NEWOCEAN PETROLEUM CO LTD v. O.W.BUNKER CHINA LTD (in liquidation) AND OTHERS

HCA 384/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 384 of 2015

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BETWEEN

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DECISION
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1. This is an application made by the 2^nd and 3^rd defendants, by way of summons dated 3 November 2015, for an order that the leave given to the plaintiff to serve the Amended Writ of Summons on the 2^nd and 3^rd defendants out of the jurisdiction be set aside and/or discharged. Leave was granted by Master K Lo on 27 May 2015. The Writ of Summons was issued on 18 February 2015, and Amended under Order 20, rule 1 of the Rules of the High Court (Cap 4A) on 13 May 2015 to add the 3^rd defendant as a party.

2. The 1^st defendant is in liquidation and the Writ of Summons has not been served on it.  In this Decision I shall refer to the 2^nd and 3^rd defendants jointly as “the Defendants”, and I shall refer to the individual defendants were necessary or appropriate.

3. The application is made on the basis that the plaintiff:

(1) has not given full and frank disclosure,

(2) that it has not shown a good cause of action against the Defendants, and

(3) has not shown that there is a serious issue to be tried, although this last point was developed by way of argument rather than being expressly set out in the Summons.

4. The Defendants also seeks an order as follows:

“ … further or alternatively, … a declaration that in the circumstances of the case this Honourable Court should not exercise any jurisdiction it may have in view of the London arbitration clause incorporated into the supply of the bunker by O. W. Bunker Far East (Singapore) Pte Ltd to the 3rd Defendant.”

Background

5. This case is one of a series of cases which appears to have been initiated by the liquidation of various companies within the O.W. Bunker group of companies (“the OW Bunker Group”), which has been referred to as once being the largest supplier of bunkers in the world. One of those cases has recently been considered by the Supreme Court in England and Wales.  Lord Mance described the issue in paragraph 2 of his judgement (PST Energy 7 Shipping LLC and Another (Appellants) v O W Bunker Malta Limited and another (Respondents) [2016] UKSC 23 — the Res Cogitans) as follows:

“ The essential problem arises from the insolvency of the OW Bunker Group and the concerns of vessel owners that they may be exposed to paying twice over, once to their immediate bunker supply group now insolvent, and again to the ultimate source of the bunkers who may claim rights under a reservation of title or maritime lien. The concerns stem from what are understood to be fairly typical conditions on which bunkers are supplied worldwide.”

6. There are also two cases in which the issue has been considered in Hong Kong.  The first is the decision of Deputy High Court Judge Le Pichon in NewOcean Petroleum Company Limited v O.W. Bunker China Limited & Cosco Petroleum PTE Limited HCA 381/2015 (decision dated 18 March 2016, with a subsequent decision dated 31 May 2016), which was an application to set aside leave to serve the writ out of the jurisdiction.  In that decision, which I shall return to below, the court refused to set aside service.  The second is a decision of Mr Justice Anthony Chan in NewOcean Petroleum Company Limited v Rio Tinto Shipping (Asia) Pte Ltd HCA 446/2015 (Judgment dated 15 April 2016), which was also an application to set aside service out of the jurisdiction.  In that decision the learned judge did set aside service and refused to re‑grant leave to serve out.  I shall return to this decision also in more detail below.

7. The plaintiff entered into a contract with O.W. Bunker China Limited (“OW China”) dated 14 October 2014, by which the plaintiff agreed to sell to OW China 320 metric tonnes of fuel oil at a price of US$513.00 per metric ton.  In fact a total of 308.912 metric tonnes were supplied at a total cost of US$158,471.86.  I shall refer to the supplied fuel oil as “the bunkers”.  The terms on which the plaintiff sold the bunkers are said to be set out in the General Terms and Conditions for Sales and Delivery of Marine Fuel dated 20 March 2014 (“the plaintiff’s General Terms”).  I should note that OW China is in fact a company incorporated in Hong Kong, and has been referred to in various places as OW‑HK.

8. The bunkers were in fact supplied to the vessel M.V. Supa Bhum (“the Vessel”) in Hong Kong through a series of contracts, only two of which have been placed before the court.  The case depends upon a proper analysis of those contracts.

9. The Vessel is owned by the 2^nd defendant, which is a company registered in Thailand.  The 3^rd defendant is a company registered in Singapore and was the time charterer of the Vessel at the material time.

10. At what appears to be approximately the same time as the plaintiff sold the bunkers to OW China, or at least certainly on the same day namely 14 October 2014, the 3^rd defendant entered into a contract with O.W. Bunker Far East (S) PTE Ltd (“OW Singapore”) for the supply of 320 metric tonnes of fuel oil at a unit price of US$518.00 per metric tonne.  That contract is evidenced by a “Sales Order Confirmation” dated 14 October 2014 and a tax invoice for 308.912 metric tonnes in the sum of US$160,016.42 dated 21 October 2014.  The tax invoice makes reference to the General Terms and Conditions of OW Singapore as governing this contract.

11. The bunkers were delivered to the Vessel on 21 October 2014, and there is no dispute between the parties that they have been consumed in the propulsion of Vessel.

