PARAKOU SHIPPING PTE LTD v. JINHUI SHIPPING AND TRANSPORTATION LTD AND OTHERS

CACV 225/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 225 OF 2010

(ON APPEAL FROM HCAJ NO. 184 OF 2009)

_____________

_______________________________

REASONS FOR DECISION

_______________________________

Hon Tang Ag CJHC (giving the reasons for decision of the Court):

1.  After the arrest of a vessel in South Africa by the plaintiff (“Parakou”), the plaintiff’s claim was secured first by a bank guarantee in South Africa, issued by the FirstRand Bank Limited dated 2 September 2009, then by a sum of US$44,412,905 paid into court in Hong Kong in early September 2010. The money in court was paid, pursuant to Stone J’s order of 3 September 2010, to be held:

“as security for the Plaintiff’s claim … against any and all of the 1^st, 2^nd, 3^rd and 4^th Defendants …”

2.  The plaintiff’s claim has been struck out by Reyes J on 22 September 2010 as an abuse of process because it is a collateral attack on the outcome of a London Arbitration.  His Reasons for Judgment was handed down on 30 September 2010.  Para. 6 of the Order Nisi made by Reyes J provided for the payment out of the security (and any interests accrued thereon) to be stayed for 28 days from the date of the Reasons for Judgment or such other period as the court might later order.

3.  On 13 October 2010, the Order Nisi was extended by consent to 4 November 2010.  A notice of appeal was lodged on 19 October 2010.  On 4 November 2010, the plaintiff applied, inter alia, for an order that para. 6 of the Order Nisi be stayed until 28 days after the delivery of the judgment by the Court of Appeal, consequent upon the plaintiff’s appeal filed on 19 October 2010 or (in the event of the plaintiff’s appeal being allowed) (para. 6) be discharged. On 11 November 2010, Reyes J refused a stay pending appeal, and ordered that the sum in court (less US$1,500,000) should be paid out to the 2^nd defendant.

4.  By summon dated 15 November 2010, the plaintiff applied for stay of the Order of Reyes J made on 11 November 2010 for the payment out to the defendants of the money in court.  In the afternoon of 15 November 2010, the parties appeared before Tang Ag CJHC, who adjourned the hearing to 17 November 2010 so that the application could be heard by two judges.  Tang Ag CJHC also granted an interim stay pending the hearing of the application.

5.  The facts are complicated and can be found in Reyes J’s judgment.  The following summary is based on Reye J’s judgment. 

6.  The parties to the London Arbitration was the plaintiff and Galsworthy Ltd (“Galsworthy”), a wholly owned subsidiary of the 1^st defendant, a company listed in the Oslo Stock Exchange.  The 1^st defendant is in turn a subsidiary in the Jinhui/Goldbeam group (“Jinhui group”), which has Jinhui Holdings Company Ltd, a Hong Kong listed company, as the ultimate holding company.  The other defendants are all wholly owned subsidiaries of the 1^st defendant.  “Goldbeam” is the English translation of “Jinhui”.  The London Arbitration was commenced by Galsworthy against the plaintiff in February 2009 to claim damages for a wrongful repudiation of a charterparty said to be contained in, or evidenced by, a fixture recap made between Galsworthy and the plaintiff.  The plaintiff’s case in the arbitration was that there never was any concluded contract, but has agreed on an ad-hoc basis that the arbitrators should have jurisdiction to decide whether or not a binding charterparty was concluded.  The arbitration hearing took place in July 2010 and the arbitrators made and published their award on 31 August 2010. 

7.  Galsworthy’s case was that the plaintiff had concluded a fixture through the agency of Mr Jin of Ocean Glory Shipping Ltd (“Ocean Glory”).  The arbitrators held that Mr Jin had not been authorized by Parakou to enter into the charterparty on its behalf with Galsworthy.  But they held that Parakou had subsequently ratified the unauthorized act of Mr Jin and had thereby concluded a fixture with Galsworthy on the terms of the clean fixture recap dated 18 June 2010.

