AIG EUROPE LTD AND OTHERS v. FAST- LINK EXPRESS LTD AND OTHERS

HCAJ 114/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 114 OF 2014

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J U D G M E N T

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Introduction

1.  The present proceedings arose as a result of the total loss of a container vessel “MOL Comfort” (“Vessel”) in the Indian Ocean in June/July 2013.  The Vessel fractured amidship, split into two halves, drifted for days and eventually sank together with all the cargo laden on her (“Casualty”).

2.  All the Plaintiffs in this case are cargo interests or insurers. According to the Statement of Claim, the 4^th Defendant is the issuer of 2 bills of lading dated 4 June 2013 (“1^st Bill”) and 5 June 2013 (“2^nd Bill”) (collectively “Bills”) for carriage of certain cargo from Hong Kong to Rotterdam.  It is being sued by the 9^th to 26^th and 29^th Plaintiffs (“Plaintiffs”) for the loss of cargo worth US$399,107 and CHF 153,136 respectively.  The Bills were issued in Hong Kong and the port of loading stated in them was also Hong Kong.

3.  The contracts of carriage contained in and/or evidenced by the Bills were governed by what is commonly known as the Hague‑Visby Rules.  They also expressly provide for Hong Kong laws to be the governing law and for Hong Kong courts to have exclusive jurisdiction.

4.  This is the adjourned hearing of the 4^th Defendant’s application by summons dated 21 September 2015[1], subsequently amended on 16 May 2016, for a “case management” stay of the proceedings until the final determination of:

(1) a limitation action commenced by Mitsui OSK Lines Ltd (“Mitsui”), before the Tokyo District Court (“Limitation Action”); or

(2) an action commenced by inter alia Mitsui and the owner of the Vessel against Mitsubishi Heavy Industries Ltd (“MHI”), before another division of the Tokyo District Court (“MHI Action”).

5.  The 4^th Defendant’s application is opposed by the Plaintiffs.

6.  The 5^th Defendant is the issuer of another bill of lading dated 31 May 2013.  It is being sued on it by the 27^th and 28^th Plaintiffs for the loss of their cargo worth US$439,824.  While the 5^th Defendant has not issued a summons of its own seeking a similar stay of proceedings, pursuant to leave given by this court, it attended the adjourned hearing in support of the 4^th Defendant’s application.

7.  Neither the 4^th nor the 5^th Defendant was the actual carrier of the cargo.  The 4^th Defendant is described as a “NVOCC” ie non‑vessel operating common carrier[2]. On the evidence, the 4^th Defendant has sub‑contracted the carriage of the cargo under the Bills to Mitsui and Hyundai Merchant Marine Company Limited (“HMM”).

8.  At the material time, the Vessel was owned by Ural Container Carriers SA, time chartered to Mitsui and operated by a subsidiary of Mitsui.  MHI was the builder of the Vessel.

The Law

9.  The Court has an inherent jurisdiction to regulate its own procedure including inter alia the jurisdiction to grant a stay of proceedings. This jurisdiction is discretionary and is stated in wide terms in s 16(3) High Court Ordinance, Cap 4.  Similarly, RHC O 1B r 1(2)(e) empowers the Court to “stay the whole or part of any proceedings either generally or until a specified date or event”.

11.  In Linfield Ltd v Taoho Design Architects Ltd [2002] 2 HKC 204 at [13]–[14], Ma J (as he then was) set out the underlying principles governing stay applications where there are multiple proceedings dealing with the same or similar subject matter, but not involving the same parties, as follows:

(1) The Court must consider what would serve the ends of justice between the parties to the action and the administration of justice generally.

(2) Where a plaintiff commences proceedings as of right, he should not be deprived of the right to carry on those proceedings in the absence of very good reasons.

(3) A stay must not cause an injustice to the plaintiff.

(4) The applicant must satisfy the Court that continuing the proceedings would be oppressive or vexatious to him or an abuse of process ie it would be unjust to him.