12. On 7 November 2014 the parent company of the OW Bunker Group filed for bankruptcy in Denmark and that has subsequently triggered the dissolution or winding up of various other OW subsidiaries including OW China and OW Singapore.

13. The 3^rd defendant, who under the terms of the time charter is responsible (as between the 3^rd defendant and the 2^nd defendant) for payment for the bunkers, has paid the full price of US$160,016.42 to the joint receivers of OW Singapore. However the plaintiff has not been paid the price for the initial sale of the bunkers to OW China.  Consequently the plaintiff now sues OW China (the 1^st defendant), the 2^nd defendant as the owner of the Vessel and the 3^rd defendant as the time charterer for payment.

14. The claim is made in both contract and in tort, and is set out in the Amended Writ of Summons (which is the document for which leave was given) in the following terms:

“ The Plaintiff’s claim is for the sum of US$158,471.86 as the price or value of bunkers supplied to M.V. Supa Bhum on or about 21 October 2014 by or on behalf of the Plaintiff at the request of and/or pursuant to order placed by the 1^st and/or 2^nd and/or 3^rd Defendants and/or damages for conversion by the 1^st and or 2^nd and/or 3^rd Defendants of the said bunkers supplied on the said ship together with interest pursuant to s48 of the High Court Ordinance (Cap 4) and costs.”

15. The statement of claim alleges that the Defendants entered into a contract with the plaintiff through the agency of OW China.  There is no detail of the alleged agency pleaded in the statement of claim.  In the affidavit of Fung Chi Man he relies upon the acceptance of the bunkers on the Vessel, and their use, as evidencing the agency which is relied upon.  In addition the statement of claim identifies various terms in the plaintiff’s General Terms which indicate that it is recognised that the actual buyer (in this case OW China) may be buying on behalf of a principal.  Further terms make it clear that the bunkers are being purchased for the benefit of the Vessel and that the Vessel (and its owner) shall be deemed to have unconditionally accepted the plaintiff’s General Terms before commencement of the delivery of the bunkers.  Consequently, reliant upon that alleged agency, the plaintiff sues for payment of the price under contract.

16. The statement of claim pleads the claim in tort on the basis of conversion and bailment, on the ground that by virtue of the plaintiff’s General Terms the title in the bunkers remained with the plaintiff throughout and that by using, or permitting the use of, the bunkers on the Vessel the Defendants have converted the bunkers to their own use, or alternatively breached the terms of the bailment upon which they were holding those bunkers.

17. The Writ makes no claim for breach of bailment, but expressly identifies the claim in both contract and for conversion. Mr Sussex SC, appearing on behalf of the plaintiff, made it plain during his submissions that he did not rely upon a bare breach of bailment for leave to serve out.  Therefore I shall not address this any further.

18. The affidavit of Mr Fung makes it clear that leave to serve out of the jurisdiction was sought before the Master under Order 11, rule 1(1)(d) and rule 1(1)(f) only.

The test under Order 11

19. The test for leave to serve out of the jurisdiction under Order 11 is well established.  I do not intend to rehearse the various authorities which deal with it as the principles are not in dispute, but I may summarise that there are three questions to be considered by the court:

(1) First the court requires a plaintiff to demonstrate a good arguable case that the case falls within one of the limbs under Order 11, rule 1.  The purpose of this question is to establish the jurisdictional connection between the claim made and the court.  The hurdle on this question is higher than on the next question because it is unlikely to be determined again by the court once jurisdiction is established.  Consequently, the plaintiff needs to prove that there is a good arguable case that the claim brought falls properly within the terms of the order.  If that cannot be established the court does not need to go on to address the second question.

(2) Once the jurisdictional connection is established on a good arguable case basis the court is then concerned that there should be a serious issue to be tried.  This second question involves the court considering, at least to some extent, the merits of the claim made by the plaintiff.  The court is here concerned to see whether the claim is one that should be given consideration at a trial.  The court considers this by reference to a lower hurdle, namely “serious issue to be tried”.  However it has been observed by Lord Goff in Seaconsar Ltd v Bank Markazi [1994] 1 AC 438 at 456D–E that:

“… if jurisdiction is established under rule 1(1), and it is also established that England is the forum conveniens, I can see no good reason why any particular degree of cogency should be required in relation to the merits of the plaintiff’s case.”

(3) Thirdly the plaintiff must establish that the case is a proper one for service out of the jurisdiction within Order 11, rule 4(2).  The relevant test is whether Hong Kong is clearly and distinctly the appropriate forum for the trial of the action.

20. In the context of this case the main area of debate has concerned the first question, namely whether the plaintiff has demonstrated a good arguable case that its claim falls within Order 11 rule 1(1)(d) or (f).  There has not been any real argument that if the plaintiff can establish the framework for its claim either in contract or in tort, there is nonetheless no serious issue to be tried.  The only exception to this is the Defendants’ proposition that the plaintiff has consented to the consumption of the bunkers which, if correct, would negate any serious issue as it would amount to a complete defence to the claim either in contract or in tort.  It has also not been argued that Hong Kong is not the forum conveniens.

