NOOR MARITIME LTD v. CALANDRA SHIPPING COMPANY LTD

HCAJ 84/2017

[2018] HKCFI 609

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 84 OF 2017

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D E C I S I O N

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Introduction

1.  The Rainbow (owned by the plaintiffs, Noor Maritime) collided with the Calandra (owned by the defendants, Calandra). The Rainbow sank with cargo, fuel and effects on board but with no loss of life.  The Calandra, on a ballast voyage, was damaged but later repaired.

2.  Arising out of the collision were different sets of proceedings in rem and personam.  As far as the present action is concerned, it is a claim in personam by Noor Maritime against the owners of the Calandra, whilst Calandra has a cross-claim in personam against Noor Maritime.

3.  A master imposed an unless order on Noor Maritime to file and serve a defence to the cross-claim.  The unless order was not complied with.

4.  Noor Maritime sought extension of time.  The master gave relief against sanction and gave leave to Noor Maritime to file and serve a defence within 28 days on condition that Noor Maritime paid US$700,000 into court (“the condition” and the order “the order for relief”).  Failing compliance with the condition, the unless order shall stand and Noor Maritime shall be debarred from filing and serving the defence.  The figure of US$700,000 constituted the amount of the cross-claim plus some interest.

5.  This is Noor Maritime’s appeal against the order for relief insofar as it imposed the condition.  The master has granted Noor Maritime a stay of the condition pending this appeal.

6.  By the time of hearing this appeal, Noor Maritime’s defence is ready for filing.  It is Noor Maritime’s case that it was not aware of the order for relief, that there had been no prior breach, that the delay was limited, with no prejudice to Calandra and that the condition was out of proportion to the breach. 

7.  On the other hand, Calandra’s contention was that the state of legal representation of Noor Maritime was such that it has not satisfied the criteria for granting relief.  Moreover, imposition of the condition was consistent with the admiralty jurisdiction of requiring security.

Procedural background

8.  The collision occurred on 18 July 2011.  The writ was filed by Hart Giles on behalf of Noor Maritime on 11 July 2013.  Hart Giles in fact acted for the Rainbow’s subrogated hull and machinery underwriters.

9.  On 19 July 2017, a Settlement Agreement was signed by Holman Fenwick Willan (“HFW”) on behalf of the Calandra and Hart Giles on behalf of Noor Maritime.  It apportioned liability at 1/3 Calandra : 2/3 Rainbow.  The Settlement Agreement provided in §2 for claims for damages to be referred to the Registrar.

10.  On 9 October 2017, Calandra filed its cross-claim.

11.  On 10 November 2017, Noor Maritime and Calandra went before the master for directions on the claim and cross-claim.  Hart Giles informed the master that they had limited instructions, did not represent Noor Maritime in respect of Calandra’s cross-claim and declined to make submissions therefor. 

12.  The master thereupon:

(a)   Made the unless order requiring Noor Maritime to file a defence to the cross-claim within 14 days, ie by 24 November 2017, failing which Noor Maritime shall be barred from filing one;

(b)   By a separate order, directed that Calandra’s defence to Noor Maritime’s claim be filed within 42 days, with no debarring words. Time would have expired on 22 December 2017.

13.  On 30 November 2017, 3 things happened:

(a)   Reed Smith Richards Butler (“RSRB”) filed a notice of change of solicitors to replace Hart Giles.  RSRB claiming to have been appointed to act on behalf of the North of England P&I Club (“the P&I Club”), ie liability underwriters for Noor Maritime) to defend the cross-claim.

(b)   RSRB issued a summons seeking extension of time for Noor Maritime to file its defence to the cross-claim.

(c)   Hart Giles issued a summons (“the Hart Giles summons”) seeking an order that they do remain on record as solicitors notwithstanding the notice of change of solicitors filed by RSRB.

14.  On 22 December 2017, the master made the order for relief Noor Maritime only appeals against the condition.

15.  At the time this appeal was heard, both Hart Giles and RSRB informed this court that they had agreed to “co-counselling” such that Hart Giles continued to act for the hull underwriters whereas RSRB would act for the P&I Club.

16.  Whilst this decision was pending, on 12 February 2018, this court was notified of the learned master’s decision, pursuant to Hart Giles summons, that co-counselling was not permitted, that RSRB removed from the record and that Hart Giles be restored to the record as acting for Noor Maritime.

Legal principles for appeal

17.  An appeal against a master’s decision operates by way of rehearing and the judge exercises the discretion afresh.  It is not necessary to demonstrate an error of law on the part of the master.  See Hong Kong Civil Procedure 2018, Vol 1, §58/1/2.

Legal principles for granting relief against an unless order and imposition of conditions

18.  Order 2, rule 5(1) sets out the factors for grant of relief from sanction.  Those factors are not exhaustive.  The court has to do a multi-facet balancing exercise with no single factor being conclusive: The Incorporated Owners of Yue Sun Mansion v Lake Side Elderly Centre Ltd, HCMP 556/2017, 25 October 2017, §12, Lam VP.

