CALM OCEAN SHIPPING S.A. v. WIN GOAL TRADING LTD AND OTHERS

HCAJ 118/2015

[2020] HKCFI 801

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 118 OF 2015

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R E A S O N S   F O R   D E C I S I O N

A N D

D E C I S I O N   O N   C O S T S

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1.  This was the Plaintiff’s Summons filed on 24 October 2018 (“Summons”) by which it sought an order that :

(1)  The 1^st Defendant be appointed to represent all members of a Class of persons[1] wherever situated or incorporated and to defend this action for and on behalf of the Class (“Representative Action Application”);

(2)  Alternatively, the Plaintiff be at liberty to join members of the Class as defendants under the style “Persons Unknown comprising each and all persons wherever situated or incorporated” (“Alternative Relief”); and

(3)  Service out of jurisdiction and substituted service on members of the Class be allowed.

2.  The Representative Action Application was resisted by the 1^st to 4^th Defendants (“D1-4”).  They maintained a neutral stance in respect of the Alternative Relief.  At the end of the hearing, I granted the Alternative Relief with modifications of the terms of the draft order.  These were my reasons for doing so.  In addition, this Decision deals with the costs of the Summons.

Background

3.  There was no dispute over the factual background.  The Plaintiff was the owner of the vessel “Sophia Z” (“Vessel”).  It entered into a time charterparty dated 9 July 2015 with Med-Asia Shipping BV (the Intervener in this Action) as time charterer.

4.  By a sale contract dated 4 May 2015 (“Sale Contract”), D1 as seller agreed to sell and D7 as buyer agreed to buy a consignment of 27,700 tons of carbon steel billets for US$11,190,800.

5.  Pursuant to the Sale Contract, an irrevocable letter of credit (“LC”) dated 9 June 2015 was opened in favour of D1 for the amount of US$11,190,800, with D6 as issuing bank, D5 as nominated bank, and HSBC as advising bank.

6.  Pursuant to ICC Uniform Customs and Practice for Documentary Credits 600 (“UCP 600”) which applied to the LC, if the nominated bank (D5) and issuing bank (D6) chose not to honour or negotiate the LC on grounds of non-compliance of the presented documents, they should give notice of refusal by the close of the fifth banking day following the day of presentation.  Failure to do so would precluded them from claiming that the documents did not constitute a complying presentation. 

7.  On or about 24 July 2015, pursuant to the Sale Contract, the Cargo was shipped on board the Vessel in China, for carriage by the Plaintiff to D7 in Algeria.  A bill of lading (“B/L”) was issued for the Cargo, which stated that: (i) the Plaintiff was the carrier; (ii) D1 was the shipper; (iii) consignee was “To the order of [D6]”; and (iv) D7 was the Notify Party.    

8.  On 10 August 2015, HSBC collected from D1 the documents required under the LC for payment, including the B/L.  On 11 August 2015, the Documents were delivered to D5.  On 13 August 2015, D5 forwarded the Documents to D6.

9.  On 11 September 2015, the Cargo arrived at Algeria.  Shortly thereafter, the Plaintiff received a notification of rejection of the Cargo.  D7 refused to take delivery of the Cargo and purported to reject it on the basis that it was excessively radioactive.  

10.  Pursuant to UCP 600, the deadline for D6 as issuing bank or D5 as confirming bank to reject the Documents was 18 August 2015.  D6 purported to reject the Documents on 14 September 2015 on grounds of non-conformity.

11.  On or about 23 September 2015, the Vessel was forced to leave the berth in Algeria.  Due to draft limits, the Vessel could not continue its journey to its next destination in Italy until the Cargo was discharged.  Therefore, the Plaintiff sailed the Vessel to an alternative safe anchorage at Malta in accordance with new orders received from the Intervener, and anchored the Vessel there awaiting fresh instructions. 

12.  On 22 October 2015, the Plaintiff issued this Action and applied for an injunction requiring (inter alios) D1 to (i) surrender the B/L; and (ii) provide fresh instructions in respect of the discharge and sale of the Cargo.  The Injunction Application was dismissed on 2 November 2015 on the grounds (inter alia) that: (i) D1 had a good arguable defence that it did not have the B/L in its possession and hence did not have ownership over the Cargo; and (ii) the court could not be satisfied to a high degree of assurance that the Plaintiff would be able to establish its rights against D1 at trial.

13.  On or about 10 December 2015, the Plaintiff began unloading the Cargo in Italy. 

14.  On 25 March 2016, the Plaintiff sold the Cargo for US$200/MT in Italy.  The total net amount received by the Plaintiff was US$5,677,815.92 (“Sale Proceeds”). 