Material non‑disclosure

21. The Defendants contend that the plaintiff failed to bring to the attention of the Master two important documents.  Those documents are the “Sales Order Confirmation” dated 14 October 2014 and the tax invoice dated 21 October 2014, both issued by OW Singapore to the 3^rd defendant, which documents evidence the contract between the 3^rd defendant and OW Singapore.  The Defendants suggest that these documents are critical to a proper understanding of the contractual position and had they been brought to the attention of the Master they would have made a significant difference to his reasoning.

22. It is said that the documents demonstrate that the Defendants’ case was that it purchased the bunkers under a different contract to the one by which the plaintiff sold the bunkers to OW China.  The Defendants say that had this been brought to the attention of the Master he may not have given leave under Order 11, rule 1(1)(d), and certainly it was relevant to the weighing exercise that the Master had to undertake.

23. The plaintiff denies that this constitutes material non‑disclosure.  It says that the email from the Defendants’ lawyer by which the Defendants sent those two documents to the plaintiff was disclosed, and in paragraph 2 of the email it says:

“ According to our clients, neither OW Bunker China Ltd nor OW Bunker Far East (Singapore) PTE Ltd was an agent of RCL or RCL Feeder PTE Ltd. The supply of the subject bunkers arose from a contract of supply made between RCL Feeder PTE Ltd and OW Bunker Far East (Singapore) PTE Ltd. There was no agreement and no agency involving your clients. A copy of the Sales Order Confirmation, Bunker Delivery Note and Tax Invoice for this supply are enclosed for your clients’ information.”

24. The plaintiff says that this disclosure is sufficient to have identified the debate in relation to the terms of the contracts under which the bunkers were sold by the plaintiff and supplied to the Defendants, and the fact that the underlying documentation was not disclosed is not sufficient to amount to a material non‑disclosure.

25. What is relevant to an analysis of non‑disclosure is whether the facts have been disclosed or not.  I am satisfied that the email from the Defendants’ then lawyer discloses the facts which are in issue and permits the court to understand the arguments.  The documents which were not included simply evidence those facts, although the Defendants now say that the documents would have undermined the proposition made by the plaintiff that the Defendants’ assertion in the email was a mere assertion without merit.

26. In my view it would have been preferable had those documents been included within the affidavit, but I do not take the view that the failure to include them amounts to a non‑disclosure of material facts.

27. Consequently I do not accede to the Defendants’ application to set aside leave to serve out on the grounds of material non‑disclosure.

The contractual analysis

28. I turn next to deal with analysis of the contracts between the various parties.  This analysis is necessary in order to assess not only the claim in contract but also the claim in conversion.

29. There can be little doubt that the contract between the plaintiff and OW China is a sale of goods contract by which the plaintiff sold the bunkers to OW China.  The following clauses of the plaintiff’s General Terms are relevant:

By Clause 1(a):

“ These general terms and conditions … shall apply to the sale and delivery of marine fuel oil, marine diesel fuel, gas oil and similar products by [the plaintiff] (in each case the ‘Seller’) to a 3^rd party customer (the ‘Buyer’) buying from the Seller, whether as principal, agent, broker or otherwise.”

By Clause 1(c):

“ If the Buyer is not the owner of the vessel being supplied (the ‘Vessel’), these General Terms and Conditions, wherever applicable, also constitute conditions for acceptance of delivery of the Seller’s Marine Fuel by the Vessel and the acknowledge [sic] that delivery of Marine Fuel to the Vessel is made on the financial credit of the Vessel and the Vessel taking delivery of such Marine Fuel and its owner (if not being the Buyer) shall be deemed to have unconditionally accepted these General Terms and Conditions before commencement of the delivery, by authorised personnel of the Vessel signing on the Bunker Requisition Form, Tanker Measurement Form, or the other document relating to delivery of the Marine Fuel to the Vessel.”

By Clause 4(a):

“ Unless otherwise specified by the Seller in writing (which shall include telex, email or facsimile) or stated in the Bunker Sales Confirmation, payment for Marine Fuel shall be made in cash on delivery of the Marine Fuel without set‑off (whether legal or equitable) or counterclaim, and shall be free and clear of bank charges, discount, withholding, deduction set‑off or counterclaim.”

By Clause 5(b):

“ Without affecting the generality of item (a) above, the Buyer and the owner of the Vessel (if not being the Buyer) warrants that the Marine Fuel to which the Vessel is supplied shall:

(i) be for the operation of the Vessel and the Vessel only; and

(ii) before payment of the price of the Marine Fuel has been made in full, the Marine Fuel shall be clearly identified as products supplied by the Seller and shall not be mixed with any other fuel or lubricant from any third party.”

By Clause 11:

“ Subject to any provision to the contract [sic] in the Sales Contract and/or the Bunker Requisition Form:

(a) The Seller shall retain the legal and equitable title to the Marine Fuel which shall only pass to the Buyer when the seller has received in full the price and all amounts due in connection with the respective delivery.

