CREDIT SUISSE AG v. THE OWNER OF THE SHIP OR VESSEL “BRIGHTOIL GALAXY”

HCAJ 13/2019

[2020] HKCFI 613

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 13 OF 2019

Admiralty action in rem against: the ship or vessel “BRIGHTOIL GALAXY” (IMO No. 9602631)

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HCAJ 14/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 14 OF 2019

Admiralty action in rem against: the ship or vessel “BRIGHTOIL LUCKY” (IMO No. 9402469)

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HCAJ 15/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 15 OF 2019

Admiralty action in rem against: the ship or vessel “BRIGHTOIL LEGEND” (IMO No. 9398266)

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HCAJ 16/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 16 OF 2019

Admiralty action in rem against: the ship or vessel “BRIGHTOIL LEAGUE” (IMO No. 9402471)

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D E C I S I O N

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1.  These 4 actions involve the same parties[1]. They arose from the enforcement of the Plaintiff’s mortgages over 4 vessels. In each of the 4 actions, the Owner had filed a Notice of Motion on 16 March 2020 for the determination of priorities and payment out of the proceeds of sale of the vessel, which are now before the court.

2.  The same teams of lawyers represent the parties in each action, and the Notices of Motion have been dealt with collectively by them.  Despite the lack of a formal order for consolidation, it is convenient and consistent with the objectives of expeditious and cost-effective disposal to deal with the Notices of Motion collectively.  Hence, this Decision covers all 4 applications.

3.  At the invitation of the court, the parties had agreed to the paper disposal of these applications.

4.  The 4 actions are very similar in most respects, eg, Order for Judgment on liability and Order for Sale of the vessel were obtained on the same day in each case (26 July 2019), and all the vessels were sold on 21 October 2019.  The issues are identical in all the cases.  Due to the similarities, it would suffice for the present purpose for the court to deal with the details of the first case, HCAJ 13/2019.  The resolution of the issues would apply to all cases.  Where it is relevant, the particular feature of the individual case would be identified. 

HCAJ 13/2019

5.  A brief procedural history may start with the Order for Judgment on liability and Order for Sale of the Vessel, both obtained on 26 July 2019.  The Vessel was sold on 21 October 2019 and the proceeds were paid into court.  The time for lodgement of claims against the Vessel or the proceeds of sale thereof expired on 20 November 2019.  The Plaintiff’s Statement of Claims, Damages & Expenses was only produced on 14 February 2020.  There is only 1 remaining caveat against payment out, which was filed by the Intervener who has a marshalling claim as set out in its Statement of Claim filed on 19 March 2020.

6.  Somewhat out of the ordinary, the Notice of Motion was taken out on 16 March 2020 by the Owner who was (and is) concerned about the delay in the finalisation of this action which is detrimental to it.

7.  The delay is detrimental to the Owner because (i) it is liable to the Plaintiff for interest on penal rates and (ii) there is a balance to be returned to the Owner after satisfaction of all the claims.

8.  I am glad to say that the parties have managed to reach consensus on all the terms of the draft Order before the court^[2], save for the Plaintiff’s legal costs. 

9.  On priorities, it is agreed that the Chief Bailiff’s commission on sale and arrest expenses (in the sum of HK$5,866,947.15) be paid as first priority, and the Plaintiff to be paid as second priority on the basis that it holds a first priority mortgage.

10.  Agreement has also been reached between the Owner and the Intervener, which is reflected in the draft Order, in that (i) the priority of the Intervener’s claim be reserved for later determination; and (ii) the sum of US$24 million will be retained in court to cover the Intervener’s claim.

11.  After meeting the first and second priority payments and the retention of sum for the Intervener’s claim, the balance of the funds in court will be paid to the Owner. 

12.  In respect of the Plaintiff’s claims, the judgment sum (in excess of US$25 million); interest up to and including 1 April 2020; daily interest thereafter; and enforcement costs have all been agreed.

13.  The arguments concern the Plaintiff’s costs. The Owner accepts that the Plaintiff is entitled to costs on indemnity basis, which was reflected in the two Orders of the 26 July 2020.  