12.  Linfield Ltd v Taoho Design Architects Ltd involved a stay application by one of several defendants pending the outcome of arbitrations between the same plaintiff and some other defendants.  The principles in Linfield Ltd v Taoho Design Architects Ltd were adopted in Intel Corp v Via Technologies Inc [2002] 3 HKC 650, at [18]–[19], with one variation, to a stay application in patent infringement proceedings pending the outcome of English legal proceedings by the same plaintiff (but not the same defendants) for infringing similar English patents.  The one variation was that Sakhrani J did not regard it as a prerequisite to a stay that continuing the proceedings would be oppressive or vexatious to the applicant or an abuse of process, as long as it would be unjust to him.  At [20], Sakhrani J also held that the exercise of the court’s discretion in a given set of facts involved the balancing of all relevant factors on either side of the line.

13.  Lastly, and importantly, in Princess of the Stars [2012] EWCA Civ 1341, Longmore LJ reaffirmed at [21] the normal rule that a stay of proceedings properly brought in a jurisdiction could only be granted in “rare and compelling circumstances”.

Deliberation

14.  Before assessing the merit of the 4^th Defendant’s submissions, or rather the lack of it, it is necessary to give a brief description of the Limitation Action and the MHI Action.   

15.  In July 2013, Mitsui applied to the Tokyo District Court for a decree of limitation of liability.  A limitation decree was granted by the Tokyo District Court and a limitation fund (“Fund”) in the sum of JPY 4,097,444,566 was subsequently constituted.  Apart from Mitsui, other known beneficiaries who are entitled to limit their liability include the owner of the vessel, her operator, manager and various slot charterers, including HMM.  The 4^th Defendant is not a beneficiary of the limitation decree or a party to the Limitation Action.  Nor does it claim to be.

16.  Mr Isao Saiki, a Japanese attorney‑at‑law, was appointed administrator of the Fund.  GA Adjustors Asai‑Ichikawa were subsequently appointed to assist him in inter alia assessing the quantum of claims arising from the Casualty and determining the existence of overlaps, if any, of claims for the same cargo.  Claims against the known beneficiaries were directed to be filed by 15 November 2013.

17.  By way of background, the concept of limitation of liability is simply that a ship owner and other designated parties are entitled to limit their liability arising out of a maritime incident to a particular sum, irrespective of the total number of claims and their amounts.  The act of invoking limitation of liability does not constitute an admission of liability as such. If a limitation decree is granted, the ship owner (and others) will set up a fund and all claimants can only look to the fund for satisfaction of their claims, but not otherwise.  It is legally possible, but in practice highly difficult, for a claimant to “break the limit”.  In order for a person liable to lose the right to limit liability, it must be proved that the loss resulted from his personal act or omission, committed with intent to cause such loss, or recklessly and with knowledge that such loss would probably result.  In the ordinary course of things, what happens is that the claimants will accept a pro rata share of the limitation fund in satisfaction of their claims, period. In Hong Kong, the law on limitation can be found in the Convention on Limitation of Liability for Maritime Claims, 1976 (“1976 Convention”), set out in Schedule 2 of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance, Cap 434.  A Protocol to the 1976 Convention was adopted on 3 May 1996 (“1996 Protocol”) and entered into force on 13 May 2004 after its ratification by the requisite number of States.  The amendments made by the 1996 Protocol to the 1976 Convention are not material for the present purpose.  Suffice it to say it is not in dispute that the Limitation Action was brought by Mitsui in accordance with the 1996 Protocol.[3]

18.  On 10 January 2014, Mitsui, together with the owner of the Vessel, submitted a petition in the Limitation Action.  In the petition, Mitsui stated that “[t]he cause of the…Incident was because there was a defect in the Vessel”, and that such defect would qualify as “latent defects not discoverable by due diligence” under Article IV Rule 2(p) of the Hague‑Visby Rules.  Mitsui was therefore, among other reasons, exempted from carrier’s liability.

19.  According to the latest figures, over 11,000 claims have been filed against the Fund, amounting to JPY 146,278,639,121.  About half of them were filed by NVOCCs whose claims are said to be duplicated with claims filed by cargo interests for the loss of the same cargo.  The administrator has to check the duplication between cargo interests’ claims and NVOCCs’ claims, as well as determining the quantum of each filed claim.  In light of the sheer volume of work, the administrator has not been able to give a firm date by which he will finish his task.

