THE OWNERS OF THE SHIP OR VESSEL “KEN BREEZE” (IMO 9636383) OF THE PORT OF PANAMA v. THE OWNERS OF SHIPS OR VESSELS “PACIFIC GRACE” (IMO 9154828) OF THE PORT OF PANAMA AND ANOTHER

HCAJ 6/2021

& HCAJ 15/2021

[2021] HKCFI 2832

HCAJ 6/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 6 OF 2021

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BETWEEN

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HCAJ 15/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 15 OF 2021

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BETWEEN

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DECISION ON COSTS

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Introduction

1.  The underlying disputes in these 2 actions arose out of the collision between two ships, Ken Breeze and Pacific Grace, on 6 November 2020 in PRC territorial waters in the Hainan Strait close to land in Hainan Province in a channel. On 22 January 2021, the owners of Ken Breeze (“Ship Plaintiffs”) issued in rem proceedings HCAJ 6 of 2021 (“AJ 6”) in Hong Kong against the owners of Pacific Grace (“Defendants”) in respect of damage sustained by it in the collision. On 12 March 2021, cargo interests in respect of cargo on board Ken Breeze (“Cargo Plaintiffs”) issued in rem proceedings HCAJ 15 of 2021 (“AJ 15”) in Hong Kong against the Defendants in respect of damage to the cargo as a result of the collision. Shortly after the issue of proceedings in AJ 6 and AJ 15, the Defendants promptly issued a Bail Bond to each of the Ship Plaintiffs for US$2.6 million and the Cargo Plaintiffs for US$1.8 million.

2.  There are before this court the Defendants’

(1) application by Summons filed on 24 March 2021 in AJ 6 for a permanent stay of the proceedings in favour of the Haikou Maritime Court (“HMC”) on the grounds of forum non conveniens and/or lis alibi pendens (“Ship Summons”), and

(2) materially identical application by Summons filed on 14 May 2021 in AJ 15 (“Cargo Summons”).

3.  The latest development is that:

(1) On 3 September 2021, the Cargo Plaintiffs offered to consent to the stay sought in the Cargo Summons on the basis that the Defendants issue replacement security for the HMC proceedings to replace the Bail Bond in order to “top up” the security available by way of the existing Limitation Fund constituted in the HMC. This was on the basis of a form of wording of the replacement security circulated by the Defendants to both Ship and Cargo Plaintiffs on 12 August 2021 (“12 August Offer”). The wording requires the Plaintiffs to seek recovery against the HMC Limitation Fund first. If their adjudicated entitlement exceeds their share of the Fund, they may call upon the replacement security.

(2) On 8 September 2021, the Ship Plaintiffs indicated their agreement to stay the Hong Kong proceedings in exchange for the replacement security circulated by the Defendants on 12 August 2021.

4.  As the parties are unable to agree on the question of costs, they now fall to be resolved by this court.

Deliberation

5.  The starting point is RHC O 62 r 3(2A):

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.” (emphasis added)

6.  Apart from r 3(2A), RHC O 62 r 5 also empowers the Court to take into account special matters in exercising its discretion on costs to the extent as may be appropriate in the circumstances. This rule is of general application and applies to costs in interlocutory proceedings as well as other proceedings. Under r 5(1), the Court can take into account inter alia (i) the underlying objectives set out in Order 1A r 1, (ii) the conduct of all parties, (iii) whether a party has succeeded on part of his case, even if he has not been wholly successful, and (iv) any admissible offer to settle made by a party.

7.  In Waxman v Li Fei Yu [2013] 6 HKC 424 at [19] and [20], To J summarised the post-CJR position on costs as follows:

“ 19. Summing up on the post-CJR position, I think the court has much wider discretion as to costs in interlocutory proceedings. Unlike other proceedings, the general rule of costs following the events do not apply. The court is entitled to take into account all the circumstances of the case, including those set out in rule 5, to make such order as it thinks fit. … Costs to follow the event and costs be to the successful party’s costs in the cause are obvious options.

