NEWOCEAN PETROLEUM CO LTD v. RIO TINTO SHIPPING (ASIA) PTE. LTD

HCA 446/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 446 OF 2015

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D E C I S I O N
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1.  By a Summons filed on 8 October 2015 (“Summons”), the defendant (“RTS”) seeks to :

(a) set aside the Concurrent Writ of Summons issued on 2 July 2015, which has been served on RTS in Singapore; and

(b) discharge the Order of Master S Lo dated 26 June 2015 (“Leave Order”) granting leave to the plaintiff (“Newocean”) to issue the Concurrent Writ and serve the same on RTS in Singapore.

2.  The grounds for RTS’s application are as follows :

(a) Newocean’s claim does not fall within O 11, r 1(1)(d) RHC, because RTS did not enter into any contract for the purchase of bunkers from Newocean;

(b) Newocean is not entitled to rely upon O 11, r 1(1)(f) RHC, because it did not rely upon this limb in the ex parte application for the Leave Order;

(c) In any event, Newocean’s claim does not fall within O 11, r 1(1)(f) because:

(i) Newocean is not entitled to claim for conversion against RTS; and

(ii) even if Newocean has a claim for conversion against RTS, any damage that it sustained did not occur, or did not result from an act committed, within Hong Kong;

(d) There was material non-disclosure in the ex parte application for the Leave Order.

Background

3.  RTS was the time charterer of MV “Star Big” (“Vessel”).  Under the terms of the charterparty, RTS was required to provide and pay for fuel oil in relation to the operation of the Vessel.  Newocean was a physical supplier of fuel oil in Hong Kong.

4.  Pursuant to a sales confirmation dated 27 October 2014 (“OW Sales Confirmation”), RTS entered into a contract with a bunkers trader, OW Bunker Far East (S) Pte Ltd (“OW Far East”), for the purchase of 2,100 MT of fuel oil (IFO 380) at US$479/MT for delivery to the Vessel in Hong Kong.

5.  On the same date (27 October 2014), another company OW Bunker China Ltd (“OW China”) placed a bunkers order with Newocean for 2,100 MT of IFO380 at US$477.50/MT to be supplied to the Vessel.  The bunkers sale contract was evidenced by a sales confirmation issued by Newocean dated 27 October 2014 (“Newocean Sales Confirmation”) and a purchase order confirmation issued by OW China dated 28 October 2014.  Under the terms of Newocean Sales Confirmation, payment for the fuel oil was due 30 days after delivery.

6.  On 30 October 2014, Newocean delivered or caused to be delivered a total of 1,987 MT of fuel oil (“Bunkers”) to the Vessel at South Lamma Anchorage, Hong Kong.

7.  In the contract between RTS and OW Far East and the one between Newocean and OW China, there was a retention of title clause. The salient terms from the standard terms of the OW Group (applicable to the former) were clauses H.1 and H.2.  They provided :

“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 all amounts due in connection with the respective delivery …

  Until full payment of the full amount due to the Seller has been made … the Buyer agreed 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. …”

8.  Clause 11 of Newocean’s general terms and conditions was as follows :

“PASSING OF RISK AND RETENTION OF TITLE

Subject to any provision to the contract 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 …”

9.  On 21 November 2014, OW China commenced winding up proceedings.  Pursuant to an Order of the court dated 25 February 2015, OW China was wound-up.  Newocean says that it has not been paid for the Bunkers.

10.  It appears from the evidence that OW Far East and OW China belonged to a substantial international bunkers trader under the OW Group.  A number of the companies within this group were in financial trouble and had been wound-up or are in the process of being wound-up.  This included OW Far East.  As a consequence, there are quite a number of litigations in England, Singapore and Hong Kong whereby the physical bunkers suppliers (like Newocean) are trying to look to the bunkers consumer (here RTS) for payment of the bunkers.

