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Cargill International Trading Pte Ltd v Loyal Base Development Ltd

Judgment Cited authorities 10 Cited in Precedent Map Related
Vincent
Judgment Date24 November 2015
Year2015
Judgement NumberHCCL12/2015
Subject MatterCommercial Action
CourtHigh Court (Hong Kong)
HCCL12/2015 CARGILL INTERNATIONAL TRADING PTE LTD v. LOYAL BASE DEVELOPMENT LTD

HCCL 12/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 12 OF 2015

____________

BETWEEN
CARGILL INTERNATIONAL TRADING PTE LIMITED Plaintiff

and
LOYAL BASE DEVELOPMENT LIMITED Defendant

____________

Before: Hon Mimmie Chan J in Chambers (Open to Public)
Date of Hearing: 17 November 2015
Date of Decision: 24 November 2015

_____________

DECISION
_____________

Background

1. This is an application made by the defendant (“LB”) to discharge an ex parte mandatory injunction order (“Order”) made by Deputy High Court Judge Marlene Ng on 26 August 2015. Under the Order, LB was required to provide by 31 August 2015 (“Deadline”) “such security and/or bail , and/or take all steps as are required to provide for the release from arrest” of MV KSL China (“Vessel”), “or to replace any security provided for the purpose of release of (the Vessel) from arrest”. The Vessel had apparently been arrested on 11 August 2015 by order of the Qingdao Maritime Court (“Qingdao Court”) on the Mainland, in proceedings instituted by the Bank of China Limited, Rizhao Branch (“Bank”) against the owners or charterers of the Vessel.

2. On 28 August 2015, which was the return day of the application by the plaintiff (“Cargill”) for continuation of the Order, the Deadline for LB to provide security was extended to 7 September 2015.

3. On 2 September 2015, LB applied by summons to set aside the Order (“Summons”), on the ground of material non-disclosure. On 4 September 2015, at the hearing of the Summons, the application for discharge was adjourned, and the Deadline under the Order was further extended until 7 days after the determination of the Summons.

4. The Order was made on the basis of the claim made by Cargill in these proceedings for a final mandatory injunction and/or an order for specific performance under and in respect of a letter of indemnity issued by LB to Cargill on 11 September 2014 (“LOI”). Under a contract dated 2 September 2014 (“Sale Contract”), Cargill had agreed to sell and LB had agreed to purchase a cargo of iron ore products (“Cargo”), to be shipped from Australia to China. Cargill had purchased the Cargo from a company which is related to Fortescue Metals Group Limited (“FM”). FM chartered the Vessel from the owners of the Vessel, for carriage of the Cargo to China.

5. The Uploading Conditions of the Sale Contract provide as follows (under paragraph (t)):

“In the event that original bills of lading are unavailable at the discharging port(s), the Seller shall endeavor to arrange the discharge of the cargo into the custody of the port or the carrier’s/shipowner’s agents against the issuance of a letter of indemnity by the Buyer in a format acceptable to the carrier/shipowner. Provided however that the cargo shall be released to the Buyer only against presentation of original bills of lading or a bank guarantee issued by the LC issuing bank in a format acceptable to the Seller and the carrier/shipowner.”

6. The Cargo was loaded on board the Vessel, and 2 bills of lading dated 1 September 2014 were issued with respect to the carriage of the Cargo (“Bills”).

7. Pursuant to the request made by LB to Cargill to provide for discharge of the Cargo and its delivery to MSN Shipping Agency Limited Rizhao (“MSN”), without production of the original Bills, LB issued the LOI on 11 September.

8. Clause 3 of the LOI issued to Cargill provides as follows:

“The above (Cargo) was shipped on the above ship by (FM) and consigned TO ORDER for delivery at the port of MAIN PORT(S), CHINA but the bills of lading have not arrived and we, (LB), hereby request you to deliver the (Cargo) to MSN or to such party as you believe to be or represent (MSN) or to be acting on behalf of (MSN) at RIZHAO PORT, CHINA without production of the original bills of lading.

In consideration of your complying with our request, we hereby agree as follows:

1. To indemnify you, your servants, and agents and to hold all of you harmless in respect of any liability, loss, damage or expense of whatsoever nature which you may sustain by reason of delivering the cargo in accordance with our request.

