SEALEGEND HOLDINGS LTD v. CHINA TAIPING INSURANCE (HK) CO LTD AND OTHERS

HCAJ 95/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY JURISDICTION ACTION NO 95 OF 2012

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D E C I S I O N

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1.  This is the plaintiff’s application for leave to extend the validity of the amended writ of summons and the defendants’ application for an order that the plaintiff provide security for their costs.

2.  The background to the application for extension of the validity of the writ is as follows.  The plaintiff, a company incorporated in the British Virgin Islands, was the registered owner of a vessel called MV Princess Rowena, which I shall simply call the vessel.  By a cover note dated 28 June 2005, the 1^st defendant insured the plaintiff in respect of 50% of the value of the hull and machinery, equipment and everything connected with the vessel with a sum insured for US$8 million.  By a second cover note dated 4 August 2005, the 1^st, 2^nd, 3^rd and 4^th defendants insured the plaintiff in respect of 50% of the vessel’s value.  The 50% risk of the vessel’s value under the second cover note was taken up by the 1^st, 2^nd, 3^rd and 4^th defendants in the proportion of 20%: 15%: 10%: 5% respectively.

3.  On about 1 July 2006, during the validity of the two insurance policies, the vessel sustained damage to her starboard main engine.  The plaintiff lodged a claim with the defendants for reimbursement of the repair and replacement expenses under the policies.

4.  It appears that before long, the plaintiff came to the view that the expenses would not exceed substantially the deductibles under the policies which in total stood at US$325,000.  Thus, when the time came for renewal of cover in August 2006, and when the 1^st defendant offered to renew the insurance “provided that the outstanding premium [was] cleared off prior to expiry and the claim on starboard main engine damage on 1/July/2006 [was] closed at Nil claim”, the insurance broker replied on behalf of the plaintiff as follows:

“Pleased to advise that quotation accepted by Assured. They’ve now settled all o/s premium and confirmed that M/E claim withdrawn. In this connection, please advise Peter Y.C. Ng & Associates to close their file.”

5.  On 19 January 2007, in an email from the broker to the 1^st defendant copied to, inter alios, the 3^rd defendant, it was stated, however, that

“You may recall that the Assured withdrew their claim as they felt that the cost of repairs would be below or just marginally above the policy deductibles of USD250,000 (Cl. 12) and USD75,000 (AMD).

Repairs to the engine has not be carried out and the vessel was operating with her port main engine. The classification society recently advised the Assured that they would require the starboard main engine to be opened up and inspected by the engine maker so as to ascertain the extent of repairs required.

Accordingly, the Assured obtained quotations from (1) the engine maker MAN B & W (2) HUD and their quotations arc herewith attached.

In view of this development, the Assured has asked us to re-open the case.  We shall therefore be very grateful if you will kindly request Peter Y.C. Ng & Associates Ltd. to re-attend.”

6.  On 15 December 2009, the surveyors, Peter Y.C. Ng & Associates Ltd., sent a letter to the 1^st defendant enclosing their Survey Reports and indicating that the damage to the starboard main engine was due to the negligence of crew, and that should the owners intend to establish their claim, they would be obliged to prove that they had exercised due diligence in maintaining the vessel.

7.  On 20 July 2011, the plaintiff through its broker sent its comments on the surveyor’s report to the 1^st defendant.

8.  On 15 December 2011, the surveyors provided their response in turn on the comment of the plaintiff to the 1^st defendant.

9.  On 13 January 2012, the broker sent an email to the 1^st defendant referring to the plaintiff’s comments on the surveyor’s report and stating that they were under heavy pressure from the plaintiff to make progress in settlement of the claim and asking for a response from the 1^st defendant.

10.  On 9 March 2012, the 1^st defendant sent an email to the broker enclosing the surveyor’s further comments and stating:

“Based upon the available information and documentary evidence, we, without prejudice, consider that the damage to starboard M/E caused by alleged crew negligence has resulted from want of due diligence by the insureds.”

