INTRALINE RESOURCES SDN BHD v. THE OWNERS OF THE SHIP OR VESSEL "HUA TIAN LONG"

HCAJ 59/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO.59 OF 2008

------------------------------

Admiralty action in rem against: the ship or vessel
“HUA TIAN LONG” (People’s Republic of China Flag)

---------------------------

---------------------------

Dates of Hearing: 8 and 9 May 2008

----------------------------------------------------

REASONS  FOR  JUDGMENT

----------------------------------------------------

The application

1. This case raises a point of Admiralty law and practice not often ventilated, namely that of fixing the amount of bail for an arrested vessel, absent agreement thereon between owners and the arresting party.

2. There is before the court a Notice of Motion, dated 6 May 2008, issued by the defendant owners of the vessel “Hua Tian Long”, for an Order that the court determine the amount of bail bond or other security to be provided on behalf of owners to procure the release or their vessel, which was arrested in Hong Kong waters on 21 April 2008 upon application of the plaintiff pursuant to a warrant of arrest obtained by the plaintiff and a writ in rem issued on the same day.

3. The hearing of this Motion, which was short served, was heard by the court on 8 May 2008. 

4. At the conclusion of argument by counsel on behalf of both parties, the court indicated that due to the urgency of the matter that it would render its judgment as to the quantum of such security at 4.30 pm on the following day, that is, on 9 May 2008, with written reasons subsequently to be provided, once again upon an urgent basis in order to accommodate the plaintiffs’ intended appeal.

5. These are those reasons.

The Orders as made on 9 May 2008

6. The order as made on the Motion is in the following terms:

(i)      that the defendant do provide security in a manner acceptable to the plaintiff, alternatively in a manner to be decided by the Registrar of the High Court, in the sum of US$65 million;

(ii)      that such security be provided on condition that the plaintiff do, by 4 pm on Friday 16 May 2008, amend the writ of summons dated 21 April 2008 to include therein the address of the plaintiff, Intraline Resources Sdn Bhd;

(iii)     that there be an order nisi that the costs of and occasioned by the Notice of Motion be reserved to the trial judge.

The application for an interim stay

7. Immediately after pronouncement of this Order, Mr Christopher Chan, the plaintiff’s solicitor – who, together with Mr William Amos, the defendants’ solicitor, attended by permission of the court in lieu of counsel – made an oral application for an interim stay of the order for security pending appeal against this Order.

8. The court declined to grant this application, and ordered that it be adjourned sine die with liberty to restore.

9. It was accepted by both parties that the vessel could not be released until a Praecipe for Release (or equivalent relevant document) was signed by the court, and for this purpose the court further ordered that any such Praecipe should not be signed by other than Stone J as the judge dealing with this application, or if this was not possible by Reyes J, as Admiralty Judge, or alternatively by any other High Court judge.

10. It was anticipated that if the plaintiff wished then to restore its application for an interim stay, it could do so at this stage of the defendant formally seeking release of its vessel – at which point, should it see fit to grant such an interim stay, the court then could make appropriate directions as to the length of such stay pending appeal; in this regard it was made clear to the plaintiff’s solicitor that the court would not countenance an interim stay absent sight of a Notice of Appeal, nor was it likely that any such stay would be for more than a matter of a few days at the most.

11. It was also envisaged on behalf of the defendant that, from a purely practical viewpoint, the administrative task of the defendant owners – a Mainland Chinese Salvage Bureau in Guangdong, itself a branch of the Ministry of Communications of the PRC – to furnish security agreeable to the plaintiff in all probability would not be accomplished until the week following, and that the intervening weekend and public holiday would mean that in the event there would be a de facto stay in place.

The factual background

12. For immediate purposes there is no need to say more about this dispute than is sufficient to place into context the present application for assessment of security.

13. The “Hua Tian Long” is, in substance, a large floating derrick/crane with very substantial lifting ability.  In technical terms it is described as a ‘4000 ton Revolving Construction Barge’.

14. I am told that normally it is based in Guangdong, but that its services urgently were required in Hong Kong in order to salvage a sunken Ukrainian tug which recently was in collision with another vessel in the harbour, and which sadly sank with substantial loss of life.

15. I understand that the “Hua Tian Long” had succeeded in lifting the unfortunate Ukrainian tug from the seabed to the surface by means of ‘slings’, and that upon the application of the plaintiff it was arrested after it had completed this salvage job, and prior to its return to Guangdong.

16. The plaintiff is a Malaysian company with whom the defendant owners entered into a Charterparty dated 1 February 2007 and signed on 3 February 2007.

17. Under this Charterparty the plaintiff had agreed to hire the vessel “Hua Tian Long” for a minimum period of 100 days from the date of delivery, which was specified to be on or around 15 June 2007.

