THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL “OOCL CHINA”v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL “DARYA BHAKTI”

CACV 70/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 70 OF 2013

(ON APPEAL FROM HCAJ NO. 218 OF 2009)

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REASONS FOR JUDGMENT

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Hon Barma JA (giving the Reasons for Judgment of the Court):

1. This was an appeal against a judgment of Deputy High Court Judge Sakhrani dated 10 December 2012, given in a Claim in a Reference in an Admiralty action between the parties, arising out of a collision that took place off Shanghai on 4 March 2008 between the plaintiffs’ vessel “OOCL China” and the defendants’ vessel “Darya Bhakti”. Each of the parties brought a claim against the other in respect of the collision, but prior to liability for the collision being determined, the quantum of the parties’ respective claims was made the subject of the Claim in a Reference. All of the defendants’ claims were agreed, but while most of the plaintiffs’ claims were similarly agreed, a small number of their claims remained in dispute, and were determined by the Judge.

2. The appeal concerns two claims which the Judge decided adversely to the plaintiffs.  These were:-

(1)  a claim in respect of the cargo transhipment costs resulting from the collision, which the Judge rejected in its entirety; and

(2)  a claim in respect of loss of hire suffered by the plaintiff Overseas Orient Container Lines (“OOCL”), as a result of the collision, which the Judge did not allow in full, reducing the amount awarded to about 45% of the sum claimed.

3. At the conclusion of the hearing we dismissed the appeal, with costs to the defendants.  We indicated that we would hand down our reasons for doing so later, and now do so.

4. It is necessary to explain, by way of background, the arrangements under which the OOCL China was operated.  The OOCL China was demise chartered to OOCL, which was a member of a consortium of shipping lines (known as the Grand Alliance) that operated container liner services between East Asian ports and ports in other parts of the world.  The members of the Grand Alliance were OOCL, Malaysian International Shipping Corporation (“MISC”), Hapag Lloyd AG (“HL”) and Nippon Yusen Kaisha (“NYK”).  They operated the Grand Alliance under an agreement known as the Grand Alliance Operating Agreement (“the GAOA”).  Under the GAOA, each party to it was required to make available vessels for the operation of the various liner services offered by the Grand Alliance.  The container carrying capacity of each such vessel was divided into container slots, which were chartered (by what was known as “slot charter”) by the vessel’s operator to other members of the Grand Alliance.  In this way, the member of the Grand Alliance providing the vessel could earn slot charter hire, while the other members could obtain cargo carrying capacity on the vessel providing the liner service, which they could sell to cargo owners desirous of shipping cargos on such services.  The vessel operator could also reserve for itself a certain number of slots on the vessel, for which it did not need to pay slot hire.

5. Although the OOCL China was demise chartered to OOCL, OOCL had in turn time chartered the vessel to MISC, in order to enable MISC to fulfil its obligation to provide a ship for use on the Grand Alliance’s Trans-Pacific Central China Express liner service.  The operator of the vessel on this liner service was therefore MISC, and not OOCL.  The container slots on the OOCL China were slot chartered out by MISC to OOCL, HL and NYK, with OOCL chartering 45.97% of the available slots on the OOCL China for shipment of its containers, for which it would pay slot hire to MISC.

6. OOCL was also the demise charterer or owner of another, similar, vessel known as the “OOCL Japan”, which it had made available to the Grand Alliance to be used by the Grand Alliance as a reserve ship which could be made available in case a similar vessel operated by the Grand Alliance should become incapacitated. OOCL were paid certain hire charges by the Grand Alliance for the supply of the OOCL Japan for this purpose.

7. Following the collision between the OOCL China and the Darya Bhakti, the OOCL China (which was on a voyage from Shanghai to Busan, Korea) had to return to Shanghai where it discharged its cargo so that it could be sent for repairs.  The cargo was then transhipped onto other vessels for carriage to Busan.  The transhipment costs, in the agreed amount of US$967,769.08, were paid by MISC, the time charterers and operators of the OOCL China.  However, MISC later purported to charge OOCL for the transhipment costs, by deducting the amount of those costs from payments that it subsequently made to OOCL as part of an account settling exercise when MISC left the Grand Alliance.  OOCL denies that MISC was entitled to make this deduction, claiming that it had been agreed between OOCL and MISC at the time of the collision that MISC, and not OOCL, would be responsible for settling the transhipment costs.  In arbitration proceedings between OOCL and MISC (which are at present under way), OOCL is seeking repayment from MISC of the amount of the transhipment costs which OOCL says have been wrongfully withheld by MISC.