11.  By a generally endorsed Writ of Summons issued on 3 March 2015, Newocean commenced this action against RTS, claiming the sum of US$948,202.05 with interest and costs.  The endorsement on the Writ stated as follows :

“The Plaintiff’s claim is for the sum of US$948,802.05 (or its Hong Kong dollars equivalent at the time of payment) as the price or value of bunkers supplied to M.V. Star Big on or about 29^th October 2014 by or on behalf of the Plaintiff at the request of and/or pursuant to order placed by the Defendant and/or damages for conversion by the Defendant of the said bunkers supplied on the said ship together with interest pursuant to s.48 of the High Court Ordinance (Cap.4) and costs.”

12.  By an affirmation of Mr Pau Yin Ming (“Pau”) dated 26 March 2015 (“Pau 1^st”), Newocean made an ex parte application for leave to serve the Writ on RTS out of jurisdiction.  In that affirmation, it was stated that Newocean applied for leave under O 11, r 1(1)(c) and (d).  There was no reliance upon any cause of action in conversion which fell under O 11, r 1(1)(f).

13.  In reply to requisitions made by Master H Au-Yeung on 2 April 2015, Pau 2^nd was filed.  In this affirmation, it was stated that Newocean only relied on O 11, r 1(1)(d).

14.  On 28 April 2015, Master Hui raised further requisitions on whether a Concurrent Writ of Summons should be issued under O 6, r 6.  By Pau 3^rd dated 18 June 2015, Newocean confirmed that a Concurrent Writ was necessary and provided further information concerning its claim.  The Leave Order was made on 26 June 2015. 

15.  On 11 September 2015, Newocean filed its Statement of Claim (“SOC”).  Three causes of action are advanced in the SOC, namely, breach of contract, conversion and bailment[1].  On 8 October 2015, the Summons was issued.  

Applicable law

16.  It is trite that the jurisdiction under O 11 is “exorbitant” in nature.  It is a strong thing for the court to go outside its territory and to compel a foreigner to come to Hong Kong in order to defend itself.  Therefore, such jurisdiction must be exercised with great caution: Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346 at 356C, per Hunter JA.

17.  A plaintiff seeking leave to effect service of a Concurrent Writ out of jurisdiction must satisfy the following requirements :

(a) The plaintiff must establish a good arguable case that one or more of the relevant heads of jurisdiction under O 11, r 1(1) is established;

(b) With regard to the substantive claim itself, the plaintiff must demonstrate that there is a serious issue to be tried on the merits;

(c) The plaintiff must establish that the case is a proper one for service out of jurisdiction within O11, r 4(2).  The relevant test is whether Hong Kong court is clearly and distinctly the appropriate forum for the trial of the action.

See Hady v Bazar [2012] 3 HKLRD 29, §66 per DHCJ Ng SC (now Ng J).

18.  The plaintiff must demonstrate that each of its claims falls within one of the heads of O 11, r 1(1).  The court has no power to allow an amendment of a writ served outside jurisdiction with leave to add a cause of action for which leave could not be given under O 11.  Where leave under O 11 has been given for a writ which contains claims that lie outside O 11, r 1(1), the court may set aside the leave in part: 張才奎所託管中國山水投資有限公司股份 v 張才奎, HCA 1661/2014, unrep,13 May 2015, per Godfrey Lam J at §§67-70.

Newocean’s claim in contract (O 11, r 1(1)(d))

19.  O 11, r 1(1)(d) provides as follows :

“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;”

20.  In short, RTS contends that Newocean’s claim in contract has no proper foundation because there was never any contract between them.  There is no dispute that in order to come inside the “gateway” of O 11, r 1(1)(d), there must be a contract between Newocean and RTS.

21.  I agree with Mr Luxton, appearing for RTS, that Newocean’s evidence of its contractual claim against RTS is inconsistent :

(a) In Pau 1^st, it was stated that the Bunkers were supplied “at the request of and/or pursuant to order placed by [RTS]”;

(b) In Pau 2^nd, it was stated that the Bunkers were supplied “pursuant to order placed by [RTS]”;

(c) In Pau 3^rd, it was stated in para 4:

“On or about 27 October 2014, [OW China] (through agent or otherwise) placed a bunkers order with [Newocean] for [the Bunkers] to be supplied on board [the Vessel] (“the Contract”) … The order was confirmed by [OW China] on 28 October 2014. The vessel was chartered to [RTS] who was responsible to [Newocean] for all payment.”