18. The affidavit of Mr Paul Hatzer, one of the plaintiff’s solicitors, which leads the arrest describes the plaintiff as being in the business of providing professional engineering, project management, procurement, construction and fabrication, transportation and installation and retrofitting and commissioning activities in terms of projects in the oil and gas, building and infrastructure industries.

19. The particular work for which the plaintiff had required the services of the “Hua Tian Long”, one of the few heavy lift crane barges available for hire in the region, was construction work relating to offshore oil developments for Newfield Malaysia Inc and Talisman Malaysia Ltd and other third parties. 

20. The plaintiff successfully had bid for these projects, and thus had required the services of the “Hua Tian Long” in order to fulfil its own contractual commitments: hence an initial Memorandum of Agreement signed by both plaintiff and defendant on 19 January 2007, the subsequent Charterparty of 1 February 2007, and a further Memorandum of Agreement dated 1 February 2007 (of which the defendant makes much) which the plaintiff says it had “no option” but to sign as there were in the region very few such vessels as the “Hua Tian Long”.

21. However, notwithstanding that which the plaintiff says was the defendant’s contractual commitment to deliver the barge, the plaintiff’s case is that the defendant let it down; the “Hua Tian Long” never was delivered, and by letter dated 7 November 2007 the defendant had finally intimated its intention not to deliver the vessel. 

22. The barge was not delivered because, the plaintiff says, it was on-hire elsewhere, notwithstanding ‘Letters of Commitment’ which the plaintiff says it variously had received from the defendant.

23. Accordingly, the plaintiff maintains that it has suffered very substantial loss and damage, and that it was forced to take steps to mitigate the allegedly extensive losses caused by the substantial delays to the projects the plaintiff itself was obliged to perform, delays which the plaintiff says are directly consequential upon the non-delivery of the “Hua Tian Long”.

24. Nor does the plaintiff rely simply on a cause of action in contract for breach of the charterparty; in addition the general indorsement upon the writ in rem pleads (at paragraphs 5-8) a case in fraudulent/negligent misrepresentation against the defendant owners arising as a result of various representations contained in Letters of Commitment issued by the defendant on 25 December 2006 and 10 January 2007, the Memorandum of Agreement of 19 January 2007, and a letter confirming the Confirmation of the Charter dated 24 January 2007.

25. The foregoing summary represents no more than a thumbnail sketch of that which is involved in this case; the variety of the plaintiff’s alleged consequential losses is set out in schedules in Mr Hatzer’s affidavit backing the warrant of arrest – an affidavit in which it then is alleged that the scale of this claim against defendant owners is in or around US$59 million, including interest and costs.

The failure to agree bail

26. In normal course the issue of the amount of money required to be posted in the form of a bail bond or other security never is publicly canvassed.  For the most part arrested vessels are entered with a P&I Club, which generally offers the security demanded in the form of a standard letter of undertaking, and the vessel thus is immediately released.

27. In the present case, however, the “Hua Tian Long” is not entered with any P&I Club, and is, in effect, owned by a department of the Chinese Government.

28. Chinese owners have taken exception to the amount of bail thus demanded by the plaintiff in this case.

29. In the Affirmation of one Mr Hu Zhi Hui, dated 28 April 2008, who is the Deputy Director in the Business Department of the Guangzhou Salvage Bureau of the Ministry of Communications of the PRC, he deposes to the fact that the entity known as ‘Guangzhou Salvage’ is the owner of the “Hua Tian Long”.

30. In this affirmation he denies the allegations made against Guangzhou Salvage, and explains the factual background to this case; for present purposes there is no need to condescend to detail.

31. He disputes the demand made in correspondence by the plaintiff in the sum of US$100,450,00.00, and refers to the defendant’s application to strike out this action, and further to the existence of an arbitration clause within the charterparty, and to the consequent possibility of an application for a stay of these proceedings in favour of arbitration.

32. Thereafter, in his 2^nd Affirmation of 5 May 2008, Mr Hu Zhi Hui subjects the plaintiff’s claim for loss and damage, as contained within the schedules exhibited to Mr Hatzer’s affidavit, to critical comment, and objects to the adequacy of the documentation within that affidavit as being insufficient to maintain such a claim for security.

33. In the event, Mr Hu asserts that the claim for loss within Mr Hatzer’s affidavit (of some US$54 odd million plus interest and costs) is significantly overstated, and says that “according to our own calculation, their claim for these items of losses should be no more than US$37,083,372.77” – thereafter, using the various heads of loss asserted, he undertakes a detailed commentary the better to inform the reader of how this lower figure is calculated.

34. Clearly, therefore, there was and is an impasse between the parties as to how much this claim is worth, and hence the amount of security correspondingly to be provided in order to procure the release of the defendant’s vessel.

