The Hong Kong Court of Appeal on 1 December 2021 allowed a charterer’s appeal against a High Court’s Decision dated 13 April 2021 (which disallowed the charterer’s charter hire claims of US$234,955 against the shipowner because the High Court was not satisfied the claims were well founded). [CACV 294/2021] [2021 HKCA 1865]
Introduction
On 12 November 2020, the charterer issued a writ of summons in rem with an indorsement of claim. The claims against the shipowner were for: (1) a declaration that the ship “Angelic Glory” chartered to the charterer under a charterparty dated 7 March 2019 (“Angelic Glory Charterparty”) was off-hired as set out in the charterer’s final statement of account and that the sum of US$365,410.50 remained due and owing to the charterer; (2) rectification of the Angelic Glory Charterparty to give effect to the common intention of the parties to that charterparty that sugar should be a permitted cargo under it; (3) US$365,410.50 being the balance of account due and owing to the charterer under the Angelic Glory Charterparty; (4) further or alternatively, damages for breach of the Angelic Glory Charterparty; (5) interest; and (6) costs.
On 2 March 2021, the charterer filed a statement of claim. In addition to the claims set out in the indorsement of claim, the charterer claimed £32,256 being its recoverable costs against the shipowner in an arbitration commenced by the shipowner against the charterer in London in May 2020 (“the Arbitration”), in which the shipowner claimed the alleged balance of hire due to it under the Angelic Glory Charterparty and the charterer counterclaimed for the balance of account due and owing to it under the same charterparty.
On 3 March 2021, the charterer filed a notice of motion for an order that judgment in default of acknowledgment of service be given for the balance of account due and owing to it under the Angelic Glory Charterparty; rectification of that charterparty to give effect to the common intention of parties that sugar should be a permitted cargo under that charterparty; a declaration that the Angelic Glory was off-hired as set out in the charterer’s final hire statement and that the sum of US$343,430.75 remained due and owing to the charterer; further or alternatively, damages for breach of the Angelic Glory Charterparty; £32,256 being its recoverable costs against the shipowner in the Arbitration; interest and costs.
The notice of motion was made under Order 75 rule 21 of the Rules of the High Court, the relevant provisions of which read as follows:
“(3) Where a defendant to an action in rem fails to acknowledge service of the writ within the time limited for doing so, then, on the expiration of 14 days after service of the writ and upon filing an affidavit proving due service of the writ, an affidavit verifying the facts on which the action is based and, if a statement of claim was not indorsed on the writ, a copy of the statement of claim, the plaintiff may apply to the Court for judgment by default. …” “(7) An application to the Court under this rule must be made by motion and if, on the hearing of the motion, the Court is satisfied that the applicant’s claim is well founded it may give judgment for the claim with or without a reference to the Registrar and may at the same time order the property against which the action or, as the case may be, counterclaim is brought to be appraised and sold and the proceeds to be paid into court or may make such other order as it thinks just.”
By the Decision dated 13 April 2021, the High Court allowed all of the claims set out in the statement of claim except for these two claims, on the basis that the High Court was not satisfied they were “well founded”. These two claims were: (1) US$234,955, being the difference in the hire rate between the Angelic Glory Charterparty (i.e. US$9,500/day) and an addendum (i.e. US$12,000/day) signed in September 2019 (“the Addendum”) (“Claim 1”); and (2) £32,256 being the recoverable costs of the Arbitration (“Claim 2”).
The charterer lodged an appeal to challenge the High Court’s decision in disallowing the above two claims. There were two broad grounds of appeal. First, it was contended that the High Court erred in law in applying the “well founded” threshold in Order 75 rule 21(7). Second, the High Court was wrong in failing to hold that the charterer’s evidence met the “well founded” threshold.
