DONGHWA LEASING CO. v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP "HALLA LIBERTY"

HCAJ60/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY JURISDICTION ACTION NO.60 OF 1998

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Admiralty Action in rem against :
the ship or vessel "HALLA LIBERTY" (South Korean Flag)

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J U D G M E N T

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1. I have before me three applications. An application by the Plaintiff for default judgment which would entitle them, if granted, as mortgagee enjoying high priority to take up all of the proceeds of sale of the vessel. Two applications by the 2nd Intervener and 3rd Intervener for leave to defend. The claim of the Plaintiff as mortgagee is of long standing. It was first interrupted by the 1st Intervener, Dongnama Shipping Co. Ltd (which was granted leave to intervene and granted leave to defend). The 1st Intervener put up a substantial defence, leading to many many interlocutory applications, both for discovery as well as for stay. In a judgment of mine, given on 12 December 2000 where the question was whether there should be a stay of the Hong Kong proceedings in view of the Korean proceedings, I referred to the fact of that this dispute between the Plaintiff and the 1st Intervener raised four substantial issues. It is not necessary for me now to go into what were the disputes in that action except to say that it clearly shows that the case was a heavy case. I declined to grant a stay of Hong Kong proceedings.

2. The action between the Plaintiff and the 1st Intervener then went on with parallel proceedings in Korea leading to a judgment in the Korean court of first instance. There was an appeal launched in Korea but I understand subsequently that appeal was dropped at the same time as the 1st Intervener decided to gracefully leave the present proceedings. The path seemed to be cleared for the Plaintiff to enter judgment. This is when the 2nd Intervener came in. The 2nd Intervener in fact had been granted leave to intervene as far back as, I am told, December 2000. The 2nd Intervener had known about this case since 1998 and no doubt they had been keeping a very close watch on the case. The reason for their interest is that the 2nd Intervener would be able to collect nothing from its claim against the vessel if the Plaintiff in this case succeeds since the 2nd Intervener would have a low priority. The 2nd Intervener could have come in and asked not just leave to intervene but for leave to defend and become an active party. They chose not to. It was only upon the dropping out of the 1st Intervener that the 2nd Intervener decided to come in to defend more or less along the same line as the 1st Intervener. The draft pleading put before the court shows clearly that it is a defence wherein it alleges misrepresentation and fraud.

3. The question I have to ask is should I allow in a admiralty action in rem for successive serial attacks when it is plain that the attackers knew all about the necessity to attack if they wished to protect their position on priorities. They could have come in but they did not. I think in principle the admiralty court must take the position and follow the principle that people who want to come in to attack must do it at the earliest possible time and would not permit a serial and successive attack in the fashion of a relay, passing the baton. Turning to the facts of this case, the question now put before me is that the 2nd Intervener should be allowed to attack by way of putting in the full defence and prevent the Plaintiff from obtaining judgment, with allegations by the 2nd Intervener of fraud and misrepresentation.

4. In answer to the matter of condition imposed by the court for leave to defend, a number of points have been put to me by Mr Ng, on behalf of the 2nd Intervener and to a certain extent that was supported by Mr Mallard, for the 3rd Intervener, Jade Marine S.A, which has seen fit to jump on the band wagon this week and has taken out an application today for leave to defend in the same way as the 2nd Intervener.

5. The first point that was put to me is that the court has no jurisdiction to order any sum to be paid in by way of security for costs because it is said that on the authority of the Shell case in England, the court has no jurisdiction to order security for costs against defendant or intervener/defendant even though they may be foreign. I think the short answer to this is that the stage reached in this case are different from the stage reached in the Shell case. Here all that the 2nd and 3rd Interveners have is a status of being heard by this court - they have been given leave to intervene so that they can be heard in this action. But what they can do is still to be decided by the court and the court takes the view that in the particular circumstances of this case it would be monstrously unjust to allow them the full liberty without condition to attack the mortgage and to attack the Plaintiff in this case. It is to be noted that their claims got nothing to do with the claims of the Plaintiff or the validity of the mortgage. The reason that they need to attack the Plaintiff and the Plaintiff's case is because of priority. They cannot afford to allow the Plaintiff to obtain judgment on the mortgage because the consequence of that is the Plaintiff would have higher priority and therefore would be paid out all the proceeds of sale. So they are in the form of foreign attackers who decided to come in and ask for leave to attack. In my view, it is imperative that if they are allowed to do this that they must protect the interest of the Plaintiff by an appropriate order of payment in of a sum of money for the security of costs of the Plaintiff. I see no problem so far as jurisdiction is concerned. It is worth noting that a unique feature of the in rem proceedings in the admiralty court is that a plaintiff is able to obtain security of costs from the defendant at the start of the proceedings when the vessel was arrested. And that is when security had to be put up by the defendant which security includes not only the amount of the claim by way of equivalent of a Mareva injunction but also would include as the security to be provided, the full costs of the plaintiff on the best case basis for a period of about two years. So there is nothing peculiar in the admiralty court about security of costs being provided by the defendant. But the fact of this case speaks for itself and I have no doubt that there is jurisdiction to make an order on condition of paying into court of security for Plaintiff's costs.

6. Then the question of the exercise of discretion is also raised. I believe that Mr Ng realises that there are plainly good grounds for ordering security and the two points he made against discretion are not good points. One point is that the 2nd Intervener has merit in its defence. But that is begging the question. The other point raised is that there should be reciprocity between the Plaintiff and the 2nd Intervener in terms of security, that is to say the Plaintiff should also give security of costs to the 2nd Intervener. It was pointed out to Mr Ng that there would be in any event, plenty of money in court which the Plaintiff will be able to look to even on basis not as mortgagee. The point was not pursued by Mr Ng.

7. The main argument raised at the hearing by both Mr Ng and Mr Mallard is as to the quantum of the amount that should be paid in. Two scenarios were envisaged. The first is whether the amount pay in should be a relatively small sum to take it only up to the stage of completion of discovery. The second scenario is a larger sum to take it all the way up to the setting down for the trial. The amount I mentioned at the last hearing, which is supported by the Plaintiff is that there should be security of US$100,000 up to the stage of before setting down. The question is whether it should be up to what stage.

8. In my view, if the interveners are serious about coming in and attacking the plaintiff's claim, then they must be serious up to at least the trial about to begin, that is before the setting down. It is at that stage that one can then see what would be the further costs that would have to be incurred for the trial: how long the trial is going to take. I can see merits in the submission that the security for costs should be granted in the full sum of US$100,000 up to the stage of setting down rather than the earlier period. So far as the Plaintiff is concerned, they need to be properly protected so that they have the comfort of security of costs in preparing for a fully fought out case in the way that this heavy case would call for. So my order therefore is that the 2nd and 3rd Interveners each be allowed to put in their defence and defend, but on condition that within 21 days each party do pay into court or provide satisfactory security to the Plaintiff in the sum of US$100,000.