XCHRX CONSOLIDATED PROJECTS LTD. v. THE OWNERS OF THE TUG "DE PING"

HCAJ 3/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 3 OF 2000

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Admiralty Action in rem against the Tug "DE PING"

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J U D G M E N T

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1. On 18 October 1999 at Shanghai, Shanghai Tongbao Shipping Co. Ltd ("Tongbao") of Shanghai entered into a contract of towage ("Contract") with Consolidated Projects Limited ("Consolidated") of the Netherlands to tow the barge Jascon 2 ("Barge") from Singapore to Qingdao, China for the consideration stated therein. The Contract on Bimco Towcon form contained a Tug Seaworthiness Clause (Clause 13), a Himalaya Clause (Clause 19), a Warranty of Authority Clause (Clause 22) and a Law and Jurisdiction Clause (Clause 25) which stipulated for Chinese Maritime Law and China Maritime Court.

2. Pursuant to the Substitution of Tug Clause (Clause 14) of the Contract, the tug De Ping ("Tug") was substituted for the tug named in the Contract. The Tug however is not owned by Tongbao but is owned by China Shanghai Salvage Co. Ltd ("Tug Owner"). The Barge is also not owned by Consolidated but by Offshore Contractors (C.I.) Ltd ("Barge Owner"), a Guernsey company.

3. It is contended on behalf of the Plaintiff that during the course of the towage of the Barge by the Tug there was some engine problem with the Tug and eventually salvage services were engaged by the Barge Owner entering into a salvage agreement dated 19th December 1999 on Lloyd's Open Form ("LOF") with the Tug Owner. It would seem that the tug De Qiang (also belonging to the Tug Owner) performed the salvage services.

4. The Barge and the Tug came into Hong Kong on 4 January 2000. The salvage vessel De Qiang had asked the Barge Owner for security of US$600,000 pending Lloyd's Arbitration in London under the LOF. The allegation made by the Plaintiff is that:-

(1) the Tug might have been unseaworthy with defective engine when it commenced its tow in Singapore;

(2) the Tug is proposing to have repairs to the engine effected in Hong Kong;

(3) the tow to Qingdao of the Barge by the Tug under the Contract will resume upon the repairs being effected to the engine of the Tug; and

(4) the Plaintiff desires to obtain the evidence as to the nature and extent and cause of damage to the engine of the Tug.

It is in these circumstances that on 5 January 2000 in the afternoon an urgent ex parte application was made to this Court pursuant to Order 75 rule 28 of the Rules of the High Court for an order requiring the Defendant, the Owner of the Tug, to permit inspection of the Tug engine by surveyor for the Plaintiff and for discovery of associated documentation. The application was made ex parte but due to the alertness of Holman Fenwick and Willan, solicitors for the Defendant owner of the Tug, they discovered that such an ex parte application was being made and rushed to court to protect the interest of the Defendant owner of the Tug. I expressed my view that it was not appropriate that such an application should be made ex parte and I directed that it should be heard inter partes with proper papers to be served on the Defendant owner of the Tug and with opportunity for such Defendant to file affidavit evidence in answer to the supporting affirmation of Nancy Leung dated 5 January 2000 ("Leung Affirmation"). The hearing was adjourned to 2.30 p.m. the next day, 6 January 2000. It is to be noted that at the time of the hearing on 5 January 2000, the parties named under the Writ were Consolidated as Plaintiff and the owners of the Tug De Ping as Defendant. The case of the Plaintiff as clearly expressed in paragraph 5 of the Leung Affirmation is that Consolidated was both the party to the Contract as well as the owner of the Barge and therefore was the Plaintiff and that Tongbao was the party to the Contract as well as the owner of the Tug and therefore Tongbao was the Defendant.

5. When the matter came back to the court in the afternoon of 6 January 2000 with the defendant having filed the Affidavit of Anthony Day dated 6 January ("Day Affidavit"), the case of the Plaintiff was totally transformed. A draft Amended Writ was put before me, showing the parties to be Consolidated Projects Ltd. as the 1st Plaintiff, Offshore Contractors (C.I.) Ltd. as the 2nd Plaintiff, the Owners of the Tug, namely the China Shanghai Salvage Co. Ltd, as the 1st Defendant and Shanghai Tongbao Shipping Co. Ltd as the 2nd Defendant. The draft Amended Writ also shows substantial amendments to the Endorsement of the Claim. The court was also informed that the Writ had been served because the Defendant owner of the Tug had entered an Acknowledgement but the Plaintiff had not arrested the Tug or was proposing to arrest the Tug.

