TAXFIELD SHIPPING LTD v. ASIANA MARINE INC. AND OTHERS

HCCT15/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 15 OF 2006

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D E C I S I O N

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1.  This is an application by the plaintiff for an order for the sale of perishable or deteriorating property pursuant to section 2GC and Article 9 of Schedule 5 of the Arbitration Ordinance, Cap. 341 and Order 29 rule 4 of the Rules of the High Court.  It relates to a cargo of cement at present on board a ship that is at Port Harcourt, Nigeria. 

2.  The plaintiff is the registered owner of the ship M/V “New Market” (“the Vessel”).  It entered into a voyage charterparty with the 1st defendant on about 23 September 2005 and chartered the vessel to the 1st defendant for a voyage from one safe port/one-two safe berth Taizhou or Zhangjiaggang or Nantung Port, China, to one safe port/one-two safe berths Port Harcourt, Nigeria.  The charterparty is evidenced by a fixture note incorporating the “GENCON” form 1994.

3.  The charterparty contains, among other provisions, the following:

Fixture note dated 23 September 2006

“2.       CGO: 30,000MT 10 PCT Moloo Cement in bulk;

21.      Arbitration/GA if any to be settled in HKG, English law to apply;

24.      Others as per GENCON CP Revised 1994.”

GENCON 1994

“8.       Lien clause:  The Owners shall have a lien on the cargo and on all sub-freights payable in respect of the cargo for freight, deadfreight, demurrage, claims for damages and for all other amounts due under this Charter Party including costs of recovering same.

10.      Bills of Lading:  Bills of Lading shall be presented and signed by the Master as per the ‘Congenbill’ Bill of Lading form, Edition 1994, without prejudice to this Charter Party or by the Owners’ agents.”

4.  The charterparty provided that a bill of lading should be issued and signed by the Master or the servants of the plaintiff as per the “Congenbill” Bill of Lading form, Edition 1994.  The charterparty provided that English law should apply and any disputes between the parties should be resolved by arbitration in Hong Kong.

5.  The Vessel arrived at Taizhou, China, on about 10 October 2005.  Notice of Readiness was tendered at 19:30 hours.  An initial draft survey was conducted at 19:45 hours.

6.  The Vessel began to load cargo on 11 October 2005 at 16:00 hours and loading was completed at 04:40 hours on 15 October 2005.  The final draft survey was conducted at 06:50 hours and the Vessel departed at 11:30 hours on the same day.

7.  On or about 15 October 2005, the Chief Officer signed and issued a Mate’s Receipt on the Plaintiff’s behalf stating that 29,594 metric tons of Ordinary Portland Cement Quality Conforming to GB175-1999 PO 42.5 R in Bulk +/- 10% (“the Cargo”) were loaded on board the Vessel.

8.  On or about 15 October 2005, a Bill of Lading No. XIAOMAGE002 (“the B/L”) was issued at Taipei, Taiwan, as per the “Congenbill” 1994 form by Rony Transportation Company Limited on the plaintiff’s behalf pursuant to the terms of the charterparty.  The plaintiff has been advised by its Nigerian legal counsel that the original B/L is currently held by the 3rd defendant in Nigeria.

9.  The B/L contained the following terms, among others:

“Bill of Lading;

To be used with charter parties;

Code name ‘Congenbill’;

Edition 1994;

“All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated.”

10.  The B/L also expressly provided that the terms of the charterparty, including but not limited to the law and arbitration clause, were incorporated therein.

11.  As shown in the B/L, the 2nd defendant is the shipper of the Cargo and the 3rd and 4th defendants are the consignee and notifying party respectively.

12.  On 24 November 2005, the Vessel arrived at the port of discharge at Port Harcourt, Nigeria.  Notice of Readiness was tendered at or around 00:44 hours on 25 November 2005 and the Vessel was at that time ready to discharge the Cargo.  A Ship Entry Notice was issued by the Nigerian Ports Authority approving the entry of the Vessel into the port.  However, the Cargo has not been discharged until now.

