Stettin Bay Lumber Company Pty Ltd v Arya Ship Management Ltd [1995] PGSC 7; SC488 (29 September 1995)

Unreported Supreme Court Decisions

SC488

PAPUA NEW GUINEA

[SUPREME COURT OF JUSTICE]

CA 26 OF 1994
BETWEEN
STETTIN BAY LUMBER COMPANY PTY. LIMITED - APPELLANT
AND
ARYA SHIPMANAGEMENT LIMITED - RESPONDENT

Waigani

Los Doherty Andrew JJ
28 June 1995
29 September 1995

LOS DOHERTY ANDREW JJ: This is an appeal against an order of the National Court refusing an application by the Appellant to stay certain proceedings between the parties in the National Court. Insofar as that order was an interlocutory judgment, leave to appeal is required by S. 14 (3) of the Supreme Court Act and leave has been applied for.

The appeal, being an appeal from an interlocutory judgment for which leave is required, is an appeal against the exercise of a discretion and for the Appellate Court to substitute its discretion for that of the Judge appealed from, it must be shown that the Judge appealed from exercised his discretion upon a wrong principle, allowed extraneous or irrelevant matters to guide or affect him, mistook the facts or did not take into account some matter for consideration: See The Government of Papua New Guinea and Davis v Barker (1977) PNGLR 386.

The background to this matter is as follows. The ship, “ANDHIKA ASOKA” was chartered by the Respondent pursuant to a bare boat charter. A cargo of logs was loaded by the Appellant onto the ship at Kimbe. Some logs were placed under the deck of the ship and some were placed on the deck of the ship. The ship then departed for Japan where the logs were to be unloaded. At the time the ship sailed for Japan (8th July 1993) a document “Letter of Indemnity” was signed by an officer of the Appellant (SBLC). Approximately 364 pieces of the logs were lost overboard on the 18th July 1993 when the ship was off the coast of Japan.

The appellant contends that on the 5th August 1993 the Respondent, through its agent, the insurer, provided to the owner of the logs, NISSHO IWAI CORPORATION of Japan, also being the majority shareholder in Stettin Bay Lumber Co Pty Limited, a letter referred to as the NEPI letter (which shall be referred to later), which it says, binds the Respondent to have all the issues concerning the loss of or damage to the cargo being determined according to Japanese law, in Japan (by the Tokyo District Court). Further, it is submitted that the relevant contract, comprising the Bill of Lading and the indemnity, are to be construed according to Japanese law and that it will suffer prejudice in bringing Japanese witnesses of law and fact to Papua New Guinea.

The Respondent commenced proceedings in the National Court by way of Writ of Summons seeking a Declaration that the Defendant was liable to indemnify the Plaintiff in accordance with the provisions of the Letter of Indemnity. Paragraph 4 of the Statement of Claim was as follows:

“On or about the 8th day of July 1993, the Plaintiff and the Defendant entered in to a written agreement whereby, in consideration for the Master of the “ANDHIKA ASOKA” signing a clean Bill of Lading No PEN/BUL-1 in respect of 779 pieces serial numbered PNG round logs measuring 2,723,868 cubic meters which were loaded on board “ANDHIKA ASOKA” at Penlolo and Buluma by the Defendant and part-stowed on deck with the Defendant’s knowledge and agreement and at the risk of the Defendant and the consignee NISSHO IWAI CORPORATION, the Defendant undertook to indemnify the Plaintiff against all the consequences of the Master signing the said clean Bill of Lading No PEN-BUL-1 as aforesaid. The Plaintiff will refer to the said agreement at the time of trial for its full force and effect.”