(b) Prior to the Seller receiving the price and all amounts due referred to in sub- paragraph (a) hereof, the Buyer shall hold the Marine Fuel and/or the price and/or any proceeds of sale as bailee and/or trustee for the Seller without prejudice to the Seller’s right to assert a maritime lien, attachment or claim against the Vessel more particularly set out in Clause 5 hereof.

(c) The Seller has accepted the order for delivery on the Buyer’s undertaking to authorise the Seller to give notice to the receivers and/or the Vessel, to which the Marine Fuel has been delivered, of the Seller’s right title Marine Fuel and/or the price and/or sale proceeds as the Principal and/or Beneficiary.”

By Clause 15:

“ The Sales Contract, including these General Terms and Conditions, shall be governed by and construed in accordance with the laws of Hong Kong Special Administrative Region (Hong Kong) and the parties hereby agree to submit to the exclusive jurisdiction of the Hong Kong courts.”

30. Based upon those clauses the plaintiff contends that until such time as it has been paid the price for the bunkers in full it retains title to the bunkers and requires that they should not be mixed with other marine fuel on board the Vessel.  In addition it seeks to rely upon the terms of the contract to suggest that the Defendants are in some manner the principals behind the purchase of the bunkers and as such are liable for payment of the price under the terms of that contract.

31. The Defendants, on the other hand, rely in particular upon clause 5 of this contract to suggest that the plaintiff well knew of the fact that the bunkers would be delivered to the Vessel, mixed with other fuel in the Vessel and used for propulsion of the Vessel.  The Defendants therefore suggest that the plaintiff has given permission to use the bunkers before payment and cannot say that the Defendants’ use of the bunkers for propulsion of the Vessel is either conversion or in breach of any bailment conditions.  That use was something which was consented to by the plaintiff, and therefore not inconsistent with its possessory or proprietary rights in the bunkers, even if it has retained such rights.

32. I shall discuss the merits of these competing contentions below.

33. Turning next to the contract between the 3^rd defendant and OW Singapore, I am significantly assisted by the judgements in Res Cogitans, which I have referred to above, both at first instance (Males J) and in the Supreme Court.  The terms of the contract in that case between the physical user of the bunkers and the supplier to the physical user are materially identical to the terms of the contract made between the 3^rd defendant and OW Singapore in this case.

34. In the Res Cogitans case the issue of law was whether the contract was a contract for the sale of goods or whether it was a contract of supply, combined with a licence to use.  The relevant terms of the contract include the following:

By Clause H.1:

“ Title in and to the bunkers delivered and/or property rights in and to such bunkers shall remain vested in the Seller until full payment has been received by the Seller of amounts due in connection with the respective delivery. The provisions in this section are without prejudice to such other rights as the Seller may have under the laws of the governing jurisdiction against the Buyer or in the Vessel in the event of non‑payment.”

By Clause H.2:

“ Until full payment of the full amount due to the Seller has been made and subject to Article G.14 hereof, the Buyer agrees that it is in possession of the Bunkers solely as Bailee for the Seller, and shall not be entitled to use the Bunkers other than for the propulsion of the Vessel, nor mix, blend, sell, encumber, pledge, alienate, or surrender the Bunkers to any third party or other Vessel.”

By Clause P.2:

“ In the event that the Seller determines to refer any dispute to arbitration it shall be referred to a tribunal of 3 arbitrators consisting of one arbitrator to be appointed by the Seller, one by the Buyer, and one by the two arbitrators already appointed …. Either party may call for arbitration by service of written notice, specifying the name and address of the arbitrator appointed and a brief description of the dispute(s) or difference(s) to be the subject of the arbitration …”

35. In the Res Cogitans case at first instance (reported at [2015] 2 Lloyd’s Rep 563), Males J construed these contract terms as follows (at [46] and [48]):

“ 46. In these circumstances the question arises, as already mentioned, what was the consideration for the money payment which the Owners agreed to make if it was not the transfer of title? In my judgment the true nature of the parties’ bargain was that OWBM [in the equivalent position as OW Singapore in this case] would deliver or arrange for delivery of the bunkers, which the Owners would be immediately entitled to use for the propulsion of the vessel. As Mr Robert Bright QC for OWBM submitted, the permission or licence to use the bunkers conferred by clause H.2 necessarily meant, not only that OWBM itself gave such permission but that OWBM was or would be in a position to give such permission to the Owners on behalf of whichever entity in the supply chain was or would become the owner of the bunkers. …

…

48. I accept the first and second of these submissions [made by Mr Bright, Counsel for OWBM] which follow, in my judgment, as a matter of the true construction of the contract.  I do not accept the third submission.  It seems to me, by parity of reasoning with cases such as Rowland v Divall [1923] KB 500 and Warman v Southern Counties Car Finance Corporation Ltd [1949] 2 KB 576, that if OWBM fails to obtain permission from the true owner of the bunkers for their consumption by the vessel, the Owners do not receive what they agree to pay for, which is a lawful right to use the bunkers and not an unlawful possession which exposes them to liability to the true owner.  There would then be a total failure of consideration, just as there was in these two cases.”

