NKY (HONG KONG) LTD v. WILFORD LTD AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

MISCELLANEOUS PROCEEDING

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JUDGMENT

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Liu JA:

1. On 30 April 1997, Stone J awarded costs against the 2nd claimant in the applicant's interpleader. As between the 1st and the 2nd claimants, the 2nd claimant had agreed to bear all the costs, if any, which the claimants would have to pay. The judge refused the 2nd claimant leave to appeal against his order for costs. Under Order 59 rule 14(3) Rules of Supreme Court, an application was made ex parte to this Court in Chambers on 7 May 1997 for leave to appeal. Godfrey, JA sitting as a single judge refused the application. The Justice of Appeal made the following order:

"The bailee of the goods the subject of the interpleader summons here was clearly entitled to take out that summons when faced with conflicting instructions from the claimants as to how it should deal with the goods; and it was clearly entitled to prosecute its summons in order to obtain the order of the Court necessary for its own protection. The order of the judge giving the bailee of the goods its costs in these circumstances was plainly made within a proper exercise of his discretion as to costs. The proposed appeal has no prospect of success. I REFUSE this application."

2. An application for leave to appeal is now being renewed before us in open court under Order 59 rule 14(2A) RSC.

3. On 11 September 1996, the 1st claimant delivered into the applicant's safe custody a container of general cargo for shipment to Chile. The nature of that delivery could be gleaned from the statements in two documents: first, a fax despatched on 12 September 1996 by the 1st claimant to the applicant, in which the applicant was reminded that the container goods shipped against their Mate's Receipt S/O No. HKN 47163 were goods of the 1st claimant's. As the 1st claimant's goods, they were delivered to the applicant by the 1st claimant against the applicant's Mate's Receipt. The Mate's Receipt was held by the 1st claimant. The applicant was requested not to ship the container to its destination, IQUIQUE, Chile. The 1st claimant further notified the applicant in these terms:

"......we will not give [the 2nd claimant] mate's receipt...... We will collect back the container and we will pay the charge ....... If you don't stop loading the container, we will report to the lawyer who will report (sic) the letter to you to stop the loading. We will claim our loss in (sic) your side in the matter if you assist [the 2nd claimant] to continue to ship the goods."

4. The fax was followed by a letter of the 1st claimant's solicitors the next day, 13 September 1996. On behalf of the 1st claimant, their solicitors reiterated the fact that the container of goods was delivered by them to the applicant on 11 September 1996. The ending paragraph of the letter read:

"As our client is the legal owner of the goods holding full set of Mate (sic) Receipt, we are instructed that if you do not deliver the above goods to our client within (3) days hereof, we shall institute legal proceeding against you without further action (sic)"

5. The applicant, through their solicitors, replied that a Mate's Receipt "was not a document of title to the goods shipped". However, without the Mate's Receipt possession could not be obtained at destination unless other forms of security were accepted.

6. I should now set the scene against which costs were awarded by Stone, J. The 1st claimant agreed to sell the 2nd claimant the goods vanned in the container under a contract dated 2 July 1996. Pursuant to the provisions of that contract, the container with its cargo, subject-matter of the contract, was handed over to the safe custody of the applicant. The 2nd claimant refused to pay the 1st claimant, the seller, and the 1st claimant sent the above fax and follow-up letter to the applicant. The 1st claimant then claimed to be owner of the goods and threatened legal proceedings if the applicant should decline to re-deliver to them the container goods. Suffice it to say that the 2nd claimant also claimed the container goods in their capacity of owner and shipper. They warned the applicant "not to release the [container goods] to anybody including [the 1st claimant] without [their] instructions in writing". The container in question had since 12 September 1996 been stored at the Fat Kee yard, running up storage and other charges. The applicant also claimed more substantial detention charges.

