World Fuel Services (Singapore) Pte Ltd t/a Trans-tec Asia v. The Owners of the Ship or Vessel "M.V. Liberty Container"

HCAJ 135/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO.135 OF 2003

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Admiralty Action in rem against
“M.V. LIBERTY CONTAINER” (Singaporean Flag)

BETWEEN

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Before : Hon Waung J in Chambers

Dates of Hearing : 6 and 13 September 2005

Date of Judgment: 13 September 2005

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J U D G M E N T

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1.I have before me an application by the plaintiffs, World Fuel Services (Singapore) Pte Ltd, a bunker supplier to ships.  The respondent to the application is Florens Container Inc. (“Florens”), a party to this action and a claimant against the defendant owners.  It became a party as a result of leave being granted for them to intervene in the action and therefore to have the benefit (as a party) to be given the appropriate notices and to defend its interest in this ship, as well as in other assets of the defendants (the ship owners), namely, a fleet of ships which, as a result of the collapse of the defendant company, were sold by the admiralty court in Hong Kong in some dramatic circumstances.  The proceeds of sales were substantial, but the number of claims against the proceeds of sales was also very substantial, including of course, in the usual way, the mortgagees, the 1^st and 2^nd mortgages, as well as the many necessaries, such as suppliers (like the plaintiffs), dockyard which had rendered services and others, all of these claimants as admiralty claims in rem ranking behind the mortgagees. 

2.The circumstances which led to the massive resistance being mounted against the admiralty claimants were usual but principally due to the liquidation in Singapore of the company.  Liquidator was appointed and a Committee of Inspection of the Creditors was formed consisting of five companies (one of which was Florens).  It is the inter-relationship between Florens and the Liquidator and their solicitors, Messrs Holman Fenwick & Willan (“Holman”), and the actions taken by them to resist and to oppose the various admiralty claims including, in particular, the claim of the plaintiffs which had necessitated the application now made before me.

3.The resistance to the plaintiffs’ admiralty claim in rem took three forms, namely : firstly, there was a resistance to the admiralty jurisdiction in rem by way of an Order 12, rule 8 application to challenge the admiralty jurisdiction in rem of the court.  Secondly, resistance was mounted by way of application for security for costs against the plaintiffs.  Thirdly, there was resistance to not only an Order 14 application by the plaintiffs for judgment but a resistance to a straightforward obtaining of judgment by the plaintiffs, so the plaintiffs had to go to trial to obtain judgment. 

4.All three resistances failed.  Judgment was entered in favour of the plaintiffs.  Three costs orders were made by the court relating to the three resistances :

(1)	the order made on 22 April 2004 in relation to the Order 12, rule 8 resistance;
(2)	the order made on 14 October 2004 in relation to the security for costs resistance; and
(3)	the order made on 11 April 2005 in relation to the costs incurred after the period of 14 October 2004.

All three orders were expressed to be made against the defendants.  Nothing was said in those three orders about costs against Florens. 

5.The position of the plaintiffs is that they felt that they would be unable to recover in full their judgment and therefore also their costs.  There is high likelihood — although this is by no means absolutely 100% certain — from the amount left in court after payment out of those admitted higher ranking claimants that the plaintiffs would have to share pari passu with some of the lower ranking admiralty claimants and that there would not be sufficient money to cover the three costs orders made in the plaintiffs’ favour.

6.The application before me is expressed in a way so that in the event there was a shortfall (the plaintiffs could not recover in full from the funds in court, their full costs under the three costs orders made), they seek an order from the court that Florens should pay the shortfall difference.  The basis of the application is that Florens has supported, and caused the resistance to be made, so that the plaintiffs incurred those costs, and that Florens stands to benefit from such resistance.  The resistance was put up by lawyers, Holman, who were solicitors both for the defendants as well as for Florens.  In fact, Holman were the regular solicitors for Florens.  Holman became solicitors of the defendants because of Holman being the regular solicitors of Florens and Florens being a member of the Committee of Inspection which gave instructions to the Liquidator who in turn instructed Holman to undertake the resistance in the Hong Kong proceedings. 