36. In the Supreme Court Lord Mance explained these provisions as follows (at [28] and [39]):

“ 28. In these circumstances, OWBM’s contract with the Owners cannot be regarded as a straightforward agreement to transfer the property in the bunkers to the Owners for a price. It was in substance an agreement with two aspects: first, to permit consumption prior to any payment and (once the theory of a nanosecond transfer of property is, rightly, rejected) without any property ever passing in the bunkers consumed; and, second, but only if and so far as bunkers remained unconsumed, to transfer the property in the bunkers so remaining to the Owners in return for the Owners paying the price. But in this latter connection it is to be noted that the price does not here refer to the price of the bunkers in respect of which property was passing, it refers to the price payable for all the bunkers, whether consumed before or remaining at the time of its payment.

…

39. In short, the essential nature of the bargain is as I have stated in para 28 of this judgment.  As a result, OWBM’s only implied undertaking as regards the bunkers which it permitted to be used and which were used by the Owners in propulsion prior to payment was that OWBM had the legal entitlement to give such permission.  In order to be so entitled, OWBM did not need to have or acquire title to the bunkers. It merely needed to have acquired the right to authorise such use under the chain of contracts by virtue of which it had obtained the bunkers. …”

37. The plaintiff relies upon these cases as demonstrating what the contract between the 3^rd defendant and OW Singapore means on its true construction.  In the light of that construction it contends that the 3^rd defendant did not purchase the bunkers from OW Singapore by way of a true sale of goods contract, but obtained permission from OW Singapore to use the bunkers for propulsion of the Vessel whilst title in the bunkers remained with whichever entity up the chain of contracts had, at that time, retained title.

38. The plaintiff says that under the terms of its contract with OW China, it (the plaintiff) retained title in clear and unambiguous terms until such time as it was paid the price in full.  The plaintiff says that it has not been paid the price and consequently it retains title in the bunkers and nothing in the contractual chain indicates that it had given any permission to any person to use the bunkers.  Essentially the plaintiff says that OW Singapore is in breach of its contract with the 3^rd defendant because it had failed to obtain permission from the plaintiff to use the bunkers, or to allow the Defendants to use the bunkers.  As unfortunate as that may be for the Defendants, it does not affect the title which the plaintiff has in the bunkers.  The Defendants have consumed the bunkers, and such consumption is inconsistent with the rights of the plaintiff as the owner of the bunkers and as a result the plaintiff contends that the Defendants are liable for conversion.

39. The mainstay of this argument in conversion is therefore the proper construction of the various contracts to which I have referred.  In my view it is clear that there is a good arguable case that the construction relied upon by the plaintiff is correct.  That construction, on materially identical terms, has already been upheld by three levels of court in England and Wales and on any basis it must be a good arguable case in Hong Kong.

Order 11, rule 1(1)(f) — Conversion

40. Order 11, rule 1(1)(f) provides that jurisdiction can be established if “the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction”.

41. The tort relied upon by the plaintiff is that of conversion.  A conversion of goods occurs if a person deals with the goods in a manner which causes injury to the rights of the true owner.  Generally speaking, and subject to some exceptions, it does not matter that the defendant did not know that what he was doing was inconsistent with the rights of the true owner.  The law on this latter point was the subject of some debate before me, and the Defendants sought to put in additional evidence, submissions and authorities after the hearing.  I refused permission to do so on the grounds that I had not requested such submissions, and had expressly given the Defendants an opportunity to address the issue during the hearing, and had even adjourned the hearing for a while so that the Defendants might consider the point.  It was not in any event a new point, and it had been fully identified in the skeleton argument of the plaintiff.  The Defendants have had more than a full opportunity to present their case.

42. Mr Sussex referred me to Clerk & Lindsell (21^st Ed) at chapter 17, which makes the point fairly clearly that lack of knowledge of the plaintiff’s rights is generally not a defence.  As quoted in Clerk & Lindsell, the law has been expressed by Diplock LJ in Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956 at 970 – 971 as follows:

“ At common law, one’s duty to one’s neighbour who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them. Subject to some exceptions …, it matters not that the doer of the act of usurpation did not know, and could not by the exercise of any reasonable care have known, of his neighbour’s interest in the goods. The duty is absolute; he acts at his peril.”

43. As a result it is only necessary for the plaintiff to demonstrate that it has a good arguable case that the title in the bunkers remained with it, and that there was some act committed within the jurisdiction which was inconsistent with that title.

44. On the basis that the bunkers were delivered in Hong Kong, and that there is a good arguable case that the construction of the various contracts is as set out above, I am satisfied that there is a good arguable case that the claim in conversion falls within Order 11, rule 1(1)(f).

45. Consequently the next question is to consider whether there is a serious issue to be tried in conversion.

46. As identified above the test for the 2^nd question is a lower hurdle.  The gravamen of the Defendants’ case is that:

(1) Clause 5 of the plaintiff’s General Terms acknowledges and gives permission for the Defendants to consume the bunkers for the purposes of propulsion of the Vessel.

(2) By giving credit to OW China, and allowing payment within 30 days, the plaintiff must be taken to have given permission for the bunkers to be used before title passed out of the hands of the plaintiff.