Paragraph 8 of the Statement of Claim states that on or about July 1993, NISSHO IWAI CORPORATION (as the owners of the said logs) and its underwriters made claim against the Plaintiff for Japanese Yen, Y65,000,000 for the value of the loss of the said logs including interest and costs. Paragraph 9 stated “that on or about the 5th day of August 1993, the Plaintiff gave a written undertaking to the owners and underwriters of the said logs to pay such sums as might be found to be due to the owners and underwriters by the Tokyo District Court and by way of damage arising out of the loss of the said logs together with interest and costs and in consideration for the said owners and underwriters refraining from arresting or otherwise detaining the Plaintiff’s vessel ‘ANDHIKA ASOKA’ as security for the claim for the aforesaid logs. The Plaintiff will refer to the said undertaking at the time of trial for its full force and effect”. Paragraph 10 then stated that the Plaintiff had repeatedly requested the Defendant to indemnify the Plaintiff pursuant to the agreement but that the defendant had denied that it was liable to indemnify the Plaintiff.

The Plaintiff was asserting that if it was liable for the loss of or damage to the cargo then the defendant is liable to it pursuant to the letter of indemnity.

The Plaintiff then sought (as already referred to) a declaration that the Defendant was liable to indemnify the Plaintiff in accordance with the provisions of the Letter of Indemnity of the 8th July 1993.

The application by the appellant to stay these proceedings relied upon the fact that the question of liability and assessment of loss or damage to the cargo was to be submitted to the jurisdiction of a Tokyo District Court to be determined in accordance with Japanese law and that no such determination had been submitted to that Court and that the plaintiff’s action was premature and an abuse of process. The expense involved in having experts in Japanese law travel to Papua New Guinea was relied upon and the defendant denied that it had any liability to the Plaintiff pursuant to the letter of indemnity. Several grounds were advanced for why the indemnity was not binding or effective against the defendant.

The National Court refused to grant the stay on the basis that any proceedings in Japan were for the loss of cargo due to negligence and that the proceedings in Papua New Guinea were separate proceedings pursuant to the Letter of Indemnity and not based on negligence. The Court agreed with the plaintiff/respondent’s submission that:

“The Plaintiff/Respondent says that defendant is not a party to the action taken out in Japan. The defendant is a PNG Company and that the letter of indemnity is governed by PNG Law. There are no proceedings in Japan concerning the Letter of Indemnity. The Plaintiff says it is entitled to bring the action against the defendant in PNG” The learned trial Judge found that the Plaintiff’s action was not frivolous and vexatious and did not amount to an abuse of process. He found that the proper forum for determining the plaintiff’s claim was in Papua New Guinea and not in Japan and that the proceedings were not premature as they were distinct from and not dependent upon the issue of negligence.”

The first ground of appeal was that the learned trial Judge failed to refer to the Courts inherent jurisdiction to stay proceedings. He did however refer to ORDER 12 RULE 40 of the National Court Rules, which gives a general power to stay proceedings. There is nothing to show that the Court was unaware that it had an inherent jurisdiction to grant such an order. It was submitted that such cases as THE ATLANTIC STAR (1973) 2 ALL ER 175 show that the Court has an inherent jurisdiction to grant a stay if the disadvantage to the defendant outweighs any advantage to the Plaintiff. But again there is nothing to show that the trial Judge transgressed this principle. He simply considered that the plaintiff’s action was distinct from any proceedings for negligence and that as a matter of law the Plaintiff was entitled to proceed under the Letter of Indemnity. In my opinion this ground has no merit. Nowhere is it shown that the trial Judge wrongly exercised his discretion by failing to consider the inherent power of the Court to grant a stay of proceeding.

GROUNDS 3 (B) & (C), (D), (E), (F)

These grounds of the appeal allege that the trial Judge failed to properly take into account certain affidavit evidence and that he failed to give sufficient weight to that evidence. This, it is submitted, led to the failure to conclude that the applicant would suffer prejudice if the stay were not granted.