(d) The SOC (para 3) referred to the alleged contractual relationship in terms identical to para 4 of Pau 3^rd;

(e) In Pau 4^th dated 30 November 2015, which was filed in opposition to the Summons, it was stated (paras 8 and 16):

“Assuming there is a contract between the parties, it is clear that Order 11, rule 1(1)(d)(ii), (iii) and (iv) are satisfied. Regarding rule 1(1)(d)(ii), [OW China] is the agent trading and residing within the jurisdiction, and [RTS] is the principal trading and residing out of the jurisdiction.

…

  As to the claim in contract, I do not accept … that the contract was concluded between [Newocean] and OW China only.  It is my respectful submission that [OW China] contracted both on its own behalf, and also on [RTS’] behalf and with RTS’ authority[2].”

22.  Relying upon Continental Mark Ltd v Verkehrs-Club De Schweiz [2001] 4 HKC 469 at 482A-C per DHCJ McCoy SC, Mr Luxton argued that Newocean cannot make out a good arguable case in the face of fundamental inconsistency in its evidence.  I do not find it necessary to deal with this argument which is based on the state of Newocean’s evidence, because I am unable to see how Newocean can make out a good arguable case of a claim in contract against RTS.

23.  Mr Sussex SC, appearing for Newocean, accepted that the SOC has not pleaded a proper case in contract.  His argument on contract is confined to one allegedly made between Newocean and RTS acting via its agent, OW China. 

24.  To begin with, there is nothing in the documents, whether generated between RTS and OW Far East or between Newocean and OW China, to indicate any agency between RTS and OW China.  RTS’ unchallenged evidence is that it contracted to buy the Bunkers as purchaser from OW Far East as seller.  The OW Sales Confirmation referred to OW Far East as “Seller”. 

25.  The only piece of evidence relied upon by Mr Sussex is the reference in OW Sales Confirmation under “Supplier” to “NEW OCEAN/OW BDN”.  Apart from the ambiguity of the reference, I agree with Mr Luxton that the identification of the supplier can hardly give rise to a relationship of agency. 

26.  Mr Sussex’s argument is based on a legal analysis of the contractual relationship between a bunkers trader and the user set out in the judgment of Males J in The “Res Cognitans” [2015] 2 Lloyd’s Rep 563, which was approved by the English Court of Appeal in The Res Cognitans [2015] EWCA Civ 1058.  This was an action arising from the collapse of the OW Group.    

27.  It was held that the contract in question was not a sale of goods contract but one for the supply of goods.  The legal analysis is as follows (see §33 of judgment of the CA).  It was a contract under which goods (bunkers) were to be delivered to the owners (user) as bailees with a licence to consume them for the propulsion of the vessel[3], coupled with an agreement to sell any quantity remaining at the date of payment, in return for a money consideration which in commercial terms can properly be described as the price. 

28.  Importantly, it was also held by Males J that there was an implied term of the supply contract in that the contract imposed on the bunkers trader an obligation to ensure that the licence which it gave the user to use the bunkers immediately upon delivery was or became binding on whichever entity in the supply chain was or would become the owner of the goods (CA judgment, §35).

29.  This implied term is critical to Mr Sussex’s argument on agency between RTS and OW China.  Because it was necessary for the latter to obtain the consent of Newocean on behalf of RTS, it is reasonably arguable that a relationship of agency exited between OW China and RTS, said Mr Sussex. 

30.  With respect, Mr Sussex was unable to elaborate on how the agency had arisen in this case.  In effect, he was submitting that an agency relationship arose by operation of law.

31.  I am unable to accept the submission as reasonably arguable.  It is difficult to see how RTS could be contracting with Newocean not just unknowingly, but contrary to its own understanding (see para 24 above). 

32.  Mr Luxton relied on Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 2) (2010) 13 HKCFAR 479 for the proposition that RTS cannot be bound by the contract with Newocean for the supply of the Bunkers, if it did not authorise OW China to act as its agent in entering into the contract.  Lord Neuberger NPJ (delivering the judgment of the CFA), stated at §§64 and 70 :

“… apparent authority is based on a representation (normally implied) as between the alleged principal and the third party as to the authority of the alleged agent, and if the third party could rely on some statement by the alleged agent, made without the authority of the principal, it would seem precious close to pulling up oneself by one’s own bootstraps.