11.  It is therefore not in dispute that by mid March 2012, the 1^st defendant had informed the plaintiff that it considered the damage to the starboard engine was caused by crew negligence due to want of due diligence on the plaintiff’s part and thus fell within the relevant exception under the Institute Time Clause.

12.  On 18 May 2012, the plaintiff caused the writ in this action to be issued out of the High Court.  The only defendant then named was the 1^st defendant, who was sued in respect of the second policy.  On 12 June 2012, the writ was amended without leave pursuant to RHC Order 20 rule 1 by the addition of the 2^nd, 3^rd and 4^th defendants.  It will be noted that the writ as amended thus still does not refer to the first policy.  This is the subject matter of a separate application for leave to re-amend the writ to add a claim under the first policy as against the 1^st defendant.

13.  The amended writ, which was valid for service for a year, was not immediately served.

14.  Almost a year after the writ was issued, on 13 May 2013, the plaintiff’s solicitors wrote by email to the 3^rd defendant, which is a company incorporated in Taiwan, asking whether it would appoint solicitors in Hong Kong to accept service in these terms:

“We attach a sealed copy of the writ issued by our clients naming you as one of the Defendants. Please could you kindly confirm no later than 9am in Hong Kong time on Wednesday 15 May 2013 whether you will appoint a law firm in Hong Kong to accept service of this writ on your behalf? If so, we look forward to hearing details of your acting law firm.

Should we not hear from you by 9am of 15 May 2013, we are instructed to proceed with the application to the High Court for service of the writ on you without further notice which we hope will be unnecessary.  In the interest of minimizing your exposure to our clients claim for legal costs, we kindly urge you to revert with details of your acting law firm in Hong Kong as soon as convenient.”

15.  On 14 May 2013, the plaintiff served the amended writ on the 1^st, 2^nd and 4^th defendants in Hong Kong.  On the same day, an employee in the Claims Division of the 3^rd defendant sent an email to the plaintiff’s solicitors, stating:

“As you are aware, we are one of the Co-insurers in this case and, as a matter of principle, we follow the decision of the leader in claims matters as well. Therefore, we would suggest that you check with M/S China Taiping Insurance for the identity and details of the lawyers whom they have appointed or would appoint to act on our behalf. We will join the leader in appointing the same lawyers since we are located overseas.”

16.  The plaintiff’s solicitors replied to the 3^rd defendant by email, stating:

“Since the writ is due to expire on 17 May 2013 which is a public holiday in HK, we are to either serve the writ or apply to renew it. It is our objectives to pursue our clients case in a most cost-effective manner. We shall contact Mr Franco Sze of the Leader reading in copy and hope to avoid any application to the Court.”

17.  The email was followed by a telephone conversation between the solicitors and Mr Franco Sze of the 1^st defendant, after which Mr Sze sent an email to the plaintiff’s solicitors (copied to Mr Patrick Yeung of the Hong Kong solicitors firm of Messrs Holman Fenwick Willan) stating:

“We as Claims Leaders are going to instruct Mr. Patrick Yeung of Holman Fenwick Willan to act on behalf of the Hull Underwriters concerned in respect of the above case.”

18.  There was then an email by the plaintiff’s solicitors to Mr Yeung on the same day stating:

“We shall serve the writ on Cathay Century by leaving it at your firm tomorrow. Should you not have instructions to accept service, we should be grateful if you could let us know by return.”

19.  It is unnecessary to go into the intervening correspondence until the next day, 15 May 2013, Wednesday, when at 10:21 am, Mr Yeung of Holman Fenwick Willan sent an email to the plaintiff’s solicitors as follows:

“For the other Defendants including Cathay Century Insurance Co., Ltd, we have explained to Thomas that we can only act for them if there is no conflict of interests and until we have receive the papers and take instruction or confirmation from Cathay, we cannot at this stage confirm whether there is a conflict issue or whether we can accept service for Cathay. We however expect that it will take time for us to consider the papers and take instruction from Cathay and it is likely that the instruction may not be obtained today and so we suggest that you should proceed on the basis that we do NOT have the authority to accept service on behalf of Cathay.”