13.  The documentary evidence shows that on or about 12 September 2005, the 4th defendant applied to the 3rd defendant bank for a letter of credit (“L/C”) to be opened on its behalf.  The beneficiary under the letter of credit was the 2nd defendant.  The terms of the L/C suggest that the 2nd defendant was the seller of the Cargo and the 4th defendant the buyer.  The 2nd defendant issued an invoice to the 4th defendant on 9 September 2005 demanding payment of the Cargo in the sum of US$2,250,000.

14.  Since the Vessel arrived at the port of discharge on 24 November 2005, no attempt has been made by either the 3rd or the 4th defendant to present the original B/L and to take delivery of the Cargo.  On 9 December 2005, the plaintiff sent a notice of protest to put the 1st defendant on notice that the Vessel was still waiting for berthing due to the failure of the 3rd and 4th defendants to take delivery and urge the 1st defendant to make all necessary arrangements.  The plaintiff also expressly reserved its rights to bring a claim against the 1st defendant in respect of any claims, demurrage, losses and costs arising from such failure.

15.  The plaintiff’s Hong Kong solicitors have written to the 2nd and 3rd defendants urging them to present the original bill of lading and take delivery of the Cargo.  However, to date, the 2nd and 3rd defendants have given no response.

16.  It appears that the failure of the receivers to take delivery of the Cargo may be because of a decision by the President of the Republic of Nigeria to revoke the quota previously given to the 4th defendant to import cement into Nigeria.  I will not go into the details of this.

17.  The plaintiff has obtained an expert report from Captain Eric Edmondson dated 27 February 2006, which describes the dangers that will be faced by the Vessel as a consequence of the long period that the Cargo has been on board.  The Cargo itself is of a perishable nature.  Further, the presence of the Cargo would endanger the Vessel if it were kept on board for any longer.

18.  It would accordingly appear to serve the interests of all parties if the plaintiff were to be able to order the Vessel to proceed to the next convenient port where the Cargo could be discharged and sold immediately.

19.  The plaintiff intends to commence arbitration proceedings in Hong Kong against the 1st defendant pursuant to the terms of the charterparty.  It also intends to commence arbitration proceedings against the 2nd, 3rd and 4th defendants pursuant to the terms of the B/L, which incorporated the terms of the charterparty including the arbitration clause.

20.  The plaintiff’s claims against the defendants will include a claim for a declaration that the defendants have abandoned the Cargo; a claim for a declaration that the plaintiff is entitled to exercise a lien over the Cargo and the proceeds of sale thereof; and also a claim for demurrage in respect of the substantial period that the Vessel has been delayed.

21.  As the arbitral tribunal has not been formed, the court has jurisdiction under Section 2GC and Article 9 of Schedule 5 of the Arbitration Ordinance to grant interim relief for the Cargo to be sold.  The particular interim relief is an order for sale and the court has power to grant it under Order 29, rule 4 of the Rules of the High Court.  Section 2GC and Article 9 of Schedule 5 of the Arbitration Ordinance and Order 29 rule 4 of the Rules of the High Court provide as follows:

“2GC. (1) The Court or a judge of the Court may, in relation to a particular arbitration proceeding, do any of the following- 

(b) in relation to relevant property- 

(i)  make an order directing the … sale of the property by … a party to the proceedings …;

Article 9.  Arbitration agreement and interim measures by court

It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.

(Order 29, rule 4)  Sale of perishable property, etc.

(1) The Court may, on the application of any party to a cause or matter, make an order for the sale by such person, in such manner and on such terms (if any) as may be specified in the order of any property (other than land) which is the subject-matter of the cause or matter or as to which any question arises therein and which is of a perishable nature or likely to deteriorate if kept or which for any other good reason it is desirable to sell forthwith.”