14.  However, the Owner says that the amount of costs claimed by the Plaintiff is unusually large, bearing in mind that similarly large sums of costs are being claimed in each of these actions.  The similarities of these cases suggest that the work done was largely repetitive. Therefore, the Owner wants to have the costs taxed if agreement cannot be reached on them.  On the other hand, the Owner agrees to the retention of a sum to cover, comfortably, this claim of the Plaintiff (including the costs of taxation) pending agreement or taxation. 

15.  There is difference between the parties on the amount of retention.  The Plaintiff demands US$515,000, whereas the Owner says that US$380,000 is more than sufficient.  There is also an argument over the terms of the retention clause to be included in the Order.

16.  Firstly, I believe that the Owner’s concern about the sizes of the legal expenses in all 4 cases is not unreasonable. Secondly, the Owner is right that indemnity costs are not without limits, eg, costs unreasonably incurred or of unreasonable amount are not allowed: Hong Kong Civil Procedure 2020, vol 1, [62/App/11].

17.  On quantum, the evidence adduced by the Plaintiff is that as at 1 April 2020 the total legal costs incurred for the period from November 2018 to February 2020 is US$266,175.18. 

18.  It is important to note that such costs embraced not only the costs of this action but covered “further legal fees incurred by the Plaintiff with a view to protect, exercise or enforce its rights under the Mortgage against the Vessel”.  Regrettably, the failure by the Plaintiff to separate the costs of this action and such “further legal fees” presents unnecessary complications in this exercise.  Indeed, neither the quantum of those fees, nor the purpose for which they were incurred is clear.

19.  To see how the sum of US$266,175.18 is built up to US$515,000, I need to go to the Plaintiff’s skeleton submissions.  The Plaintiff is asking for additional legal costs:

(i)  for March and April 2020 at US$40,000 per month;

(ii)  for resolving any outstanding issues relating to the action – US$35,000;

(iii)  relating to taxation and/or determination of costs (if required) – US$85,000.

20.  By allowing a 10% cushion on these costs, the Plaintiff seeks the retention of US$515,000 in court.  However, by adding up the 3 figures with a 10% enlargement, one would only arrive at US$220,000.  I am unable to see how adding that total to US$266,175.18 would produce US$515,000. 

21.  There is no dispute that the Plaintiff is entitled to protection on a reasonably arguable best case basis: Simpson Marine Ltd v The Owners of the Ship or Vessel M/V Maggie [2020] HKCFI 207, §§13-16.

22.  However, reasonably arguable best case cannot be just any figure put up by the Plaintiff.  No particulars have been advanced in support of these large figures.  On the material before the court, apart from producing its evidence for this application on 1 April 2020, and possibly negotiating with the Owner’s solicitors to resolve this application, nothing else seems to have been done in March 2020.  I accept that some more costs have been incurred in dealing with this application, eg, 3 sets of submissions have been lodged by the Plaintiff.  Those aside, it is difficult to see that the conclusion of these proceedings (resolution of costs is provided for separately under para 19(iii) above) will require substantial additional work. 

23.  As for item (ii), I am at a lost to see what outstanding issue there is.  This is a bare assertion which deserves little weight.  The Owner has proposed an allowance of US$50,000 for taxation.  No rhyme or reason has been provided by the Plaintiff as to why that is not sufficient even on a reasonably arguable best case basis.

24.  The issue of quantum here is very much an exercise of judgment of the court, doing its best on the available material.  I do not believe that the sum of US$380,000 proposed by the Owner is insufficient to meet the Plaintiff’s claim on a reasonably arguable best case basis, and I shall order accordingly. 

25.  There are 2 issues arising from the disagreement over the terms of the retention clause.  Firstly, the scope of the security. The Plaintiff says that the retention sum is not only for the costs of this action but also “further legal costs and disbursements incurred by the Plaintiff with a view to protect, exercise or enforce its rights under the Plaintiff’s mortgage against the Vessel”. 

26.  There is no demur from the Owner that such “further legal costs and disbursements” are based on contractual provisions. In the premises, I accede to the Plaintiff’s request on the scope of the security. 