(3) The reality of the industry is well recognised and it is widely known and accepted that once the bunkers are delivered to a vessel they will be consumed for propulsion purposes.  By delivering to the Vessel the plaintiff has effectively granted permission to consume the bunkers.

(4) Consequently, the use of the bunkers by the Defendants did not amount to a conversion as it was done with the permission of the plaintiff.

47. I do not read clause 5 of the plaintiff’s General Terms as an inevitable contractual permission to use the bunkers for propulsion purposes prior to payment.  It is at least arguable that clause 5(b)(i) does not relate to timing of use but is simply a requirement that the bunkers must be used for propulsion of the vessel and cannot be used for any other purpose.  When that sub‑clause is considered in juxtaposition to sub‑clause 5(b)(ii) it is at least arguable that the plaintiff’s General Terms require that the bunkers should not be consumed prior to payment.

48. I do not think that the granting of credit by the plaintiff alters that arguable position.  The remedy would always lie in the hands of OW China because it would always be open to it to pay for the bunkers in full immediately upon delivery.  If it were to do that, it would then obtain title to the bunkers and would be able to grant permission down the line to the vessel owner or time charter to consume in accordance with the terms which appear to be generally used by the OW Bunker Group, namely those identified above.  However it appears that this did not happen.

49. In relation to the recognition of what normally occurs in practice, again, I do not think that this would render a claim by the plaintiff unarguable.  As has been recognised by Deputy High Court Judge Le Pichon in NewOcean Petroleum (HCA 381/2015 Judgment dated 18 March 2016 at [44]) the Court of Appeal in Res Cogitansdid notlike the approach taken by Males J where he accepted that delivery to the Vessel implied consent to consumption.  The Court of Appeal was of the view that the question of consent was a factual issue and ought to be left to the arbitrators to resolve.  Deputy High Court Judge Le Pichon agreed with that approach, and so do I.

50. That is particularly so given the terms of clauses 1(c) and 11(c) of the plaintiff’s General Terms, which appear to require OW China to bring to the attention of the Defendants the plaintiffs General Terms insofar as they were material to the Defendants, when the bunkers were delivered.  If OW China had fulfilled its obligation to the plaintiff in this respect, the Defendants would have known that the bunkers could not be used until such time as the plaintiff had been paid, and could have investigated the position properly so as to avoid any risk of a liability to the plaintiff. I consider that there is a serious issue to be tried in this regard.

51. In relation to the commission of an act within Hong Kong which is inconsistent with the plaintiff’s arguable title in the bunkers, I consider that there is a serious issue to be tried on that issue as well.  The bunkers were delivered to the Vessel and it is likely that the fuel oil was immediately mixed with other fuel oil on the Vessel.  That in itself would be inconsistent with the proprietary rights of the plaintiff, as the plaintiff had specified that the bunkers were not to be mixed.  In addition, there is a serious issue as to whether the bunkers were consumed immediately, and within Hong Kong waters, or whether they were in fact consumed at some point when the Vessel left Hong Kong waters.

52. In all the circumstances, I am satisfied that the jurisdiction issue gives rise to a good arguable case, and that the second question on the merits satisfies the serious issue test.  In my view leave to serve out of the jurisdiction was properly granted under Order 11, rule 1(1)(f), and the order of the Master should not be set aside on this ground.

53. This decision is consistent, in this respect, with that of Deputy High Court Judge Le Pichon in HCA 381/2015 dated 18 March 2016.  In HCA 446/2015, Mr Justice Anthony Chan was dealing with a claim only in contract under Order 11, rule 1(1)(c) and (d), and not a claim under Order 11, rule 1(1)(f).  Consequently this decision is not inconsistent with that decision notwithstanding that it permits leave to serve out, whereas he refused leave to serve out in that case, on very similar facts.

Order 11, rule 1(1)(d) — The claim in contract

54. Order 11, rule 1(1)(d) is in the following terms:

“ (d) the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract, being (in either case) a contract which–

(i) was made within the jurisdiction, or

(ii) was made by or through an agent trading or residing within the jurisdiction on behalf of a principal trading or residing out of the jurisdiction, or

(iii) is by its terms, or by implication, governed by Hong Kong law, or

(iv) contains a term to the effect that the Court of First Instance shall have jurisdiction to hear and determine any action in respect of the contract;”

55. The plaintiff pleads, and sets out in its evidence, that the contract by which it sold the bunkers to OW China was a contract made on behalf of the Defendants through the agency of the OW China which is a company registered in Hong Kong.  The plaintiff’s contract with OW China is governed by Hong Kong law, and at clause 15, contains a term to the effect that the Court of First Instance of Hong Kong has jurisdiction to hear and determine any action in respect of the contract.  Further, as both the plaintiff and OW China are companies incorporated in Hong Kong, apparently both with offices in Hong Kong, the contract might appear to have been made in Hong Kong.  As a result the plaintiff would suggest that there is at least a good arguable case that it falls within each of the limbs (i) to (iv) of Order 11, rule 1(1)(d).  Insofar as this takes the plaintiff, I agree with each of those submissions save that concerning agency, which I shall discuss further below.