15.  At the time of the hearing, the net balance of unencumbered funds out of the Sale Proceeds which was deposited in the Plaintiff’s bank account in Germany was US$2,471,917.17.

16.  On 10 August 2016, the Plaintiff filed an application for interrogatories (“Interrogatories Application”), seeking information on D1-D4’s insurance in respect of the Cargo.  The Interrogatories Application was dismissed on 2 December 2016.

The Plaintiff’s case

17.  The Plaintiff said that it was innocent of any wrongdoing in the carriage of the Cargo but had incurred much cost as a result of events which were beyond its control.  In this Action, the Plaintiff sought a number of protective declaratory relief, in effect the court’s approval as to the course of actions it undertook in Europe in light of the abandonment of the Cargo by the cargo interests, including D1.

18.  It was important to note that the Plaintiff’s primary claim was against D1 for breach of the contract embodied in the B/L in failing to take delivery of the Cargo (when the intended receiver D7 had failed to do so).  By way of self-help, the Plaintiff had compensated itself for its losses from the Sale Proceeds on an interim basis.  If D1 was not the owner of the Proceeds, it might have to answer for the Plaintiff’s damages claim, and the Proceeds would have to be replenished by the Plaintiff (possibly with the damages received from D1). 

19.  In respect of the present application, the Plaintiff said that it had a legitimate concern that in future a party would approach it claiming as holder of the B/L and/or owner of an interest in the Cargo and alleging that the Plaintiff had dealt with the Cargo in an unauthorised manner and/or had committed mis-delivery or conversion and/or was not entitled to sell the Cargo or deduct its expenses from the Proceeds.  Further, such a party might seek to attach the Plaintiff’s assets in Hong Kong or other jurisdictions as security for such claims.

20.  With the Summons, the Plaintiff sought to bring all concerned parties before the court and, so far as possible, to protect itself against future claims.

The case of D1-4

21.  To begin with, it was not very clear why D2 to D4 were sued in this Action.  D2 was the Shipper of another bill of lading which, at the time of the hearing, the Plaintiff accepted as irrelevant.  D3 and/or D4 were “the Production Plant as defined in the Sales Contract” (para 4 of the Amended Statement of Claim).  The relevance of these Defendants to these proceedings was not readily apparent. 

22.  In so far as D1 was concerned, its stance had always been that it had no interest in the Cargo upon presentation of the B/L to D5 through HSBC.  That might or might not be an answer to the Plaintiff’s claim for breach of contract.  However, save for maintaining that under the terms of the LC it had a right to be paid by D6, and “whether or not [D1] has pursued and/or will pursue an action for breach of the [LC] is irrelevant”[2], there was no positive case advanced by D1. 

23.  The attitude adopted by D1 was not an attractive one in that it had steadfastly refused to provide relevant information to the Plaintiff which might enable it to identify the owner or person(s) entitled to the Cargo or its Proceeds, eg, whether D1 had been paid by its insurer in respect of the Cargo.

Potential claim(s) against the Plaintiff

24.  There were clearly merits in the Plaintiff’s claim that it was an innocent party caught in circumstances beyond its control.  There was no suggestion otherwise from D1-4. 

25.  The oddity of the case was that someone must have incurred a large commercial loss in respect of the Cargo but had not come forward and produce the B/L and sought the return of the Cargo or compensation for its value.

26.  The Plaintiff said that, prima facie, the person who had suffered such a loss was D1, who sourced and shipped the Cargo but did not appear to have been paid for it by either D6 or D7.  Yet, D1 asserted no interest in the Cargo.

27.  The Plaintiff believed that it was possible that D1 might have been compensated for its loss by its Mainland-based trade credit risk insurer (‘Sinosure’).  If so, it would explain D1’s stance in these proceedings.  So far, D1 was unwilling to disclose to the Plaintiff any details of its insurance arrangements.  If D1 had been paid by its insurer, the insurer might have a claim in respect of the Cargo or its Proceeds.

28.  Further, there was evidence to support the Plaintiff’s specific concern regarding Qingdao Bosson International Logistics Co Ltd (“QBIL”).  QBIL asserted that it was a forwarding agent of D1 and that there was a Consent Arbitration Award in its favour against D1 in excess of US$1.65 million.  Through its Italian lawyers, QBIL had sought to enforce the Award against the Sale Proceeds held by the Plaintiff. 

29.  However, despite the invitation by the Plaintiff to particularise its claim on the Sale Proceeds and to participate in these proceedings, QBIL had taken neither course.  It should also be noted that the first contact made by QBIL with the Plaintiff’s solicitors took place at about the end of 2015. 