  … I find it very hard indeed to conceive of any circumstances in which an alleged agent, who does not have actual or apparent authority to bind the principal, can nevertheless acquire apparent authority to do so, simply by representing to the third party that he has such authority.”

33.  Here, there is no suggestion that OW China had ever made a representation that it was acting for RTS.

34.  In the premises, I hold that Newocean does not have a claim which falls within O 11, r 1(1)(d).

HCA 381/2015

35.  On 21 March 2016, Newocean’s solicitors wrote to this court informing it of a Decision of Deputy High Court Judge Le Pichon made on 18 March 2016 (“Decision”) in Newocean Petroleum Co Ltd v O W Bunker China Ltd (in provisional liquidation) and Cosco Petroleum Pte Ltd, HCA 318/2015.  Further written submissions were subsequently filed on behalf of RTS in relation to the Decision. 

36.  The Decision concerned another action by Newocean to recover payment for bunkers supplied to OW China.  The arguments made on behalf of Newocean were similar to those made in this case. 

37.  In respect of agency, the learned Deputy Judge held that it was not “wholly unarguable” that an agency relationship arose in that case between Cosco Petroleum Pte Ltd (“D2”), a bunker trader, and OW China even though the former did not purchase the bunkers from the latter but from OW Far East (unknown to D2 at the time, OW Far East had a back-to-back contract to purchase the bunkers from OW China). According to the analysis of the learned Deputy Judge based on The Res Cogitans, there was an “agency chain running from D2 and ending with [OW China] who contracted with [Newocean]” (see paras 9 and 64 of the Decision).

38.  The analysis was that, based on the nature of the supply contract between D2 and OW Far East, the former had implicitly authorised the latter to “employ such means” (including engaging other agent(s)) “as would enable [it] to discharge its obligations to D2”.  In effect, the agency between D2 and OW China arose by operation of law.

39.  With respect, it is evident from the Decision that the agency argument was not without difficulties.  For my part, I am content to say that the analysis cannot be applied in this case.  In the present case, RTS was not a bunker trader.  It was a charterer acquiring the Bunkers from OW Far East (see paras 3 and 4 above).  Importantly, RTS contracted to buy the Bunkers as purchaser from OW Far East as seller (para 24 above).  Whilst it may be said that RTS (like D2 in HCA 381/2015) was not concerned about the identity of the ultimate supplier of the Bunkers, it is quite another matter to suggest that RTS had, contrary to its understanding, entered into a contract with Newocean via an agent who it did not know about.

40.  The law of contract is founded on consensus between contracting parties.  I find it very difficult to accept that a contracting party can be held responsible for an obligation which is outside its contemplation.  RTS’ understanding of the contracting arrangement would distinguish this case from that of D2 in HCA 381/2015.

41.  Further, I also agree with Mr Luxton that it is illogical to suggest that RTS had 2 contracts in the purchase of Bunkers – 1 with OW Far East and 1 with Newocean made via OW China acting as its agent.  If that be the case, RTS can be held liable under both contracts.  Even if it had paid OW Far East for the Bunkers[4] at US$479/MT, it would remain liable to Newocean for the same goods at US$477.50/MT.  With respect, this demonstrates the difficulty in reconciling the legal analysis with the reality in this case.

Material non-disclosure

42.  Given the foregoing conclusion, it is not strictly necessary to deal with this issue.  However, out of deference to the arguments made, I shall do so.  I also uphold this complaint by RTS. 

43.  There is no dispute that Newocean had the duty of full and frank disclosure of all material facts to the court in its ex patre application under O 11.  The information provided to the court by Pau 3^rd in respect of Newocean’s contractual claim is highly unsatisfactory.  There was no explanation as to why RTS was “responsible to [Newocean] for all payment” (see para 21(c) above).  If it was Newocean’s intention to rely on an agency between OW China and RTS, there was no explanation as to how that arose.  With respect, the material non-disclosure here is indefensible. 