7. On 27 September 1996, the 1st claimant filed a writ against the 2nd claimant for payment of the price of the container goods. On 10 October 1996, the applicant's solicitors were duly notified of its issuance. The applicant had, through their solicitors, suggested that the claimants should make an application to court for "a declaration as to ownership," in which they would interplead. But by their writ, the 1st claimant abandoned any claim to ownership. With the question of ownership resolved, what remained was only the title to and possession of the goods, to which I shall return. At one time, it was suggested that the 1st claimant would seek by summons an inspection of the container goods and thereafter proceed with an order 14 application for summary judgment against the 2nd claimant. No further action was taken. The claimants were unable to extricate themselves from the impasse. Mr Fortune, solicitor in charge of these proceedings for the applicant, regarded the situation as "a stalemate". Finally, on 11 April 1997, the applicant caused to be issued their interpleader summons which was in the event disposed of by an agreement to pass the container goods to the 2nd claimant who also agreed to shoulder whatever costs awarded in the interpleader against the claimants. In the end, the applicant was paid their storage charges, being about 30% of their claim in the interpleader summons but abandoned the remaining 70% of their claim in detention charges. Stone, J awarded costs against the 2nd claimant and refused them leave to appeal. The 2nd claimant were equally unsuccessful as regards leave before Godfrey, JA, hence this renewed application to us in open court.

8. By April 1997, the container had been stored at the Fat Kee yard for seven months. Despite both claimants' offers to meet the charges, no effort was made to effect payment to the applicant. Payment had constantly been demanded from them. The applicant's interpleader summons was taken out after some 6 1/2 months had elapsed since the issuance of the 1st claimant's writ against the 2nd claimant for the price of the container goods.

9. On 14 April 1997, through their solicitors, the 2nd claimant complained that the interpleader summons was misconceived in the absence of any threatened or instituted proceedings against the applicant. However, the real test for an order 17 interpleader summons is whether the applicant would expect to be sued in respect of the container goods. The 1st claimant demanded re-delivery and had never withdrawn their threat of legal proceedings. The 2nd claimant claimed to be the shipper and owner and warned the applicant not to release the goods without their instructions. At least by the time of the writ of 27 September 1996, it was fairly obvious that the 1st claimant no longer claimed ownership, but nevertheless they had not withdrawn their claim to the container goods nor their threat to sue. Further, the applicant were never told that the 1st claimant had parted with the Mate's Receipt or otherwise relinquished their right to possession of these goods.

10. The inter-relationship between the 1st claimant and the applicant did not rest on the basis of ownership vis-a-visa a buyer and a seller. The goods were delivered by the 1st claimant into the safe custody of the applicant. The 1st claimant parted with possession of the goods in return for the Mate's Receipt. In legal terms, a bailment was created, in which the 1st claimant was bailor and the applicant bailee. As between them, the applicant as bailee could not deny the title of the 1st claimant as bailor to the goods. See Wilson v. Anderton (1830) 1 B. & Ad. 450 at pp.456 and 457. The applicant as bailee must protect the bailor's title. See Ranson v. Platt [1911] 2 KB 291 at p. 300. The bailor evidently retained their right to possession on the Mate's Receipt. The handing over of the container goods to anyone but the bailor would be at the applicant's own risk. As to the 2nd claimant, in their claimed capacity of an owner they had the right to sue the applicant for detention or conversion, as the case might be.

11. The 1st claimant's asserted right as bailor and the 2nd claimant's asserted right as owner were decidedly adverse claims to the goods. They both laid claim to the same title and possession, albeit in their respective capacities of bailor and owner. The law is reasonably clear: with the persistence of the 2nd claimant who had since the writ been the acknowledged owner of the container goods, in their warning against release without their instructions, the applicant as bailee should interplead lest they would make themselves liable as a party to a possible claim for wrongful detention. These claimants gave the holder of the goods conflicting instructions. The passage in Halsbury's Laws of England (Reissue) 4th edition Vol. 2, para. 1883 at p. 895 is worthy of note:

"A bailee who forbears to interplead makes himself a party to a possibly wrongful detention by retaining the chattel for the bailor ..... Conversely, if he allows the third person to obtain the chattel, he may be liable to the bailor."