19.  Intentional and contumelious disregard of a court’s peremptory order or failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may lead to refusal of relief from sanction, although refusal is not limited to these situations: Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606, §41,Fok J (as he then was):

20.  Under Order 2, rule 3(1) of the RHC, the court may order a party to pay a sum of money into court if that party has, without good reasons, failed to comply with a rule or court order.

21.  Schenker International (HK) Ltd v Natural Dairy (NZ) Holdings Ltd [2014] 1 HKLRD 274, DHCJ Le Pichon set out the guidelines for imposing a condition for payment into court:

(a)   The Court must first consider the nature and effect of the order that gave rise to the application for relief.  The Court is not precluded from analyzing that despite there being no appeal from the unless order.  (at §§15, 21)

(b)   The condition of payment-in is a type of condition associated with summary judgment applications and normally imposed where eg there is good ground in the evidence for believing that the defence is a sham defence.  Where there is no such ground, the condition requiring full payment-in of the amount claimed would have serious consequences for the defendant, including hampering or stifling his ability to defend the claim.  (at §44)

(c)   In exercising discretionary powers, the primary objective is to secure a just resolution of the dispute in accordance with the substantive rights of the parties.  Payment-in may not further that objective. (at §45)

(d)   A payment into court might be appropriate where there was a history of repeated breaches of timetables, court orders or something in the conduct of the party that gave rise to the suspicion that it was not bona fide and the court thought the other side should have protection. (at §46)

(e)   A short breach that does not prejudice the other side or the trial would not merit an order for payment of the claim amount into court. (at §§47-48)

(f)   Proportionality of the sanction is a relevant and weighty factor; the sanction has to be commensurate with the gravity of the ‘crime’. Where a condition is draconian and out of all proportion to the breach, it can be set aside. (§§49-50)

Application of the legal principles

22.  In admiralty actions where there are cross claims, the procedure is governed by Order 75, rule 41 of the RHC.  Under that rule, there is no automatic deadline for a defence to be filed. The Registrar may give directions for filing under rule 41(2) as he thinks fit.

23.  Notwithstanding there was no appeal against its making, I note that the unless order was made at the very first hearing for directions without any prior non-compliance of the rules or court order on the part of Noor Maritime.

24.  Mr Alder queries whether it was an unless order. In my view, it was, because the wording of the order for relief made clear that after expiry of the 14-day limit, the sanction automatically took effect so that no defence could be filed by Noor Maritime, unless relief was obtained: Daimler AG v Leiduck [2012] 3 HKLRD 119, §47, Fok JA.

25.  There was disparity in treatment of Noor Maritime and Calandra for no apparent reason.  Had Noor Maritime been given the same 42 days to file a defence, there would have been no need for the further extension sought.

26.  Anyway, the application for further extension of time was made promptly within 6 days of expiry of the time for compliance of the unless order.

27.  The non-compliance has now been remedied and the defence is “ready for filing”.  There is no suggestion that the defence lacks merits although Mr Sussex SC kept describing it as “shadowy”.

28.  Nor has it been suggested that the delay in compliance has caused any prejudice to Calandra.  In fact, Calandra only filed the cross-claim 4 years since commencement of this action.  It needed a total of 70 days to file a defence to Noor Maritime’s claim.  Plainly this is not a situation where Calandra wishes to speed things up. 

Legal representation on the part of Noor Maritime

29.  Noor Maritime itself was not interested in this action, it having been paid by the underwriters.  Worse still, Noor Maritime had been struck off the Register of International Business Companies of St Vincent and the Grenadines on 30 December 2016.  It was only restored to the register shortly before the hearing of this appeal.

30.  It is the underwriters (suing or defending in the name of Noor Maritime) that have interests.  As Mr Alder sums it up, Hart Giles had authority (from the hull underwriters) in respect of the claim, but not (from the P&I Club) in respect of the defence to the cross-claim. 

31.  Mr Alder submits that it would be unfair and unjust for Noor Maritime to be debarred from filing a defence when its management (as opposed to Hart Giles) did not know of the order for relief and so was not aware of the need to comply.

32.  With respect, that was no excuse.  Hart Giles was present before the master.  Whilst on record, they should at least have passed on a message to Noor Maritime.

33.  Going back a bit in history, Ince & Co used to be solicitors for Noor Maritime the registered owner, the P&I Club, the machinery underwriters of the Rainbow, the owners and underwriters of Rainbow’s cargo and was on record in HCAJ 109/2011.

34.  By July 2013, Hart Giles had replaced Ince & Co as solicitors in HCAJ 109/2011.  In addition, on 11 July 2013, Hart Giles commenced the action in HCAJ 123/2013 (action in rem by owners of the Rainbow against Calandra) and the present action. 

35.  In a telephone conversation between Ince & Co and HFW on 30 July 2013, HFW was informed that Ince & Co were “no longer acting for the hull [underwriters]” and that “[the P&I Club] take the view that the matter is over.”

36.  Given that position, HFW dealt with Hart Giles exclusively in respect of all matters in respect of the collision.

37.  Though Calandra had questioned the extent of Hart Giles’s authority. Hart Giles has at all times maintained that they had been authorized by Noor Maritime both to prosecute the claim of Noor Maritime and defend the claim of Calandra.  That was the position in 2013. 

