CARGO CHANNEL SERVICES LTD (IN LIQUIDATION) v. HANJIN SHIPPING CO LTD

HCA 1919/2016
[2018] HKCFI 1879

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1919 OF 2016

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DECISION

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Introduction

1.  This is an application for wasted costs order by the plaintiff against the defendant’s former solicitors under order 62 rule 8 of the Rules of High Court (Cap.4A) (“RHC”).  

Background

2.  On 23 July 2016, the plaintiff commenced the present proceedings against the defendant for freight and service charges in the sum of about $1 million together with interest and costs.

3.  The defendant contested the proceedings.

4.  On 2 September 2016, the defendant issued an application against the plaintiff for security of costs. I dealt with the application substantively on 13 January 2017 and allowed it. The plaintiff was in liquidation. Its’ financial position was not known to the court. There was no evidence that the plaintiff would be in a position to pay the defendant’s costs if the latter won the case at the end. In the exercise of discretion of the court, the costs position of the defendant should be protected. The plaintiff was ordered to pay security of $280,000 up to the stage of setting down, with costs to the defendant summarily assessed at $67,200.

5.  In the meantime, on 10 November 2016, the defendant also filed and served its Defence. It said, among others, that the plaintiff had sued the wrong defendant. It was “Hanjin China” who entered into the connecting carrier agreement dated 1 January 2014 with the plaintiff. Under the agreement, the dispute should be resolved by PRC law and in the China Maritime Court. In any event, it was the plaintiff who had failed to pay the terminals. To mitigate for its loss, Hanjin China paid various terminals the total sums of CNY 688,101 to get cargos released.

6.  There were quite some arguments between the parties regarding the Defence.  

7.  The plaintiff said that the Defence filed on 10 November 2016 was not supported by a verifying statement of truth.  Later, upon application of the plaintiff, on 25 November 2016, Master S. Lo expunged such Defence, with leave to re‑file and re‑serve another one.

8.  The ‘new’ Defence was re‑filed and re‑served on 2 December 2016. It was supported by a verifying statement of truth, signed by Ms. B Chark, the principle of the defendant’s solicitors, Messrs. Brenda Chark & Co. (“BCC”). The plaintiff took the view that it was still defective.  

9.  On 23 February 2017, I dealt with parties’ argument[1]. Upon consideration, I struck out the statement of truth for the ‘new’ Defence but allowed the defendant to remedy the defect with the imposition of an unless order for 14 days.

“11. … After consideration of the matters put before the court and discussions with Ms Gwilt and Ms Chark, I take the view that the subject statement of truth is defective. The defendant is a corporation. Its statement of truth must be signed by a person holding a senior position in the defendant under Order 41A, Rule 3(2), Rules of the High Court. In my view, Order 41A, Rule 3(1)(b)(ii) is not applicable to corporations and cannot be relied upon by Ms. Chark.

12. I say so for two reasons. First, I agree with Ms Gwilt that as a matter of drafting and understanding, we start with the general provision and then specific ones. In our case, Order 41A, Rule 3(1) is the general provision and sub‑rule 2 the specific one. The specific provision is made specifically for corporations so on and so forth. So there is no way that a statement of truth involving a corporation can escape from such requirement.

13. Second, as I have spent some time discussing with the parties at the hearing on the legislative intention of statement of truth, it aims at making parties serious about the pleadings and similar documents filed in court proceedings.  If the documents will contain any false or untrue statements, the maker is liable for contempt proceedings.  That is exactly why the CJR final report spent quite some paragraphs on identifying the right person to sign the statement of truth for corporation in order to get that person responsible and liable for making the representations to the court.  If a legal representative will be allowed to do so for his corporation client and without identifying who is making the factual representation to the court, the purpose of the statement of truth will be collapsed completely.”

(Decision dated 23 February 2017 from DARTS transcript)

10.  BCC wrote to the court on 3 March 2017.

“We have just been notified that the former Authorised Representative of the Defendant that:

(1) On 1 September 2016, a Rehabilitation Procedure was commenced by the Defendant with Mr Tae-Soo Suk of the Defendant being appointed as the Receiver;

(2) On 17 February 2017, the Rehabilitation Procedure was withdrawn and a Bankruptcy Order was made against the Defendant. Mr Jin Han Kim has been appointed as the Trustee of the Defendant.