8. After the collision, the OOCL China was off hire for a period of 44.58 days while it was undergoing repairs.  As the daily rate of hire payable by MISC to OOCL under the time charter in respect of the vessel was US$32,016, OOCL suffered a loss of hire of US$1,427,273.28.  However, because the vessel was, for the purposes of the Grand Alliance, operated by MISC, OOCL would have had to pay US$14,717.75 per day by way of slot hire to MISC for the container slots that it had reserved on the OOCL China.  While the OOCL China was unavailable, the OOCL Japan took its place on the Trans-Pacific Central China Express service. However, as the OOCL Japan was operated by OOCL, OOCL did not have to pay any slot hire charges to itself to make use of the container slots that it had reserved on this service.  It therefore made a saving of US$14,717.75 per day, and was out of pocket in the net amount of US$17,298.25 for each day that the OOCL China was off hire.

9. So far as the claim for transhipment costs was concerned, the Judge held that, on the evidence adduced before him, MISC had agreed with OOCL that MISC would bear the transhipment costs.  He concluded that MISC’s attempt to recover the amounts it had paid by withholding them from OOCL was therefore wrongful, so that OOCL was entitled to recover them from MISC in the ongoing arbitration proceedings between them.  In these circumstances, the Judge held that OOCL had not itself suffered any loss in respect of the transhipment costs, and rejected this claim by OOCL in its entirety.

10. Before us, Mr Scott SC, appearing for OOCL, contended that the Judge was wrong to have held that OOCL had neither incurred nor paid for the transhipment costs.  He submitted that by withholding the amount of the transhipment costs from the payment made by MISC to OOCL in the final accounting process, MISC had effected a set off of those costs as against the amounts that they owed to OOCL, with the effect that the burden of the transhipment costs had been transferred to OOCL, who had thus paid for them, thereby incurring a loss in the amount of such costs.  As the demise charterer of the vessel, OOCL was entitled to claim in respect of such transhipment costs, as such costs were in the nature of general average expenses, which the ship owner or demise charterer could claim as part of its damages arising out of a collision, if it had paid for them. Further, the owner or demise charterer could claim the whole of such costs on behalf of himself and (as bailee) on behalf of owners of cargo laden on the vessel (see Morrison Steamship Company Ltd v Greystoke Castle (Cargo Owners) [1947] AC 265, per Lord Roche at p.278).

11. Mr Sussex SC, appearing for the defendants, did not dispute that OOCL could claim in respect of the transhipment costs if it had paid them.  However, he submitted that the difficulty for OOCL in this case was that it had not paid such costs, and was not liable to pay them, because of MISC’s agreement to bear the transhipment costs.  MISC’s subsequent attempt to renege on that agreement did not, Mr Sussex submitted, change things.  Having wrongfully (in the light of their agreement) withheld the amount of the transhipment costs from OOCL, MISC would no doubt be held liable in the arbitration between MISC and OOCL to pay the amount withheld to OOCL at the end of the day.  On that basis, OOCL had not in fact incurred any loss in respect of the transhipment costs, and the Judge was right to reject this part of OOCL’s claim.

12. In the course of Mr Scott’s oral submissions, he correctly accepted that the purported deduction of the transhipment costs by MISC during the final accounting process could only be effective to transfer those costs to OOCL by way of set off if it had been agreed between OOCL and MISC that, as between them, OOCL should be responsible for those costs.  The Judge, however, found as a fact that, on the contrary, the agreement had been that MISC, and not OOCL, would bear the transhipment costs.  In order to succeed on this point, therefore, Mr Scott had to show that the Judge was plainly wrong in making this finding.

13. The evidence before the Judge as to the agreement between OOCL and MISC consisted of various items of email correspondence recording the outcome of discussions between members of the Grand Alliance in respect of the transhipment costs, which tended to suggest that MISC had agreed to bear such costs, and the evidence of Captain Gong of OOCL, who had taken part in such discussions. Although Mr Scott sought to persuade us that Captain Gong’s evidence was at best equivocal as to whether or not MISC had agreed to bear the transhipment costs at the end of the day, or to do so only on an interim basis, it seems to us from the transcript of his evidence that Captain Gong was clearly of the view that MISC had agreed to bear such costs once and for all.  He stated that he did not think that the agreement was only an interim arrangement, and agreed that as far as he was concerned, there had been a binding agreement reached with MISC, and that he did not consider that MISC had any right to deduct their amount from other amounts payable by it to OOCL.

14. Far from being satisfied that the Judge was plainly wrong in finding that it had been agreed as between MISC and OOCL that MISC would be responsible for the transhipment costs, we are of the view that he was plainly justified in making such a finding on the evidence before him.

15. Mr Scott complained that such an outcome would mean that the defendants would escape liability for the transhipment costs even if it were ultimately found that their vessel was responsible for the collision.  It does not seem to us that this is a relevant consideration.  The question, as between the plaintiffs and the defendants, is whether the plaintiffs have suffered any loss.  On the Judge’s findings, the plaintiffs did not do so in respect of the transhipment costs, and they are not, therefore, entitled to recover the amount of such costs from the defendants.  The fact that MISC might not be able to recover such costs from the defendants because they would constitute irrecoverable pure economic loss on its part because as a time charterer it had no proprietary interest in the vessel (see The Mineral Transporter [1985] 2 Lloyd’s Rep 383) is also neither here nor there.