The “well founded” threshold
Before judgment in default can be obtained for an action in rem, the threshold requirement in Order 75 rule 21(7) is that “the Court is satisfied that the applicant’s claim is well founded”. This is not materially different from the English equivalent in the Civil Procedure Rules being rule 61.9(3)(a)(iii), which provides that there must be “evidence proving the claim to the satisfaction of the court”.
The charterer, submitted that the appropriate standard of evidence required in this context was “prima facie evidence” to substantiate the allegations in the statement of claim, and that such supporting evidence needed not be definitive or conclusive. The charterer contended that the High Court erred in law in requiring the charterer to prove its allegations by a standard higher than prima facie evidence.
The Court of Appeal did not think it was appropriate or necessary to put a gloss over the words “well founded” as submitted by the charterer, as the meaning of these words in this particular context was quite clear.
The specific purpose of requiring the applicant to satisfy the court that the claim is well founded and accurate is to ensure that the default judgment does not compromise the rights of any other party who may have an in rem claim against the arrested vessel which is to be sold and the proceeds paid into court. Hence the court should endeavour to ensure that on this ex parte application in which the court would read evidence and hear submissions only from one side, the applicant’s claim is properly proved and its decision based on evidence which it considers satisfactory (The Carmania II [1963] 2 Lloyd’s Rep 152 at 153; The Kuzma Minin [2020] 2 Lloyd’s Rep 617 at §44; Hong Kong Civil Procedure 2021, vol 1, §75/21/5).
In construing an equivalent provision, the Federal Court of Malaysia in The Fordeco Nos 12 and 17 [2000] 1 MLJ 449 at 463 referred to the meaning of “well founded” in the Oxford Concise Dictionary as “based on good evidence; having a foundation in fact or reason”. This seems to be a good working definition.
For the court to be satisfied that the claim is well founded, the verifying affidavit must state “such facts as are necessary to substantiate the claims in the statement of claim” (Roscoe’s Admiralty Jurisdiction and Practice (5th ed) p 286).
Claim 1: whether the charterer’s evidence met the “well founded” threshold
The charterer’s case in respect of Claim 1 pleaded in the statement of claim could be summarised as follows:
(1) The Angelic Glory Charterparty was contained in a fixture recap of 7 March 2019 (“the Angelic Glory Recap”) which incorporated into the Angelic Glory Charterparty the terms of a charterparty previously agreed between the parties on 31 January 2019 for a sister vessel “Angelic Peace” (“the Angelic Peace Charterparty”). (2) The Angelic Peace Charterparty was contained in a fixture recap dated 31 January 2019 (“the Angelic PeaceRecap”) which provided that the Angelic Peace Charterparty was on the same terms as a previous Angelic Glory charterparty entered into between the parties in April 2015 (“the 2015 Charterparty”), save for the alterations set out in the Angelic Peace Recap. Among the alterations was a modification to clause 63 of the 2015 Charterparty, which was to the effect that Group C cargoes were allowed. Sugar is a Group C cargo. (3) No working copy of the Angelic Peace Charterparty (by which the Angelic Peace Recap and the 2015 Charterparty were merged to produce one proforma contract with accompanying rider clauses) was collated by the brokers involved and, by mistake, an unamended 2015 Charterparty was attached to the Angelic Glory Recap. (4) The common intention of the parties was that the Angelic Glory Charterparty incorporated the Angelic Peace Charterparty, including the provision in the Angelic Peace Recap which made sugar a permitted cargo under the Angelic Glory Charterparty. The charterer claimed rectification of the Angelic Glory Charterparty to give effect to this common intention of the parties. (5) In breach of the Angelic Glory Charterparty, the shipowner declared in August 2019 that sugar was not a permitted cargo and alleged that carriage of sugar cargo would require an enhanced rate of hire. The charterer was left with no alternative but to sign the Addendum which provided for an enhanced rate. (6) The Addendum was unenforceable for want of consideration. Further or alternatively, it was unenforceable for economic duress.
