Shagang Shipping Company Ltd v HNA Group Company Ltd [2020] UKSC 34

Shagang sued HNA under a charterparty guarantee. HNA alleged the contract was procured by bribery, relying on confessions made to Chinese police. Shagang claimed the confessions were obtained by torture. The Supreme Court restored the trial judge's finding of no bribery.

Facts

Shagang Shipping Company Ltd (“Shagang”) chartered a capesize bulk carrier to Grand China Shipping Company Ltd in August 2008, with the charterparty guaranteed by Grand China’s ultimate parent, HNA Group Company Ltd (“HNA”). Following the financial crisis, market rates collapsed and Grand China defaulted on hire payments. Shagang terminated the charterparty in January 2012 and obtained arbitral awards against Grand China. Shagang then commenced Commercial Court proceedings against HNA under the guarantee.

HNA later amended its defence to allege the charterparty had been procured by bribes paid by Mr Xu (a Shagang employee) to Mr Jia T, son of Mr Jia H (CEO of Grand China). HNA relied on confessions made to the Chinese Public Security Bureau (“PSB”) by Mr Xu, Mr Jia T and Mr Shen (Shagang’s general manager). Shagang alleged that the confessions had been extracted by torture, including water pouring, cigarette burns, sleep deprivation, and inhalation of wasabi oil. Mr Xu later retracted his confession to his lawyer Mr Guo, but ultimately pleaded guilty in the Chinese criminal court to secure a reduced sentence.

Issues

The central issues before the Supreme Court were:

• Whether the Court of Appeal was entitled to overturn the trial judge’s factual finding that no bribe had been paid.
• Whether, where an allegation that a statement was procured by torture has not been proved on the balance of probabilities, a court must entirely disregard the possibility of torture when assessing the weight of that statement as hearsay evidence in civil proceedings.

Arguments

HNA (Respondent)

HNA argued that the judge failed to approach the issues in the correct logical order, failed to assess properly the weight of the confession evidence under section 4 of the Civil Evidence Act 1995, failed to take into account the detail of each confession, and impermissibly allowed his “lingering doubt” about torture to infect his findings. HNA relied on the “binary principle” articulated in In re B (Children) [2008] UKHL 35, contending that failure to prove torture on the balance of probabilities meant, as a matter of law, that there had been no torture, and the possibility must be disregarded.

Shagang (Appellant)

Shagang argued there was no basis in law to interfere with the judge’s conclusions on the unchallenged primary facts. The judge was entitled to treat the confession evidence as admissible de bene esse and find that, even so, bribery was not established. The possibility of torture was a relevant factor to be weighed.

Intervener (Liberty)

Liberty submitted that torture is inherently difficult to prove as it often occurs in secret, and a rule excluding evidence of possible torture unless proved on balance of probabilities would encourage deniable torture.

Judgment

The Supreme Court (Lord Hamblen and Lord Leggatt, with whom Lord Hodge, Lord Briggs and Lord Burrows agreed) allowed the appeal and restored the trial judge’s judgment.

Order of issues

The Court held that how issues of admissibility and weight are sequenced is a matter for the trial judge. Admitting evidence de bene esse is a legitimate and common approach. The trial judge was entitled to proceed on that basis and, having concluded bribery was not proved notwithstanding the confessions, it was unnecessary to make a definitive finding on torture.

Weight of the confession evidence

The judge did address the weight of the confessions. His nine-factor analysis included the absence of a lawyer at interrogations, the absence of testable PSB evidence, retractions, the implausibility of a bribe in an owners’ market, the lack of financial records, and the incentive of leniency. Although the judgment would have been better if more detailed, the judge did not fail to consider the material.

Torture and the binary principle

The Court held that the binary principle in In re B applies only to facts in issue that the law requires to be proved. It does not require facts bearing on the weight of evidence to be treated as either proven or non-existent. Section 4(1) of the Civil Evidence Act 1995 requires regard to be had to “any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence”, and these are not limited to facts proved to the civil standard.

The Court reviewed A v Secretary of State for the Home Department (No 2) [2005] UKHL 71, noting Lord Hope’s observation that even where SIAC admits evidence because torture is not proved on the balance of probabilities, it

must bear its doubt in mind when it is evaluating the evidence.

This principle is not confined to SIAC proceedings but reflects the rational approach to evaluating such evidence generally.

The Court emphasised policy concerns: torture frequently occurs in secret and is difficult to prove; a rule disregarding the possibility of torture unless proved on balance of probabilities would positively encourage deniable torture and would put such evidence in a uniquely advantageous position compared to evidence possibly obtained by oppression or inducement falling short of torture.

Conclusion

The judge was entitled to take into account his finding that torture could not be ruled out when assessing the reliability of the confessions. The Court of Appeal’s criticisms were not sustained, and the trial judge’s decision should be restored.

Implications

The decision clarifies several important evidential principles in civil proceedings:

• The “binary principle” applies only to facts in issue that must be proved as a matter of law, not to facts bearing on the weight of evidence.
• Trial judges retain broad discretion in structuring their analysis, including admitting evidence de bene esse without determining admissibility as a separate preliminary step.
• Where there are reasonable grounds for suspecting a statement was obtained by torture, even if torture is not proved on the balance of probabilities, that possibility is a matter the court can and should take into account when assessing the reliability and weight of the statement.
• Appellate courts should not interfere with a trial judge’s evaluative conclusions on unchallenged primary facts unless there is an error of law or the conclusion was one no reasonable judge could have reached.

The Court also issued a cautionary note that judgments must be not merely succinct but careful; sparse reasoning invites appeals. The case is practically significant in commercial litigation where allegations of bribery and coerced evidence arise, and in the wider human rights context by ensuring that the policy against torture-derived evidence is not undermined by an overly rigid application of standard-of-proof rules.

Verdict: Appeal allowed. The Supreme Court set aside the Court of Appeal’s order remitting the case and restored the trial judge’s judgment in favour of Shagang in the sum of US$68,597,049.59.

Source: Shagang Shipping Company Ltd v HNA Group Company Ltd [2020] UKSC 34