20.  On 15 May 2013, the plaintiff filed an affirmation made by its solicitor, Ms Brenda Chark, to apply ex parte, for, inter alia, extension of the validity of the amended writ for 12 months and for leave to serve it out of the jurisdiction on the 3^rd defendant.

21.  On 14 June 2013, a notice to act was filed on behalf of the 3^rd defendant stating Messrs Holman Fenwick Willan had been appointed to act as its solicitors in the action. 

22.  Pursuant to a consent summons dated 26 June 2013, the application for extension of the validity of the amended writ was ordered to be dealt with at an inter partes hearing.

23.  The procedure adopted in this case is to deal with an ex parte application to extend the validity of a writ on a inter partes basis.  In Lee Fai (trading as Fai Kee Timber) v Chan Kui [1997] HKLRD 1154 at p 1157, Godfrey JA said:

“The judge rightly described the inter partes application made by the plaintiff by the summons of 11 March 1996 as ‘most unusual’. An application to extend the validity of a writ must of necessity be made ex parte; at that stage of the action, when the writ has been issued but not served, there is no defendant who can properly be made respondent to any inter partes application in the action. The result of an order made ex parte in favour of the plaintiff extending the validity of the writ is that the plaintiff will be free to serve the writ within the extended period; but the defendant is not thereby debarred from asserting that the validity of the writ should not have been extended. He may acknowledge service of the writ; give notice of his intention to defend the action; and apply to the court for the discharge of the order extending the validity of the writ: see Order 12 rule 7 and rule 8(1)(d). The issue whether an extension of the validity of the writ was justified or not will then be considered at an inter partes hearing at the conclusion of which that issue will be resolved in favour either of the plaintiff or the defendant.”

24.  Here it may have been for expedience that the parties have adopted by consent an inter partes procedure for the determination of the application for the extension of the validity of the writ.  The 3^rd Defendant is notionally taken to be a respondent for the purpose of that application.  But this fiction has in my view been taken too far in this case when the 3^rd defendant, as if it is actually a defendant properly served with the proceedings, applies for security for costs of defending the action up to trial.

25.  Having said that, this has no bearing on the substantive argument on the extension of the validity of the writ, to which I now turn.

26.  The power that the plaintiff seeks to invoke is that of the court under RHC Order 6 rule 8.  This rule provides as follows:

“(1) For the purpose of service, a writ (other than a concurrent writ) is valid in the first instance for twelve months beginning with the date of its issue and a concurrent writ is valid in the first instance for the period of validity of the original writ which is unexpired at the date of issue of the concurrent writ.

(2)     Where a writ has not been served on a defendant, the Court may by order extend the validity of the writ from time to time for such period, not exceeding twelve months at any one time, beginning with the day next following that on which it would otherwise expire, as may be specified in the order, if an application for extension is made to the Court before that day or such later day (if any) as the Court may allow.”

27.  The court has a discretionary power.  The principles that guide the exercise of the court’s discretion are well established.  In Chow Ching Man v Sun Wah Ornament Manufactory Limited [1996] 2 HKLR 338 at 341 and 344, Bokhary JA (as he then was) said:

“It is clear from the decisions of the House of Lords in Kleinwort Benson Ltd v. Barbrak Ltd [1987] AC 597, Waddon v. Whitecroft Scovell Ltd [1988] 1 WLR 309 and Baly v. Barrett [1988] NI 368 that (i) Order 6, rule 8(2) is to be construed so that the discretion to extend the validity of a writ does not arise unless the plaintiff first establishes matters amounting to good reason for extension or at least capable of so amounting; and that (ii) matters such as the balance of hardship only fall to be considered if the discretion to extend arises in the first place.

...