2. In the event of any proceedings being commenced against you or any of your servants or agents in connection with the delivery of the cargo as aforesaid, to provide you or them on demand with sufficient funds to defend the same.

3. If, in connection with the delivery of the cargo as requested, the ship, or any other ship or property in the same or associated ownership, management or control, should be arrested or detained or should the arrest or detention thereof be threatened, or should there be any interference in the use or trading of the vessel (whether by virtue of a caveat being entered on the ship’s registry or otherwise howsoever), to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property or to remove such interference and to indemnify you in respect of any liability, loss, damage or expense caused by such arrest or detention or threatened arrest or detention or such interference, whether or not such arrest or detention or threatened arrest or detention or such interference may be justified.

...

4. This indemnity shall be governed by and construed in accordance with English law and each and every person liable under this indemnity shall at your request submit to the jurisdiction of the High Court of Justice of England.” (Emphasis supplied)

9. On its part, having received the LOI from LB, Cargill also issued a letter of indemnity to FM (“Cargill LOI”) and requested FM to agree to the delivery of the Cargo without production of the original Bills. The Cargill LOI was back to back in terms with LB’s LOI. In turn, FM issued its own letter of indemnity to the owners of the Vessel.

10. In the interim, LB opened a letter of credit in favor of Cargill for payment of the price for the Cargo under the Sale Contract. On 11 September 2014, Cargill submitted documents in accordance with the terms of the letter of credit, which documents included the original Bills.

11. The Vessel arrived at the discharge port on 15 September 2014. Discharge was completed on 17 September 2014 and the Cargo was released to MSN. The Cargo was ultimately released from the port without production of the original Bills.

12. About a year later, on 11 August 2015, the Bank obtained an order from the Qingdao Maritime Court for the arrest of the Vessel. The Bank claims that it was the lawful holder of the Bills, which was entitled to take delivery of the Cargo, but that the Cargo had been wrongly released without the original Bills in the Bank’s possession.

13. On 14 August 2015, FM notified Cargill of the arrest of the Vessel and demanded that Cargill should provide security of US $9.3 million in order to allow for the release of the Vessel. On the same day, Cargill demanded LB for its provision of bail or other security for the release of the Vessel. Not having received any response from LB, Cargill gave notice to LB on 24 August 2015 that unless security was provided by LB by 25 August 2015, Cargill would apply to the Court for a mandatory injunction.

14. A Writ was issued in these proceedings on 25 August 2015. On 26 August 2015, Cargill purported to give notice to LB at 5:20pm that it was applying to the Court for ex parte relief. The Order was obtained on that day, in the absence of LB.

15. LB’s application for discharge of the Order is on the grounds that:

(1) there was no urgency for the ex parte Order on 26 August 2015, Cargill having delayed its application for the Order, when the Vessel had been arrested on 11 August 2015;

(2) Cargill misled the Court that LB’s obligation under the LOI was immediately engaged upon the arrest of the Vessel;

(3) Cargill had misled the Court that the Bank’s arrest of the Vessel was solely based on the delivery of the Cargo without production of the original Bills, when there are issues as to whether the Bank was the lawful holder of the Bills, and as to the true nature of the Bank’s claims;

(4) Cargill had failed to disclose to the Court that it had arranged for security to be provided for the release of the Vessel, which release took place on 31 August 2015.

Applicable legal principles

16. In the context of discharging an ex parte order on the ground of material non-disclosure, the relevant legal principles are not in dispute. Material facts are those which are material to the judge’s determination of the ex parte application when it was made. Materiality is to be decided by the court, and not by the assessment of the applicant or his legal advisers. The applicant has the duty to make proper inquiries before making the application and the duty of disclosure applies not only to material facts as known to the applicant, but also to any additional facts which the applicant would have known if he had made such proper inquiries. The extent of the necessary inquiries to be made depend on all the circumstances of the case, including the nature of the case which the applicant is making, the order for which application is made, the probable effect of the order on the defendant, and the degree of legitimate urgency and the time available for making inquiries. (Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350, Bank Mellat v Nikpour [1985] FSR 87).

17. If material non-disclosure is established, the court will be “astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure... is deprived of any advantage he may have derived by that breach of duty” (per Donaldson LJ in Bank...

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