We would grateful if you could place this letter to the Learned Master J. Wong for his review.”      

11.  This court then replied.

“It appears that there is nothing for the court to “review”. You will be in a better position to advise your client what should be done in light of the development made known.”

12.  The defendant failed to comply with the unless order. After the deadline, the plaintiff applied for default judgment. It was only until 23 March 2017 that BCC managed to get the trustee to sign on the statement of truth. Parties thereafter argued the matter on 7 April 2017 before Master S. Lo who ruled in favour of the plaintiff, because among others, there was no summons taken out by the defendant to extend time imposed by the unless order.  

13.  A notice of appeal was thereafter filed by the defendant on 21 April 2017 against the entering of the default judgment. However, the appeal was not pursued. On 5 May 2017, BCC applied for cease to act under order 67 rule 6 RHC.  The application was allowed by Master Au-Yeung on 19 May 2017 and the process was completed by the subsequent filing of certificate of service on 21 June 2017.

14.  In the meantime, on 23 May 2017, Master S. Lo also ordered the payment into court of $280,000 as security for costs be refunded to the plaintiff.   

15.  On 10 August 2017, the plaintiff issued the present wasted costs order application against BCC.  

16.  In a nutshell, the plaintiff complained that the defendant went into receivership on 1 September 2016.  BCC should not have acted for the defendant after the date without the knowledge and/or authority from the receiver of the defendant.  BCC tried to delay and indeed delayed the proceedings. As a result, the plaintiff incurred more legal costs because of the conduct of BCC.

17.  BCC argued that it conducted the proceedings with proper instructions from the defendant at all times.  In any event, the trustee rectified the instructions to BCC.  There was no improper conduct on its part.  It did not hide anything from the court and caused no loss to the plaintiff.  There was also no expert evidence on the law of Korea regarding rehabilitation and bankruptcy.  As a matter of discretion, court should dismiss the application.

The applicable principles

18.  The applicable principles relating to o.62 r.8 RHC (Cap. 4A) are not disputed.  It states that:

“8. (1) The Court may make a wasted costs order against a legal representative, only if —

(a) the legal representative, whether personally or through his employee or agent, has caused a party to incur wasted costs as defined in section 52A (6) of the Ordinance; and

(b) it is just in all the circumstances to order the legal representative to compensate the party for the whole or part of those costs.

(2) A wasted costs order may —

(a) disallow the costs as between the legal representative and his client; and

(b) direct the legal representative to —

(i) repay to this client costs which the client has been ordered to pay to other parties to the proceedings; or

(ii) indemnify other parties against costs incurred by them.

(3) The Court shall give the legal representative a reasonable opportunity to attend a hearing to give reasons why it should not make the order.

(4) When the Court makes a wasted costs order, it shall—

(a) specify the amount to be disallowed or paid; or

(b) direct a master to decide the amount of costs to be disallowed or paid.

(5) The Court may give directions about the procedure that should be followed in each case in order to ensure that the issues are dealt with in a way that is fair and is as simple and summary as the circumstances permit.

(6) …”

19.  Section 52A (6) High Court Ordinance (Cap.4) further states wasted costs means:

“… any costs incurred by a party as a result of —

(a) an improper or unreasonable act or omission; or

(b) any undue delay or other misconduct or default,

…”

20.  Li, CJ (as he then was) said in Ma So So v. Chin Yuk Lun & Solicitors (2004) 7 HKCFAR 300 at p.309 that:

“The approach

6. In considering the exercise of the jurisdiction under this rule, the court should approach the matter by dealing with the following questions:

(1) Whether the solicitor was responsible for (i) acting improperly or without reasonable cause or (ii) for undue delay or any other misconduct or default in any proceedings.

(2) Whether such conduct of the solicitor caused costs to be incurred or wasted. This is a question of causation. The casual link between the solicitor’s conduct and the extent of costs incurred or wasted must be established.

(3) Whether the court should exercise its discretion to make an order.”

21.  To have a further and better understanding of the rule, paragraph 62/8/1 at P.1236 of Hong Kong Civil Procedure 2018 provides:

“Wasted Costs – Rule 8 was largely replaced under the Civil Justice Reform. … It was further explained in the Working Party’s Final Report that:

“The first principle, reflected in the italicised words (Ridehalgh v. Horsefield [1994] Ch 205 at 239), is that any risk of a wasted costs claim being disproportionately costly should be treated as an important negative factor in the court’s first stage decision as to whether the lawyer in question should be invited to ‘show cause’ under O.62 r.8(2).