7.Three questions were debated in the course of the hearing as to whether the court could or should make the order of costs sought by the plaintiffs against Florens.  The three questions are :

(a)	lack of statutory jurisdiction;
(b)	jurisdiction to order such costs has been exhausted; and
(c)	discretion should not be exercised because of Florens not coming within the category of “persons” which ought to be the subject of a non-party paying costs.

I would deal with each point in turn.

Statutory jurisdiction

8.First, on lack of statutory jurisdiction, it is not in dispute that the jurisdiction to order costs is statutory, and the relevant statute is to be found in section 52A of the High Court Ordinance, Cap.4 which reads as follows :

“	(1)	Subject to the provisions of rules of court, the costs of and incidental to all proceedings in the Court of Appeal in its civil jurisdiction and in the Court of First Instance, including the administration of estates and trusts, shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid.
	(2)	Subject to specific provision made in this or any other Ordinance (other than subsidiary legislation) nothing in subsection (1) shall authorize an award of costs against a person who is not a party to the relevant proceedings.
	(3)	Nothing in subsection (1) shall alter the practice in any criminal cause or matter, or in bankruptcy.”

The dispute between the parties under this statutory provision is on the construction, in particular, of subsection (2).  There is no dispute that Florens is a party to this High Court action because Florens is the Intervener and by its intervention was thereby made a party.  Mr Smith argued that although Florens is a party to the Action, it was not a party to the particular application made to the court under which the plaintiffs’ costs (which is now sought to be recovered) were incurred, and that therefore it is argued that Florens is a non-party to the proceedings of these applications, and that therefore the court has no jurisdiction to make such order of costs.

9.In the case of Aiden Shipping Co. Ltd v. Interbulk Ltd [1986] AC 965, Lord Goff said, in relation to section 51 of the UK 1981 Act and which is equivalent of our section 52A(1), and I quote (at page 975) :

“… it is not surprising to find the jurisdiction conferred upon section 51(1), like its predecessors, to be expressed in wide terms.  The subsection simply provides that ‘the court shall have full power to determine by whom … the costs are to be paid.’  Such a provision is consistent with a policy under which jurisdiction to exercise the relevant discretionary power is expressed in wide terms, thus ensuring that the court has, so far as possible, freedom of action, leaving it to the rule-making authority to control the exercise of discretion (if it thinks it right to do so) by the making of rules of court, and to the appellate courts to establish principles upon which the discretionary power may, within the framework of the statute and the applicable rules of court, be exercised. ….”

And then at page 980 to page 981, he said :

“…. In the vast majority of cases, it would no doubt be unjust to make an award of costs against a person who is not a party to the relevant proceedings. ….

I do not, for my part, foresee any injustice flowing from the abandonment of that implied limitation.  Courts of first instance are, I believe, well capable of exercising their discretion under the statute in accordance with reason and justice.  I cannot imagine any case arising in which some order for costs is made, in the exercise of the court’s discretion, against some person who has no connection with the proceedings in question.  If any problem arises, the Court of Appeal can lay down principles for the guidance of judges of first instance; or the Supreme Court Rule Committee can propose amendments to the Rules of the Supreme Court for the purpose of controlling the exercise of the statutory power vested in judges subject to rules of court.”

10.In the Aiden case, Lord Goff certainly regarded that the equivalent of section 52A(1) should be given, a wide liberal interpretation without limitation, namely, limitation as to what order can or cannot be made against a person who is not a party to the proceedings. 

11.In the United Kingdom, my understanding is that there is no equivalent to section 52A(2) of our Ordinance.  Our Ordinance has this specific provision.  Unfortunately, counsel have not been able to assist the court with the reason, or the genesis, or the purpose behind subsection (2).  Some purpose however must be discernable by subsection (2).  Doing the best I can, it seems to me that I should construe subsection (2) in as judicial manner as I can, bearing in mind what Lord Goff said in Aiden.