56. However in order to come within Order 11, rule 1(1)(d), the plaintiff must demonstrate that the claim is brought “to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract”.  It is this aspect of the rule which creates more difficulty for the plaintiff.

57. In my view the provisions of Order 11, rule 1(1)(d) are concerned with actions between two or more parties bound by the terms of a contract (ignoring for this purpose the terms of the Contracts (Rights of Third Parties) Ordinance, Cap 623, which has not been relied upon by the plaintiff).  A plaintiff cannot sue to enforce or rescind or dissolve or annul a contract without the counterparty to that contract being a party to the action.  Equally damages or other relief in respect of a breach of contract would normally require the counterparty to be a party to the action, as would any action which affects a contract.  In this context I would accept that a counterparty would include any person who may be liable to be sued under or in respect of the contract pursuant to the laws of agency.  If the counterparty is not a party to the action, the claim brought by the plaintiff is unlikely to fall within Order 11, rule 1(1)(d), and is more likely to fall within one of the other limbs of Order 11, rule 1(1), such as for example rule 1(1)(f).

58. On that basis it seems to me that unless the plaintiff can demonstrate a good arguable case that the Defendants were in some sense counterparties to the contract between the plaintiff and OW China, either through agency or otherwise, then there is not a good arguable case that the necessary jurisdictional connection in the action against the Defendants is established under Order 11, rule 1(1)(d).  That is so irrespective of whether or not that contract is governed by Hong Kong law, was made within the jurisdiction or has a jurisdictional clause in favour of the Hong Kong courts.

59. During the course of argument Mr Sussex accepted that the thrust of his argument, based on the Res Cogitans case, had shifted away from a claim in contract for the price, and had become a claim for the value of the bunkers in conversion.  That claim is premised upon there being a different set of conditions as between the plaintiff and OW China to the ones between the 3^rd defendant and OW Singapore.  Mr Sussex conceded that he could no longer in fact maintain a claim for the price of the bunkers as a claim under contract.

60. However, Mr Sussex was keen to maintain the leave under Order 11, rule 1(1)(d) because he was of the view that a proper analysis of the contracts was a necessary aspect of his claim in conversion, and he did not want any arguments at a later stage to suggest that he was not entitled to plead the contracts, or their proper construction because no leave had been given under Order 11, rule 1(1)(d).  He urged upon me the analysis adopted by Deputy High Court Judge Le Pichon in HCA 381/2015 in both her decisions.

61. In that case the Judge noted that agency can arise in a variety of circumstances and what might be required to establish an agency was very fact sensitive.  Given the facts in that case, which are very similar to the facts in this case, she concluded (at [64]) that it was not wholly unarguable that an agency relationship did arise as between the owner of the vessel and/or the time charterer and OW China, who was the initial purchaser of the bunker.  She put the matter like this:

“ On those facts, I do not consider it wholly unarguable that an agency relationship did arise. From D2’s perspective, the identity of the physical supplier could not have been material since it contracted with an intermediate bunker trader without stipulating the identity of the supplier. In other words, how OWBS chose to discharge its obligations under the D2–OWBS contract would not appear to have been material or of concern to D2. It could be said that D2 implicitly authorized OWBS to employ such means as would enable the latter to discharge its obligations to D2. Arguably, on the present state of the case law, there was an agency chain running from D2 and ending with OWBC who contracted with the physical supplier.”

62. In her decision dated 31 May 2016, which was an application for leave to appeal her decision dated 18 March 2016, she considered the Res Cogitans judgment from the Supreme Court, and the decision of Mr Justice Anthony Chan dated 15 April 2016 in HCA 446/2015.  She decided that the claim in conversion and the agency relationship were intertwined, with the permission which OW Singapore needed in order to fulfil its contract with the 3^rd defendant being obtained through the chain of contracts up to the plaintiff ([13]).  Therefore, the agency relationship was necessary for the purposes of establishing a claim in conversion ([14]).  Consequently she refused leave to appeal her original decision, including her decision to allow leave under Order 11, rule 1(1)(d).

63. On the other hand the decision of Mr Justice Anthony Chan in HCA 446/2015 dated 15 April 2016 reaches an entirely opposite conclusion based once again on very similar facts.  The judge in that case identified, in my view correctly, that the only link between the Defendants and OW China (using the parties in this case) was that, in the Sales Order Confirmation dated 14 October 2014 confirming the contract between the 3^rd defendant and OW Singapore, OW China was identified as the supplier of the bunker.

64. He concluded that the identification of the supplier could hardly be said on its own to give rise to a relationship of agency ([25]).  Given that there was no further evidence available in that case (as is true also in this case) he concluded that the plaintiff was effectively submitting that an agency relationship arose by operation of law simply because the supply contract between the 3^rd defendant and OW Singapore required OW Singapore to obtain permission up the line for the bunkers to be consumed prior to the payment of the price to the plaintiff.