20. … To begin with, the successful party is assisted by the general rule of costs to follow the event. By the mere fact of being successful, the successful party has discharged the evidential burden of showing it is entitled to costs. Thus, effectively, the evidential burden is on the unsuccessful party to adduce sufficient evidence or argument that some other or lesser order is appropriate, such as no order as to costs, costs be to the successful party’s costs in the cause or costs to the unsuccessful party. In the absence of evidence or convincing argument to the contrary, the successful party would also have discharged the legal burden. Costs to follow the event would be the appropriate order to make …” (emphasis added)

8.  Mr Alder submits that the Defendants’ position on costs is straightforward. Both Ship and Cargo Plaintiffs have now capitulated to the Defendants’ stay applications and both actions are to be stayed in favour of the HMC. The Defendants are the successful party and are entitled to their costs of the Summonses and the Actions generally. His position is supported by the passages in Waxman cited above.

9.  Mr Luxton’s position is summarised in paragraph 5 of his skeleton argument ie Cargo Plaintiffs are entitled to the costs of the stay application because if the Defendants had made the proposal of top-up security at the outset of the dispute, then it would not have been necessary for Cargo Plaintiffs to commence AJ 15 or for the Defendants to issue the stay application. Further, Cargo Plaintiffs had proposed top-up security in June 2021 which was rejected by the Defendants at the time.

10.  From paragraphs 11 to 37, Mr Luxton has laboriously summarised what he considers to be the relevant sequence of events, starting shortly after the collision and before AJ 15 were commenced. On the basis of those events, which are too lengthy to recite here, Mr Luxton in essence complains that the Defendants have been dilatory in coming up with a suitable form of replacement or top up security similar to the 12 August Offer which the Cargo Plaintiffs at last found acceptable.

11.  Taking them at their highest, those events and, more importantly, the underlying correspondence, merely show that at various stages in the course of the proceedings, the Cargo Plaintiffs and the Defendants have been in regular dialogue regarding the provision of replacement or top-up security should the matter be litigated in the PRC instead of Hong Kong, as well as the form and content of such security. The long and short of it all is that both the Defendants and Cargo Plaintiffs have at some stage made an offer to the other side but neither party has come up with a proposal or formula acceptable to the other until the Defendants’ 12 August Offer.

12.  On the Defendants’ part, Mr Alder submits at paragraph 28 of his skeleton argument that as early as Mr Clive Andrew Beesley’s 2 affidavits filed on 10 and 13 May 2021 in support of the Ship Summons and Cargo Summons, they have made clear that “If Ken Breeze ship interests and/or Ken Breeze Cargo interests are willing to consider trying their claims along with the Pacific Grace claim against Ken Breeze in the HMC, or this court is minded to grant a stay of the respective actions in Hong Kong in favour of the HMC on terms, then [Pacific Grace’s insurers] are willing agree to furnish replacement security which responds to future judgments of the HMC in the same amounts. In that way, each would enjoy private security to the same extent as in Hong Kong.”

13.  On the part of the Cargo Plaintiffs, Mr Luxton submits at paragraph 21 of his skeleton argument that on 26 May 2021, their solicitors proposed top-up security to be provided by private agreement between the parties, in the form of a LOU[1]. The intention was that the Cargo Plaintiffs would be no worse off in the HMC than if the Cargo action was determined in Hong Kong. But as Mr Alder submits at paragraph 55 of his skeleton argument, the offer contained detailed terms which the Defendants were not prepared to agree to.

14.  In this court’s view, Mr Luxton’s complaint that the Defendants should have come up with security similar or identical to the 12 August Offer is unfair and unconvincing. One of the underlying objectives of the CJR is to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings. As far as settlement of disputes are concerned, the parties are under the same duty to facilitate a settlement on terms acceptable to both. If the Cargo Plaintiffs complain that the Defendants have failed to make an acceptable offer earlier, the same criticism can be levied on the Cargo Plaintiffs by the Defendants.

