IN THE SUPREME COURT OF HONG KONG
Case No: 1989, A5431
SOVEREIGN PACIFIC S.A.
MAIN FORTUNE LIMITED
Coram: Deputy High Court Judge Findlay, Q.C.
Dates of Hearing: 16, 17, and 18 October 1989
Date of Handing Down of Judgment: 26 October 1989
1. By a charterparty dated 21 September 1988, Guangzhon Ocean Shipping company ('Cosco'), as dispoment owners, let and the Plaintiff, as charterers, hired the vessel 'Orient Princess' ('the vessel') for the period from 23 October, 1988 until 31 December, 1991.
2. In the middle of May 1989, the Defendant succeeded to the rights and liabilities of Cosco under the charterparty by novation. On 2 October 1989, the Defendant purported to withdraw a coesent for casino operations on board the vessel'. In essence, the Plaintiff says that this purported withdrawal was 'invalid and/or ineffective', and asks, amongst other relief, for me to declare it so.
The Plaintiff's Evidence
3. The bulk of the Plaintiff's evidence came from Mr Hsia Tse Ming, the general manager of the Asia Pacific Group of companies, which includes the Plaintiff.
4. Mr Hsia says that, towards the end of 1988, the group was looking for a vessel on which to operate off shore gambling operations. The 'Orient Princess' had been operating as a gambling ship in neighbouring waters, with occasional visits to Hong Kong, for some time, and, in early spring of 1988, had become based in Hong Kong. A Mr Lan, who was the general manager of the group at that time, but who has since moved overseas, visited the vessel in Auguat 1988. The result of this was that the group became interested in chartering the vessel and got in tonch with Cosco. Mr Hsia, with others who did not give evidence, visited Cosco in Guangzhon in September 1988, with a view to negotiating a charter.
5. Mr Hsia negotiated the charter with a Mr Ho of Cosco. Mr Ho was supported by a Mr Chan, a Mrs Kwok and another, who acted as kind of secretary. There was a meeting on 20 September and two others on 21 September before agreement was finalised. After oral agreement was reached, there was a celebratory dinner, during which the written charterparty was prepared in the English lauguage by the secretary and produced for signature. The discussions had been conducted in Cantonese and Putonghua.
6. There are two clauses in the charterparty that are of particular importance to this case and it is convenient to set these out here:
"36 Notwithstanding the provisions of this Charter, in case Charterers are unable to manage performance of the Charter Party under any circumstances of hardship, they could decide to terminate this Charter prematurely by paying Owners 3 months charter hire as compensation for the damages suffered by Owners arising from such premature termination. However, it's Charters duty to give Owners notice of premature termination as earlier as possible but at least 7 days before the date to terminate.
37. It is mutually agreed that Owners will allow Charterers to set up casino operations on board the vessel.
The Charterers have the right to terminate the Charter Party whenever the Owners withdraw their consent of the said condition. Under this circumstances the Owners should notify the Charterers one week in advance and to compensate the Charterers by paying 3 (three) months charter hire for damages suffered.
7. Mr Hsia says that, although he knew that the vessel had been operating as a gambling ship, he was conscious of the need to approach the Hong Kong authorities to ensure that they would be able to operate the vessel for gambling purposes out of Hong Kong in international waters. The authorities he was thinking about were the Immigration Department, because they would be transporting passengers into and out of Hong Kong on a regular basis, the harbour authorities, because they would need berthing facilities, and the customs' authorlties, because they would have a duty-free shop an board.
8. Mr Hsia says he asked Mr Ho for a hire-free period of one month in which to do renovation and redecoration work to suit the vessel for casino operations, but Mr Ho would agree to only three weeks for this purpose; that is, up to 23 October 1988. They also spoke of a bank guarantee for the hire; Mr Hsia offered three months guarantee, but Mr Ho insisted on six months. This was, apparently, because Cosco had already had experience of charterers not fulfiling the full term of the charter.
