HAI KUO SHIPPING 1201 LTD v. EVERWIN SHIPPING (HONG KONG) CO LTD AND OTHERS

CACV 376/2018

[2019] HKCA 133

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 376 OF 2018

(ON APPEAL FROM HCAJ NO. 79 OF 2014)

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D E C I S I O N

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Hon Cheung JA (giving the decision of the Court) :

I. Background

1.1   The plaintiff was the owner of a bulk carrier vessel.  The 1^st defendant owed obligations to the plaintiff under a Bareboat Charter Party agreement (‘Charterparty’).  The 2^nd defendant owed obligations to the plaintiff under a Memorandum of Agreement.  The 3^rd defendant (‘the appellant’) owed obligations to the plaintiff under a personal guarantee for obligations of the 1^st defendant under the Charterparty. All three documents were dated 25 May 2012 (‘three agreements’).

1.2   As a result of the defendants’ non-payment under the three agreements, various termination clauses therein were triggered.

1.3   The 3^rd defendant was the sole director of the 1^st defendant and a director of the 2^nd defendant.  Under his personal guarantee with the plaintiff, the 3^rd defendant was liable for any amount due and owing to the plaintiff under the Charterparty.

1.4   Notice of trial was given to all parties.  The trial took place before A Chan J.  The 2^nd and 3^rd defendants were absent from trial.  One Mr Zhu purported to represent the 1^st defendant at trial, but no leave was sought for his representation of the 1^st defendant. There was no proper representation of the 1^st defendant.  The trial continued in the absence of any defendant representation.

1.5   A Chan J held that the plaintiff’s case was straightforward and was based on contract.  The Judge gave judgment in favour of the plaintiff after some clarifications were sought in respect of the 2^nd defendant’s obligations under the Memorandum of Agreement.

1.6   Dissatisfied with the judgment, the 3^rd defendant lodged a notice of appeal against the judgment in addition to making an application for a stay of execution of the judgment before the Judge.  The Judge treated the 3^rd defendant’s application as an application to set aside the judgment pursuant to the Rules of the High Court, Order 35, rule 2.

1.7   The Judge held that the 3^rd defendant’s explanation of his absence from trial due to back problem was his bare assertion with no evidence to support.  He held that such explanation was incredible.

1.8   The Judge stated that the 3^rd defendant admitted in Court that the plaintiff’s case against him was based in contract, and that the contracts were valid.  The Judge further held that he cannot see any merit in the Court going behind the contractual documents and somehow relieve the 3^rd defendant from his liabilities under the guarantee in question.

1.9   The plaintiff now applies for security for costs of the appeal against the 3^rd defendant in the sum of HK$1,479,862.25.   This included $359,283 for the present application.  Of this sum, $135,000 represents the costs of two counsel (both junior counsel).  The plaintiff further seeks costs of the application to be summarily assessed in the sum of HK$304,515.23.  We will now deal with this application on paper.

II.   Principles for security for costs

2.1   The Court of Appeal may in special circumstances order an appellant to lodge security for costs of his appeal.  One example of the exceptional circumstances is that the respondent to the appeal may encounter difficulties or expenses in enforcing a costs order against the appellant.  The reason why security is to be ordered in such a situation is to ensure that the successful party would not be prejudiced in terms of costs despite being successful.

2.2   But even if this factor is satisfied, the Court still has a discretion not to order security where the appellant is able to show countervailing factors such as a high prospect of success in the appeal.

III.     Difficulty in enforcement

3.1   The plaintiff relies on the following to show that there is difficulty in enforcing costs against the 3^rd defendant :

1) The plaintiff cannot identify any current shareholdings or recorded property ownership of the 3^rd defendant in Hong Kong;

2) The 3^rd defendant already has an outstanding costs order in favour of the plaintiff in the amount of HK$500,000;

3) The 3^rd defendant admitted that he does not permanently reside in Hong Kong.

3.2   We are satisfied that the plaintiff would have difficulties in enforcing costs order against the 3^rd defendant in the event it is successful in the appeal.

