In admiralty actions where there are cross claims, the procedure is governed by Order 75 Rule 41 of The Rules of High Court (Cap.4A) (“RHC”). The rule does not provide for an automatic deadline for a defence to a cross-claim to be filed, instead the Registrar of the High Court may give directions for such filing under Order 41 Rule 41(2) of RHC as he thinks fit.
The recent judgment of the admiralty action in Noor Maritime Ltd v Calandra Shipping Co Ltd  HKCFI 609 illustrates the Court’s approach in granting relief against non-compliance of an unless order and the factors to be considered by the Court in determining whether the Court should grant such relief and whether conditions such as payment into court should be imposed.
In Noor Maritime Ltd, the Plaintiff’s vessel “The Rainbow” sank with cargo fuel and effects on board after colliding with the Defendant’s vessel “The Calandra”, resulting in various actions in rem and personam pursued by the parties. The present judgment concerns a claim and a cross claim both in personam.
The Plaintiff filed its writ concerning its claim in personam against the Defendant in mid-2017. A settlement agreement was then signed between the parties to apportion liability at 1/3 for “The Calandra” and 2/3 for “The Rainbow”. The settlement agreement also provided for claims for damages to be referred to the Registrar of the High Court.
Subsequently the Defendant filed its cross claim and the parties went before the Master for directions. The Master made an unless order against the Plaintiff to file a defence to the Defendant’s cross claim within 14 days, failing which the Plaintiff shall be barred from filing any such defence, while the Master also made a separate order directing that the Defendant’s defence to the Plaintiff’s claim shall be filed within 42 days without an unless order.
The Plaintiff failed to comply with the unless order. The Plaintiff therefore sought for an extension of time to file the defence. The Master gave relief against the sanction and granted leave to the Plaintiff to file and serve a defence within 28 days on the condition that the Plaintiff pays US$700,000 into the Court, failing the compliance of the condition the Plaintiff shall be debarred from filing and serving the defence to the Defendant’s cross claim.
On appeal against the imposition of the condition, the Court applied the following guidelines for imposing a condition for payment into court as set out in Schenker International (HK) Ltd v Natural Dairy (NZ) Holdings Limited  1 HKLRD 274:
- The court must first consider the nature and effect of the order that gave rise to the application for relief;
- The condition of payment-in is a type of condition associated with summary judgment application and normally imposed where e.g. there is good ground in the evidence for believing that the defence is a sham defence;
- In exercising the discretionary powers, the primary objective is to secure a just resolution of the dispute in accordance with the substantive rights of the parties;
- A payment into court might be appropriate where there was a history of repeated breaches of timetables, court orders or something in the conduct of the party that gave rise to the suspicion that it was not bona fide;
- A short breach that does not prejudice the other side or the trial would not merit a payment-in order;
- Proportionality of the sanction is a relevant and weighty factor.
The Defendant argued that imposition of the condition was consistent with the admiralty jurisdiction of requiring security. The Defendant’s counsel sought to justify the condition by praying in aid authorities for claims in rem in the admiralty jurisdiction. Further, the Defendant’s counsel sought to apply and illustrate by analogy Section 20(6)(b) of the Arbitration Ordinance (Cap. 609), which provides that in the case of admiralty proceedings, if the Court makes order to stay the proceedings under Section 20(5), the Court may order that the property arrested or the bail or security given be retained as security for the satisfaction of any arbitral award. However, the Judge stated that the present claim was not in rem and “The Rainbow” had never been arrested, nor was there any summons application for security.
Despite the Defendant’s arguments above, it was held in the appeal that, applying those guidelines in Schenker International, the imposition of the condition in the present case was disproportionate to a single breach, and had the effect of preventing a just resolution of the dispute in accordance with the substantive rights of the parties. The Court noted that the unless order was made at the very first hearing for directions without prior non-compliance of the Plaintiff, while no unless order was made against the Defendant. There was also no suggestion that the defence of the Plaintiff lacked merits or that the delay would cause any prejudice to the Defendant. The Court therefore allowed the appeal, set aside the order for relief, and make a new unless order without imposing the condition for payment into the Court.
The present case is an illustration of the Court’s approach in granting relief for sanction in the context of a cross claim in admiralty proceedings. In considering whether or not to grant relief against non-compliance of an unless order, the Court will conduct a multi-facet balancing exercise of factors for granting the relief from sanction and consider the guidelines as set out in Schenker International in determining whether the Court should grant such relief and whether conditions such as payment into court should be imposed.
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