12.Having regard to the fact of this case, and saying only what I consider to be necessary on construction as required by the facts of this case, it seems to me that the important words we are concerned with are “award of costs against a person who is not a party to the relevant proceedings”.  Do the words “relevant proceedings” mean only the proceedings in relation to an application where costs have been incurred, or do they bear the ordinary and wide meaning of the words which would certainly include “a High Court action”. 

13.Here, we have a situation that Florens is a party to the High Court action, and therefore it is a person against whom award of costs can be made being a person outside subsection (2).  If one gives a liberal meaning to section 52A per Lord Goff and a narrow reading of subsection (2), and relies on the judicial manner that the court would apply the law, then clearly in this case, Florens being a party to the High Court action and being asked as a party to the action to pay for certain costs, there can be no question that the court does have jurisdiction.  

14.This approach appeals to me because it also makes sense to the legislation.  There can be many situations where a defendant may be litigating against a plaintiff, and either a 2^nd defendant or a third party may not have been served with the necessary application, but may in fact have expressed support or has taken steps to be involved and to cause such costs being incurred, such party in justice ought to be responsible for such costs and the court should have jurisdiction to order such costs. 

15.If Mr Smith’s construction is correct that one has to be a party to a particular application in order to be responsible for the costs, namely, giving a wide interpretation to subsection (2), then the hands of the court would be tied.  The primary intention of section 52A(1) would be frustrated.  It seems to me that Mr Smith’s complaint of injustice of costs against non-party may be confusing the exercise of discretion with the scope of statutory jurisdiction.  The fact that a party did not take part in a particular application in an action, e.g. in a summons, might be a valid ground for exercise of the discretion of costs in a particular way.  But that does not suggest that the statutory jurisdiction which should be liberally applied should be restrictively construed.  It seems to me that the proper way to construe section 52A is in favour of a liberal construction. 

16.In this way, Hong Kong would not be too far out of the international scheme of wide jurisdiction against “non-party”, as applied in the United Kingdom, Australia, and other common law jurisdictions.  I see no reason why Hong Kong should be a particularly benevolent jurisdiction, vis-à-vis the so-called “non-party”.  I therefore reject the first ground of resistance of Florens.

Previous orders exhausted jurisdiction

17.The second ground of resistance is that because of the three previous orders which had been made on costs, the jurisdiction on costs has been exhausted, so to speak, and that the court either cannot or should not make any supplementary order for costs.  It is not in dispute that Florens, although it is a party to the AJ action, it did not take part in the making of the three costs orders.  At the time when these three sets of costs orders were made, although Florens was a party in the High Court action and there was of course statutory jurisdiction to make such orders against Florens, natural justice required notice to be given to Florens before such order of costs against Florens could or should be made.  Pursuant to this requirement for natural justice, this is what the plaintiffs have sought to do, namely, giving notice by summons to Florens and say “This is what I require you to pay”. 

18.The narrow question for me is really whether the fact that these orders were made in these circumstances would exclude the court’s power subsequently to make additional and, in the words of Mr Wright, complimentary orders for costs against Florens.

19.So far as exhausting the court’s power is concerned, I have no doubt that the court did not exhaust its costs power when it made the costs orders against the defendants only.  The fact that the court at the time did not expressly reserve its right to make subsequent order against Florens or did not even refer to it does not indicate that the court has abdicated its right to make subsequent consistent and complimentary orders of costs against Florens.  I think the situation we have is different from a situation where the court makes subsequent different orders against the same party and thereby would be making inconsistent subsequent order.  The finality of proceedings requires that order made should not be revised or revisited so as to produce inconsistent result.  The present order sought by the plaintiffs is complimentary, or supplementary in the words of the judgment in Dymocks Franchise Systems (NSW) Pty Ltd v. Todd and others [2004] 1 WLR 2807, and is in no way different from the supplementary order made by the Privy Council in the case of Dymocks.

20.Mr Smith also referred to an argument slightly differently under this heading to say, instead of exhausting the power, the court should not exercise the power because there was no change of circumstances.