IV.   Merits of the appeal

4.1   The 3^rd defendant states in his notice of appeal the following grounds for appeal :

1) 本案欠款總額的構成並未查明，其中涉案船舶交易所造成的差價本案被告並不認可。(Transliteration: The Court did not examine the reason of why there is an existence of a total debt.  The defendants do not accept bearing the difference in value in the vessel transaction);

2) 本案涉案船舶被本案原告收回時，尚有大量屬於本案第一被告所有的在船物資，該部份物資的價值在庭審中未予查明，且也未予扣除。(Transliteration: The vessel that has been returned to the plaintiff contains assets belonging to the defendants. The assets’ value has not been assessed by the Court, or their values have not been set off);

3) 本案並非是簡單的船舶租賃合同，在本案涉案船舶的建造過程中，本案第一及第二被告有大量的資金投入，這部份的投入庭審中也未予查明。(Transliteration: During the process of the vessel’s construction, the defendants have invested a lot of money in its making.  The Court has not assessed this);

4) 假如本案被認定為是一個簡單的船舶租賃合同，那麼本案被告只有償還未支付租金的義務，而不應承擔船舶交易的差價損失。(Transliteration: If this case is only a simple contractual matter, then strictly speaking, the defendants are only liable for rental monies under the Charterparty. The defendants should not bear difference in transactional loss);

5) 本案第三被告的個人擔保是在無法通讀擔保文件全文且對擔保文件條款無法進行修改的情況下簽署的，並不是本案第三被告的真實意思表示。(Transliteration: The 3^rd defendant did not read through the guarantee/indemnity agreement, nor was he able to negotiate or amend its terms before the signing of the same.  The signing does not reflect the true intentions of the 3^rd defendant).

4.2   The plaintiff’s response to the grounds of appeal is :

1) Ground 1, the defendants have not adduced any evidence on the re‑sale value of the vessel;

2) Grounds 2 and 3, they have been struck out by Ng J on 2 December 2015 and there is no appeal against that decision;

3) Ground 4 is contrary to the terms of the relevant agreements; and

4) Ground 5 has not been pleaded, even though the defence was settled by two counsel and defendants were legally represented from 6 June 2014 to around mid‑2018.

V.    Our view

5.1   The starting point is that the 3^rd defendant had chosen not to attend trial despite being aware of the hearing.  He provided no credible evidence to support his explanation for being absent from the trial.  Further, in our view the 3^rd defendant has not shown that he has such a high prospect of success of his appeal that security for costs should not be ordered.

5.2   The sum of HK$1,479,862.25 sought by the plaintiff is highly excessive. We do not see why this case should involve the engagement of one partner, one associate, one trainee and two counsel.  Further, the costs incurred in engaging a costs lawyer for preparing the schedule of costs for summary assessment (HK$7,977.48) are generally not granted, as a broad-brush approach is taken by the Court in summary assessment, see Practice Direction 14.3, paragraph 13.

5.3   According to the plaintiff’s own assessment, the case is not difficult. We are of the view that the appropriate amount which includes the costs of the present application is $500,000.

5.4   Accordingly, we will make the following orders :

1) The 3^rd defendant is to pay into Court HK$500,000 as security for the costs of his appeal within 42 days;

2) Pending payment into Court, the appeal is stayed;

3) In default of payment, the appeal will be dismissed without further order together with the costs of the appeal; and

4) The plaintiff to have the costs of the application for security which are summarily assessed at HK$180,000.

5.5   We would like to remind practitioners once again of the requirement to Practice Direction 14.3, paragraph 10 that a receiving party cannot recover a sum in excess of his liability to his own solicitors applies equally to gross sum assessment and the solicitor for the party seeking costs shall certify on the statement of costs as follows :

‘ Icertifythattheamountclaimedinthisstatementof costs does not exceed [the plaintiff’s/defendant’s] liability for costs to my firm in respect of this [summons/hearing/action, etc].’

5.6   Regrettably, the certification is missing in this case and the plaintiff’s solicitors are required to provide the certificate to the Court within seven days.