In support of the case as pleaded, the charterer adduced the following evidence:
(1) The Angelic Glory Recap (2) The Angelic Peace Recap (3) Email exchanges between the charterer’s broker Barry Rogliano Salles (“BRS”) and the shipowner’s broker 14 Knots SA on 30 January 2019 From BRS to 14 Knots SA at 15:53 hours: “cls 63 insert “3 cargoes of bauxite, 2 cargo of non-oily” add “sulphur. All other cargoes group C are allowed” ” From 14 Knots SA to BRS at 17:03 hours: “cls 63 insert “2 cargoes of bauxite” otherwise as per ows proforma cp ‖ All other cargoes group C are allowed ‖ OK” (4) Skype exchanges between BRS and 14 Knots SA on 6 March 2019 (5) Witness statement of Mr Kompolias of BRS dated 21 January 2021 Mr Kompolias stated that after the Angelic Peace Recap was issued, due to a clerical mistake the sentence “All other cargoes group C are allowed” set out in the Angelic Peace Recap and email negotiations exchanges was not added to clause 63 of the working copy of the Angelic Peace Charterparty. Mr Kompolias was involved in the negotiations of the Angelic Glory Charterparty and the terms discussed were based on the terms of the Angelic Peace Charterparty. (6) Email exchanges in August 2019 regarding the carriage of a cargo of sugar and the Addendum
The Court of Appeal was satisfied on the above evidence there was a well-founded claim it was the common intention of the parties that the Angelic Glory Charterparty incorporated the provision in the Angelic Peace Charterparty which made sugar a permitted cargo under the Angelic Glory Charterparty, and it was due to a clerical mistake that the unamended 2015 Charterparty was attached to the Angelic Glory Recap. There was a proper claim in law for rectification of the Angelic Glory Charterparty and the Addendum would not be enforceable for want of consideration and/or economic duress.
The Court of Appeal differed from the High Court that Claim 1 did not meet the “well founded” threshold on the totality of the evidence before the court. The Court of Appeal ordered the shipowner to pay the charterer the difference in hire rate in the sum of US$234,955 with interest at prime rate up to the date of judgment and thereafter at judgment rate until payment and granted a declaration that the Angelic Glory Charterparty be rectified to give effect to the common intention of the parties that sugar should be a permitted cargo under it.
Claim 2: whether the charterer’s evidence met the “well founded” threshold
Claim 2 related to the charterer’s recoverable costs of £32,256 in the Arbitration, which was left in a state of suspension when the shipowner failed to serve a reply and defence to counterclaim. No formal stay of the Arbitration was put in place.
This claim was made on the premise that the shipowner had no merit in its dispute with the charterer. And as the High Court did not find for the charterer on Claim 1, the High Court was equally not satisfied that Claim 2 was “well founded”.
Although the Court of Appeal allowed Claim 1, the Court of Appeal saw some difficulties about Claim 2. There is a clear distinction between damages and costs. Costs are recoverable by the exercise of a costs jurisdiction by the court or tribunal determining the proceedings in which the costs are incurred. In the case in question, no award of costs had been made in the Arbitration. The Court of Appeal had no jurisdiction to award costs to the charterer incurred in the Arbitration. If an award of costs had been made in the Arbitration, the charterer might claim as loss and damage in the action in question the amount of costs awarded in the Arbitration. The Court of Appeal did not think Claim 2 would meet the “well founded” threshold as things stood, but it might be possible for the threshold to be met if and when a costs award was made in the Arbitration. Rather than disallowing Claim 2, the Court of Appeal thought it would be appropriate to adjourn this part of the notice of motion sine die, with liberty to restore the same before the court.
Conclusion
For the reasons aforesaid, the Court of Appeal allowed the charterer’s appeal to the extent as indicated above.
Please feel free to contact us if you have any questions or you would like to have a copy of the judgment.