6. Mr Nigel Kat who was instructed at short notice, appeared for the Plaintiff Consolidated and the proposed new 2nd Plaintiff, Offshore Contractors (C.I.) Ltd. and sought the inspection order against the Defendant Tug Owner as well as the proposed 2nd Defendant Shanghai Tongbao Shipping Co. Ltd. on two basis (see paragraph 17 of his Skeleton Argument) either as an aid to :-

(a) the proceeding before the China Maritime Court between Consolidated and Tongbao for breach of the Contract; and/or

(b) the defence of the Barge Owner (Offshore Contractors (C.I.) Ltd.) in the Lloyds London Salvage arbitration against the claim of Tug Owner (China Shanghai Salvage Co. Ltd.) in respect of the salvage of the Barge by the tug De Qiang.

There are a large number of jurisdictional and procedural problems confronting Mr Kat which must be overcome before there can be any question of exercise of discretion by the court to grant the proposed inspection order. However, central to the application is whether on the evidence put before the court, there is sufficient merit on the application for the court to exercise its discretion in favour of Mr Kat's clients.

7. As I have indicated to Mr Kat in the course of the hearing, I take a strict view of what is admissible evidence before me and I therefore will not act on factual assertions put in the Skeleton Argument of Mr Kat (except in any aspect agreed to by the Defendant Tug Owner). The admissible evidence of the Plaintiff on this application really amounts to a few relevant paragraphs in the Leung Affirmation, namely that :-

(1) the Tug encountered engine problems (para. 7);

(2) salvage assistance was called and there was a salvage contract LOF (para. 7);

(3) the Tug and Barge came to Hong Kong on 4 January 2000 (para. 7);

(4) the salvors made demand against the Barge Owner for security of US$600,000 in respect of the LOF and this is a potential damage which will be suffered by the Plaintiff as well as loss and damage due to the delay (para. 8);

(5) the engine of the Tug was to be inspected by a technician appointed by the Defendant (para. 13);

(6) the engine of the Tug was to be repaired in Hong Kong (paras. 13 and 11(a)) and after such repairs the Tug will resume the towage to Qingdao and the Plaintiff wished to be satisfied that the Tug is capable of being a seaworthy and tow-worthy tug before the resumed voyage (para. 11(a));

(7) inspection of the engine is desired by the plaintiff for the purpose of ascertaining and preserving evidence ("Evidence") as to :-

(a) the nature, extent and cause of the damage to the engines of the Tug; and

(b) whether the Defendant had exercised due diligence to make the Tug seaworthy and tow-worthy at the beginning of the commencement of the towage (para. 10);

(8) the Evidence to be obtained by the inspection is desired to determine whether the need for salvage was caused by the Defendant's failure to exercise due diligence to make the Tug seaworthy (para. 11(c));

(9) the Evidence to be obtained by the inspection may be relevant to the assessment of salvage remuneration in the Lloyd's London Salvage Arbitration (para. 11(b));

(10) if the Plaintiff is not allowed to obtain the Evidence by the inspection requested, it is highly likely that some, if not all, the relevant evidence will disappear after the repairs had been done and will never be available again (para. 13);

(11) the request for permission to inspect the engine had been refused by the Defendant (paras. 16 and 17).

The Day Affidavit for the Tug Owner shows that there was a survey of the Tug prior to the commencement of towage and that survey was satisfactory. There is also the evidence that Tongbao had offered to give a second tow approval survey prior to the Tug's departure from Hong Kong.