38.  Hart Giles’s authority to represent Noor Maritime has been queried twice by the court:

(a)   Before Ng J, on 16 May 2014, in HCAJ 109/2011. This issue was never ruled upon by the admiralty court.  What was quite clear was that nobody at Noor Maritime was giving instructions to anybody on this case although the position of the hull underwriters and Hart Giles have always been that Hart Giles has at all times been fully authorized by Noor Maritime. However, the P&I Club has objected to sending a letter to the court to clarify the position.  That was the position in 2014.

(b)   Before the master, the authority of Hart Giles and RSRB to represent Noor Maritime was adjourned for submission and paper disposal. That was the position in 2017. 

39.  The master’s decision on 12 February 2018 meant that only Hart Giles should remain on record as solicitors for Noor Maritime.  This is the position in 2018.

40.  I am of the view that whilst this was not a case of intentional or contumelious delay on the part of Noor Maritime or its underwriters, the confusion in legal representation was a matter entirely for them to resolve. 

41.  Mr Sussex SC submits that the PI Club had “walked out” in 2013 but suddenly wanted to join in defending the counterclaim at the last minute for no reason.

42.  With respect, that submission overlooked the fact that P&I Club had no obligation to take part in 2013.  It was only in 2017 that Calandra filed the cross-claim.  The P&I Club had acted promptly by instructing RSRB and sought extension of time as soon as it knew of the unless order.

43.  All in all, I am of the view that the master was correct in granting further extension of time to Noor Maritime.

The condition

44.  Applying Schenker, imposition of the condition was disproportionate to the single breach by Noor Maritime.  It had the effect of preventing a just resolution of the dispute in accordance with the substantive rights of the parties.  Mr Sussex SC completely failed to address the guidelines in Schenker.

45.  Mr Sussex SC seeks to justify the condition by praying in aid authorities for claims in rem in the admiralty jurisdiction. He even applies section 20(6)(b) of the Arbitration Ordinance, Cap 609, by analogy to illustrate the point that the distinction between actions in rem and in personam has been eroded.  He points out that during 2013 there had been requests for provision of security from HFW to Hart Giles but none has been provided.  On the other hand, Calandra has always been ready to provide security.

46.  Section 20(6)(b) of the Arbitration Ordinance provides that in the case of admiralty proceedings, if the court makes an order under subsection (5) staying those proceedings, the court may (where property has been arrested, or bail or other security has been given in lieu) order that the property arrested, or the bail or security given, be retained as security for the satisfaction of any arbitral award.  That section has no application to High Court actions like the present.  In any case, the present claim or cross-claim are not in rem; and the Rainbow (having been sunk) had never been arrested.

47.  Further, there was no summons before the master for security.  The condition was imposed on as part of the consideration for granting relief from sanction only.

48.  Mr Sussex SC also relies on Order 1B, rule 1(3), RHC, which empowers the court to make an order subject to conditions, including a condition to pay a sum of money into court.

49.  With respect, if there is no justification for upholding the condition, Order 1B, rule 1(3) would not assist Mr Sussex SC either.

50.  However, whilst writing this judgment, this court has written to Hart Giles and RSRB, cc HFW to verify if the defence was ready for filing by Hart Giles.  The replies that this court received indicated that the state of legal representation has still not be resolved despite lapse of one month since the master’s decision on 12 February 2018.  Whilst RSRB claims that Noor Maritime (presumably meaning P&I Club) has instructed Hart Giles to file the defence, Hart Giles is not in a position to file it on behalf of Noor Maritime or comment on whether it is ready for filing.

51.  The court will not permit the confused state of legal representation to continue.  There ought to be proper management of this case so that the proceedings can move forward.  Therefore, notwithstanding the removal of the condition, I make an unless order as follows:

“Unless the plaintiffs do file and serve their defence to the defendants’ claim in a reference by 4 pm on 16 April 2018, the plaintiffs shall be barred from doing so and the defendants are at liberty to apply for judgment under their cross-claim.”

This new unless order would give an extra 28 days for the underwriters to sort out the representation for Noor Maritime.

Conclusion

52.  I allow the appeal and set aside the order for relief to the extent it imposed the condition and make the new unless order in paragraph 51 above.

53.  As Noor Maritime was seeking indulgence before master, the costs order before the master is upheld, ie costs be borne by Noor Maritime, to be taxed if not agreed.

54.  As for this appeal, it was only after lodging of this appeal that Noor Maritime was restored to the register.  During the hearing of this appeal, co-counselling was still pursued by Hart Giles and RSRB, which was eventually rejected by the master after this hearing. 

55.  Although the condition is set aside, by the new unless order, the court is giving more time to Noor Maritime to sort out the legal representation. Accordingly, costs of the appeal should be borne by Noor Maritime.  Without disrespect, the issue does not warrant engagement of senior counsel.  Costs are therefore summarily assessed and allowed at $100,000.

56.  I make an order nisi on costs in accordance with paragraphs 53 and 55.

57.  I thank counsel for their assistance.