THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL OOCL CHINA v. THE OWNERS AND/OR DEMISE CHARTERES OF THE SHIP OR VESSEL DARYA BHAKTI

HCAJ 218/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 218 OF 2009

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Admiralty action in rem against:
The Ship or Vessel Darya Bhakti of the port of Hong Kong

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JUDGMENT

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1. On 4 March 2008 the container vessel OOCL China collided with the defendants’ vessel the Darya Bhakti off Shanghai in the Mainland.

2. The plaintiffs are the registered owners and the demise charterers of the OOCL China.  The registered owners are Newcontainer No. 6 (Luxembourg) Shipping S.a.r.l and the demise charterers are Orient Overseas Container Line Ltd (“OOCL”).

3. As a result of the collision separate Admiralty actions were commenced by the 2 ship interests.  The claims of the Darya Bhakti have been agreed.

4. By the indorsement of claim in this Admiralty action the plaintiffs claim as owners and/or demise charterers of the OOCL China and as bailees of cargo lately laden on the OOCL China against the defendants for damages and/or loss and/or expenses incurred or suffered by the plaintiffs by reason of the collision which collision was caused by the negligence and/or breach of duty of the defendants and/or their employees and/or agents, with interest and costs.

5. The claims of the OOCL China have not been agreed in their entirety.  However, the parties have agreed to deal with the assessment of the claims of the OOCL China in this reference before me and then to separately address issues of liability which I am not concerned with.

6. The plaintiffs’ claims in this reference was filed on 12 August 2011.  The defence was filed on 7 October 2011.  The plaintiffs’ reply was filed on 2 December 2011.  The plaintiffs’ filed an amended claim on 21 June 2012.

7. I heard evidence from Mr C.K. Ho (“Ho”) who in March 2008 was the head of the marine operations of OOCL.  He is now the manager of the Alliance and Networks Division of OOCL.

8. I also heard evidence from Captain Y.S. Gong (“Gong”) who in March 2008 was the general manager of the operating team of OOCL.  He is now the general manager of the Corporate Logistics Division of OOCL in the Shanghai office.

9. The factual evidence was largely undisputed.  I have no hesitation is accepting both Ho and Gong as honest, truthful and reliable witnesses.

10. The undisputed facts are that at the time of the collision the OOCL China was on time charter to Malaysian International Shipping Corporation (“MISC”) and in the course of a voyage from Shanghai to Busan in South Korea.  She was carrying 2,572 containers.

11. MISC was at that time a member of the Grand Alliance under the Grand Alliance Operating Agreement (“GAOA”) between members of the Grand Alliance consisting of the linear consortium of OOCL, MISC, Hapag-Lloyd Aktiengesellschaft (“HL”) and Nippon Yusen Kaisha (“NYK”).

12. Pursuant to the GAOA, members of the Grand Alliance provided ships for the various services operated by the Grand Alliance with a view to maximize profits and minimize expenses.

13. At the material time in March 2008, the OOCL China was on time charter from OOCL to MISC under a time charterparty dated 20 May 2005.

14. MISC had time chartered the OOCL China for the purpose of providing a suitably sized ship for Grand Alliance’s Trans-Pacific Central China Express service (“CCX”) under the terms of the GAOA.

15. Under the terms of the GAOA, the operating carriers chartered out slots on their ships to other Grand Alliance members.  For ships on the CCX service 2,453 slots representing 45.97% of the total slot capacity were chartered out to OOCL.  At the material time, although the OOCL China was chartered out by OOCL to MISC, 45.97% of the total slots were chartered back to OOCL.  

16. The slots were shared between OOCL, HL and NYK.  Of the total slot capacity, OOCL was allocated 45.97%, HL was allocated 22.18% and NYK was allocated 31.844%. MISC itself took no slots on the OOCL China.

17. At the time of the collision on 4 March 2008, the OOCL China was on a voyage from Shanghai to Busan in South Korea.  The collision occurred shortly after sailing from Shanghai.