21.I do not think change of circumstances is necessary.  At the time when on the first occasion for example, on 20 April 2004, when the order was first made in favour of the plaintiffs against the defendants, Florens was not before the court.  According to Mr Smith, the plaintiffs could have, at the time, asked the court to make an order against Florens.  They could have, but they would not get it, and the simple reason they would not get it was because the court, as a part of its duty to do natural justice would require Florens to be brought before the court, so that Florens would have a chance to answer such request before the court would make such an order.  If this had happened, orders for costs would have been made against the defendants, but the application for costs against Florens would be adjourned until Florens has been served.  How was that any different from today?  I do not see the restriction on the court’s power by the necessity of either a reservation of the right of the plaintiffs at the time when these orders were made, or the necessity to adjourn for the proper steps to be taken.  It seems to me that the steps taken by the plaintiffs were plainly to save costs, and not to increase costs.  I see therefore no real substance in the resistance of Florens on the second point.

Discretion

22.The third resistance has always been the main basis of Florens resisting the application for costs.  The foundation of much of Mr Smith’s submission is based on his reading of the case of Dymocks.  I think it is helpful if I may refer now to some of the passages in Dymocks.  Dymocks is a case where the Privy Council, after allowing the appeal from the New Zealand Court of Appeal’s decision, ordered the respondents (The Todds) to pay the costs of the appeal.  In a subsequent Petition by the successful appellant to recover the costs awarded in its favour from the real party behind the litigation (Associated Industrial Finance Pty Ltd), the Privy Council made an order in favour of the appellant against the non-party.  In an elaborate judgment, the Privy Council dealt with a number of issues including jurisdiction, causation and discretion. 

23.In this case, the dispute by Florens is the extent of its responsibility in the unsuccessful resistance to the plaintiffs’ action.  Reliance is placed on passages in the judgment in the Dymocks, especially under the heading of “Discretion”.  Paragraph 25 is a key paragraph setting out a few of the main principles, governing the proper exercise of the discretion of the recovery of costs against non-party.

24.Principle (1) at paragraph 25, page 2815D-E refers to all the circumstances and said :

“…the ultimate question in any such ‘exceptional’ case is whether in all the circumstances it is just to make the order.  It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against.”

25.The principle (2), in paragraph 25, refers to the “pure funders”, namely :

“… ‘those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course.’ ….”

and the Privy Council said that in pure funders’ situations, discretion should not be exercised because public access to justice is to be given priority.

26.Principle (3) at page 2815F-G states :

“…(3) Where, however, the non-party not merely funds the proceedings but substantially also controls or at any way is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs.  The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes.  He himself is ‘the real party’ to the litigation, a concept repeatedly invoked throughout the jurisprudence ― see, for example, the judgments of the High Court of Australia in the Knight case 174 CLR and Millett LJ’s judgment in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613.  Consistently with this approach, Philip LJ described the non-party underwriters in T G A Chapman Ltd v Christopher [1998] 1 WLR 11, 22 as ‘the defendants in all but name’.  Nor, indeed, is it necessary that the non-party be ‘the only real party’ to the litigation in the sense explained in the Knight case, provided that he is ‘a real party in … very important and critical respects’ … Some reflection of this concept of ‘the real party’ is to be found in CPR r 25.13(2)(f) which allows a security for costs order to be made where ‘the claimant is acting as a nominal claimant’.”

27.Principle (4) under paragraph 25, as well as the subsequent paragraphs from 26 to 28, recites passages in the relevant cases (Carborundum, Arklow, Knight and Metalloy) on this aspect of the non-party who is not a pure funder.  Paragraph 29 at page 2817 concludes in these terms :

“In the light of these authorities, their Lordships would hold that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claims or defence or appeal fails.”

28.It seems to me that a fair reading of the case law including particular the Dymocks case, suggests that there are really three types of non-party costs situations.  The first is where it is the “pure funder” in the sense that we refer to as the Albert Chan v. Housing Authority type situation, someone who put up the fund urges litigation, not for his personal interest but to enable public access to the court, and there the public policy of public access overrides the public policy of someone who promotes litigation and loses should pay, that is “loser should pay” principle.  That is the first category.  The court’s consideration is that in public access “pure funder” cases, there should be no exercise of discretion against the non-party.