20.  The Limitation Action has so far focused on the issues of quantum and duplication of claims.  This process must be completed before dealing with the question of carrier’s liability, as to which no further material has been submitted after Mitsui had filed its petition.  The administrator has also repeatedly announced he would observe the development of the MHI Action before determining carrier’s liability.  It is therefore reasonable to assume that the Limitation Action will not be completed prior to the determination of the MHI Action.

21.  The MHI Action is a separate and distinct legal proceeding from the Limitation Action and is heard by a different court.  Since its commencement, over 20 cargo interests, NVOCCs and container interests have joined in as additional plaintiffs.  Previously, the Chief Justice who presided over the MHI Action, has announced that the issue of liability would be heard first.  Mitsui and MHI have subsequently exchanged legal briefs totaling hundreds of pages. They have also disclosed and submitted hundreds of documents as evidence.

22.  According to the 4^th Defendant’s Japanese attorney, the central issues in the MHI Action are (a) whether there was a defect in the design/manufacture/instructions/warnings relating to the Vessel, and (b) whether Mitsui’s faulty operation or other negligence contributed to the Casualty.  Owing to the extremely technical nature of the case, the Court has also announced its plans to appoint 4 technical advisors to assist it.  The technical advisors will produce written answers to questionnaires prepared by the parties and then answer supplementary questions at a hearing.  There will also be examinations of expert witnesses who would produce their reports after the technical advisors have provided their answers but before their examinations.  The Court has also announced that, after hearing the technical advisors and expert witnesses, it would disclose its “preliminary” evaluation on liability. The indication is that the court would recommend the parties to settle first and, if the parties refuse to do so, release an “interim” decision on liability.

22.  The basis of the 4^th Defendant’s application is set out in Mr Wright’s skeleton argument from paragraph 23[4] onwards:

“23. The grant of a temporary case management stay would avoid the injustice of requiring the 4^th and 5^th Defendants to defend the Hong Kong Action without the benefit of the evidence and documentation which will be disclosed in the MHI Action and/or the Limitation Action…

…

28. In the event that the 4^th Defendant were to be compelled to defend the Hong Kong Action without the benefit of the evidence and documentation which will be disclosed in the MHI Action and the Limitation Action, the Hong Kong Court would be deprived of the benefit of relevant evidence.

29. … the Plaintiffs seek to rely solely on the burden of proof in order to establish their claims.

30. If the Court were to rely solely on the incidence of the burden of proof — as opposed to a consideration of all relevant evidence — it would lead to a clear risk that the Court would reach an erroneous conclusion and therefore fail to determine the claims in accordance with the substantive rights of the parties.

31. There would be a particular injustice to the 4^th Defendant in the present case if liability were to be determined in the absence of the evidence and documentation relating to the cause of the casualty.

…

33. …HMM and Mitsui are each named as beneficiaries of the Limitation Decree. HMM and Mitsui will be entitled to defend themselves against claims using the evidence and documentation relating to the exercise of due diligence to make the Vessel seaworthy at the commencement of the voyage. However, in the absence of a stay, this evidence will not be available to the 4^th Defendant.

34. There would be an obvious risk of inconsistent decisions if the Hong Kong Action is decided without the benefit of the relevant evidence but the liability of HMM and Mitsui is decided with the benefit of that evidence and documentation. This risk would be avoided if the temporary stay were granted.” (emphasis added)

23.  From the above, it is reasonably clear that the whole plank of the 4^th Defendant’s argument boils down to the one proposition that the present proceedings should be deferred until the determination of the Limitation/MHI Action so that the 4^th Defendant can avail itself of the evidence filed by the parties in the Limitation/MHI Action in order to defend the present proceedings.