35. In the meantime, the “Hua Tian Long” is languishing under arrest in the harbour, under the supervision of the Court Bailiff, and (the court has been told) by reason of this arrest the defendant is losing hiring fees for this barge of in the order of some US$100,000 per day.

Defendant’s application to strike out the writ in rem

36. The present Notice of Motion is the second in time.

On 28 April 2008, the defendant issued a Notice of Motion asking that the writ and the action be struck out, that the warrant of arrest of the “Hua Tian Long” be set aside and the vessel released from arrest, and that there be an inquiry into damage suffered by the defendant as the result of the arrest.

37. The grounds prayed in aid for this earlier Motion were that the plaintiff’s action did not fall within the Admiralty jurisdiction of the High Court, that the affidavit leading the warrant of arrest did not establish that the plaintiff was entitled to bring an admiralty action in rem against the defendant and to arrest the vessel, and that the plaintiff’s claim is scandalous, frivolous and vexatious and an abuse of process.

38. This court did not hear this first Motion.

39. It was entertained by Reyes J, the Admiralty Judge, at an urgent hearing on 30 April 2008, and consequent upon that hearing the learned Judge ordered that the defendant’s application to strike out the writ and the action be dismissed, the application to set aside the warrant of arrest be dismissed, and that the costs of the Motion be to the plaintiff, to be taxed if not agreed.

40. I am informed by the defendant’s counsel, Mr Wright, that the hearing of this Motion did not take a great deal of time, and that the Admiralty Judge had no difficulty in divining that the admiralty jurisdiction of the Hong Kong court indeed had been engaged: hence his Order.

41. Mr Wright also has informed this court that this Order of Reyes J may be appealed by his client, but that for the purpose of the present Notice of Motion to fix the amount of security for the release of the vessel, and without prejudice to any such appeal, he was content to approach the matter on the basis that such jurisdiction indeed is established.

Notice of Motion dated 8 May 2008

42. Against this background, therefore, I return to the present Notice of Motion, and the Orders consequent thereupon as set out earlier in these Reasons for Decision.

43. The Motion was vigorously argued: for the defendant/ applicant by Mr Colin Wright, and for the plaintiff/respondent by Mr Clifford Smith SC.

44. As earlier observed, by force of circumstance there are relatively few such motions, given the moderating existence within the shipping industry of the P&I Clubs, and most certainly there is unlikely to have been any Motion such as the present wherein the defendant owners have moved that the amount of security necessary to release the arrested vessel should be in but a relatively nominal sum, whilst the plaintiff now seeks a very substantial increase upon the amount of security initially sought, and in lieu of the US$59 million figure within the affidavit leading the arrest, now seeks a sum in security of in or around US$140 million.

Applicable principle

45. Whilst counsel starkly diverge in their view as the amount properly required to release this particular vessel from arrest, there is substantial identity of view as to the applicable principle upon which the court should act in an application such as this, and it may be helpful briefly to set out the main framework of such principle.

(i)      Discretion of the court to fix the amount of security

46. The court’s power to order the release of a vessel from arrest is discretionary; it may order the arrested vessel to be so released absent any security being provided: see Meeson, Admiralty Jurisdiction and Practice, (3^rd ed), para 4.65, at 143.

47. As an integral element of its power to order the release of a vessel from arrest, the court may determine the amount of security required to secure the release of the vessel: see “The Moschanthy” [1971] 1 Lloyd’s LR 37, in which Mr Justice Brandon (as he then was) stated, op cit., at 44:

“The principle to be applied is, in my view, as follows: The plaintiff is entitled to sufficient security to cover the amount of his claim with interest and costs on the basis of his reasonably arguable best case…”

48. The concept of the “reasonably arguable best case” has been adopted with approval in “The Bazias 3” and “The Bazias 4” [1993] QB 673, in which the English Court of Appeal (Lloyd, Ralph Gibson and Butler-Sloss LJJ), following “The Moschanthy”, stated at 682:

“…it is accepted by [counsel for the parties] that on an application for release under Order 75, rule 13, the usual practice has always been that the vessel will only be released on the provision of sufficient security to cover the amount of the claim, plus interest and costs, on the basis of the plaintiffs’ reasonably arguable best case…”

(ii)     Power to arrest – and thus to obtain security – is not to be used oppressively

49. The right of arrest and the associated power to exact security is a strong power which must not be used oppressively.  The power of the court to order the release of the arrested vessel and to control the amount of security is derived from its inherent jurisdiction to prevent abuse of the process of the court or the use of court procedure in an oppressive manner: see The “Polo II” [1977] 2 Lloyd’s LR 115, wherein Brandon J, made reference to his earlier decision in The “Moschanthy”, op cit., and at 119 stated:

“…I took the view [in that earlier decision] that the power of the Court to control security in that way was derived from the inherent jurisdiction of the Court to prevent any abuse of process of the Court, or the use of Court procedure in an oppressive way.  As I pointed out in that case the power to arrest a ship is a very drastic power.  And the power to insist that she shall remain under arrest unless security of a certain amount is given is equally a drastic power, and my view, which I…repeat now, is that the power must not be exercised oppressively, and if it is exercised oppressively then the Court can and should interfere to prevent conduct of that kind.  At the same time the Court must make sure that the plaintiff is not left without sufficient security to cover his reasonably arguable best case.