29.The second category is where there is a director or liquidator of a company exercising his functions, his duties, for the company and not for his own personal gain, again, in those situations, normally, even though he has caused the litigation, even though the liquidator or director has supported the litigation, unless there are mala fide or unreasonable behavior, again, there should be no exercise of discretion against such non-party person.

30.Then, there is the troublesome third category, which is the category that our case is concerned with, that is, where the intervention, so to speak, is by a party who has an interest, a benefit to be gained, and who has through its support, through its funding, and because of its support which is causative, has caused such costs to be incurred, then the full policy of the law applies, that is, “loser should pay”, and the “loser should pay” is irrespective of the reasonableness of either resistance or the pursuit of the proceedings. 

31.The Privy Council in its consideration of and the discussion on discretion, of course, used various expressions to indicate the circumstances which would call for, the application of the drastic remedy (of course it is accepted by every one that it is a drastic remedy) to order a non-party to pay, non-party in the sense of a party not taking part in the proceedings, were not on the record as parties but nevertheless those who were actually promoting it.  A prime example of such a non-party would be insurance companies.  Insurance companies very often would step into proceedings, defend in the name of the defendant, or make a claim in the name of the insured and pursue the proceedings.  They are prime examples because they have everything to gain, they put up all the money to pursue the litigation, and they have caused the costs to be incurred.  But they are not the only ones.  There are many situations, and this is one of them, where the real cause of the costs being incurred or litigation taking the form it did was because of the support given by a non-party.

32.Mr Smith, in his very able submissions, has pointed to me the state of the evidence which suggested that some of the basic requirements of Dymocks had not been satisfied.  I would deal with his various points in turn.  First and foremost, he relies upon the fact that there was very limited evidence to show that Florens was funding or supporting the litigation.  He pointed out the fact that there was a liquidator, that the liquidator was the one giving instructions to Holman, that Florens was only one of the five members of the Committee of Inspection, and that the liquidator was the one who was making the decision.

33.There is surprisingly no evidence from the Liquidator, or even from any of the other members of the Committee of Inspection.  The commercial reality, however, is to be seen in the relevant Minutes, although there was only one set of minutes that had come out.  Florens has been very careful in refusing to give any document, or even to answer many of the enquiries about documents.  The important Minutes shows that the company had no fund to finance litigation in Hong Kong.  Holman has sent the bill and had required it to be paid.  The words at page 63 at 11.3 of the Minute says :

“The liquidator was concerned with bill from M/s Holman Fenwick & Willan.  Based on the understanding of the correspondences with COI members, M/s Holman Fenwick & Willan’s costs would be made through M/s Florens and the sum paid could be treated as the liquidation expenses thereafter.”

This is dated 23 October 2003.  October 2003 was at a fairy early stage because the chronology shows that on 11 June 2003, Florens had intervened, that is the date of the Affidavit, and the Minutes was dated 23 October.  The correspondence in relation to the funding and the payment of Holman’s bill referred to in the Minutes must have been before that date.  The challenge to the jurisdiction was on 8 January 2004, so, at the time of the challenge, the question of the funding had been resolved as appealed in the October 2003 Minutes, otherwise the challenge could not have been mounted.  Then subsequently there were, after that, further resistance of application for securities for costs and other steps taken by Holman.

34.A fair reading of the material, in all the circumstances, suggested to me that because of Florens’ close relation to Holman, and because of Florens’ agreement to be responsible for Holman’s bills that the Hong Kong proceedings undertaken by Holman could take place.  I therefore see it as clearly established, that Florens was supporting the applications and funding those steps which led to the incurrence of the costs.  Mr Smith submits to me that I should read that document, i.e. the Minutes, as being limited in its scope, limited only to the bill referred to at that time, and that I can draw no inference on subsequent funding.  He speculated that is it possible that the funds could have been provided by the other creditors or from other sources.