On the strength of the principle laid down by the House of Lords in the Kleinwort Benson case (supra) and of how their Lordships applied it in that and subsequent cases, the law seems to me to be this. Where the failure to serve a writ within its normal validity period is the result of a choice, then it is necessary to decide whether the choice was made for a good reason, meaning one which supports a deliberate failure to comply with the time limit involved. And no discretion to extend the writ would arise unless the choice was made for a reason which is at least capable of amounting to a good reason.”

28.  Mr Alder, appearing for the plaintiff, seems to suggest that the authorities that predate the changes to the Rules of the High Court brought about by the Civil Justice Reform (effective on 2 April 2009) are no longer to be treated as authoritative.  Relying on RHC Order 1A rule 2(2), which requires the court, “[i]n giving effect to the underlying objectives of these rules, [to] recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties”, he submits that the court should now weigh the “procedural hardship” to the parties and above all give effect to the substantive rights of the parties.  He says here the plaintiff is the one who has the substantive right, not the 3^rd defendant.  The plaintiff should not be made to lose its substantive right by reason of some procedural problem.

29.  I am unable to subscribe to this view.  The law concerning the validity of a writ and its extension is no mere formal procedural rule.  Underlying it is the policy of the law that promotes finality to litigation, the prevention of stale claims, and the protection of a defendant from having a claim hanging over his head indefinitely.  Inasmuch as a plaintiff with a reasonable cause of action has a right to bring and serve proceedings within prescribed periods, a (potential) defendant has a right not to be vexed by actions that are time-barred or writs that have expired, unless they are extended by the court in accordance with the law.  It was open for 6 years, after the vessel was damaged, in this case for the plaintiff to issue a writ and then open for another year for the plaintiff to serve it.  These are generous time limits.  The present application concerns whether the plaintiff should be granted an indulgence where it has not served the proceedings on the 3^rd defendant within these limits.  I am not persuaded that, post-Civil Justice Reform, the court should more readily grant applications for extension of the validity of writs.  In Hashtroodi v Hancock [2004] 1 WLR 3206, which was decided after the Civil Procedure Reform in England took effect in 1999, the English Court of Appeal said at para 20:

“… One of the important aims of the Woolf reforms was to introduce more discipline into the conduct of civil litigation. One of the ways of achieving this is to insist that time limits be adhered to unless there is good reason for a departure.”

30.  In fact, in Pacific Electric Wire & Cable Co Ltd v Hu Hung Chiu [2011] 1 HKLRD 1000, a case cited by Mr Alder which was decided after the Civil Justice Reform in Hong Kong, Reyes J applied the established principles drawn from well known cases such as Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597.

31.  Applying the principles to the facts of this case, I have no doubt that no good reason has been shown why the validity of the amended writ should be extended.  No explanation has been given at all why no steps were taken to serve the writ on the 3^rd defendant until 13 May 2013, four days before its expiry on 17 May 2013 which was a public holiday in Hong Kong.  There is no suggestion that nothing was done because of a mistake or inadvertence, or because of any unexpected mishap which created some kind of impediment.  The only reasonable inference in these circumstances is that the inaction was the result of a deliberate choice.  No reason, let alone good reason, has been given for that choice.  Putting the most benevolent interpretation on the correspondence and affidavit evidence before me, what happened might have been that the plaintiff was hoping to settle the dispute with the defendants and thought that if eventually the writ had to be served, there would be no difficulty in getting the 3^rd defendant to agree to accept service in Hong Kong which could be done in a short time.  That in my view does not provide any good reason for extending the validity of the writ.

32.  Mr Alder has put forward a large number of matters on the basis of which he says this is a proper case for exercising the discretion to extend the validity of the writ.  I have carefully considered them and I mean no disrespect by not mentioning them all now.  Among other things, he says “in marine insurance matters progress is often regrettably slow on all sides”.  I do not accept this statement as a matter of fact, nor do I accept it (even if made out) to be a reason justifying extension of the writ.  Then he says all the defendants are professional insurers and all of them knew about the claim.  I do not think professional insurers are entitled to less protection of the court.  The evidence is that after the 3^rd defendant was told in January 2007 that the plaintiff wished to re-open the claim, the next communication it received was the email/fax on 13 May 2013 asking it to accept service of the writ.