22.  The power to order sale under Order 29, rule 4 allows the court to prevent injustice which would arise if the goods, which are liable to deteriorate or perish, are allowed to do so, with the consequence that they will become of no value while the dispute between the parties is pending.  I have been referred to the case of Larner v Fawcett [1950] 2 All ER 727 at 729G-H per Somervell L. J.:

“That submission seems to me to fail in principle, because if the party has a right of sale under this lien or under some other procedure, the rule would be unnecessary.  Also the rule does not seem to be me to be directed to that type of question.  In construing it I think it is important to bear in mind that it refers primarily to goods of a perishable nature.  In the course of the argument I gave an instance which seems to me as good as any other.  One imagines goods which are claimed by A and B.  They may be in the possession of a third party and there may be interpleader proceedings.  One party or other would have the right of sale, and I can conceive he might sell at his own risk, but if there were interpleader proceedings, that could not happen.  The rule, it seems to me, is not based on a consideration of the right of sale of one party or another, but is directed to the injustice which might result if perishable goods perished and became of no value while the dispute between the parties as to their ownership was being decided at law.”

23.  The originating summons has been served on each of the defendants in accordance with the order of Tong J dated 24 February 2006.  None of the defendants have to date filed any acknowledgement of service indicating that they intend to oppose the plaintiff’s application for interim relief sought in the originating summons.  The 4th defendant has this morning appeared by solicitors and sought an adjournment, which I declined.  I also note that on 1 March 2005, the 1st defendant had sent an acknowledgement of service by fax to the plaintiff’s solicitors indicating that it did not intend to contest these proceedings.

24.  On 27 February 2006, the 4th defendant’s Nigerian lawyers, Olumide Sofowara’s Chambers, sent a fax to the plaintiff’s solicitors which stated:

“We are Solicitors to Ibeto Cement Co. Ltd., the Receivers of the cargo of cement on board the vessel under reference and it is on its instructions that we are writing you this letter. 

Our Client has received your letter dated 24th February 2006 in respect of same and wishes to point out that the inability to discharge the cargo of cement from the vessel was not due to the fault of the consignee or charterer, but due to what could be referred to ‘as restraint of princes (sic)’.  Our Client got the Nigerian Government’s approval to import the cargo of cement on board the vessel under reference and several others and after the vessels arrived at the Port of Port-Harcourt in Nigeria, they were prevented from discharging by a Presidential order.  It is noteworthy that the Chinese Ambassador to Nigeria even intervened in the matter and the representative of the vessels is aware of efforts being made to discharge the vessel as well as others laden with cement meant for our Client.

Since efforts are still on to ensure that the matter is resolved with the President, it is hoped that the vessels should commence discharging as soon as possible in the next few days.  We therefore see no immediate reason to commence arbitral proceedings with all its attendant expenses.  Because of our expectations, we have not assigned our interest in the cargo to anyone, and in any event, the Bank that financed the transaction has not yet endorsed the Bill of Lading to us.  We have also not given anyone authority to assign our interest to a third party.

We have our Client’s further instruction to request that you henceforth communicate with us directly on all issues pertaining to this matter, including any claims you may have against our Client.”

25.  The plaintiff’s solicitors then sought advice from its Nigerian correspondents, and on 2 March 2006 the Nigerian correspondents replied to the plaintiff’s solicitors in the following terms:

“I have read Mr Olumide Sofowara’s fax and I am at a loss as to the source of his information.  The position remains the same.  I am aware that IBETO are still lobbying the Government.  No one can predict the outcome and I would not recommend that we postpone proceedings.  The only vessel, “JORITA”, that IBETO was able to bring along side has been ordered to leave with her cargo.  I will make further inquiries and will revert to you.”

Since then, there was no further development which would indicate that the Cargo could be discharged before it becomes deteriorated.

26.  In the premises, as the immediate discharge and sale of the Cargo would be in the interests of all parties, I therefore consider it just and right that I should allow the plaintiff to sell the cargo and to pay the proceeds of sale into court.  I therefore order in the following terms:

(1)    The plaintiffs be at liberty to sell the Cargo consisting of about 29,594 metric tons of Ordinary Portland Cement in bulk, currently on board M/V “New Market”, without prejudice to the rights of the parties to this action and, after sale, to pay the proceeds, after deducting the expenses of sale, into this court where such proceeds shall be retained pending the outcome of the arbitration proceedings between the plaintiffs and the defendants or further order of this court; and

(2)    the costs of this application be paid by the defendants to the plaintiff in any event and such costs to be taxed.