30.  Despite the absence of a party making a claim either against the Plaintiff as carrier of the Cargo or in respect of the Cargo or its Proceeds at the time of the hearing, it was difficult to believe there was no such potential claim given the significant sum of money sitting in the Plaintiff’s bank account. 

31.  In these circumstances, it was certainly legitimate for the Plaintiff to try to protect itself against potential claims which might surface in the future and to ensure, so far as possible, that these proceedings would determine the issues once and for all. 

Representative Action Application

32.  The applicable principles of law were not in dispute[3]. O.15, r.12(1) of the Rules of the High Court, Cap 4, provided that:

“Where numerous persons have the same interest in any proceedings, not being such proceedings as are mentioned in rule 13, the proceedings may be begun, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one or more of them.”

[emphasis added]

33.  The definition of “Class” contained in the Summons (para 2) was as follows:

“… ‘Class’ means the class comprising each and all persons wherever situated or incorporated:

(a) falling within the definition of ‘Merchant’ in the [B/L][4]; and/or

(b) entitled to assert any right against the Plaintiff as holder or otherwise under or in connection with the [B/L]; and/or

(c)     being the legal and/or beneficial owner of, or entitled to assert any security interest in, or otherwise entitled to assert any right against the Plaintiff in connection with, the Cargo or any part of it.”

34.  For 3 reasons, it was not appropriate to grant the Representative Action Application.  Firstly, there was, putting it at the lowest, a potential conflict of interest between D1-4 and the Class.  It would be unlikely for a person claiming an interest in the Cargo to want to have the Sale Proceeds deducted with the Plaintiff’s expenses.  That person might assert that the expenses were attributable to the breach of contract by D1-4, which claim was disputed by those Defendants with vigour.

35.  Secondly, in light of the joinder of D5 to D7 in this Action, it was unlikely that the number of persons within the Class would be more than a few.  The rule only applied where the persons having the same cause in the proceedings were “numerous”.  So small a number as five persons would not be regarded as “numerous”, unless the amount involved was very small, or the court was satisfied that it was the wish of all the persons interested that the representation desired should be ordered: Hong Kong Civil Procedure 2020, vol 1, [15/12/4]. 

36.  The objective of the rule was to “facilitate disposition of cases where parties were so numerous that the proceedings would be unmanageable if all were named”: Ng Hing Yau and Anr v City Noble Developments Ltd and Ors, unrep., HCA 430/2017, Master E Liu, 16 November 2017, §8.

37.  The Plaintiff submitted that the court should adopt a flexible and modern approach to the application of the rule, bearing in mind the underlying objectives set out in O.1A, r.1.  Whilst there was force in the submission, it would not be appropriate to render the requirement of “numerous persons” redundant. Further, this was not the only obstacle to the application. 

38.  Thirdly, there would be duties imposed upon D1-4 in the event that the Representative Action Application was granted.  Those duties included: (a) an obligation to inform anyone of these proceedings whom D1-4 knew had an interest in the Cargo or the Sale Proceeds (paras 11 and 12(a) of the Summons); and (b) acting as the representative of the Class and to defend this Action on its behalf (para 3 of the Summons).  D1-4 complained that the imposition of such duties would constitute serious prejudice to them. 

39.  The obligation under (a) should be considered in conjunction with the misgivings of D1-4 about the vagueness of the definition of Class (see further below).  Whether or not the definition could be improved upon, the exercise of identifying those who had an interest in the Cargo or Sale Proceeds would unlikely be a straightforward one.  More likely than not, legal advice would have to be obtained for the purpose.  The duty under (b) (which would be imposed on D1), putting aside the potential conflict of interest between D1-4 and the Class, would likely involve additional costs and delay to D1. 

40.  Although the court had the power to compel D1 to be a representative of the Class against its wish: see Baynard Ltd v Secretary for Justice, unrep, HCA 4073/02, per DHCJ L Chan (as he then was) at §42, this was a matter which went to the discretion of the court whether to grant this application.  In the face of a viable alternative relief (see below), it would not be appropriate to accede to this application against the will of D1-4. 

Inherent jurisdiction

41.  It was permissible to sue a specific ‘person unknown’ by describing the role and nature of that person, with amendment later if his identity becomes known: see University of Hong Kong v Hong Kong Commercial Broadcasting Co Ltd [2016] 4 HKLRD 113, per G Lam J at §§52-3.  This procedure was designed only to alleviate the need to name a defendant where it was impossible to do so and did not obviate the need for there to be a real defendant when the action was commenced.  The device did not give rise to an ‘ambulatory’ action.

