NEWOCEAN PETROLEUM CO LTD v. O.W. BUNKER CHINA LTD (in provisional liquidation) AND ANOTHER

CACV 156/20 16

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 156 OF 2016

(ON APPEAL FROM HCA NO 381 OF 2015)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.  On 11 July 2016, the Court of Appeal (Kwan JA and Barma JA) gave leave to the 2^nd defendant to appeal, limited to that part of the order of Deputy High Court Judge Le Pichon on 18 March 2016 granting leave to serve the concurrent writ out of the jurisdiction pursuant to Order 11 rule 1(1)(d) (the contract claim). Leave to appeal was refused in respect of that part of the order granting leave to serve the writ out of the jurisdiction pursuant to Order 11 rule 1(1)(f) (the conversion claim). On 5 August 2016, the Court of Appeal varied its costs order nisi on 11 July 2016 and ordered the 2^nd defendant to pay the plaintiff forthwith half of the costs of the applications for leave to appeal before the judge and before the appeal court, and the other half of the costs be in the cause of the 2^nd defendant’s appeal.

2.  Pursuant to the leave granted, the 2^nd defendant’s solicitors served a Notice of Appeal on the plaintiff’s solicitors on 20 July 2016 at 2:25 pm.  The Notice sought an order in these terms: (1) the appeal be allowed; (2) the order granting leave pursuant to Order 11 rule 1(1)(d) to serve the concurrent writ out of the jurisdiction be set aside; and (3) the costs of the appeal and below be paid by the plaintiff.

3.  At 2:34 pm on the same day, the 2^nd defendant’s solicitors received by email a letter from the plaintiff’s solicitors stating that the plaintiff will not plead a claim to “enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract” by amending the Statement of Claim, and seeking the agreement of the 2^nd defendant that it would not pursue the appeal.

4.  Subsequent correspondence was exchanged between the parties from 21 to 27 July 2016.  The upshot of all that was that the 2^nd defendant confirmed it will not pursue its appeal to set aside the ex parte service out order on the contract claim (§§(1) and (2) of the Notice of Appeal) but will continue to pursue its appeal on costs (§(3) of the Notice of Appeal) as the parties were unable to reach agreement on the costs below and on appeal.

5.  On 15 September 2016, the plaintiff amended the Statement of Claim to delete two of its claims: (1) a claim in bailment; and (2) a claim in contract for the price of the bunkers pursuant to a contract the plaintiff allegedly made with the 2^nd defendant through the agency of the 1^st defendant.

6.  Other amendments made clear the basis on which the remaining claim in conversion was made: that there was a chain of bunker supply contracts by which various intermediate bunker suppliers (including the 1^st and 2^nd defendants) contracted to deliver or arrange for delivery of bunkers to the vessels concerned and gave permission for the use of the bunkers for the purpose of propulsion of the vessels prior to payment for, and the passing of property in, those bunkers; that the various intermediate bunker suppliers impliedly undertook they had the legal entitlement to authorise or give such permission, and that they had acquired that right from the owner of the bunkers, i.e. the plaintiff; that in truth and in fact, the 1^st defendant had not obtained permission from the plaintiff for the bunkers to be used pending payment for, and the passing of title to, such bunkers and none of the intermediate bunker suppliers (including the 2^nd defendant) had the authority to grant permission to their respective buyers; and by permitting the owner of the vessels to use the bunkers for the purpose of propulsion of the vessels pending payment for, and/or the passing of title to, those bunkers, and by impliedly undertaking that it had the right to grant such permission, the 2^nd defendant asserted a right inconsistent with the plaintiff’s rights as owner of the bunkers.

7.  The plaintiff was granted ex parte leave by a master to serve the concurrent writ out of the jurisdiction in respect of all three causes of action mentioned above.  At the hearing of the 2^nd defendant’s application before the judge to set aside leave, the plaintiff abandoned the claim in bailment.  The judge upheld the leave granted by the master in respect of the contract claim and the conversion claim.  Costs of the setting aside application were awarded to the plaintiff, but reduced by 40%, to reflect the court’s disapproval that the case of the plaintiff presented in the inter partes hearing was different from that at the ex parte stage, and there was misrepresentation that the 2^nd defendant was the end user of the bunkers or the owner of the vessels[1].

8.  As mentioned earlier, the Court of Appeal refused to grant leave to appeal in respect of that part of the judge’s order upholding the leave granted in respect of the conversion claim.  So even with the plaintiff abandoning the contract claim after the appeal court has granted leave to appeal to challenge that part of the judge’s order, the 2^nd defendant has not succeeded entirely in its application to set aside the ex parte leave to serve the concurrent writ out of the jurisdiction.