33.  Mr Alder further submits that if the plaintiff’s ex parte application for service out of the jurisdiction had been heard by the court on 15 or 16 May 2013, and if leave were granted, the writ could have been served, as quickly as air travel allowed, on the 3^rd defendant in Taiwan.  But no request was made to the court to deal with the ex parte application urgently.  In any event, as the case of Baker v Bowketts Cakes Ltd [1966] 1 WLR 861 shows, a plaintiff who leaves matters to the very last moment has only himself to blame.

34.  Mr Alder also prays in aid the dissenting judgment of Wynn LJ in Baker v Bowketts Cakes Ltd which referred to the test being whether the court is satisfied that reasonable efforts have been made to serve the writ on the defendant.  That was a reference to the old rule in RSC Order 8 rule 1.  In any event, I am not satisfied that what the plaintiff here did on the last few days before expiry of the writ can be characterised as reasonable efforts to serve the writ on the defendant which is a company resident in Taiwan.

35.  At the end of the day, I do not think that the matters raised by Mr Alder, whether taken singly or in combination, amount or are even capable of amounting to a good reason for extension.  The plaintiff’s application for extension of the validity of the writ as against the 3^rd defendant is therefore dismissed.

36.  I turn to the application for security for costs.  By a summons dated 2 July 2013, the defendants seek security for costs from the plaintiff under RHC Order 23.  The supporting affirmation states that the ground for the application is that the plaintiff is a foreign company resident outside the jurisdiction with no known assets in Hong Kong.

37.  The plaintiff does not dispute its obligation to provide security for costs.  Indeed, prior to the issue of the summons, it offered to provide security in the sum of $200,000 up to discovery.  Subsequently, it offered security in the sum of $210,000 up to the stage of the time-tabling questionnaire and mediation certificate.  The dispute before me is purely one on the quantum of security to be provided.

38.  The defendants estimate their entire costs of the action to be $2.6 million and by this application seek security for costs in the sum of $800,000 up to the stage of discovery.

39.  I take into account the nature of the action and the intended defence of crew negligence due to want of due diligence on the plaintiff’s part and settlement by the offer and acceptance of new cover.  I also note that the plaintiff has issued an application to re-amend the writ to add a claim against the 1^st defendant based on the first policy, which is likely to be contested on the ground of limitation.

40.  On the other hand, I note that the defendants had previously instructed shipping surveyors in relation to the plaintiff’s claim, who had examined the vessel and issued their report.  The defendants are not therefore starting from scratch, as it were, in these proceedings. 

41.  A problem with the application is that the supporting skeleton bill of costs is quite general.  Moreover, the rate of the handling partner is stated to be $4,800 which appears to be higher than the figure of $4,000 which is generally the rate allowed on party and party taxation for an experienced practitioner. 

42.  It should also be noted that the defendants have included in their estimated costs the fees and expenses relating to the plaintiff’s application to extend the validity of the writ as against the 3^rd defendant.  Miss Ho, who appears on behalf of the defendants, accepts that the 3^rd defendant not having been served is not properly a defendant, and clarifies that it does not pursue the application for security.  The problem is that there is no separate estimate of the costs relating to the application for renewal.

43.  This is no exact science and looking at the matter in the round, I think that an appropriate amount of security for the 1^st, 2^nd and 4^th defendants’ costs up to the stage of time-tabling questionnaire (including discovery) is $350,000.  The 1^st, 2^nd and 4^th defendants’ application for security for costs is therefore granted in that amount.  The 3^rd defendant’s application for security for costs is dismissed.  I shall now hear counsel on the costs of today’s applications and the form of order.