12. The common interest between the claimants was the title to and possession of the container goods in the custody of the applicant. The same claim to this common interest was mounted by both claimants, albeit in different capacities. The applicant was seeking in the interpleader a determination as to which of the competing claims to title and possession they should entertain. The applicant could only accommodate one of them, the success of which depended on one another. See Wright v. Freeman, (1879) 48 L.J.C.P. 276; Greatorex v. Shackle, [1895] 2 Q.B. 249. The same subject-matter of the claimants' demands would sustain the interpleader summons.

13. There was ample justification for the applicant to expect to be sued. If the applicant should re-deliver the container goods to the 1st claimant as bailor, they would lay themselves wide open to a claim in conversion. If they remained inactive, they would continue to expose themselves to a possible wrongful detention claim by the 2nd claimant. The applicant as bailee could not question the title of their bailor, the 1st claimant who had not withdrawn their direct threat of legal proceedings. The applicant as bailee must yield to the demand of the 1st claimant as their bailor. In the circumstances, the applicant had justifiable fear of threat of legal actions by both claimants unless an amicable settlement could be reached. Many months had elapsed after the issuance of the said writ by the 1st claimant against the 2nd claimant. To the applicant, there must have appeared to be little hope in sight of reaching any understanding. Despite offers to pay from both the 1st and the 2nd claimants, unpaid charges were accumulating. The applicant's pleas for an early resolution and their demands for payment of charges were totally ignored. The applicant were virtually driven to the view that the express or implicit threats of action by the bailor and the owner had in no way subsided but instead heightened. According to Mr Fortune, solicitor in charge of these proceedings for the applicant, both claimants were "still holding [the applicant] to [their] instructions". Even after the issuance of the interpleader summons, Mr Fortune sensibly attempted but failed to persuade the claimants "to allow [the applicant] to arrange for the removal of the cargo from their container to another container ...... [to] ensure that none of the three parties [then] involved in the interpleader proceedings [would] have to face any further unnecessary legal charges". This proposal was only met by further erudite contentions. There was clearly a need, in the circumstances, to interplead. The decision taken to proceed with the interpleader summons was well supported, and the application for interpleader relief was well founded.

14. Subsequent to the commencement of the interpleader proceedings, they were, in effect, brought to an end by a settlement in the storage charges which represented less than 30% of the applicant's claim and the applicant's abandonment of the detention charges which were the remaining 70% in claim. The settlement had in fact been urged upon by the judge. All this was taken into account by the judge in the exercise of his discretion in awarding costs. No case is shown that the judge was plainly wrong. There is no prospect of success in the intended appeal. I would refuse leave.

Nazareth V-P:

15. The factual background to this application has been set out in the judgment of Liu JA. It is therefore not necessary for me to refer to other than the following matters. The container of goods was delivered by the 1st claimant ("Wilfond") into the custody of the applicant ("NYK") on 11th September 1996 for shipment to Chile on behalf of the 2nd claimant ("Metro"). On the next day, 12th September 1996, NYK was informed by Wilfond that it was in dispute with Metro in respect of payment for the goods. Wilfond also told NYK to refrain from shipping the container and at the same time asserted ownership of the goods. On the same day, 12th September 1996 Metro informed NYK that it, and not Wilfond was the owner of the goods, and that NYK should hold the goods in storage until further notice at the expense of Metro.

16. On 13th September 1996 Wilfond's solicitor demanded delivery up of the goods to Wilfond. The container itself, it should be mentioned, belonged to NYK, and the disputes between the claimants apparently related to whether or not the goods were defective. As I have said, it is not necessary to detail all the exchanges between the parties, including the warnings by NYK's solicitors to the two complainants that they would issue an interpleader summons.