On that view of the law, when security demanded by the plaintiffs in an action in rem is challenged by the defendants, the question for decision by the Court is whether the demand is excessive, and therefore oppressive, or not.  That is the issue which is raised before the Court for its determination.  It is for the plaintiffs to put a figure on the amount of security which they require.  It is not for the defendants to do so.  It is the plaintiffs who know what the details of their claim are, what facts the claim is based on and what the extent of the claim is on the best arguable case.  It is impossible for the defendants at this stage of the proceedings to have anything like the knowledge about the plaintiffs’ claim which the plaintiffs have.  As I mentioned in reciting the history of this case a statement of claim was delivered which helped to explain the plaintiffs’ claim, but in the ordinary way at the stage when discussion about security is going on it is the plaintiffs who know all about their case and the defendants who know very little, and therefore it cannot be said that the defendants are in any sense in an equal position to determine what is the right amount of security with the plaintiffs.  I indicated in The Moschanthy that, when a dispute of this kind arises, it is desirable that the plaintiffs should put their cards on the table and explain to the defendants on what basis it is that they are asking for the amount for which they are asking; and if they do that and if they provide the defendants with all necessary information, then the knowledge of the parties may become more equal as a result of such process.  It may be that, when the defendants have been sufficiently informed about the nature and basis of the plaintiffs’ claim, they will be in a position to make an assessment themselves of what the amount should be.  Even so I cannot see that the defendants are under any obligation in law to make a counter-offer.  They can of course do so, and if they do so it is part of their conduct leading up to the proceedings, and the fact of the offer and the amount of the offer are relevant circumstances in the history of the case when the question of exercising discretion on costs comes to be considered.  I do not say for a moment that it may not be reasonable to consider, when exercising the discretion on costs, firstly whether the defendants have made an offer, and secondly what its amount was.  But in considering what weight should be attached to these matters, much must depend upon the extent to which the plaintiffs’ cards were laid on the table.  These are matters which the tribunal of first instance, exercising its discretion, is entitled to go into on such material as is placed before it by the parties.  But to say that the making of an offer and its amount are material to the exercise of the discretion is quite different from saying that the making of the counter-offer alters in some way the issue which is before the Court.  In my judgment it does not do anything of the kind.  The issue remains the same as it always was, namely whether the plaintiffs’ demand was excessive and oppressive.  The issue does not become is the plaintiffs’ figure right or is the defendants’ figure right.  The question remains have these plaintiffs, in exercising the powers which a plaintiff in rem has acted oppressively by asking too much; and should they therefore be controlled by the Court.  That is the question which has to be decided, whether a counter-offer is made or not, and whatever its amount.”

50. In this context, see also the like approach in the Federal Court of Australia in The “Joana Bonita” (1994) 125 ALR 683, at 687 – in which Sheppard J applied both The “Moschanthy”, op cit., and also a decision of Sheen J in The “Gulf Venture” [1984] Lloyd’s Rep 445 – and further observed, at 687:

“I was not referred to any reported case in which the principles enunciated in these various authorities have been applied in Australia.  It is clear, however, that they have been applied in practice and have been understood by the profession and judges dealing with applications for the release of vessels from arrest as being applicable.  I have endeavoured to apply them in this case.  The only caution I would sound is that two of the cases were concerned with suggested abuse of process because the plaintiffs sought an excessive amount of security.  The judges in these cases therefore were concerned to make it clear that that was not a course which the court would allow to occur.  Of course I respectfully share that view.  This, indeed, was also a case of that kind.