24.  The fallacy of the 4^th Defendant’s argument is many‑fold.

25.  First and foremost, the evidence before this court does not support the 4^th Defendant’s contention that the evidence in the Limitation/MHI Action will be available to the 4^th Defendant only after their final determination, but not before.  The 4^th Defendant is not a party to the Limitation/MHI Action.  If the 4^th Defendant, as a non‑party, is entitled to have access to the evidence filed in the Limitation/MHI Action, then logically it should make no difference whether the two actions have been finally determined or not.  The reverse should also be true. 

26.  This court expects the 4^th Defendant to point to some specific Japanese legislation, procedural rules, case law or otherwise which supports its contention that a non‑party can only obtain evidence adduced in the Limitation/MHI Action after its final determination.  But there is none.  On the contrary, the 4^th Defendant’s Japanese attorney has testified that a non‑party can, with the Japanese Court’s permission, inspect and copy the court files pursuant to Article 91 of the Japanese Code of Civil Procedure.  All that it has to do is to make out a prima facie case that it has a legal interest in the Japanese proceedings when seeking such permission.  In the MHI Action, the Court has so far allowed non‑parties to inspect and copy the evidence by submitting a translated transport document (Bill of Landing or Sea Waybill) evidencing the non‑party’s relation to the Casualty, in addition to a power of attorney and a document showing the corporate particulars of the applicant, if the application is made through an attorney.  The costs for making such application is JPY 150, and access is usually provided on the same day.  Importantly, the Japanese attorney has even testified that he would be able to search and copy the court files on behalf of the 4^th Defendant.

27.  If, as suggested by its Japanese attorney, the 4^th Defendant can make out a prima facie case that it has a legal interest in the two actions, it should be able to obtain permission to inspect and copy the court files any time now.  Conversely, if the 4^th Defendant cannot make out such a prima facie case now, it is difficult to see why it would do any better by waiting until their final determination.  Either way, it appears to this court that no useful purpose can be served by staying the present proceedings.

28.  Second, this court is not satisfied that the 4^th Defendant has no means to obtain proof of the cause of the Casualty, other than from the court files in the two actions.  Mitsui is one of the 4^th Defendant’s sub‑contractors and, prima facie, has a potential contractual liability to the 4^th Defendant for the loss of the cargo.  It stands to reason that Mitsui has a self‑interest in assisting the 4^th Defendant to defend the present action.

29.  As already stated above, Mitsui is blaming MHI for the Casualty in the Limitation Action.  It has even sued MHI in the MHI Action.  There is no reason why Mitsui cannot assist by, for instance, providing evidence to the 4^th Defendant which tends to show that MHI is solely or primarily to blame for the Casualty. Whether or not Mitsui is sufficiently interested to do so, given the relatively small amount of the Plaintiffs’ claims, is of course another matter.  But there is no evidence that the 4^th Defendant has even tried to solicit assistance from Mitsui or that Mitsui has refused to assist after the 4^th Defendant’s request. 

30.  Third, regarding the evidence thus far filed in the Limitation Action ie on quantum and the nature of claims (to enable the administrator to assess whether there are any duplications between claims filed by NVOCC and by cargo interests), it is difficult to see how such evidence can assist the 4^th Defendant in defending the present proceedings — no explanation has been provided by Mr Wright as to his client could be so assisted.

31.  Regarding the evidence filed in the Limitation Action on carrier’s liability, the 4^th Defendant has already had access to Mitsui’s petition which blamed MHI for defects in the Vessel.  No other materials pertaining to carrier’s liability have been filed and it is presently unknown what further evidence might be and when the filing of such evidence will be complete.  Obviously, by the time the Limitation Action has been “finally determined”, evidence on everything, liability, quantum or otherwise, will be complete.  But it is a big unknown as to when that time may be, bearing in mind the sheer number of claims ie 11,000, that the administrator has not even started to consider the issues on liability and the real likelihood that he will wait for the outcome of the MHI Action before finally determining carrier’s liability.

32.  As for the MHI Action, the estimate made by the 4^th Defendant’s Japanese attorney back in February 2016 was that the Tokyo District Court would disclose its preliminary evaluation on liability at the hearings in November and December 2016 to enable the parties to canvass the question of settlement.  In September 2016, the same attorney confirmed that the MHI Action (as well as the Limitation Action) had so far proceeded according to schedule.  But even assuming that is so, all that the parties to the MHI Action can expect will be a preliminary evaluation on liability, which is, by definition, is not a final determination of the MHI Action.