18. As a result of the damage sustained in the collision the OOCL China was refused permission by her Class Society to complete the voyage and was required to undergo immediate repairs.  It was necessary for the containers to be unloaded and the containers were loaded onto a substitute vessel and transshipped to their various destinations.

19. On 13 and 14 March 2008 the containers were unloaded from the OOCL China at the Yangshan Container Terminal in Shanghai and then transshipped onto the OOCL Japan which was a reserve ship which had been standing by off Taiwan.  OOCL had kept the OOCL Japan in reserve to provide cover in the event that one of the ships operating in the Grand Alliance services had to be taken out of service for repairs, as did happen in this case.  The OOCL Japan was a sister ship of the OOCL China they being of the same size and build.

20. There were temporary repairs carried out in Yangshan in the Mainland.  The OOCL China then sailed in ballast to Kaohsiung in Taiwan where it was permanently repaired.

21. It is agreed that the OOCL China was out of service for a total of 44.58 days.

22. The above facts are undisputed and I find them proved.

23. By the order of Reyes J made on 22 June 2012 it was ordered, inter alia, that the parties file a list signed by the parties of the items of the plaintiffs’ claims which are not disputed, stating the amount which the parties agree should be allowed in respect of each such item.  Pursuant thereto, a List of Undisputed Claim Items (“the List”) dated 31 October 2012 was signed by the solicitors for the parties.  The List was filed on 1 November 2012.

24. The List contains a total of 56 Items.

25. Counsel informed me that that a large number of items have been agreed and that there are only a few disputed items.

26. The agreed items are Items 9 to 30 inclusive, Item 33, and Items 49 to 55 inclusive in the List (“the agreed items”).  The quantum of the agreed items has been agreed as particularised in the List.  The total quantum of the agreed items is the sum of US$4,094,864.25.

27. Although Item 32 (bunkers consumed) in the sum of US$241,466.05 was a disputed item in the List, at the hearing before me this was no longer a disputed item.

28. I was informed that there are only 2 remaining issues before me:

(1)   In respect of items 1 to 8 inclusive and Items 34 to 48 in the List.  These have been described by Mr Scott SC, for the plaintiffs, in his submissions as the transshipment costs.  I shall also refer to Items 1 to 8 and Items 34 to 48 in the List as the transshipment costs in this judgment.

Although the quantum of Items 1 to 8 has been agreed as set out in the List, the quantum of Items 34 to 48 has not been agreed.

Liability for the transshipment costs is disputed;

(2)   In respect of item 31 (loss of hire) in the List.  The amount claimed was amended at the hearing to US$1,427,273.28.  The quantum is disputed.

The transshipment costs

29. On the evidence of Gong, which I accept, I am satisfied as to the reasonableness of the quantum of the transshipment costs as claimed in the List.

30. The collision occurred shortly after sailing from Shanghai. Gong said, and I accept, that there was no option available to the OOCL China other than to discharge her entire containers of cargo at the port of Yangshan in Shanghai as this was the nearest port that the OOCL China could seek refuge in after the collision.  The Shanghai Shendong International Terminal (“the terminal”) was the only container terminal in Yangshan.

31. Gong also made the point, which was not disputed, that this was not a simple container discharge operation but an emergency operation involving a damaged container ship with damaged containers which had toppled on deck.  Also there were containers containing dangerous cargo.

32. Items 34 to 48 in the List are the same items as Items 1 to 16 particularised in the terminal’s invoice dated 17 April 2008 (“the invoice”) although the amounts in the invoice are in RMB.  The equivalent amounts in US currency have been set out in the amounts claimed under Items 34 to 48 in the List.

33. As Gong explained, the items 1 to 14 in the invoice were charges in accordance with the tariffs as set by the Government.  As for items 15 and 16 in the invoice, the amounts set out were the end result of the negotiations that OOCL had with the terminal operators.  They managed to get some reduction.

34. I am satisfied that the quantum of the transshipment costs as claimed by the plaintiffs is reasonable.

35. However, there is a serious dispute between the parties as to whether the defendants are liable to the plaintiffs for the transshipment costs.