17. On 27th September 1996 Wilfond issued a writ against Metro alleging breach of contract and claiming the price of the goods; it did not assert ownership of the goods or claim their return. On 10th October 1996 Wilfond's solicitors informed NYK's solicitors that the writ had been issued and provided them with a copy of the writ. On 14th March 1997 NYK's solicitors notified the claimants' solicitors that unless NYK received payment of outstanding storage charges by 20th march 1997 they would take out an interpleader summons. On 18th March 1997 Wilfond's solicitors wrote to NYK's solicitors informing them that Wilfond believed it would shortly obtain judgment against Metro in pursuance of the writ issued on 27th September 1996; they asked NYK to refrain from issuing an interpleader summons. By this time therefore, arguably, to say no more, such dispute as there had been between the claimants as to title to the goods had been settled. On the same day, 18th March 1997 NYK's solicitors wrote to Metro's solicitors enclosing a copy of Wilfond's letter to them of the same date, notifying Metro's solicitors that unless the matter was resolved within the following three days, NYK would issue an interpleader summons. Wilfond's solicitors were similarly notified.

18. About three weeks later, on 11th April 1997, NYK issued the interpleader summons in which it claimed monies in the sum of approximately HK$71,106 of which HK$21,100 related to outstanding storage charges and the balance being on account of detention charges in respect of the container.

19. The interpleader summons came before Stone J on 28th April 1997. Stone J invited the two claimants' legal representatives to state their respective positions. They did so. They took the point that the interpleader application was misconceived in that there was no dispute as to the ownership of the goods nor any reasonable expectation of a dispute as to those goods. Metro undertook to pay the storage charges until 13th July 1997, by which time it expected the goods to be shipped to Chile. The outstanding issue they contended was NYK's claim for detention charges. NYK were not about to be sued.

20. Stone J then invited NYK's counsel to state his position, but, Mr Gordon Fisher, who appears for Metro before us, complains that without dealing with the claimants' application for the interpleader application to be dismissed in limine, he permitted NYK's counsel to open his case. The latter, he says, was still doing so when the one hour available for that hearing ran out and the matter was adjourned to 30th April 1997.

21. During the two day adjournment, from 28th to 30th April 1997, the claimants settled the action commenced by Wilfond on 27th September. Metro's solicitors wrote to NYK's solicitors informing them of the settlement, that Metro would also settle the outstanding storage charges in respect of the goods (HK$21,100) and pre-pay the same until 13th July 1997 (Hk$30,000), when it expected the container to be shipped to Chile; the solicitors also stated that Metro would not pay the detention charges (HK$50,006) claimed by NYK in respect of the container.

22. Prior to commencement of the adjourned hearing on 30th April 1997, Metro's solicitors tendered a cheque for HK$30,000 to NYK's solicitors for storage charges up to 13th July. NYK's solicitors declined to accept the tender restricted to 13th July 1997. Metro's solicitors subsequently agreed the goods would be removed from storage by Metro on or before 5th May 1997 and corresponding storage charges paid.

23. At the commencement of the adjourned hearing, Stone J was informed of the settlement between the claimants inter se, and the settlement between Metro and NYK as to the storage charges. On the invitation of Stone J, NYK then abandoned its claim for detention charges. That disposed of the interpleader application and Stone J awarded costs in favour of NYK and in the course of so doing, indicated that he considered the applicant's interpleader application to be "well founded".

24. Before us, in support of Metro's application for leave to appeal to this Court, Mr Fisher relies upon two broad points.

25. The first relates to the nature of relief by way of interpleader. This, he says, is available to NYK in the present context only if in respect of the goods it is or expects to be sued by two or more persons making adverse claims to those goods.

26. Mr Fisher lays particular emphasis upon the words "expects to be sued", which come from O17 r1 of the Rules of the Supreme Court. In respect of those words para. 17/1/4 of Vol. I of the Supreme Court Practice 1997 says this at pp. 279,280:

"There must be a real foundation for the expectation (Harrison v Payne (1836) 2 Hodges 107; Diplock v Hammond (1854) 23 LJCh 550; Watson v Park Royal Caterers [1961] 1 WLR 727)."