8.  It is unnecessary to go into the facts leading up to the plaintiff’s claim against the defendants.  The plaintiff’s claim against the defendants could be gathered from para. 33 of the Amended Statement of Claim which alleged that by reason of its reliance upon certain representations, the plaintiff has been exposed to the risk of financial liability in the event that the arbitrators in the London Arbitration should hold that there was in fact a concluded charterparty with Galsworthy.  The plaintiff claimed a declaration that the plaintiff is entitled to be indemnified by the all-or-any of the defendants:

“… in respect of all sums, including interests and costs, which may be awarded against the Plaintiff in the London arbitration which Galsworthy Limited is pursuing against the Plaintiff”.

9.  Essentially, the plaintiff’s case is that because of the alleged representations the plaintiff thought they were negotiating a charter to be granted by the registered owner of the vessel, and that the plaintiff:

“… does not charter in vessels unless it is satisfied that it is contracting with the registered owner (which has the ship as its asset) or with a company with substantial assets, or with the benefit of a performance guarantee from a company with substantial assets”. para. 22

10.  However, the Arbitrators have held on the evidence that “Parakou had been prepared to charter from disponent owners without a [performance] guarantee from an associated company of financial substance” and that:

“… when Parakou ratified the charterparty on 18th June 2008 it was fully aware that the charterparty was not the registered owner of the vessel. It would not be unreasonable to conclude that the day before, on 17th June 2008, Parakou would have entered into the charterparty on the terms that it did.” para. 159

11.  The learned judge agreed with Mr John Scott SC, who appeared for the defendants below, that the plaintiff’s claim was an abuse of process:

“109. For instance, trial before this Court (Mr Scott noted) is based on the Arbitrators having held that there was a binding charterparty between Parakou and Galsworthy. In the Hong Kong action, Parakou’s case is that Parakou only entered into a binding charterparty in reliance on misrepresentations by one or more of the Defendants communicated through Ms Qian Yu.

110. Assume the Court proceeds on the basis of the Arbitrator’s finding of a binding charterparty. At the very least (Mr Scott submitted) the Court cannot then ignore the reason why the Arbitrators so concluded, namely, the Arbitrators’ finding that Parakou had ratified the charterparty.

111. But if one accepts that there has been ratification as found by the Arbitrators, then (as the Arbitrators themselves point out) the question of misrepresentation by the Defendants becomes moot. Whatever misrepresentations there might have been (Mr Scott reasoned) would not have been causative of the entry into the charterparty. This is because, as found by the Arbitrators, Parakou ratified the charterparty knowing full well that the agreement was with Galsworthy as disponent owner.

112. Therefore, to succeed at trial, Parakou must establish, not only that there were misrepresentations by the Defendants, but also that Parakou has not ratified the charterparty. That means that Parakou must undermine the premise upon which its whole case in the Hong Kong action depends, namely, that it entered into a charterparty with Galsworthy.

113.     Parakou’s case (Mr Scott concluded) is well-nigh impossible.  It is at the end of the day an attempt to re-litigate what has been decided against in the Arbitration by obtaining from the Court a fundamentally different conclusion.”

12.  Mr Sussex SC, appearing for the plaintiff, submitted that the plaintiff’s appeal has good prospect of success, relying on the judgment of the English Court of Appeal in Sun Life Assurance Company of Canada and others v. Lincoln National Life Insurance Co. [2005] 1 Lloyds Law Rep 606.  Reyes J has dealt with Sun Life extensively in his judgment, concluding that:

“155. … Sun Life did not mean to preclude the application of the abuse of process jurisdiction where (say) a Court is faced with an attempt to re-litigate issues decided in an arbitration …”

13.  Mr Sussex submitted that having regard to the difference between arbitral proceedings and litigation highlighted by Mance LJ in his judgment in Sun Life, there is no room for the application of the principle of abuse of process. 

14.  Reyes J has rejected the argument.  He explained:

“154. There is no blanket rule. It all depends on the facts of a given case, more particularly on whether the Court detects manifest unfairness or the potential to bring the administration of justice into disrepute by a second set of proceedings.

……

158. …the absence of a reported case is a slender basis for an inference or argument that the abuse of process jurisdiction will never apply where at least one of the proceedings involves an arbitration.

……

160. The second aspect of the abuse of process jurisdiction eschews any all-encompassing formula as to its applicability.  It instead examines each situation on a case-by-case basis to see whether there is some affront to justice in allowing a party to continue with some subsequent proceeding. …”

15.  Although we will not go so far as to say the appeal cannot succeed, the plaintiff has failed to show that the appeal has good prospect of success.