35.Mr Fung in his Affidavit certainly did not say that nor did the Liquidator or other members of the Committee of Inspection.  I cannot perceive that Holman would undertake the massive litigation that they have undertaken without financial support from Florens.  What I have before me is only the tip of the iceberg of the total litigation that had been conducted by Holman in the name of the defendants, and I cannot see that such massive legal steps would be taken in Hong Kong by Holman in relation to the various admiralty proceedings without the solid financial support of Florens.  Without Florens (the regular customer of Holman) being responsible for Holman’s costs these proceedings could not have taken the form they did.

36.I therefore conclude that so far as support by Florens is concerned, that it has been established.  So far as causation is concerned I also hold that it has been established.

37.The question then is : Is that enough?  Mr Smith says no, that they are not enough.  If one looks at the Dymocks case, he says that one has to show that the non-party who instigated the proceedings has to be the real party in the sense that it is really his litigation.  Furthermore, he has to be either the sole or substantial beneficiary of these steps.  I think so far as the question of sole and only substantial beneficiary is concerned, I do not regard that as a necessary requirement.  I think that it is necessary in the exercise of discretion that there is evidence to show that the non-party, that is, Florens, would stand to benefit from it.  As to the extent of the benefit this is very much to be debated.  There is, at the moment, not perfect clarity having regard to pages 46 and 47 of the bundle, namely, where under page 46 Florens is shown as a chargee with a high priority in the litigation and page 47 with Florens not being shown as an unsecured ordinary creditor.  The stand of the affidavit evidence from Mr Fung and the stand adopted by Mr Smith is that Florens is merely an ordinary unsecured creditor and stand to gain only 3% from whatever gain there may be from litigation in Hong Kong.

38.It is a matter for Singapore law and for the liquidator to decide what benefit and to what extent Florens will gain from any Hong Kong litigation.  But I believe that the proper time to look at it is at the time when these were undertaken, not with benefit of highsight and, at the time when these steps were undertaken Florens could well have a very optimistic view of the benefit it stood to gain.  I believe the proper way to look at this matter is whether Florens at the time such actions were undertaken could be said to have a prospect of a personal gain, and if so, then it is to be treated as ordinary litigants in the sense they were real parties to the action who have gained access to justice for its own purpose.  In my view this fits Florens and that is why Florens supported and instigated these steps to be taken.  For me, it is not a question because there is a liquidator, and because there is a company in liquidation, and because there are large numbers of creditors, therefore, the real party must be the company or must be the liquidator in the name of the company.  For me, the situation (which reflects commercial reality) is when a particular creditor who gives strong support to litigation and advances money or gives financial support so that the litigation can take place, such a party should be regarded as a responsible party who gained access to justice for its own purpose and should be regarded as an unsuccessful party to whom the normal consequence of a failed litigation should apply, namely, to pay the costs of the unsuccessful litigation.

39.Looking at it from the point of the plaintiffs, the plaintiffs were faced with litigation whereby costs were incurred.  Now, the normal incidence of litigation is that the plaintiffs ought to be compensated, they ought to be able to recover their costs.  Why should the plaintiffs be out of pocket if a particular set of creditors (whether one out of 50 or one out of 10 does not matter, so long as the creditor is a substantial creditor and has an interest in the outcome) supports the litigation, and why the normal consequence of litigation should not apply.  “Loser pays” — that is the proper application of the public policy and this public policy which Philip LJ (as he then was) referred to in Chapman is now the accepted principle in hostile litigation.

40.In a way, of course, it is an exception to the rule, that is to say, exceptional remedy in terms of making a non-party pay, but in another way, that is the modern approach to litigation.  I think it is a just and fair approach and it protects all parties to the litigation.

41.In my view, therefore, the last ground of resistance of Florens to the application also fails.

42.I therefore make an order as sought by the plaintiffs against Florens.

Mr Colin Wright, instructed by Messrs Johnson, Stokes & Master, for the Plaintiffs

Mr Clifford Smith, SC, instructed by Messrs Holman Fenwick & Willan, for the Interveners