9. Mr Hsia says that, in this context, he told Mr Ho that there would be a lot of alterations to be done to set up the casino and they may went to pull out of the charter if they had difficulties with the Hong Kong authorities Mr. Hsia wanted his group to be at risk for only three months hire if these difficulties eventuated. This was agreed, he says; that, if during the renovation period allowed, there were difficulties with the Hong Kong authorities, his group could pull out of the charter and be liable only for three months hire. Thus, clause 36 found its way into the charter-party. Both parties, Mr Hsia insists, were clear that clause 36 only applied during the renovation period; not after the vessel was delivered to be put into service.
10. Mr Ho, says Mr Hsia, then said, in effect, we want the same provision: If your damage is to be limited to three months hire it you cannot take up the charter during the renovation period, we want the same. Mr Ho said he also had to discuss the charter with higher authority to see if there would be say problem, and, if there was, they would also have the right, during the renovation period, to cancel the charterparty by giving one week's notice and paying three months' hire charges. In this way, says Mr Hsia, clause 37 came to be written into the agreement, although, as can be seen, clause 37 does not, in fact, give Cosco any right to cancel the charterparty.
11. Mr Hsia says his group would not have taken the charter if Cosco could stop the casino operations at any time. The group incurred considerable expense in renovating and redecorating the vessel, hiring staff and leasing premises.
12. After returning to Hong Kong, Mr Hsia arranged, through an agent, to clear the way for the operation of the vessel with the Hong Kong authorities, and was done during the renovation period. As arranged, the Plaintiff was allowed access to the vessel before 23 October 1988, and carried out the renovation and redecoration work, and installation of equipment, including gambling equipment, at a cost of about $5.5 million.
13. The vessel was delivered on 23 October and sailing commenced on that day. For the first couple of months, the vessel sailed six days a week, and, thereafter, seven days a week. The venture proved to be highly popular with the gambling public, successful and profitable.
14. Early in 1989, the Plaintiff invited people from Coseo to come to Hong Kong as its guests. Mr Ho and two others cams. Mr Ho told Mr Hsia that they had been under pressure 'from above', meaning from people in Beijing. Coseo is a state-owned corporation of the People's Republic of China. Mr Ho told Mr Hsia that, after consideration, it was possible they would transfer the rights regarding the vessel to another company so that, whenever they encountered similar pressure, they could, in effect, shrug their shoulders and say the vessel was no longer under their control. At that stage, Mr Ho did not give the name of the possible transferee, or say who would control it. He did say it would be a Hong Kong company. Nothing was said at this meeting about what would happen to the charterparty and the casino operations if the transfer took place.
15. The Plaintiff produced a hearsay notice in which it is stated that it desired to give in evidence a statement by the Cosco people on this occasion to the effect that Cosco had to pass the charter party on to someone else and that the Plaintiff should not worry because Cosco would pass it on to a Hong Kong company whom they controlled. The substance of this is not supported by Mr Hsia's evidence who says this was said at a meeting in May 1989. Another hearsay notice, reflecting that in May 1989, the Cosco people said that they intended to transfer the charterparty to the Defendant and that this company would be a creature of Cosco, was handed in.
16. This ingenious device for putting before the court the evidence of the Cosco people fails if it is not established that they said the things attributed to them.
17. In May 1989, Mr Lau asked Mr Hsia to go to Guangzhou to discuss further the possibility of the transfer of the vessel. Mr Hsia went to Guangzhou and spoke to Mr Ho and Mrs Kwok. Mr Lau was not at this meeting. The Cosco people told him they intended to act defensively by transferring the vessel as they had envisaged. This, they said, would reduce future difficulties concerning the operations of the vessel. They wanted a good charterer who would pay promptly: Their idea would protect themselves and the charterer. They said they intended to transfer the charterparty to the Defendant, but the Plaintiff could continue to have confidence because Cosco would remain in control. Although no specific mention was made of the casino operations, they assured Mr Hsia that all would remain the same. From this, Mr Hsia assumed that no notice to terminate the casino operations would be given, although why he should think, or be concerned, about this is not clear; according to him, the right to withdraw consent applied only during the renovation period. On this basis, Mr Hsia signed the transfer agreement, although he did not seem sure of the details surrounding this...