27.  Finally, the parties disagree as to whether the Plaintiff’s costs of this action should be subject to taxation if not agreed. The Plaintiff wants to reserve its position “whether the determination of its costs should be subject to taxation, given that the loan agreements provide for recovery on a full (contractual) indemnity basis and/or in accordance with the Plaintiff’s certification of amounts”. 

28.  Firstly, both the 26 July 2019 Orders provided for the Plaintiff’s costs on an indemnity basis[3]. The Order for Sale explicitly provided for the taxation of the Plaintiff’s costs.  Some of the costs incurred by Plaintiff must fall within these Orders. I am unable to see why the Plaintiff is entitled to blow hot and cold, and now say that its costs should not be taxed. 

29.  Secondly, whilst the court would have regard to the contractual entitlement of the costs receiver, costs are always subject to the supervisory jurisdiction of the court.  I do not believe that the two authorities relied upon by the Plaintiff (Bank of China (Hong Kong) Ltd v Tower Property Ltd & Ors, unrep, HCMP 3254/2002, 29 November 2002 and Ho Ming Pui Andy v Midland Realty (Strategic) Ltd [2017] 5 HKC 469) suggested otherwise. 

30.  Thirdly, there is no up-to-date certificate which can be relied upon by the Plaintiff on the costs incurred.  I agree with the Owner that these matters should be finalised now where possible. 

31.  However, a distinction should be drawn between the costs of this action and the “further legal costs and disbursements”.  In respect of the former, for the reasons stated above, they should be awarded on an indemnity basis to be taxed if not agreed. 

32.  As regards the latter, they seem to have been overlooked by the Owner as a distinct (or distinguishable) claim.  In any case, without knowing what those costs and disbursements are and why they were incurred, it is inappropriate to include them for taxation in the Order.

33.  In the premises, para 2(iii) of the draft Order is reformulated as follows :

“US$380,000 be retained in Court as security for (a) the Plaintiff’s costs of the Action herein on an indemnity basis, to be taxed if not agreed; and (b) further legal costs and disbursements incurred by the Plaintiff with a view to protect, exercise or enforce its rights under the Plaintiff’s mortgage against the Vessel;”

HCAJ 14/2019

34.  The two caveats in this case had been withdrawn. 

35.  It is common ground that the sale proceeds are insufficient to cover the Plaintiff’s claims after having paid the Chief Bailiff’s commission and expenses.  There will therefore be no payment to the Owner.

36.  However, the Owner disputes the Plaintiff’s suggestion that having no expectation of payment means that there is no prejudice to it as regards the quantum of the security to be retained.  I see no reason to disagree with the Owner that excessive security would reduce the amount to be applied to the principal and therefore increases the interest that the Plaintiff will charge the Owner. 

37.  The Plaintiff says that the legal costs incurred for the period of November 2018 to February 2020 amount to US$255,056.45, which included “further legal costs and disbursements”. 

38.  I agree with the Owner that the retention sum should be US$370,000.  Para 2(ii) of the draft Order should be reformulated as stated in para 33 above with the substitution of the retention sum. 

HCAJ 15/2019

39.  Two caveats had been filed in this case.  One had been withdrawn and the remaining one was filed by Fuji Trading Co Ltd. Fuji had taken out an action against the Owner in respect of its marine supply claim, HCAJ 78/2019.  With the agreement of the parties, a judgment in the sum of US$23,500 inclusive of interest and costs had been entered in favour of Fuji in that case.

40.  There is no dispute that after the payment of the Chief Bailiff’s commission and expenses and the Plaintiff’s agreed claims, and subject to the retention sum for the Plaintiff’s costs (including “further costs and disbursements”), Fuji’s judgment will be paid from the proceeds.  The remaining balance will then be released to the Owner.

41.  As for the retention sum, I agree with the Owner’s proposal of US$350,000.

HCAJ 16/2019

42.  Like HCAJ 14/2019, no payment is expected to the Owner. 

43.  For the retention sum, I also agree with the Owner’s proposal of US$370,000.

Disposition

44.  Save for the amendments of the draft Orders as indicated above, I make the Orders in terms of the same.