36. Mr Sussex SC, for the defendants, submitted that the plaintiffs are unable to claim the transshipment costs from the defendants.

37. Undoubtedly the claims against the defendants are in tort and not in contract.

38. In The “Mineral Transporter” [1985] 2 Lloyd’s Rep. 303 it was held that the general proposition was that a time charterer was not entitled to recover for pecuniary loss caused by damage by a third party to the chartered vessel because a time charterer had no proprietary or possessory right in the chartered vessel and his only right in relation to the vessel was contractual.

39. Lord Fraser said at page 306:

“The first issue—the time charterer’s claim for economic loss

  This issue is one of fundamental importance in maritime law and in the law of negligence generally.  There is a long line of authority in the United Kingdom for the proposition that a time charterer is not entitled to recover for pecuniary loss caused by damage by a third party to the chartered vessel.  The reason is that a time charterer has no proprietary or possessory right in the chartered vessel; his only right in relation to the vessel is contractual—see Scrutton on Charterparties 19^th ed. p.47…”

40. I am unable to accept Mr Sussex’s submission that the claim for the transshipment costs amounts to a claim for economic loss in tort which is not recoverable.

41. I agree with Mr Scott that the claim for the transshipment costs is clearly not a claim for economic loss.  The transshipment costs are port of refuge expenses arising out of the physical damage to the OOCL China as a result of the collision.  This is not a claim for loss of profits or earnings but for costs which were necessarily incurred to repair the damaged vessel and to ensure that the cargo arrived at its destination.

42. Mr Scott in his closing submissions made it plain that the claim for the transshipment costs was made as owner in its own right and not in a derivative capacity on behalf of cargo owners or on behalf of MISC.

43. Mr Scott relied on Morrison Steamship Company Ltd v Greystoke Castle (Cargo Owners) [1947] AC 265.  In that case two ships having been in a collision, one was afterwards held one-fourth to blame and the other three-fourths to blame.  The latter had to put into port for repairs and there discharge and re-load her cargo, whereby a general average expenditure was incurred.  The cargo owners who became liable to their shipowners for general average contribution, brought an action against the owners of the colliding ship, claiming one-fourth of this contribution.

44. It was held by a majority of the House of Lords that the cargo owners had a direct claim against the owners of the colliding ship, for a proportion of the general average contribution, on the ground that their obligation was to share in that expenditure ab initio even though that responsibility might be divested or diminished by the subsequent chances of the voyage, and was not merely an obligation to contribute by way of indemnity towards the expenditure of the owners of the cargo-carrying ship; the cargo owners, being thus under a primary liability for their share of the expenses, had a direct claim against the appellants, not a derivative claim by way of subrogation.

45. At page 278 Lord Roche said:

“I cannot doubt on the principles recognized in The Winkfield (I) the shipowner in a proper case can claim the whole of the port of refuge expenses on behalf of himself and of owners of cargo and freight. But equally I do not doubt that if he who has the general property, that is to say the cargo owners, has an independent right to claim and asserts that claim in competition with the shipowner’s claim and assert it in time, his claim must prevail. See the authorities discusses in Salmond on the Law of Torts, 10^th ed., pp. 307-308.”

46. And at page 309 Lord Uthwatt said:

“I have no doubt that in proceedings properly constituted the carrying ship can, apart from the intervention made in due time by the cargo owners, on the principle laid down in The Winkfield ([I]) recover from the colliding ship the whole of the port of refuge expenses in so far as they enter into collision damages. It is no defence to the claim that those expenses were attributable to general average acts on the part of the carrying ship subjecting cargo and freight to a liability to make contribution. But if it be the law that cargo, by virtue of its liability to contribute to such general average expenses as enter into the computation of the collision damages, has a right of action against the colliding ship, and if in fact cargo makes its claim in due time, then in my opinion that claim overrides any claim embracing the same subject-matter made by the carrying ship.”

47. Mr Scott relying on Greystoke Castle submitted that a ship owner had an independent claim in its own right for port of refuge expenses.