On the other hand, the other side of the picture must not be lost sight of.  The plaintiffs, in either willingly accepting, or being required to accept, security for their claim in lieu of the vessel which has been arrested, are running a risk.  The security may be insufficient.  The court determining the amount of security should be comfortably satisfied that the amount which is provided is likely to be sufficient to meet the claim; cf The “Bazias 3” [1993] 1 Lloyd’s Rep 101, per Lloyd J at 105.  If it errs on the side of caution and is found to have provided a greater sum than was actually necessary for this purpose, that, I am afraid is one of the incidents of the exercise which is involved.  It occurs not only in this area but where the courts have to make an estimate of costs where an order for security for costs is made or where security has to be given in support of an undertaking as to damages given, for instance, by a plaintiff outside the jurisdiction.  All these exercises require a balancing of the relevant factors.  As Sheen J pointed out in The “Gulf Venture”, the court cannot make a really accurate assessment of a claim or of costs.  It can only do its best to take into account all relevant circumstances.  Usually this has to be done as a matter of urgency because it is important that the vessel be released as soon as reasonably possible…”

(iii)    Whilst the interlocutory application for security is not to be used to pre-judge the merits, the court retains an overall residual discretion in terms of the likely worth of the claim

51. As Sheen J pointed out in The “Gulf Venture”, op cit., at 449, whilst “there [was] plenty of scope for debate as to what sum should be secured” in respect of the claim before him, and that the sum as ordered should be for a sum representing the plaintiff’s “reasonably arguable best case”, the learned judge in that case pointedly declining to analyse the evidence put forward by the parties to the dispute:

“I do not propose to analyse the evidence: it is incomplete.  Such a procedure would be entirely inappropriate on a motion such as this…”

Nevertheless at the same time Sheen J took the view that it was open to him broadly to scrutinize the case, and to come to an overall view as to the appropriateness of the sum demanded in security:

“…Although the claim indorsed on the writ is, as I have already said, for a sum in excess of St.400,000, I was satisfied that the claim will not succeed in full.  After some discussion with counsel, the plaintiffs expressed their willingness to accept security in the sum of St.300,000.  I reached the conclusion that a lesser sum would be adequate and fixed the amount in the round sum of St.250,000…”

52. I respectfully agree with this approach.  Indeed, I cannot see any other way in which a first instance judge, in exercising his discretion judicially, properly could or should act in any other manner than to take a view upon the basis of the material placed before him.

53. I further take the view that applications such as the present should not be permitted to become over-complex affairs (as the present Motion initially threatened to become) – just as, in the Commercial Court, for example, applications for security for costs are treated very much on a ‘broad brush’ basis. 

54. At this early interlocutory stage, the court has to get a ‘feel’ of the case, and thereafter to exercise its best judgment, in accordance with established principle, as to the correct figure to order in terms of security, but in my view it most definitely is not the case that the judge has to accept at face value the assertions made by the plaintiff, qua arresting party, as to the probable value of its claim; were this to be the position, the task of the judge would be no more than administrative, and I reject that thesis unequivocally.

55. In this context I note that Mr Smith had contended in his written skeleton argument that an applicable principle was that the Admiralty procedure for deciding the amount of security favours an approach which is fast and which could be carried out largely at an administrative level, otherwise commerce would be hindered on account of contested applications for release involving an inquiry into the merits of the dispute – citing in this regard dicta in the New Zealand Court of Appeal in The “Clarabelle” [2002] 2 Lloyd’s LR 479, at 482, a case which was involved with the release and re-arrest of the eponymous vessel. 

56. It seems to me, however, that this is to misunderstand the report of that decision.  Closer examination of the report reveals that, to the contrary, this was not an expression of judicial view but simply was the recitation by the court – in that instance Pankhurst J, at paragraph 18, of the argument of Mr David, who in that case was counsel for the re-arresting party, DNV, and who was moving the appeal against such sum in security as had been ordered; the paragraph in question reads as follows:

“[17] Mr David, in support of the appeal, argued that the judge had erred in his approach to the issue of re-arrest, by viewing the underlying issue of security as a matter of broad general discretion to be assessed with reference to all relevant factors…

[18]  Support for this thesis [the failure of the judge at first instance to recognize the fundamental nature of in rem rights and to treat the re-arrest application as a matter of general discretion] was claimed by reference to English practice, the fundamentals of which apply equally in New Zealand and in other Commonwealth countries.  Counsel suggested that the notion of full security before judgment, although commonplace in the Admiralty jurisdiction, was “perhaps unattractive to a common lawyer”.  Nonetheless, Admiralty procedure necessarily favoured an approach which was fast, readily understood, and could be carried out at a largely administrative level by Registrars.  Otherwise commerce would be hindered on account of contested applications for release involving an inquiry into the circumstances of the vessel, its owner and even the merits of the dispute.

 [19]  Finally, Mr David submitted…”

57. The short point, therefore, is that this is no mere ‘administrative matter’, however convenient this might be, and that the judge has to judge, and if and in so far as his best efforts are, with the benefit of hindsight, ultimately proved inaccurate, in one direction or the in the other, so be it; as Sheppard J aptly remarked in The “Joana Bonita”, op cit., this simply is one of the incidents of the exercise which is involved. 

The argument

58. On behalf of the defendant/applicant, Mr Colin Wright mounted a strong attack against the security sought by the plaintiff.