The affidavit evidence was that of MR KENJI MINOHARA sworn on the 11th March 1994 and MR ROBERT LOYER also sworn on the 11th March 1994. The substance of this evidence was that on 5th August 1993 the North of England Protecting and Indemnity Association Limited undertook in their letter of that date (the NEPI letter) to NISSHO IWAI CORPORATION of JAPAN (NIC) and its insurer for the loss of logs to pay for any loss or damage suffered by NIC or its insurer on the basis that the question of liability and assessment for such loss and damage “shall be submitted to the jurisdiction of the Tokyo District Court (or the appellate Court or Courts if an appeal was taken or by amicable settlement between the parties) in accordance with Japanese law”. It was said that as a consequence of the loss of logs, NIC as the owner of the logs had made a claim against its insurer, the Tokyo Marine and Fire Insurance Co. of Japan (the “Insurer”). That claim had been met. Further that “Under Japanese insurance law, the Insurer has the right of subrogation and can now claim against the person who is liable for the loss either in his own name or in the name of the assured, being NIC in this case. The Insurer is in the process of attempting to negotiate a settlement of the claim that it has against the insurer’s and underwriters of the vessel. This involves a process of attempting to negotiate a settlement and, in the event that these attempts are unsuccessful, litigation will be commenced in Tokyo (NIC claim)”. It was said that for the Plaintiff to proceed with the P.N.G. litigation numerous issues of fact and law would firstly have to be determined in Japan. There had been no determination as yet whether Stettin Bay Lumber Co Pty Ltd was liable to ARYA SHIPMANAGEMENT LIMITED and any amount of loss or damage was still being negotiated between the insurer and the vessel’s insurer/owner. The affidavit of MR MINOHARA continues as follows:

“5(b) In order that Arya is held liable to NIC it will need to be proven that, inter alia, ARYA has breached its duty under the Japanese carriage of goods by Sea Act which provides, in part, for the exercise of due diligence by the owner of a ship to make that ship seaworthy.

(c) The Insurer’s contention is in this case that Arya failed to satisfy the necessary standards of due diligence to ensure that the vessel was seaworthy in accordance with the requirements of Japanese law. As a matter of construction, the Letter of Indemnity which Arya is relying upon in the PNG litigation does not extend to cover any negligence which may have to be proved against ARYA ( or its owner or insurers) in Japan.

(d) Only if the NIC claim has been determined and there has been a finding that as a matter of construction, the Letter of Indemnity does allow Arya to claim an indemnity in respect of its own negligence (if such negligence is proved or admitted to) could ARYA have any basis to commence the PNG litigation. However even in those circumstances Japan is the most natural and appropriate forum for determining all matters concerning the NIC claim and the PNG litigation. Given that:

(i) the Bill of Lading, Letter of Indemnity and NEPI letter are all governed by the law of Japan;

(ii) the loss of logs occurred off the coast of Japan which resulted in various Japanese shippers in turn allegedly suffering damage...”

The evidence then continues and raises issues of the expense and inconvenience of the litigation proceeding in Papua New Guinea.

Mr Loyer’s evidence revealed that he was the Company Secretary of SBLC. He raises many of the matters referred to by MR MINOHAR and in particular to the NEPI letter. That letter from NEPI, as agent and insurer of the Respondent, to NIC (also being the majority shareholder in SBLC) is said to bind the Respondent to have all issues concerning “the incident” determined according to Japanese law in Japan. It is said that the wording of the letter is critical. It sets out in part that the respondent:

“agrees that: the question of liability and assessment of loss of and/ or damage to the above cargo shall be submitted to the jurisdiction of the Tokyo District Court to be determined in accordance with the Japanese law...whether by a final conclusive judgment of the Tokyo District Court or the appellate court or courts or...by amicable settlement between the parties.”

It is said that it is plain on its face that the NEPI letter is directly related to the alleged indemnity in that “both directly concern the incident involving the “ANDHIKA ASOKA” whereby logs were loaded on board the ship in July 1993 at Penolo and Buluma New Britain, Papua New Guinea and the loss of or damage to the cargo, being the same cargo which is the subject of the alleged indemnity”.

Mr Loyer’s evidence then denies any liability pursuant to the alleged indemnity and refers to factual matters surrounding the execution of the document and there being improper consideration. However in my opinion these are matters which go to the substance of the alleged indemnity and are not properly the issues raised on the question of a stay of proceedings. Those are matters to be determined if and when the legality of the indemnity is determined.

The learned trial Judge referred to the affidavit of Mr Loyer but does not make reference to MR MINOHARA’s affidavit. On the hearing of the application for a stay most of the contents of that evidence was objected to. They were both admitted into evidence on the basis that it was a question of weight for the Court to decide. Did the trial Judge fail to give that evidence sufficient weight?