48. On the evidence before me there is no claim by the cargo owners in this case.  However, there is a claim by MISC against the defendants as a result of the collision on 4 March 2008.

49. In May 2010 MISC arrested the vessel Darya Shakti being an associated vessel of the Darya Bhakti in the Republic of South Africa pursuant to a warrant of arrest in the Admiralty action brought by MISC in that jurisdiction.  The claims made by MISC were, inter alia, for damages suffered by MISC in the nature of costs and expenses incurred by MISC in respect of, inter alia, the discharge, survey and transshipment of containers carried on board the OOCL China.

50. The Darya Bhakti was eventually released when the vessel’s hull underwriters provided a letter of undertaking by way of security.  The South African proceedings have not been discontinued and the security has not been returned.

51. Mr Scott also submitted that to prevent the situation arising where the defendants would be paying twice for the transshipment costs, the plaintiffs would undertake not to claim against MISC for the transshipment costs in the pending arbitration proceedings that they have brought against MISC in London.

52. I accept that a shipowner can make its own independent claim against the colliding ship for the port of refuge expenses.  This is a claim in its own right and not a derivative claim on behalf of the cargo owners.

53. The problem with the plaintiffs’ claim against the defendants for the transshipment costs is that the plaintiffs have neither incurred nor paid for the transshipment costs on the evidence before me.

54. On Gong’s evidence, which I accept, it is clear that at a meeting which Gong attended and which was held in Shanghai on 20 March 2008 following the container discharge operation in Shanghai it was agreed by the representatives of OOCL, MISC, HL and NYK that the transshipment costs would be settled by MISC.

55. Gong said that following that meeting on 20 March 2008 OOCL was proceeding on the basis that MISC were going to incur and be liable for the costs that the terminal charged.  These are the transshipment costs.

56. Ho gave evidence that MISC was no longer a party to the GAOA.  As MISC was leaving the GAOA, there was a final accounting process in 2012 whereby MISC was due to pay OOCL the sum of US$7,912,960.  However, on or about 21 February 2012 MISC paid OOCL the sum of only US$2,120,282.75.  In arriving at this sum it seems that MISC deducted certain sums which included the sums of US$37,584.78 (Items 1 to 8 in the List) and US$930,184.30 (Items 34 to 48 in the List).

57. It is clear that in the final accounting process with OOCL, MISC deducted the transshipment costs which MISC had incurred and paid for in 2008.  Apparently, in 2012 MISC were adopting a stance that the agreement that it had reached with OOCL on 20 March 2008 was only an interim arrangement.

58. Mr Scott submitted that although OOCL did not initially pay for the transshipment costs, OOCL have now paid for the costs by the deductions made by MISC.

59. I am unable to accept Mr Scott’s submission.

60. Gong gave evidence that the agreement reached with MISC on 20 March 2008 was a binding agreement.  On his evidence it was certainly not an interim arrangement, as suggested by MISC only in 2012 about 4 years after the meeting on 20 March 2008, but a binding agreement that MISC would be liable to pay the transshipment costs.

61. Gong made it plain that following the meeting on 20 March 2008 OOCL were proceeding on the basis that the transshipment costs were incurred and paid by MISC as there was a binding agreement with MISC.

62. It is clear from Gong’s evidence, which I accept, that OOCL did not incur and was not liable for the transshipment costs.  OOCL also did not pay the terminal the transshipment costs.

63. Gong also said that MISC was not entitled to make the deductions of the transshipment costs that it made in the final accounting process with OOCL.

64. It is clear on the evidence, and I so find, that MISC made the deductions without the authority or consent of OOCL.  It does not appear to me on the evidence that OOCL had ever accepted that MISC were entitled to make the said deductions.

65. I am satisfied on the evidence before me that there was a binding agreement between OOCL, MISC, HL and NYK that MISC would be liable for the transshipment costs.  That being so, MISC was not entitled to deduct the same from payments due to OOCL in the final accounting process in February 2012.

66. As the deductions were made by MISC without the authority or consent of OOCLthere is no reason why OOCL shouldn’t claim these back from MISC.  Indeed Mr Scott informed me that his clients intended to do so in the pending arbitration proceedings in London.