42.  It was not uncommon to see the deployment of this device in cases involving possession of land where the occupier(s) of the land was unknown.  In Chiu Luen Public Light Bus Co Ltd v Persons Unlawfully Occupying or Remaining on the Public Highway & Ors [2014] 6 HKC 298, injunctions were granted against unnamed defendants in the Occupy Central Campaign. 

43.  In Billion Star Development Ltd v Wong Tak Chuen [2013] 2 HKLRD 714, in an obiter dicta, Lam JA (as he then was) approved the adoption of the device in that case where the circumstances demanded legal redress of the plaintiff’s interest against a large number of unidentified persons by way of injunctive relief [§70].  Further, it was observed that the court had to be vigilant in the following respects [§74]:

(a)  The proper description of the unnamed defendants to satisfy the test of certainty;

(b)  The nomenclature used would not prejudice the rights of those potentially affected by orders the court might make from being notified of the proceedings or from appearing to defend their rights if they wish;

(c)  Proper directions must be given for proper service of the proceedings and notification to those who might be affected; and

(d)  If no-one came forward to resist an application against a group of unidentified defendants, the court should consider whether caveats similar to those in O.15 r.12(3) to (6) should be built into any relief it might grant (including order of costs).

44.  In this case, the court accepted that the Plaintiff was an innocent party and there existed potential claims against it in connection with the carriage and/or disposal of the Cargo.  The Alternative Relief would serve to ensure, as far as possible, that all interested parties would be before the court and that the issues in these proceedings could be resolved with finality.  These were clearly legitimate purposes, and the Alternative Relief ought to be granted in conjunction with the related order for service out of jurisdiction and substituted service, subject to some amendments of the draft order before the court.

45.  Major amendment was required in respect of the description of the defendants to be joined. Instead of describing the Unknown Persons by reference to the definition of the Class (see para 33 above), the formulation could have been reduced into simple and easily understood terms.  Apart from verbosity, the definition was complicated and couched in highly legalistic terms.  It would require a legally qualified person to fully understand the definition.

46.  The Plaintiff agreed with the court that its potential liabilities fell into 2 categories, liability incurred as carrier of the Cargo and liability incurred in the disposal of the same.  In the premises, the court took the view that the additional defendants should be described as “Persons Unknown wherever situated or incorporated who have any claim against the Plaintiff as the Carrier under [the B/L] or in respect of the Cargo under [the B/L] or its proceeds of sale”.

47.  One of the paragraphs of the draft order sought to impose an obligation on D1.  After modification by the court, it provided as follows: “The 1^st Defendant do forthwith in writing inform any person, wherever he, she or it may be located or incorporated, from whom it had received any payment in respect of [the Cargo] of the existence of this Action and the substance of this Order”.

48.  The 1^st Defendant objected to the imposition of the obligation.  However, I was unable to see any valid ground for the opposition.  The court must have power to impose such obligation so as to ensure that its order would be effective.  There was clearly substance in the Plaintiff’s belief that D1 might have been paid for the Cargo, which would explain its apparent disinterest in making any claim under the LC.  The party or parties who had paid D1 might well fell within the “Persons Unknown” who would be joined in this Action.  The obligation was therefore justified. 

49.  Further, the obligation was hardly an onerous one.  D1 must know if it had received any payment for the Cargo.  All that was required was for it to inform the payer(s) of the existence of this Action and the Order made by this court so that they could participate in this Action if they wished to do so.

Disposition

50.  For these reasons, an order in terms of the draft order as amended was made granting the Alternative Relief in favour of the Plaintiff. 

Costs

51.  The Alternative Relief was not resisted by D1-4.  They were therefore the winner and there was no good reason not to award them the costs of the Summons.

52.  However, the Plaintiff argued that the Defendant should bear its costs of the call-over hearing which took place in November 2018.  The reason being that D1-4 insisted on having the Summons fully argued at the call-over hearing, which necessitated the briefing of counsel by the Plaintiff.  Such costs were wasted because the hearing was far too short to allow full ventilation of the Summons.  Indeed, that hearing was adjourned with directions for further conduct as expected by the Plaintiff. 

53.  The insistence by D1-4 to have the Summons fully argued at the call-over hearing was unrealistic.  They were warned by the Plaintiff in respect of the costs consequence of their conduct.  In the premises, I fail to see any good reason why D1-4 should not bear the wasted costs, namely, the costs thrown away by the preparation for full argument at the call-over hearing.  Such costs would include, inter alia, wasted counsel fees.  However, I do not agree with the Plaintiff that indemnity costs order is justified.   

54.  I make an order that, save for such costs thrown away which are to be paid by D1-4, the costs of and occasioned by the Summons be paid by the Plaintiff to D1-4, to be taxed if not agreed.  I do not believe that the nature or complexity of these matters justified a certificate for 2 counsel.