Secondly, the cases have stressed that the wasted costs jurisdiction should only be invoked and orders made in clear cases.

(a) As Lord Woolf stated in Wall v. Lefever [1998] 1 FCR 605: ‘It must be used as a remedy in cases where the need for a wasted costs order is reasonably obvious.’ It is a summary remedy and only to be used where there is wasted costs order is to be invoked and orders made in clear cases.

(b) The need to restrict the exercise of such power to cases capable of summary treatment was also emphasised in Harley v. McDonald [2001] 2 AC 678, in relation to the New Zealand courts’ inherent jurisdiction to order barristers and solicitors to pay costs unnecessarily incurred. The Privy Council commented:

‘As a general rule allegations of breach of duty relating to the conduct of the case by a barrister or solicitor with a view to the making of a costs order should be confined strictly to questions which are apt for summary disposal by the court. Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument are typical examples. The factual basis for the exercise of the jurisdiction in such circumstances is likely to be found in facts which are within judicial knowledge because the relevant events took place in court or are facts that can easily be verified. Wasting the time of the court or an abuse of its processes which results in excessive or unnecessary cost to litigants can thus be dealt with summarily on agreed facts or after a brief inquiry if the facts are not all agreed.’

…

The matter complained of need not be criminal. It need not involve peculation or dishonesty. A mere mistake or error or judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor’s duty to ascertain with accuracy will suffice. It need not involve personal obliquity. The term of professional misconduct has often been used to describe the ground on which the court acts. It would perhaps be more accurate to describe it as conduct which involves a failure on the part of the solicitor to fulfill his duty to the court and to realise his duty to aid in promoting in his own sphere the cause of justice.”

22.  O.62 r.8B RHC also stipulates that the court shall consider the application in 2 stages:

“(a) In the first stage, the court must be satisfied that-

(i) It has before it evidence or other materials which, if unanswered, would be likely to lead to a wasted costs order being made; and

(ii)The wasted costs order proceedings are justified notwithstanding the likely costs involved; and

(b) In the second stage (even if the court is satisfied under sub-paragraph (a)), the Court shall consider, after giving the legal representative an opportunity to give reasons why the Court should not make a wasted costs order, whether it is appropriate to make the order in accordance with rule 8.”

23.  Last but not least, PD14.5 also regulates how application for wasted costs orders are to be pursued.

Application of the principles

24.  Applying the above principles to the present case, I have decided to dismiss the summons.

25.  First, the matter cannot be resolved in a simple and summary way.  Ms. Gwilt, counsel for the plaintiff, raised 3 questions for the court’s determination:

“50 …

(1) Whether BCC had the actual authority to act for the Defendant since 1 September 2016; and/or whether BCC has received proper instructions from the Defendant to act on its behalf during its receivership and after its liquidation;

(2) Whether BCC and/or the Solicitor had made reasonable enquiries to the relevant persons of the Defendant of its trading status in South Korea, especially before the Defendant’s winding‑up; and

(3) Whether BCC and/or the Solicitor knew and/or ought to have known the Defendant’s trading status when BCC made such representations in their correspondence with HLC and when Ms. Chark made such representations in Court.”

26.  Ms. Chark, appearing for BCC, further raised a number of issues, including the lack of expert evidence on Korean law and causation.    

“15. P has adduced no expert evidence on the effect of the rehabilitation proceedings from 1 September 2016 to the Bankruptcy Order made on 17 February 2017 other than relying on press reports.”

…

“61. As soon as Mr Kang confirmed to BCC on 3 March 2017 that a Bankruptcy Order was made in Korea against D, BCC immediately notified this Court and HLC. There may be a gap between the Bankruptcy Order made on 17 February 2017 and the letter to the Court on 3 March 2017, there is no undue delay on the part of BCC in notifying this Court and P of D’s latest status.

62. Despite the notice given by BCC on 3 March 2017, L chose to issue a summons on 15 March 2017 for entering judgment against D.  In the circumstances, D’s trading status or BCC’s conduct of these proceedings was not a factor that would affect L’s decision as to whether to proceed with these proceedings or not.”