67. In my judgment the plaintiffs fail to establish the claim for the transshipment costs against the defendants.  This claim is disallowed.

Loss of hire

68. This is in respect of Item 31 in the List.  The amount claimed was amended at the hearing to US$1,427,273.28.

69. This is based on the loss of hire of the OOCL China for the off hire period which is agreed at 44.58 days.

70. The daily loss is US$32,016 based on the financial capacity slot concept in the GAOA.  On the evidence of Ho, the market rate was more or less the same.

71. According to the evidence of Ho, which I accept, the vessel was earning hire at the rate of US$32,016 per day.  This is not disputed.

72. The plaintiffs, therefore, claim US$1,427,273.28 (44.58 days x US$32,016).

73. On the evidence of Ho, before the collision slots amounting to 45.97% of the total slot capacity of the OOCL China were allocated to OOCL for which OOCL paid MISC slot hire.

74. It is clear on the evidence that whilst OOCL was entitled to receive charter hire at the rate of US$32,016 per day from MISC, MISC was entitled to receive slot hire from OOCL for 45.97% of the total slot capacity of OOCL.  There is no dispute that the slot hire payable by OOCL to MISC was calculated at the same rate as the charter hire payable by MISC to OOCL.

75. Therefore, but for the collision OOCL would have been receiving a daily sum of US$32,016 but would also have been paying a daily sum of US$14,717.75 (US$32,016 x 45.97%).

76. Mr Scott submitted that the full cost of hire without deductions should be assessed as the loss of hire to OOCL.  I am unable to accept Mr Scott’s submission.

77. Ho gave evidence that the OOCL Japan was the substitute vessel during the off hire period of the OOCL China.  The OOCL Japan was demise chartered by OOCL.  The containers that would have been carried on the OOCL China were all carried on the OOCL Japan.  It is clear on Ho’s evidence that OOCL became entitled to 45.97% of the slots on the OOCL Japan.  However, because the OOCL Japan was its own vessel OOCL did not have to pay any slot hire for the 45.97% of the slots on the OOCL Japan.  Whereas OOCL had to pay MISC for the 45.97% of the slots on the OOCL China, it did not have to pay any slot hire for the 45.97% of the slots on the OOCL Japan.  This represented a saving to OOCL.

78. Although Ho said at paragraph 24 of his witness statement that as a consequence of the collision the plaintiffs lost the ability to earn profit from freight from containers in the slots it had on the OOCL China, it is clear from the cross-examination of Ho that OOCL did not lose the ability to earn freight as a result of the collision.  In cross-examination Ho agreed with Mr Sussex that when the OOCL Japan was substituted as the vessel during the off hire period of the OOCL China, OOCL still managed to earn freight on the containers that were shipped on the OOCL Japan.  There was, therefore, no loss of freight earning capacity.  Instead of earning freight from the OOCL China, OOCL earned freight from the OOCL Japan.  This was clear from the evidence of Ho, which I accept.

79. It seems to me, and I so find, that the proper approach in assessing the loss of hire as a result of the collision is to deduct the saving that OOCL made by not paying slot hire for the 45.97% slot capacity for the containers shipped on board the OOCL Japan from the loss of hire during the off hire period. In my view, this represents the real loss to OOCL.

80. I would assess the claim for loss of hire in the sum of US$771,156 ($32,016 - $14,717.75 x 44.58 days).

Conclusion

81. I assess the plaintiffs’ claims in the total sum of US$5,158,561.16 made up as follows:

(1)	The agreed items	US$4,094,864.25
(2)	Item 32 in the List	US$241,466.05
	(bunkers consumed)
(3)	Item 31 in the List	US$771,156.00
	(loss of hire)
(4)	Item 56 in the List	US$51,074.86
	(agency, agreed at 1% of assessed amount)
		US$5,158,561.16
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82. As requested by counsel, I have not dealt with the question of costs.  I shall leave it to the parties to agree the question of costs failing which the question of costs can be restored before me for hearing on a date to be fixed.