59. His argument essentially was threefold.

60. First, he maintained that all that was before the court, at least at the time of the arrest, consisted of ‘bare assertions’ only within the affidavit of Mr Hatzer, and that the plaintiff had placed no admissible evidence before the court in support of the figure that they had put forward as representing the amount of the alleged loss. 

61. There was nothing to suggest, he submitted, that it would have been impracticable for the plaintiff to have provided full particulars and documentation in support of its claim, particularly since the events alleged to have given rise to the claim occurred between mid-2007 and late 2007, and all that Mr Hatzer had said, upon instructions, was that “the plaintiffs have suffered loss and damage”, a bare averment which admittedly was coupled with a claim breakdown within an exhibit to the affidavit, but which exhibit represented no more than a calculation as would have been appropriate had the underlying evidence existed to substantiate the alleged claim; nor, he said, had Mr Hatzer properly deposed to the sources of his information.

62. The Admiralty jurisdiction was a “draconian jurisdiction”, said Mr Wright.  In the present case, the arrest of the defendant’s vessel inevitably would cause financial loss, and there was every reason to believe, should the defendant owners succeed at trial, that it will be very difficult to obtain sufficient compensation from the plaintiff in respect of the losses arising from this arrest.

63. Moreover, said Mr Wright, if the defendant is unable to obtain the release of its vessel by the due provision of security, the vessel then is sold pendente lite, the circumstances of such court-ordered sale generally ensuring that she is sold for considerably less than her actual value – which in this case appears to be of in the order of US$150 million, according to a report of a ship broker exhibited to the Affidavit of Mr Apostolis, another of the plaintiff’s solicitors.  And even if the defendant were to succeed at trial, he said, the prospects of achieving redress in respect of the arrest (in terms, for example, of precluding the release of the vessel save at a grossly inflated security figure) are limited.

64. In the circumstances, therefore, Mr Wright submitted that the plaintiff was under an obligation to ensure that the affidavit leading the warrant properly deposed to all material facts which were said to justify the invocation of the admiralty jurisdiction: see The “Asian Atlas”, CACV 257 of 2007, Judgment of the Court of Appeal dated 11 April 2008.

65. Second, and without prejudice to the contention that the material before the court at the time of arrest was deficient and insufficient, Mr Wright made several points as to the quality of the information/ evidence subsequently prayed in aid by the plaintiff, in the form of a lately-filed Affirmation of one Mr Sim Kok Beng, an executive director of the Malaysian plaintiff, Intraline Resources Sdn Bhd, wherein the amount of the claim appeared to have increased from the amount alleged in Mr Hatzer’s affidavit, namely a total of US$59.8 million, to a sum which now is claimed, and which was now, but several days later, put at US$140,699,732.

66. In terms of the strength or otherwise of the underlying claim as to liability, Mr Wright drew the attention of the court to Clause 14 of the 2^nd Memorandum of Agreement, allegedly signed on the same date as the Charterparty, that is, 3 February 2007, which had made it clear on its face that the Charterparty expressly was subject to the defendant obtaining approval from the China Offshore Oil Engineering Company – which had not been obtained.

67. Mr Wright also drew the attention of the court to Clause 14(c) of the Charterparty itself, which is headed ‘Consequential Damages’, and which on its face appears to rule out liability “for any consequential damages whatsoever arising out of or in connection with the performance or non-performance of this Charter Party” – and yet, said Mr Wright, all save about US$7 million of the sums variously claimed would fall into such category of ‘consequential loss’.

68. Third, and finally in his submission sequence, Mr Wright mounted a spirited attack on the plaintiff’s figures for alleged loss and damage, and in particular he criticized the figures put forward for adapting for heavy lifting other existing barges already in use on the project as containing a substantial element of double counting; in this context he prayed in aid the judgment of Goff J (as he then was) in The “Elena D’Amico” [1980] 1 Lloyd’s LR 75, wherein the learned judge had stated the well-known principle that in terms of hire of substitute vessels the quantum of damage is the difference between the specified contractual hire rate and the rate at which a similar vessel is chartered, and on this basis he criticized the figures put forward by the plaintiff as being exaggerated and not based upon correct principle.

69. In fact, Mr Wright characterized the present claim for security as “oppressive”.  From the viewpoint of his clients, he said, the most that should be put up was the relatively nominal figure, inclusive of interest and costs, of in or about US$10.186 million.

70. Mr Clifford Smith SC, in reply, maintained that the present sum as now claimed, of in the order of US$140.6 million, was both proper and achievable, and initially he asked the court to order this amount in order for the vessel to be released from arrest.