23/F, Excel Centre, 483A Castle Peak Road, Lai Chi Kok, Kowloon, Hong Kong 香港九龍荔枝角青山道483A卓匯中心23樓 Tel: 2299 5566 Fax: 2866 7096 E-mail: gm@smicsl.com Website: www.sun-mobility.com A MEMBER OF THE HONG KONG CONFEDERATION OF INSURANCE BROKERS 香港保險顧問聯會會員
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The Hong Kong High Court issued a Decision on 25 February 2019 dealing with Changhong Group’s delayed application for leave to appeal in relation to the collision case reported in our Chans advice/218 and Chans advice/215. [HCAJ3/2018, 2019HKCFI542]
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The High Court of Hong Kong issued a Decision on 21/9/2017 dealing with the principles in respect of the real risk of dissipation of assets in a case of Mareva Injunction involving a shipowner and a charterer. [HCMP 1010/2017]
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The Hong Kong High Court issued a Judgment on 11 January 2019 dealing with a dispute of US$335,858.31 between a bunker supplier and a ship agent. [HCA119/2015] [2019HKCFI57]
This continues the Q&A in our off-line real seminar on Uncollected and Undelivered Cargo on 28 May 2024. Participants were keen to know more about seaway bills, how war plays in insurance? How modes of transport differ mis-delivery claims handling? What is insurers’ attitude towards transloading claims? And finally, why mis-delivery and uncollected cargo claims deserve special attention. SMIC deals with similar questions daily. Each case varies in its cause, and therefore healing recipe differs. But if you are conversant with fundamentals. They could be simple.
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The Hong Kong District Court issued a Judgment on 26 April 2022 dealing with a case concerned with transfer of business and lifting the corporate veil, and held a forwarder and its shareholder and director jointly and severally liable for a debt of HK$975,733.71. [DCCJ 2104/2019] [2022 HKDC 289]
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The Hong Kong District Court issued a Decision on 8 May 2020 upholding a summary judgment ordering one forwarder to pay outstanding airfreight charges of HK$440,000 to another forwarder. [DCCJ1202/2018] [2020HKDC307]
The Hong Kong High Court issued a Decision on 13 May 2021 to deal with an interpleader action concerning the stakeholding of US$700,000 in relation to a dispute over some management fees between two transport operators. [HCMP510/2020] [2021 HKCFI 1373]
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More and more junior staff of the banks insist all the Bills of Lading to be signed and issued with the above remark “As agent for the Carrier”. This is of course right if the concerned Carrier does not have its own office in the place of issuing the Bill of Lading and therefore instruct its agent there to issue the Carrier’s Bill of Lading.
The Hong Kong High Court issued a Decision on 22 Feb 2021 holding that the wreck removal claims of a ship sunk were not subject to the Convention on Limitation of Liability for Maritime Claims 1976. [HCAJ 98/2019] [2021 HKCFI 396]
The Hong Kong High Court issued a Decision on 15 March 2021 converting a domestic Mareva injunction into a worldwide Mareva injunction in a shipowner’s freight and demurrage claim against a charterer. [HCMP 1190/2020] [2021 HKCFI 680]
In the issue of our Chans advice last month, we talked about the major provisions of the Montreal Convention (which is for the international carriage of goods by air). In this issue, we would like to discuss the major terms of an equally important international convention for the international carriage of goods by sea, viz. the Hague Visby Rules.
The English Court of Appeal issued a Judgment on 13/12/2017 dealing with a cargo damage claim of EUR2,654,238 and a charter hire claim of USD1,012,740 in connection with a NYPE charterparty. [2017 EWCA Civ 2107] [2017 WL 06343564] [Case No. A3/2016/4770]
The High Court of Hong Kong issued a Decision on 15 November 2018 concerning the tragic collision between the cargo vessel CF Crystal and the tanker Sanchi, which happened on 6 January 2018 and led to the death of all the officers and crew of the Sanchi. [HCAJ3/2018] [2018HKCFI2474]
The limit of liability for international carriage of cargoes by air under the Montreal Convention has been revised from 19 SDR/Kg to 22 SDR/Kg of the gross weight of the cargoes effective from 28 December 2019. We have received many enquiries from freight forwarders about changing their house Air Waybills’ terms to cope with the new limit of liability. We would like to take this opportunity to discuss some essential terms in house Air Waybills.