We do not think that that is quite the issue here because it is clear from the judgment in this matter that the stay of proceedings was refused because, whilst such evidence as that adduced by MR MINOHARA and MR LOYER and the letter from NEPI may have related to proceedings in Japan based on the issue of negligence, nevertheless the Plaintiff’s action in Papua New Guinea was based on a letter of indemnity which was distinct from the question of negligence. It was held that there were no proceedings in Japan concerning the letter of indemnity.

The authors of HALSBURYS LAWS OF ENGLAND 4TH EDITION VOL 1 at PARA 353 set out the principles which apply in ascertaining the most appropriate forum especially where a stay is sought. Thus:

“353. Forum non conveniens

The court may stay an action if there is another forum in which the case can be more conveniently tried. Account is taken not only of convenience and expense, but also of other factors, such as the law governing the transaction, which point to the most appropriate or natural forum. In ascertaining the most appropriate forum the court searches for the country with which the case has its most real and substantial connection.

If a foreign court is found to be a more appropriate forum, a stay may still be refused if its effect would be to deprive the plaintiff of some real legitimate personal or juridical advantage available to him by suing in England. A common instance of this in Admiralty proceedings is the opportunity for the plaintiff to secure his claim by the arrest of the vessel as an action in rem. Other examples from the decided cases are the availability in England of a more generous limitation period, a speedier or cheaper trial, a more generous measure of damages, or a more favourable rule of substantive law. Particular weight may be attached to juridical advantages which do not involve a corresponding disadvantage to the defendant. Normally however the court will not compare the quality of justice available in England with that dispensed elsewhere, and allegations that a fair trial would not be obtainable in the foreign jurisdiction must be supported by cogent evidence. Ultimately the courts task is to weigh in the balance the factors both for and against a stay, so that even if the plaintiff can point to a legitimate advantage in suing in England, this will not be decisive if another jurisdiction is clearly the more appropriate forum.”

The determination of these questions are relevant to the exercise of the Courts discretion.

The appellant’s arguments as to why the Court wrongfully exercised its discretion have been summarised as follows:

1. That there was a failure to take into account all of the appellants’ evidence and in particular the evidence of MR MINOHARA (already referred to).

2. That the Court failed to take into account the fact that no evidence was filed on behalf of the Respondent.

3. Upon wrong principles of law given that:

(a) the proceedings in seeking a meaningless declaration are hypothetical and no prejudice could be sustained by the Respondent if they were stayed.

(b) the proceedings are premature as no determination of any “liability” against the Respondent has been made.

(c) Japan is the proper forum given:

(i) the relevant contract, comprising the Bill of Lading and the alleged indemnity is to be construed by Japanese Law.

(ii) the prejudice that will be suffered by the Appellant in bringing Japanese witnesses of law and fact to PNG.

(iii) the choice of Japan in the NEPI letter.

We think that the foremost question is the nexus between the cause of action in Japan and the cause of action commenced in Papua New Guinea in relation to the letter of indemnity and whether there is any duplicity of proceedings. The Respondent says that there are no pending proceedings between the parties in Japan and there is no way in which the Japanese Court could have jurisdiction to hear the plaintiff’s claim. Further, that it is a misnomer to refer to any potential proceedings in Japan as an action for negligence as any proceedings there would arise out of a breach of a contract of carriage and not simple negligence. The common law area of negligence, it is submitted, has been superseded and wholly covered by a written contract between the parties evidenced by the bill of lading. The issue of who is liable for damaged cargo due to breaches of a bill of lading, may not be the same as the issue of who is liable under a letter of indemnity. Each case will defend on its own facts. Here, leaving aside the question of the circumstances in which the letter of indemnity was signed, it was an indemnity in relation to certain kinds of damage to the logs and that pieces stowed on the deck were at the shipper’s and consignee’s risk. That in our judgment gives rise to a distinct cause of action from a cause of action concerning the issue of negligence under the bill of lading. See TELFAIR SHIPPING CORPORATION v INERSEA CARRIERS SA (THE CAROLINE P) (1983) VOL 2 LLOYDS LAW REPORTS P. 351. Here a dispute did exist under the letter of indemnity. The Respondent had made a claim under the letter which was denied. That claim is not dependent on negligence. The appellant/defendant is a PNG Company and the letter of indemnity giving rise to the cause of action was created and executed in PNG and is prima facie governed by PNG law. The principle issue under the indemnity is whether or not it is enforceable by the Plaintiff and that is not necessarily dependent on such questions of seaworthiness or any other issue foundered in negligence relating to the loss of cargo. There is no duplicity of proceedings. Again there was no agreement in the letter of Indemnity to submit the claim for indemnity to the jurisdiction of Japan and the NEPI letter does not bind the Respondent in relation to the letter of indemnity.