65. He noted that a purported principal cannot be bound by the terms of a contract if it did not authorise the purported agent to act as its agent when entering into that contract, and he concluded that there was no suggestion that OW China had ever made a representation that it was in fact acting for the vessel owner or the time charterer.  Even if it had done, the representation of an agent would not clothe that agent with apparent authority.  As a result the plaintiff did not have a claim which fell within Order 11, rule 1(1)(d) in that case.  Those propositions are equally correct in the context of this case.

66. The only other matter pressed by the plaintiff in this context is the terms of its contract with OW China, which purport to bind the vessel owner once the bunkers are delivered.  But these terms do not create any agency between the Defendants and OW China, and cannot in my view open the Defendants to a liability for an action to “enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract”.  At best, if it could be shown by the plaintiff that the Defendants became aware of these terms they may affect the conditions of any bailment under which the Defendants took the bunkers.  But that is not sufficient for the purposes of Order 11, rule 1(1)(d).

67. Having regard to all the circumstances, the evidence, and the submissions which have been made on behalf of both the plaintiff and the Defendants, I do not consider that the plaintiff is able to demonstrate a good arguable case that the Defendants are in any sense counterparties to the contract between the plaintiff and OW China.  In such circumstances I do not consider that the plaintiff is able to demonstrate a good arguable case that the claim is one which falls within Order 11, rule 1(1)(d). Consequently in my view leave to serve out of the jurisdiction under that head should be set aside.

68. I recognise that in reaching this decision I have taken a different view to that taken by Deputy High Court Judge Le Pichon, whose experience and judgment I respect.  I accept that the claim in conversion, and the chain of contracts are closely intertwined.  I also accept that the claim in conversion depends upon both the proper construction of the contracts as per the Res Cogitans case, and upon their being no permission granted to OW Singapore through the chain of contracts (or otherwise on the facts), to allow the Defendants to consume the bunkers.  However, I do not understand Deputy High Court Judge Le Pichon to have gone on to consider whether the claim being made was one to “enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract”.  It is at this last step that the plaintiff’s jurisdictional connection fails in my view.

69. In my view the plaintiff is not precluded from pleading the various contracts within the supply chain, and their proper construction, for the purposes of establishing its claim in conversion.  But it is precluded from bringing a claim to “enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract”, because the plaintiff has not been able to demonstrate a good arguable case on that ground.  Given that Mr Sussex has conceded that he cannot maintain a breach of contract claim for the price, the claim which the plaintiff is bringing does not fall within that description and consequently the failure to obtain leave under Order 11, rule 1(1)(d) does not in my view affect the claim which the plaintiff makes, as described by Mr Sussex.  However, it is correct that the Statement of Claim (which is not the document for which leave to serve out was granted) will have to be amended to reflect the new way that the plaintiff now advances its claim.

70. I also am conscious that Mr Sussex has raised a proposition, which he described as “untested” to the effect that if leave is given under one part of Order 11, rule 1(1), then a lower hurdle should be considered when giving leave under other parts of that rule, on the ground that the Defendants are in any event to be brought before the court under the “long arm” jurisdiction.  The argument would run along the lines that once a jurisdictional connection is legitimately established in accordance with settled law it is not necessary to be quite so rigorous when deciding whether to allow a plaintiff to bring within that same action a claim on a slightly different basis.

71. Given that I have not had the benefit of full argument on this point, I decline the implicit invitation by Mr Sussex to adopt that approach.  I confirm that I have approached the claim under Order 11, rule 1(1)(d) in the same manner as I approached the claim under Order 11, rule 1(1)(f), and have not applied a lower threshold to it.

The arbitration clause

72. I turn finally to the claim by the Defendants, effectively, that the action should be stayed to arbitration.  The arbitration clause which the Defendants rely upon is contained within the contract between the 3^rd defendant and OW Singapore.  The Defendants are keen to stress as part of their argument that the plaintiff is not a party to that contract.  Indeed they are correct in that respect.  Consequently I do not see why the court should decline to exercise its jurisdiction in view of the arbitration clause.  The plaintiff’s claim is not the subject of any arbitration clause and in the circumstances I decline to give the declaration which the Defendants have sought and, to the extent that the declaration implicitly seeks a stay to arbitration, I decline the stay.

Costs

73. There can be no question that the way in which the plaintiff now puts its case is somewhat different to the way in which it put its case in front of the Master.  That is in part, if not entirely, due to the development of judicial thinking as set out in the Res Cogitans case.  It is also correct that the plaintiff has not succeeded in maintaining its leave under Order 11, rule 1(1)(d).

74. In the circumstances in my view the appropriate order for costs is that each party should bear its own costs of this application.  However given that no substantive argument has been made on the question of costs I shall make this order an order nisi.  If either party wishes to seek to persuade the court to change the order nisi, then written submissions should be made within 14 days of the date of this Decision, with a right of reply by the other party 7 days thereafter.

Disposition

75. For all of the foregoing reasons I make the following order:

(1) the Defendants’ summons dated 3 November 2015 is dismissed save that:

(a) to the extent that leave to serve out of the jurisdiction granted by Master K Lo gave leave under Order 11, rule 1(1)(d), leave under that sub rule is set aside.

(b) There will be a costs order nisi that each party bear its own costs.