16.  Moreover, in refusing a stay, the learned judge had made the following directions (“the directions”):

“4. Upon Galsworthy Limited providing to the Plaintiff and filing at Court a ‘Direction to Pay and Undertaking’ in the terms of Appendix A attached hereto, the amount of US$44,412,905 paid by the Defendants into Court as security for the Plaintiff's claim herein, and any interest accrued thereon, less US$1,500,000 be paid out to the Defendants or their order forthwith. The said retention of US$1,500,000 do stand in Court as security on the same terms as any amounts paid into Court pursuant to the ‘Direction to Pay and Undertaking’.”

Appendix A read:

“Re: The amount owed to us by Parakou Shipping Pte Limited (‘Parakou’), pursuant to the First Final Arbitration Award dated 31st August 2010 of the London Arbitration Tribunal in the arbitration reference between us and Parakou, a copy of which is attached hereto, and/or any other amounts which the London Arbitration Tribunal may in future award to us in the said arbitration (the ‘Amounts Due’).

1. We hereby direct that Parakou, and any third party intending to make a payment to us on Parakou's behalf, [do][be at liberty to] pay the Amounts Due or any part of them into the High Court of the Hong Kong Special Administrative Region in Action No. HCAJ184 of 2009, to stand as security for Parakou's claim against the Defendants in that action until such time as Parakou's claim is disposed of finally by the Court or until the Court otherwise orders, such amounts to be paid out to us upon final dismissal of the claims made by Parakou in High Court Action no HCAJ No. 184 of 2009. Payment of any such amount into Court as aforesaid shall be good satisfaction of Parakou's liability to us, in whole or part as the case may be, and any receipt of the High Court for any such amount paid into Court shall be good proof of satisfaction of Parakou's liability to us of the amount stated on the receipt.

2. We undertake, for the purpose of and in connection with the Order of The Honourable Mr. Justice Reyes dated the 11th day of November 2010, that should we, via any form of enforcement proceedings, recover from Parakou the Amounts Due or any part thereof, we shall pay such amounts into the High Court of the Hong Kong Special Administrative Region in High Court Action No. HCAJ184 of 2009, to act as security as aforesaid.”

17.  Given the plaintiff’s claim against the defendants is for a declaration that it is entitled to be indemnified and for damages in the event that it was held liable to Galsworthy on the charterparty, it is difficult to see why the plaintiff considers the directions as insufficient protection.  Mr Sussex explained that a third party might be ordered to pay to Galsworthy money which would otherwise be payable to the plaintiff and that Galsworthy, on receipt of such payment, might fail to comply with the undertaking.   When asked whether it was likely that any third party could be compelled to pay Galsworthy without prior notice to the plaintiff, and hence without knowledge of the directions, Mr Sussex submitted that there might be rogue jurisdictions in which that was possible.  He was unable to identify any such rogue jurisdiction. 

18.  So far, in the Arbitration, the plaintiff has been ordered to pay Galsworthy just over US$2 million.  The plaintiff could make payment into court, thereby providing security for itself.  Moreover, the plaintiff could continue to pay any further damages which might be awarded against it in favour of Galsworthy into court in Hong Kong.  Mr Sussex said that the plaintiff might not be in the position to do so.  It is difficult to see why the plaintiff should be provided with security in respect of payments which the plaintiff would not make anyway.  Mr Sussex submitted that if a stay were not granted, the plaintiff’s appeal would be rendered nugatory.  But it would only be rendered nugatory if the plaintiff should pay Galsworthy and having paid is in turn unable to obtain payment from any of the defendants.  The directions would remove that possibility. 

19.  Mr Sussex also submitted that the plaintiff and the defendants had always intended that the security should remain in court as security in the event of any appeal by the plaintiff.  He pointed to the language of the security provided in South Africa.  The defendants deny any such common intention.  We were referred to the abortive negotiations to agree to a bank guarantee in Hong Kong.  Eventually, the solution adopted was a payment into court.  The order made by Stone J in that regard did not provide for the retention of the security in court in the event of an appeal by Parakou.  The alleged common intention is not made out on the evidence.

20.  Also, although we have a concurrent jurisdiction, naturally we would place substantial weight on the fact that the learned judge who has much greater familiarity with the case has seen fit to refuse a stay. 

21.  For the above reasons, we have refused a stay with costs.