15.  To conclude, having taken into account the matters referred to in RHC O 62 r 5(1) in light of r 3(2A), the fact that the Defendants are the successful party in obtaining a stay and the absence of any convincing argument from the Cargo Plaintiffs to the contrary, this court is of the view that costs to follow the event would be the appropriate order.

16.  Mr Chan’s position is similar to that of Mr Luxton ie the Ship Plaintiffs should have costs of the action because (i) the Defendants ought to have issued their 12 August Offer sooner such that the entire action, including this hearing, could have been avoided, and that (ii) the Ship Plaintiffs acted reasonably in resisting the Ship Summons.

17.  Mr Chan submits at paragraphs 10 to 13 that once the 12 August Offer was made by the Defendants to top-up their security, both the Ship Plaintiffs and Cargo Plaintiffs agreed within a month to stay the Hong Kong Proceedings. It follows that, had a letter of undertaking with reasonable level of liability been offered sooner, the entire action may well have been avoided, bearing in mind that the parties have engaged in pre-action negotiation since 17 November 2020, shortly after the collision, when solicitors of the Cargo Plaintiffs sought security of US$10 million from the Defendants. Mr Chan also submits that the Defendants had ample time to take instructions after issuing the Ship Summons in March 2021 by referring to a highly selective narrative of events[2] to justify his submission at paragraph 28 that “the Defendants were clearly to blame for their delay in extending the [12 August Offer] barely one month prior to the present hearing.”

18.  With respect, for the same reasons given above in relation to Mr Luxton’s submissions, this court finds Mr Chan’s complaint that the Defendants were clearly to blame for their delay in making the 12 August Offer unfair and unconvincing. If the Ship Plaintiffs complain that the Defendants have failed to make an acceptable offer earlier, the same criticism can be levied on the Ship Plaintiffs by the Defendants. After all, settlement of a dispute requires efforts on both sides.

19.  Mr Chan’s other point is that the Ship Plaintiffs acted reasonably in resisting the Ship Summons. The only argument put forward is that it was reasonable for the Ship Plaintiffs to insist in litigating in Hong Kong in accordance with their commercial interest, given the difference in tonnage limit between the PRC and Hong Kong. In addressing the reasonableness of the Ship Plaintiffs’ resistance to the stay application, what is glaringly missing from Mr Chan’s submission is any suggestion that Hong Kong is the natural or appropriate forum whereas HMC is not clearly or distinctly more appropriate for the trial of the action. In these circumstances, this court is not satisfied that the Ship Plaintiffs’ conduct in resisting the Ship Summons was, to say the least, any more reasonable than the Defendants’ conduct in pursuing the Ship Summons. In any event, given that the Defendants eventually obtained their stay, it is difficult to see how the Ship Plaintiffs’ conduct in resisting the Ship Summons alone can tilt the balance of costs in their favour.

20.  To conclude, having taken into account the matters referred to in RHC O 62 r 5(1) in light of r 3(2A), the fact that the Defendants are the successful party in obtaining a stay and the absence of any convincing argument from the Ship Plaintiffs to the contrary, this court is of the view that costs to follow the event would be the appropriate order.

Disposition and costs

21.  For the above reasons, this court hereby orders that costs of and occasioned by the Defendants’ Summons filed on 24 March 2021 in AJ 6 and on 14 May 2021 in AJ 15 and the Actions generally be to the Defendants, to be taxed if not agreed, and paid by the Plaintiffs in AJ 6 and the Plaintiffs in AJ 15 forthwith, certificate for counsel.

22.  The parties having agreed that costs of this hearing should follow the event, this court further orders that costs of the hearing on 16 September 2021 be to the Defendants, to be taxed if not agreed, and paid by the Plaintiffs in AJ 6 and the Plaintiffs in AJ 15 forthwith, certificate for counsel.