27. In Watson v Park Royal (Caterers) Ltd at p. 734 Edmund Davies J held that:

"There is ample authority for the proposition that the discretionary relief of interpleader will not be granted unless there appears to be some real foundation for the expectation of a rival claim..."

In Diplock v Hammond, Sir John Stuart VC held that:

"The principle of interpleader is, that the holder of a fund in which he has no interest, but which is claimed by two parties, shall not be harassed by claims made upon him by the adverse parties, who threaten to sue him alone, instead of proceeding to litigate their rights between themselves."

He then found the interpleader suit there flawed because the stakeholder had a small interest in the fund. He continued:

"But there is another equally fatal objection. So far from intending to harass the guardians by proceeding against them, instead of litigating his right with the other claimants, it appears that, [applicant's] solicitor told the guardians that he would no longer be trifled with, and that unless his demands were complied with immediately he would file a bill in the Court of Chancery; ... But although the guardians knew that the various claimants were about to litigate the question between themselves, they filed this bill in the very same day on which the bill was filed by one of the claimants against all parties."

Such, Mr Fisher contends, was the situation in this case.

28. And that brings me to Mr Fisher's second broad ground. He submits that by the 10th October 1996 (when NYK's solicitors were informed of Wilfond's action commenced on 27th September), a fortiori by 11th April when NYK took out their interpleader summons, they could not have had any reasonable expectation of being sued in respect of the goods by either of the two claimants. That, of course, is a matter that will have to be addressed upon a hearing of Metro's appeal to this Court if leave is granted. It is only whether Metro should have leave to appeal that this Court is now concerned with. As to the latter, I have no difficulty in concluding upon the facts that I have already recounted without the details that Metro relies upon, that Metro does have a reasonable prospect of success, to say no more. While the application before us is an application de novo and must be dealt with as such, it would be foolish not to have regard to the reasons of the two judges who have already refused leave. As to Stone J the version deposed to on Metro's behalf suggests that the central question before us of settlement by the material time, was not addressed by him. It also seems not to have been raised before Godfrey JA and certainly not in the powerful way it was before us. The facts will have to be carefully addressed to determine it and the result could have a crucial effect upon the proper exercise of the discretion to award costs.

29. There remains yet another aspect of the matter that has to be touched upon. The appeal for which leave is sought, is against the costs order made by the judge. That order was within the discretion of the judge. To succeed in challenging the actual exercise of discretion, Metro would have to discharge a very heavy burden (see e.g. Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 and the other authorities cited in para. 59/1/59 of Vol. 1 of the Supreme Court Practice at pp. 947, 948). However, it could be argued here that the exercise of the discretion was vitiated by the judge misdirecting or failing to direct himself on the law as to application for interpleader relief, and in fact in failing to address the possibility of prior settlement of the dispute as to entitlement to the goods between the two claimants, and finally that even NYK's own claims (which were not claims to the goods) succeeded only to the extent of the storage claim and not the detention claim, the former amounting to just under 30% of the total.

30. One cannot help feeling considerable sympathy for innocent bailees in the general position of NYK here, who may be harassed and vexed by claimants to property in their possession. However that may be, the nature of relief by way of interpleader is clear. That, of course, is not the end of the story, for the courts do have a discretion in the matter of costs, and are entitled to have regard to the overall conduct of the parties in exercising that discretion. Moreover, given the disparity of the costs being incurred to those sought to be appealed (not to mention the use of court time and consequent delay to other litigants), the parties would be well advised to consider settling the matter. Such considerations, however, do not here provide reasons why Metro should not have leave to appeal, given its reasonable prospects of success upon its appeal. I would therefore grant leave to appeal.

31. Bokhary JA has authorised me to say that he agrees with my foregoing views. Leave to appeal is therefore granted by a majority.