We are not persuaded that the trial Judge wrongly exercised his discretion in finding that the Plaintiff/Respondent’s cause of action was based upon the letter of indemnity which was a separate cause of action to that based in negligence.

It is also our opinion that the plaintiff’s action was not hypothetical and meaningless because no liability had been determined at the time the proceedings were commenced (that issue had yet to be determined in Japan). Thus it was said that no “consequences” whatsoever had been determined. The issue is not academic because a real dispute exists and may not be premature. A declaration is often used to establish the existence or non-existence of a contract or the construction of a contract: See Meagher Gummow & Lehane “Equity - Doctrines and Remedies”pp 437 - 471. At page 449: “There is virtually no situation in respect of which a declaration cannot be made. In contract declarations can be made ascertaining the rights and obligations of the parties.”

The prerequisites for declaratory orders are that:

1. There must exist a controversy between the parties.

2. The proceedings must involve a “right”.

3. The proceedings must be brought by a person who has a tangible interest in obtaining the order (LOCUS STANDI).

4. The controversy must be subject to the Court’s own charter and also within the jurisdiction so far as private international law rules are concerned.

5. The defendant must be a person having a proper or tangible interest in opposing the plaintiff’s claim.

6. The issue must not be of merely academic interest, hypothetical or one whose resolution would be of no practical utility. See PW YOUNG; Declaratory Orders 2nd Ed. p. 9.

In County and District Properties Limited v C Jenner & Sons Ltd and ORS (QB) (1976) 2 LLOYDS REPORTS 728, the plaintiff issued a Writ against the defendants claiming damages for breach of contract and the defendants in turn issued proceedings against third parties claiming indemnity for such breach of contract, pursuant to separate indemnity agreements. The Court held that it was perfectly competent for the defendants to bring the indemnity proceedings to enforce a cause of action which would arise only if judgment was given against the defendants in the proceedings brought by the plaintiff.

It was said that the trial Judge failed to take into account the fact that no evidence was filed on behalf of the Respondent. That does not necessarily give rise to a wrongful exercise of discretion. It is apparent that the Respondent’s arguments were based on the evidence presented by the appellant and in the law. The trial Judge accepted those arguments and the mere fact of the Plaintiff not bringing evidence doesn’t mean that it was not open to the trial Judge to accept their arguments.

Finally, NIC is a Japanese company and it has a claim arising out of a breach of a contract of carriage evidence by a bill of lading, in which it was agreed that Japan would have jurisdiction. That agreement on jurisdiction relates solely to NIC’s cause of action for loss of cargo due to breaches of the contract of carriage and is distinct from the Plaintiff’s claim against the defendant pursuant to a letter of indemnity which is governed by PNG law.

It cannot be said that the appellant is prejudiced by that claim proceeding in Papua New Guinea. The issue of the indemnity is unlikely to require that expert Japanese witnesses of law and fact would have to be brought to Papua New Guinea. On the contrary the respondent might be prejudiced if a stay were to be granted in that it could not bring its action in Japan.

In our opinion it is not shown that the National Court wrongfully exercised its discretion in failing to grant the stay of proceedings which the appellant sought.

The appeal is dismissed.

Costs to the Respondent as agreed or taxed.

Lawyer for the Appellant: Gadens Ridgeway

Lawyer for the Respondent: Brian White & Associates