27.  All the issues raised by the parties are relevant and they involve substantial factual disputes and/or argument or interpretation on foreign law.

28.  Second, in a nutshell, the major complaint of the plaintiff is that BCC should not have defended the proceedings as she did so because either she knew or should have known that there was no authority to do so.  Regarding this, to sum up the answers and evidence (of which, I accept on balance) provided by Ms. Chark: 

(a) The defendant was incorporated in South Korea (Hanjin‑Korea) and registered in Hong Kong (Hanjin‑HK) as a non‑Hong Kong company.

(b) BCC was instructed by the manager (Mr Edgar Ng) of the operating Department of Hanjin‑HK to defend the proceedings.  At all material times, she contacted different officers to take instructions and to report progress (Mr. Kong – the Authorized Representative of Hanjin‑HK, Mr Eric Chan – the Deputy General Manager of the Operation & Logistics Department of Hanjin‑HK and Ms. Joanne Lam, the Deputy Manager of the Human Resources & Corporate Administration).

(c) Having being doubted of her authority to act for the defendant in late 2016 or early 2017, she did try to verify the situation by contacting the said officers who also agreed to check from the Korean office.

(d) While she was waiting for the verification, parties could not agree on withholding the proceedings in the meantime.

(e) On 3 March 2017, Mr. Kong confirmed with her that the defendant did commence a rehabilitation procedure on 1 September 2016 and a bankruptcy order was made on 17 February 2017.  Mr. Jin Han Kim was then appointed trustee of the defendant.  She immediately informed the court accordingly.

(f) She also contacted with the trustee who instructed her to continue defending the proceedings.

(g) Unfortunately, the court refused to allow the defendant to file its statement of truth (signed by the trustee) out of time, leading to the default judgment.

(h) Last but not least, for reasons she was not in a positon to disclose, BCC ceased acting for the defendant and a certificate was filed on 21 June 2017.

29.  With the above, I do not consider there has been any improper or unreasonable act or omission on the part of BCC.  I am also not satisfied that undue delay or other misconduct or defendant has been proved. It has taken BCC and the officers of the defendant in HK for some 2 months’ time to confirm the position with the head office of the defendant in Korea.  I do not find it amounting to total unreasonable or undue delay. In any event, the trustee did confirm and/or rectify the act of BCC.

30.  Third and finally, Ms. Gwilt suggested that with the evidence before the court, the plaintiff had satisfied both test in the first stage and second stage.  BCC was also given reasonable opportunity to give reasons why the wasted costs order should not be made, including the filing of an affidavit in opposition.  She reminded me of the matters about the statement of truth as aforesaid. In short, she submitted it was a telling sign of BCC’s lack of authority because no senior member of the defendant was willing to sign the Defence at the material times.  There was also denial by BCC of the allegations of lack of authority.  It was a clear attempt of BCC to delay the proceedings.

31.  I decline to accept the submissions of Ms. Gwilt.  As a matter of procedure, it appears that parties did not have the 2-stages test clearly in mind in pursing and defending the application.  However, for the present purpose, it does not make much difference.  In my view, parties were still in the first stage as appearing before me as there was no direction or order from the court that the plaintiff had satisfied its burden at the 1^st stage. In the present hearing, the plaintiff has failed to do so.  Alternatively, if it happened that parties had already entered into the second stage, BCC also showed cause to my satisfaction that the wasted costs order should not be made in the circumstances.  Apart from the finding of facts as in paragraph 28 above, I specifically decline to accept the submission that I could draw a bad inference upon BCC from the conduct of Ms. Chark when she argued that she could sign the statement of truth for her client. Although I did reject her argument and/or interpretation of O.41A r.3 RHC, it does not necessarily mean that she took it to delay the proceedings. Without more, a simple rejection or non-acceptance of a legal argument put forward by a legal representative shall not be taken as that he or she is advancing such argument with bad intention.         

Costs

32.  As to costs, I do not have the benefit of the parties of their argument.  However, it appears to me that no order as to costs appear to be the appropriate one in the circumstances.  The suspicion on the part of the plaintiff’s solicitors turns out to be true. It has triggered the investigation on the part of BCC. The trustee did rectify, if necessary, the action of BCC. Without it, the question whether BCC did act, at some point in time, with or without authority could become more complicated.   

Conclusion

33.  To conclude, the summons is dismissed with an order nisi of no order as to costs.