8. The above recital of the evidence indicates that this is an everyday usual case of where something had gone wrong with a sea voyage and that repair was therefore being done so that the voyage can be resumed. There is simply nothing which justifies the special intervention of this Court. It is part of the usual hazard of shipping that things go wrong during a voyage and they range from heavy weather to negligence to accidents of all kinds. Just because there was a breakdown of engine or other part of the ship does not mean that the ship was unseaworthy at the time of the commencement of the voyage. In the course of the shipping litigation which comes regularly to the Admiralty Court, a plaintiff does not rush to the court asking for inspection of the ship every time there is a casualty. In my Admiralty Court, it is only on the very rare occasion an inspection order might be made justified by some special circumstances. There is really nothing special in this case as to justify the Plaintiff seeking an inspection order.

9. The reality of the application is summarised in the words of Mr Kat for the Plaintiff "We want to seek equality of positions". But what Mr Kat overlooks is that by the nature of civil litigation system as we know it, there is often no equality of positions of the parties and certainly not at the initial stage of the proceedings. In many ways the defendants are often at an advantage. Whether it is a bus company, a shipping company or a utility company which has been involved in some accident, the primary evidence (in the form of the bus, or the ship or the electric transformer) will be in the hands of the defendant and there is therefore no equality of positions. But it is not a function of the court to achieve equality of positions and it will be a misuse of procedure through inspection orders to achieve this equality of positions. In my view therefore this is a wholly misconceived application.

10. But the facts of the case speak in fact further against the Plaintiff. There is the allegation (which is merely by way of a bold assertion on affirmation) that all the relevant evidence will disappear after repairs and will never be available again. The bold allegation must be carefully examined in the context of this case. This is a case where professionals are involved and a large heavy crane barge is being towed from Singapore to Qingdao by a substantial tug and where, because of the insurance position, surveyor had inspected the Tug prior to commencement of towage and had approved the proposed towage by the Tug. Paragraphs 9, 12, 13, 14 and 15 of the Voyage Recommendations in the Salvage Association's Survey Certificate dated 25 November 1999 made it clear what sort of communication and documentation will be generated in such a towage voyage. There is of course further the usual documents which will be found on the Tug such as ship's logs and engine logs as well as communications between ship and shore. If in fact there was engine trouble and engine of the Tug required to be repaired then apart from the aforementioned documentation, there would be generated the usual repair quotations as well as the repairs bills when the repairs had been done. It is therefore hardly a situation of all relevant evidence disappearing once repairs had been done. The Leung Affirmation is unfortunate in making wild allegation based not on facts but on assertions. The Leung Affirmation suggests to me that the Plaintiff is seeking to improve its forensic position and is fishing for any material which might assist it in any way. There is no question of an identified issue of a particular defect in the engine on which all evidence will be lost to the Hong Kong Court unless it is secured by an immediate order of inspection. I therefore hold that even if this is a case where the trial will be held in Hong Kong before me, the facts do not warrant the granting of an inspection order. On this finding the application therefore must fail.

11. However, as there are also other strong grounds advanced by Mr Day against the granting of the order, I should briefly also indicate my views on these other grounds.

12. So far as the application against Tongbao is concerned, it is simply a total non-starter for the following reasons :-

(1) Tongbao is not a party in the Writ and the joinder of a party after a Writ in rem had been served would require the leave of the court which in the circumstances I would have refused for reasons stated below;

(2) It is not the usual practice of the Admiralty Court to add a claim in personam to a Writ in rem;

(3) It will be necessary for the Plaintiff to obtain leave to serve out on Tongbao which is a foreign defendant. Such leave to serve out under Order 11 would have been refused by me because :-

(a) the Contract was neither made in Hong Kong nor broken in Hong Kong nor was the tort, if any, committed in Hong Kong and except for the wholly irrelevant matter of payment being made in Hong Kong, neither the parties nor the claim has any connection with Hong Kong;

(b) the Contract provided for dispute to be determined by China Maritime Court and Chinese Maritime Code;

(c) on the present material it is even doubtful whether a good arguable case had been shown against Tongbao;

(d) the plaintiff's own case as revealed in the oral submission and Skeleton Argument of Mr Kat is that the claim against Tongbao will be brought in the China Maritime Court and not in the Hong Kong Court;

(e) in any event any claim against Tongbao in Hong Kong is likely to be stayed by the Hong Kong Court on the basis of exclusive jurisdiction clause or forum non conveniens or lis alibi pendens or under the inherent jurisdiction of the court.;

(f) the endorsement of the Writ, the draft Amended Writ and the Leung Affirmation are together so confusing and uncertain of what specific cause of action is being sought by which of the two plaintiffs in the Amended Writ against which of the two defendants in the Amended Writ based on what material facts as to require the court to speculate of what might be the true case of each of the proposed plaintiffs against each of the proposed defendants;

(g) the court would not grant leave to serve out if the only purpose of the Hong Kong proceeding against Tongbao was to allow the plaintiff to inspect and photograph property in a non-party's possession (see Douihech v. Findlay [1990] 3 A.E.R. 118).