16. Mr Scott also complained that this outcome would leave his clients exposed to the possibility that their claim against MISC in the arbitration might fail, and that it was unsatisfactory for the Judge to have made the findings that he did in the absence of evidence from MISC, in proceedings to which MISC were not parties and by the result of which they would not be bound.  But the parties having apparently decided to proceed with the Claim in a Reference expeditiously, and OOCL not having sought to have it determined only after the outcome of the arbitration proceedings between itself and MISC was known, the Judge had no alternative but to make the factual findings that were necessary to enable him to dispose of the proceedings before him, on the basis of such evidence as was available to him.

17. We therefore considered that the Judge was right to disallow this claim, and dismissed the appeal in respect of it.

18. Turning to the claim in respect of loss of hire, the issue here was whether the Judge was right to deduct from the amount of hire that would have been payable by MISC to OOCL for the period that the OOCL China was off hire the amount of slot hire saved by OOCL arising from the fact that the substitute vessel OOCL Japan was its own vessel, for which slot hire was not payable in respect of the container slots on it utilised by OOCL.  The Judge held that in ascertaining OOCL’s loss of hire, it was necessary to look at the net loss suffered by OOCL, so that credit should be given for the saving in slot hire that OOCL would otherwise have had to pay to MISC had the OOCL China continued in service.

19. Mr Scott first argued that the saving in slot hire should not be taken into account because this was a saving that OOCL made in a different capacity from that in which it had suffered the loss of charter hire payable by MISC.  What Mr Scott meant by this was that whereas the charter hire payable by MISC was payable to OOCL under the time charter in respect of the OOCL China, the slot hire payable by OOCL to MISC was payable under a different contractual arrangement – the GAOA.  With respect, we do not think that this is relevant.  Although the respective payments arose under different contracts, they were nonetheless payments that were receivable or payable by OOCL for itself.  It is not as if one payment was made by OOCL in its own right, while the other was received in an entirely different capacity, for example a trustee for a third party, in which case it would be right to say that the two payments should not be netted off.  The relevant enquiry is as to the amount of loss suffered by OOCL under this head, and this calls for a determination of the amount by which OOCL is out of pocket at the end of the day.  In determining this, there is no reason to leave out of account a saving which OOCL only made because of the collision and the fact that the OOCL China was out of service, and replaced by the OOCL Japan as a consequence.

20. Mr Scott’s other argument in respect of this part of OOCL’s claim was that in taking into account that OOCL did not have to pay slot charter hire because the OOCL Japan was its own vessel, the Judge had erred in failing to appreciate the difference between an idle sister ship and a reserve ship, and had wrongly treated the OOCL Japan as an idle sister ship, rather than a reserve ship.  Mr Scott drew our attention to Marsden on Collisions (13^th ed), where it is stated (at para 15-60) that a distinction is to be drawn between a case in which an idle sister-ship takes the place of a damaged vessel and one in which a standby or reserve ship, specially kept for that purpose, is deployed – where an idle sister ship is substituted for the damaged vessel, no substantial claim for damages will arise, whereas a substantial claim will lie where a reserve vessel, which the owner has invested in as a reserve, is used in substitution for the damaged vessel.

21. Mr Scott submitted that by finding the OOCL Japan to be OOCL’s own vessel, and requiring the deduction of the slot hire savings from the loss of time charter hire from MISC for the OOCL China, the Judge was in effect treating the OOCL Japan as an idle sister ship, rather than a reserve vessel, as OOCL’s witnesses had said it was.

22. As to this argument, we are satisfied that Mr Sussex was right to submit that it does not arise on the actual facts of the present case, because even if the OOCL Japan were to be viewed as a reserve ship, it was a reserve ship of the Grand Alliance, to whom it had been supplied by OOCL for that purpose, and for which OOCL would receive payment, rather than as a reserve ship of OOCL.  It is clear from the evidence that whether it was on layby for the Grand Alliance, or in use as a substitute for the OOCL China, the OOCL Japan would earn slot charter hire for OOCL.  It was not, therefore, a reserve ship of OOCL’s at all.  Moreover, as Mr Sussex also pointed out, an amount had been separately agreed by way of compensation for the use of the OOCL Japan as a reserve ship as a distinct item of damages, so that it would not be right to accede to Mr Scott’s argument.

23. We therefore considered that the Judge was also correct in disposing of the loss of hire claim as he did, by allowing recovery only of the amount for which OOCL was out of pocket at the end of the day, by deducting from the lost hire the savings OOCL made on slot hire as a result of the use of the OOCL Japan as a substitute for the OOCL China.  It followed that the appeal in respect of this aspect of OOCL’s claim also fell to be dismissed.