met the “well founded” threshold

19.  Claim 2 relates to the plaintiff’s recoverable costs of £32,256 in the Arbitration, which was left in a state of suspension when the defendants failed to serve a reply and defence to counterclaim.  No formal stay of the Arbitration was put in place.

20.  This claim was made on the premise that the defendants had no merit in their dispute with the plaintiff.  And as the judge did not find for the plaintiff on Claim 1, he was equally not satisfied that Claim 2 is “well founded”.

21.  Although we have allowed Claim 1, we see two difficulties about Claim 2.  The first is a procedural matter and can be readily rectified. The claim for recoverable costs in the Arbitration pleaded in the statement of claim was not made in the indorsement of claim.  It is necessary to amend the indorsement of claim to comply with Order 18 rule 15(2) of the Rules of the High Court.

22.  The second difficulty is more substantial.  There is a clear distinction between damages and costs.  Costs are recoverable by the exercise of a costs jurisdiction by the court or tribunal determining the proceedings in which the costs are incurred.  In this instance, no award of costs has been made in the Arbitration.  This court has no jurisdiction to award costs to the plaintiff incurred in the Arbitration.  If an award of costs has been made in the Arbitration, the plaintiff may claim as loss and damage in this writ action the amount of costs awarded in the Arbitration.

23.  This situation is distinguishable from Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2015] EWHC 718 (Comm) in that the claimant sued on guarantees by which the defendant accepted responsibility for “any liability, losses or damages that [the claimant] suffer as a result or arising out of [the charterers’] default”.  No costs order was made in the arbitration proceedings.  It was held at §245 that notwithstanding the costs of legal proceedings are generally irrecoverable as damages for breach of contract and only recoverable by the exercise of a costs jurisdiction by the court or tribunal determining the claim, the legal costs incurred in the arbitration were “as a result or arising out of” the charterers’ default and therefore fell within the scope of that which the defendant expressly undertook to pay under the guarantees, to the extent that such costs were reasonably incurred. 

24.  We do not think Claim 2 would meet the “well founded” threshold as things now stand, but it may be possible for the threshold to be met if and when a costs award is made in the Arbitration.  Rather than disallowing Claim 2, we think it would be appropriate to adjourn this part of the notice of motion sine die, with liberty to restore the same before the judge.  In so doing, we follow the practice in a number of cases in this kind of application where the court determines that the evidence is insufficient to grant default judgment and gives an opportunity to the claimant to rectify the shortcoming (The Sfactoria (1876) 2 PD 3 at 4; The Gertrud (1927) 29 Lloyd’s Law List Reports 170; The Carmania II at 153).

Conclusion and costs

25.  For the reasons aforesaid, we have allowed the appeal to the extent as indicated above.

26.  We order the defendants to pay the plaintiff’s costs of this appeal.  We make an order for summary assessment.  Having considered the statement of costs submitted by the plaintiff, and making an adjustment for the estimated hearing time of this appeal for the solicitor’s attendance, the amount of costs we allow to the plaintiff is HK$138,425.

[1] The service of the notice of appeal is not in issue. Order 65 rule 9 of the Rules of the High Court provides: “Where by virtue of these rules any document is required to be served on any person but it is not required to be served personally or in accordance with Order 10 rule 1(2), and at the time when service is to be effected that person is in default as to acknowledgement of service or has no address for service, the document need not be served on that person.”  See Chen Qingqiang v Chan Yat Hong [2017] 3 HKLRD 285 at §3; and The Apellis [2017] HKCFI 1785 at §§17 to 18 citing The Iran Nabuvat, 11 January 1991, 1991 WL 11779940. In this instance, service has taken place.  The vessel has been sold and the proceeds are held in court.  Service can only be made on the Registry where the in rem funds are held, applying The Iran Nabuvat.

[2] “9500” was the hire rate at US$9,500 per day.  The enhanced rate in the Addendum was US$12,000 per day.

[3] The difference between US$343,430.75 claimed in the notice of motion and the amount awarded by the judge in the Decision being US$108,475.75.