13. As for the application against the defendant Tug Owner, this would fail for the following reasons:-

(1) The Barge Owner, Offshore Contractors (C.I.) Limited is not a party in the Writ and the joinder of a party after a Writ in rem had been served would require the leave of the court which in the circumstances I would have refused for reasons stated below.

(2) The endorsement of the Writ, the draft Amended Writ and the Leung Affirmation are together so confusing and uncertain of what specific cause of action is being sought by which of the two plaintiffs in the Amended Writ against the which of the two defendants in the draft Amended Writ based on what material facts as to require the court to speculate as to what might be the true case of each of the proposed plaintiffs against each of the proposed defendants.

(3) As there was no contract between the Tug Owner on the one hand and Consolidated and the Barge Owner on the other hand, the claim will have to be brought by them against the Tug Owner in tort. On the admissible affidavit before the court, there does not even begun to be a proper case made out as to what duty is owed by the Tug Owner to the Barge Owner and to Consolidated and what were alleged to be the exact breaches of duties.

(4) The alleged tort in any event was not committed in Hong Kong;

(5) The Plaintiff's own case as revealed in the oral submission and Skeleton Argument of Mr Kat is that the London Lloyd's Arbitration and not the Hong Kong Court will be the forum where the dispute between the Tug Owner and the Barge Owner will be resolved, with the Tug Owner making a claim for salvage against the Barge Owner in respect of the salvage services to the Barge performed by De Qiang and with the Barge Owner seeking to defend the claim on the basis that somehow the Tug Owner as owner of the Tug was in breach of duty to the Barge Owner and therefore caused the Barge to require salvage services, in other words raising the defective engine of the Tug as a ground to contend that there was lack of due diligence by the Tug Owner to make the Tug seaworthy.

(6) In any event any claim against the Tug Owner in Hong Kong is likely to be stayed by the Hong Kong Court on the basis of arbitration clause or forum non conveniens or lis alibi pendens or under the inherent jurisdiction of the court;

(7) The Lady Muriel [1995] 2 HKC 320 is good authority for this Court that where there is a binding foreign arbitration agreement in the form of the LOF between the Tug Owner and the Barge Owner, the Hong Kong Court should not make an inspection order unless it is satisfied "beyond a peradventure, that the (applicant) .... would suffer serious and irreparable damage if the order were not made" (per Godfrey JA at page 324I). There is no such evidence before the court and as I had indicated earlier, in my view this is simply an ordinary everyday case with the only difference being that the aggressive Plaintiff wishes to embark on a fishing expedition to improve its position to achieve "equality of positions".

(8) In so far as the claim brought by Consolidated against the Tug Owner is concerned, it is difficult to conceive the basis of the claim since the Barge Owner (not Consolidated) is the one who will suffer the damage by having to pay the salvage award.

(9) Having regard to Clause 22 and the Himalaya Clause of the Contract (see page 112 of Rainey on The Law of Tug and Tow) considered by reference to The Mahkutai [1996] A.C. 650 and taking into account the Supplementary Submissions of the Plaintiff and of the Defendant both dated 8 January 2000, in my view it is probable that both Consolidated and the Barge Owner will be found to be bound by Clause 25 of the Contract to pursue theirs claims against the Tug Owner in the China Maritime Court.

14. I therefore conclude that there is no merit whatever in the application of the Plaintiff for inspection which must be dismissed. The Defendant is to have forthwith the costs relating to such application which I will assess by way of gross sum assessment under Order 62 rule 9(4)(b) at a date to be fixed unless the costs can be agreed by the parties.