71. He made the point that at the date of Mr Hatzer’s affidavit leading the arrest the figure of US$59.8 million, inclusive of interest and costs, was of necessity provisional only, and that when his clients had had more time to consider the loss and damage position it had transpired that this figure had had to undergo substantial revision; indeed, he said, Mr Hatzer in his affidavit had stressed that he “reserved the right to add to the claims as and when further details of loss and damage become available”, and thus there should be no criticism of such revision as now had occurred.

72. In this regard Mr Smith spent some time on the categories of quantum claim as set out in the affirmation of Mr Sim Kok Beng, although this proved not an entirely straightforward task.

73. For instance, upon the court pointing out, as a matter of basic contract law, that a party claiming for breach of contract could mount a claim for loss of profit or wasted expenditure, but not for both, Mr Smith was driven to concede that the claim in Mr Sim’s affirmation (at paragraph 10 thereof) for some US$33.449 million could not be supported by reason of the application of this principle.

74. In the event, Mr Smith was minded to ask for a sum of US$70 million in security, although subsequently in his submission he opined that he was instructed that this was on the low side, and that more properly the figure should be “in or around US$80 million”.

75. As to the liability objections, Mr Smith suggested that the court should not be drawn into a liability debate at this stage, that undoubtedly there would be difficult and extensive legal argument at trial, but that there existed perfectly reasonable legal responses to the defendant’s criticisms (for example, the economic duress under which the 2^nd Memorandum of Agreement had been signed), and that the court now should proceed on the basis that the “reasonably arguable best case” was in terms of the figure he ultimately put forward on the plaintiff’s behalf.

Reasons underlying the Decision

76. As was made clear at the outset, the court reflected upon the arguments before it, and on the day following argument gave its judgment that the amount of security to be furnished on behalf of the defendant should be in the sum of US$65 million, such sum to be provided in a manner acceptable to the plaintiff, alternatively in a manner to be decided by the Registrar of the High Court.

77. In this connection I have no doubt but that, given the amount of security so ordered, this security will be required to be furnished by means of a suitably worded bank guarantee or similar instrument.

78. As to the first of Mr Wright’s three fundamental criticisms, namely that at the time of the arrest there was insufficient material before the court to establish a claim of the amount then put forward, and that there was nothing then in play but bare and inadmissible assertion, I do not agree.

79. Clearly each and every case is fact-sensitive in terms of the material in fact advanced for consideration by the court – in the recent Hong Kong Court of Appeal decision in The “Asian Atlas”, op cit., for example, there was literally no more than a bare (and unsubstantiated) assertion by an American lawyer that the damage to the slipway in that case (an underwater slipway that had not been in use for 36 years) was worth US$100,000 to remedy, and this bare assertion was held, without more, plainly to have been insufficient within an affidavit leading a warrant of arrest, which affidavit Ma CJHC (with whom Stone and Reyes JJ agreed) stressed “must properly depose to all material facts which are said to justify the exercise of this particular jurisdiction.”

80. This case, however, is not analogous.  Mr Hatzer’s affidavit is full in terms of narrative, and exhibits in schedule form some 8 pages of heads of claim said to have arisen as the result of the defendant’s contractual breach.

81. True it is, as Mr Wright said, that the costs and expenses therein listed do not, in themselves, provide detailed explanation, but it seems to me that to expect the type of full and detailed documentation of a claim, in a manner as now submitted, within the affidavit leading the warrant of arrest is to ask for too much within a jurisdiction in which time is often crucial, and in which the ‘window’ to effect an arrest of a vessel is often highly circumscribed.

82. Accordingly, to argue that an admiralty solicitor must endow the affidavit leading the arrest with the extent and type of detail as now suggested by Mr Wright simply is to ignore practical commercial reality.  The affidavit in support obviously must be full and fair and truthful, and must clearly depose to the claim and the manner in which it arose, but to demand more at this stage strikes me as an insupportable counsel of perfection.

83. So far as I am concerned, therefore, Mr Hatzer’s affidavit was sufficient in order to effect the arrest of the “Hua Tian Long”.

84. As to Mr Wright’s second point, which at bottom amounted to the submission, in effect, that this claim clearly could be seen to be demurrable on its face, I decline as firmly as I may to become embroiled within liability arguments at this very early interlocutory stage.

85. It may be that it will transpire that the deponents are exaggerating or are not being full and frank – as to which I presently express no view whatever –, it may be that there in fact are strong defences to the liability assessment, defences to be pleaded out and tried in the fullness of time, but the court simply is not now in a position fairly to sound to the viability of such contentions, absent the clearest and most obvious ‘knockout blow’, which in this instance Mr Wright was unable to administer.

86. In this connection Mr Wright trailed the suggestion that in any event his liability criticisms properly could be placed within the ‘discretionary mix’ when it came to deciding an appropriate quantum figure, but in my view this approach analytically is unsound: either proper and sufficient security is to be ordered, or it is not, and if not, the reason to refrain from so doing itself must be clear and unequivocal. 