Discharge of the Leave Order

44.  The parties agree that the Leave Order must be discharged if the court rejects Newocean’s contractual claim.  I should add that the same result normally follows once the court finds that the Leave Order is tainted with material non-disclosure.  However, Mr Sussex argued that the order can be re-granted based on Newocean’s tortious claim.  There is no time bar to such a claim and it would be a waste of resources to insist on Newocean making another O 11 application. 

45.  In Queenston LLC v Serlen Ltd, HCA 7585/2000, unrep (27 April 2001), at pp.26-27, Recorder Edward Chan SC held :

“In my judgment if the Plaintiff has opted to apply for leave to serve out of jurisdiction on the basis of a generally endorsed writ, he must in his affidavit in support give all the necessary details as to how his cause of action arises. He would likewise be bound by the way he formulates his cause of action in the general endorsement on the writ, if he so chooses to state his cause of action in the general endorsement. Of course, if he merely elects to set out the relieves prayed for in the general endorsement (which is permissible under Order 6 rule 2(1)(a)), then of course, he must state clearly his cause of action and the way he formulates it in the affidavit in support of the application for ex parte leave. In either case, he could not subsequently change the way of the formulation of the cause of action by filing new affidavits in the proceedings to set aside the ex parte leave.”

46.  In Kayden Ltd v Securities and Futures Commission (2010) 13 HKCFAR 696, at §§35 to 38, the CFA referred to Parker v Schuller (1901) 17 TLR 299 and emphasised the strict approach to applications for leave to serve out of jurisdiction.  The applicant has a duty to make clear to the court exactly the basis of its invocation of O11 jurisdiction when making the application for leave to serve out.  He ought not be allowed, in the face of a discharge application, to set up another cause of action which was not before the court upon the original application.  Three reasons were given by Ribiero PJ for this principle: (i) the need for special care given the extraordinary nature of the long-arm jurisdiction asserted under O 11; (ii) the court acts on the faith of the plaintiff’s representations made to it ex parte when granting leave for service out; and (iii) the defendant as well as the court must be apprised of the cause of action alleged, so that it can decide whether to challenge the order which asserts the court’s jurisdiction over him.

47.  I should add that in §39, Ribiero PJ referred to Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, 436 and identified a possible exception to the need for strict adherence to the legal basis advanced in support of service out, namely, where the alternative basis has been specifically referred to in the evidence in support of the ex parte application.  This exception is of no application here.

48.  Further, I have been referred by Mr Luxton to rubric 11/4/10 of Hong Kong Civil Procedure 2016, vol 1, p.198, which referred to the recent abolition by the English Supreme Court of the principle in Parker v Schuller and stated :

“In NML Capital Ltd, above, the Supreme Court considered Parker v Schuller incompatible with the spirit of CPR in that it is pointless making an applicant who was bound to succeed on a fresh application start all over again. But it suggested (sic) that the Court of Final Appeal’s stricter approach to Parker v Schuller is the more consistent with the emphases under CPR/CJR of preparing properly from the outset, informing the defendant early of the case it is to meet and the trend away from an absolute right to amend so long as prejudice to the defendant is compensable in costs. This sentence was cited with approval by the Court of Appeal in Winland Enterprises Group Inc v Wex Pharmaceuticals Inc [2012] 2 HKLRD 757 §30.”

49.  I should add that the CA in Winland Enterprises Group Inc, at §31, considered itself bound by Kayden Ltd and accordingly adopted the strict approach.

50.  In light of the above authorities, I must decline Mr Sussex’s invitation to re-grant an order after discharging the Leave Order. 

Newocean’s claim in tort (O 11, r 1(1)(f))

51.  O 11, r 1(1)(f) provides as follows :

“the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction”

52.  Given this court’s refusal to re-grant an order to enable this action to continue against RTS, it is unnecessary to deal with the cause of action based on conversion.  Newocean may or may not institute another action against RTS and apply to have it served out of jurisdiction (there is evidence from RTS that there was no commission of this tort in Hong Kong).  In the circumstances, it would not be appropriate for this court to rule on the arguments on this cause of action.

Conclusions

53.  I make an order in terms of para 1 of the Summons.  I set aside the Leave Order and dismiss this action.  I make an order nisi that the costs of the action and this application be to RTS, to be taxed if not agreed.