33.  Even after the Tokyo District Courts have finally determined the MHI Action and Limitation Action, their determination will still be subject to appeal to the Tokyo High Court and then the Supreme Court of Justice.  The delay to a “final determination” resulted from such potential appeals will be measured in terms of years.

34.  Fourth, if and in so far as the purpose of staying the present proceedings is to wait for the final outcome in the Limitation/MHI Action, again, it is difficult to see how the final outcome can assist the 4^th Defendant in defending the Plaintiffs’ claims.  The 4^th Defendant is not a party to either action and is not bound by its final outcome.  Nor is the 5^th Defendant, for that matter.  The Tokyo District Court’s (or the Appellate Court’s) determination on the cause of the Casualty and carrier’s liability may or may not be useful as a reference but this court is not bound by it. Ultimately, this court has to adjudicate the Plaintiffs’ claims based on the evidence before it and in accordance with Hong Kong law.  As far as this court is concerned, no useful purpose will be served by staying the present proceedings pending the outcome of the two actions.

35.  Apart from the absence of any tangible benefit to the 4^th Defendant, this court must also consider the adverse effect on the Plaintiffs should the present proceedings be stayed.  As to that, this court is of the firm view the prejudice and injustice to the Plaintiffs which will result from a stay of the present proceedings is clear, obvious and grave.

36.  The progress of the present proceedings has already been halted for a year by the stay application and the 4^th Defendant’s failure to adduce all requisite evidence prior to the last hearing.  If these proceedings are stayed pending the final determination of the Limitation/MHI Action, the Plaintiffs will face further delay, the length of which is unknown but, is likely to be measured in terms of years.  It is axiomatic that justice delayed is justice denied — the delay involved in the present proceedings is per se a cause for injustice to the Plaintiffs. 

37.  In this regard, one must bear in mind the Plaintiffs’ claims are relatively small, in comparison with the totality of the claims arising from the Casualty.  Further, the Plaintiffs are suing the 4^th Defendant in Hong Kong as of right pursuant to an exclusive jurisdiction clause by which the 4^th Defendant has agreed to be bound.  In accordance with Princess of the Stars, the circumstances have to be rare and compelling before a stay of the present proceedings should be granted.  This court finds the circumstances of the present case far from rare or compelling.  Indeed, this court finds it wholly unreasonable and unjust to “suspend” the Plaintiffs’ claims in order to wait for the outcome of the (over 11,000 claims) in the Limitation Action or the highly technical MHI Action, the progress of which the Plaintiffs have no control whatsoever.

38.  For all the above reasons, this court, in the exercise of its discretion, rejects the stay application, whether pending the Limitation Action or the MHI Action. 

39.  For completeness, this court records, the 5^th Defendant, as a fallback position, suggested at the hearing this court could stay the present proceedings for only a limited time, say up to June 2017, and see how the Japanese proceedings unfold.  For the same reasons given above, this court is not prepared to grant even a limited stay.  In particular, this court sees no useful purpose in staying the present proceedings for a few months: the prejudice to the Plaintiffs as a result of the delay remains, albeit to a lesser extent, while one of the perceived benefits of the stay ie this court may derive some assistance from the outcome of the Japanese proceedings seems even more remote.

Disposition and costs order nisi

40.  The 4^th Defendant’s summons is hereby dismissed.

41.  There shall be an order nisi that costs of and occasioned by the application be paid by the 4^th Defendant to the Plaintiffs, to be taxed if not agreed, and paid forthwith, with certificate for counsel for the hearing on 26 January 2016 and certificate for senior counsel for the hearing on 7 September 2016.

42.  As for the 5^th Defendant, it does not have an application of its own and its attendance at the adjourned hearing was simply to support (unsuccessfully) the 4^th Defendant’s application. In the circumstances, it has to bear its own costs in doing so.