87. In deciding the quantum issue the court must of course get a ‘feel’ of the case in terms of the specific heads of recoverability as put forward, but to dilute the quantum of security simply because of the existence of liability issues, which may or may not be decided in favour of the arresting party, in my view is not the correct course to take; as the authorities make plain, the court is expected to proceed on the basis of the plaintiff’s “reasonably arguable best case”.

88. If Mr Wright succeeded in any part of his argument, it was in terms of his third main point, namely as to the quantum as ultimately put forward in Mr Sim’s affirmation, the intent of which clearly was to supplement the material earlier put in by Mr Hatzer upon instructions.

89. In my view the plaintiff was right to file such supplementary evidence.  Whilst the court was against Mr Wright’s primary thesis that Mr Hatzer’s affidavit leading the arrest was insufficient for purpose, I should have been disposed to have been more critical had further information subsequently not been forthcoming from the plaintiff in terms of the quantum of such security as now sought, and the basis thereof – albeit criticism has been occasioned in any event given that in my judgment the plaintiff clearly has ‘overegged’ its quantum claim from a figure of US$59 million to US$140 million, an astonishing increase by any yardstick.

90. Indeed, so great is the increase in security sought that it seemed to me that this inadvertently gave some credence to Mr Wright’s contention that this whole exercise was oppressive and over-inflated.

91. Clearly if liability were subsequently to be established, in my view there would be a significant claim, but in terms of security against release from arrest I was, and remain, unable to understand how such vastly increased sum seriously now is put forward.

92. Grist to this mill was added by Mr Smith’s concession, to which earlier I have made reference, to the fact that he was unable to support the sum of US$33 million as contained within paragraph 10 of Mr Sim’s affirmation, as also was that which struck me as an wholly unsupported submission, within paragraph 20 of the same affidavit, to the effect that the dispute with the defendant, and the non-delivery of the “Hua Tian Long”, which resulted in loss and delays to the Project for which the vessel was required, also had resulted, the deponent speculates, in loss of another contract “with a potential profit element of US$20 million”.  This element of alleged loss, I apprehend, is but a reformulation of that which originally was characterised as a claim in this sum for the plaintiff’s ‘loss of reputation’.

93. Looking at the case in the round, and after carefully considering each head of alleged loss, as now expanded within the affirmation of Mr Sim, I came to the following conclusions in terms of the component elements of the overall sum of US$65 million as was ordered to be furnished by way of security in order to release the “Hua Tian Long” from arrest.

94. Cross-referencing in each case to the relevant paragraph numbers in Mr Sim’s affirmation, the position, therefore, is as follows:

(i)  Under paragraphs 11 and 12, namely the difference between the contract hire price and the substitute equipment hire price:  US$47 million;

(ii)  Under paragraph 13, namely additional costs incurred due to extension in duration of the existing projects arising from the non-delivery: US$ 5million;

(iii)  Under paragraph 14, namely incurring of additional financing costs due to extension of the existing projects duration: US$3 million;

(iv)  Under paragraph 15, namely wasted expenditure in terms of preparation for arrival of the “Hua Tian Long”: US$6 million;

(v)  Under paragraph 17, namely the interest element for the intervening period prior to trial: US$2.5 million;

(vi)  Under paragraph 18, namely potential legal costs: US$1.5 million

  Total: US$65 million

95. For the avoidance of doubt, where I considered it appropriate I have rounded figures down, whilst the claims as put forward at paragraph 10 (the sum of US$33.449 million) and paragraph 16 (the sum of US$20 million) have been disallowed in full, the first by reason of established principle, and the second as being wholly speculative in nature.

96. The amount of security as thus ordered may turn out to be right, or it may turn out to be wrong: unfortunately the court has no access to a convenient crystal ball, and simply has to do its best and to exercise its judgment upon the material put forward.  As Sheen J commented in The “Gulf Venture”, op cit., there indeed was “plenty of scope for debate” as to the amount of security, but ultimately, as Sheen J noted that he had done in the case before him, the judge seized with the matter can do no more than to review the available material and to strive fairly to exercise his discretion thereon.

97. In my judgment, therefore, the sum of US$65 million represents appropriate, or, at the least, not inappropriate security; I have a suspicion, no more, that this may well prove to be on the high side, hence the terms of the order nisi as to costs, but for the present, and in the context of a claim which is likely to be lengthy and hard fought, in my view this represents a not unfair award.

98. If and in so far as the plaintiff wishes to mount an appeal against this award – as I have been given to understand that it does, hence the urgency in delivering this judgment as to my reasons for the sum in security as awarded – I will hear the parties in Chambers at an early appointment to be fixed with regard to the presently adjourned application for a stay of this Order pending appeal.