The Hong Kong Court of Appeal issued a Judgment [CACV144/2017] [2018HKCA299] on 29/6/2018 upholding the High Court’s Judgment dated 2/6/2017 (which was reported in our Chans advice/201).
The Hong Kong High Court issued a Judgment on 2/6/2017 dealing with the liability apportionment among 3 vessels in 2 almost simultaneous collisions that happened near Hong Kong on 14/5/2011. [HCAJ158/2012 and HCAJ49/2013 and HCAJ48/2011]
The Ningbo Maritime Court issued a Judgment on 25/5/2016, and dismissed a cargo insurer’s (PICC Ningbo) recovery claim of USD25,238.40 against Mitsui O.S.K. Lines Ltd (“MOSK”) in relation to the vessel MOL Comfort sinking into the Indian Ocean on 17/6/2013.
The Hong Kong High Court issued a Decision on 20/12/2017 dealing with a dispute of US$948,802.05 (as the price of bunkers supplied to a vessel) between a vessel charterer and a bunker supplier. [HCA2265/2016]
The Hong Kong High Court issued a ruling on 2/12/2016 dealing with a shipowner’s interrogatory application in relation to an uncollected cargo case. [HCAJ 118/2015]
The Hong Kong High Court issued a Judgment on 22/8/2016 dealing with a case that a forwarder wanted to strike out a cargo misdelivery claim on the ground that the claim disclosed no reasonable cause of action. [HCCL 5/2015]
The Hong Kong High Court issued a judgment on 12/4/2016 to dismiss a cargo owner’s action in respect of breaking a barge owner’s tonnage limitation. [HCAJ 178/2014]
The Hong Kong High Court issued a Judgment on 13 August 2021 holding a forwarder liable to pay nominal damages of HKD1,000 to a shipper in a cargo misdelivery claim case of USD1,299,189.87. [HCA 937/2016] [2021 HKCFI 2310]
The Hong Kong High Court issued a Decision on 29 January 2019 dismissing Changhong Group’s application for stay of the legal proceedings against it brought by the consignee and the insurer of the cargo on board the Sanchi. [HCAJ6/2018, 2019HKCFI263]
In Chans advice/191 and Chans advice/206, we reported a case relating to a shipping company’s claim against its former deputy general manager (Mr Ma) over the alleged theft of the company’s money. The Hong Kong High Court on 16 December 2020 sentenced Mr Ma to 15 years’ imprisonment. [HCCC 20/2018] [2021 HKCFI 195]
The Hong Kong Court of Appeal issued a Judgment on 4 October 2019 upholding the High Court’s Decision dated 9 April 2018 (reported in our Chans advice/208). [CACV593/2018][2019HKCA1101]
Following the issue of Chans advice last month, we would like to report the latest decision issued by the court over this theft case. On 17 January 2023, the Hong Kong High Court dismissed Mr Ma’s application to withdraw HK$1.5 million out of his frozen assets for paying the legal costs for his appeal against conviction in theft. [HCA 619/2016] [2023 HKCFI 197]
The amendment to the International Convention for the Safety of Life at Sea (SOLAS) 1974 Chapter VI, Regulation 2 in respect of the verified gross mass of a container carrying cargo (laden container) is for entry into force globally on 1 July 2016.
The Hong Kong High Court issued a judgment on 21/4/2016 and disallowed a cargo owner’s application for summary judgment against a forwarder in connection with a cargo (a diamond) missing claim of US$900,000. [HCCL 10/2015]