9.  Mr Coleman, SC submitted that the judge’s order awarding the plaintiff 60% of the costs of the setting aside application should be discharged and substituted by an order that the plaintiff should pay the 2^nd defendant not less than 40% of the costs of that application (including the costs of the application to vary the costs order nisi). His argument was as follows.  The plaintiff has abandoned two out of the three claims advanced.  In particular, the contract claim was abandoned only after the decision of the Court of Appeal granting leave to appeal.  A significant part of the costs was incurred in respect of the claims abandoned.  There was no reason why the plaintiff should not have abandoned the contract claim at the hearing before the judge.  If the plaintiff had pleaded its case properly in the first place, the incidence of costs might have been very different.  He prayed in aid that in another case involving the plaintiff with other defendants in a similar application to set aside ex parte leave to serve out of the jurisdiction, Deputy High Court Judge Manzoni, SC ordered each party to bear its own costs (Newocean Petroleum Co Ltd v OW Bunker China Ltd, HCA 384/2015, 29 July 2016).  He made the point that the plaintiff’s litigation conduct in the other case was less reprehensible.

10.  We do not think this a realistic position to take. The fact remains that the plaintiff had succeeded in resisting the setting aside application.  We do not agree with Mr Coleman that the plaintiff, in failing to abandon the contract claim earlier, should not only be deprived of all of its costs in successfully resisting the application, but should be ordered to pay 40% of the 2^nd defendant’s costs below.

11.  Mr Sussex, SC submitted that the 2^nd defendant’s appeal as to costs should be dismissed. In other words, the judge’s order that the 2^nd defendant should pay 60% of the plaintiff’s costs should stand, notwithstanding that the plaintiff has abandoned the contract claim after the appeal court granted leave to appeal in respect of that part of the judge’s order, making it unnecessary for the 2^nd defendant to pursue the substantive appeal. His argument was as follows.

12.  Mr Sussex sought to defend the plaintiff’s decision in maintaining a claim in contract and seeking leave to serve the concurrent writ out of the jurisdiction under Order 11 rule 1(1)(d).  He said it was permissible to utilise leave under rule 1(1)(d) out of an abundance of caution in order to claim a declaration that by the terms of the plaintiff’s contract with the 1^st defendant, the plaintiff did not authorise or grant permission to use the bunkers for the purpose of propulsion of the vessel pending payment for, and the passing of property in, such bunkers.

13.  But that was not the pleaded case in respect of the contract claim.  Nor did it appear that any draft amendment for a claim in declaration now sought was placed before the judge.  Prior to the amendment of the Statement of Claim, the claim in contract was for the price of the bunkers, on the basis of a contract allegedly made between the plaintiff and the 2^nd defendant through the agency of the 1^st defendant.  This part of the pleaded case was not abandoned before the judge in the setting aside application.  According to the written submission of Mr Sussex, it was at the hearing of the application for leave to appeal that he stated to the judge “the plaintiff could not claim the contract price other than as the quantum of a claim for damages for conversion.”  Even then, as noted by the judge, Mr Sussex maintained that the plaintiff’s contractual claim does exist although its pleaded case requires ‘fine-tuning’[2].  It was only in September 2016, after the appeal court has granted leave to appeal, that the plaintiff made substantial amendments to the Statement of Claim to make clear it would not advance a claim to “enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract”, tracking the words in Order 11 rule 1(1)(d), and to make clear the basis of its claim in conversion that was advanced in argument before the judge.

14.  Mr Sussex further argued that the judge was correct in upholding the leave granted by the master to serve the concurrent writ out of jurisdiction under rule 1(1)(d), and that the decision of DHCJ Manzoni, SC in Newocean Petroleum Co Ltd v OW Bunker China Ltd [2016] 3 HKLRD 892 at §57 was in error in holding that for rule 1(1)(d) to be engaged, there had to be a contract between the parties to the action.  He submitted that for any court to so hold today would preclude claims to enforce contractual terms under the Contracts (Rights of Third Parties) Ordinance, Cap 623, which came into force on 1 January 2016.

15.  We do not think it necessary to resolve the above for present purpose.  We should point out that the new legislation has no bearing on this case as it applies to a contract entered into on or after 1 January 2016.  Hence, the new legislation was not relied on by the plaintiff in this case or in the case before DHCJ Manzoni.  In giving his views in §57 that “a plaintiff cannot sue to enforce or rescind or dissolve or annul a contract without the counterparty to that contract being a party to the action”, DHCJ Manzoni had expressly stated that he had ignored for that purpose the new legislation which had not been relied on by the plaintiff.  In any event, in amending the Statement of Claim, the plaintiff had acknowledged that it was not entitled to advance a claim in contract to “enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract”.

16.  If the plaintiff had not abandoned its claim in contract as per the amendments in the Statement of Claim, making it unnecessary for the 2^nd defendant to pursue its appeal on that part of the judge’s order, at the very least, the appeal would have been allowed on the premise that the plaintiff does not have a good arguable case to “enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract”.

17.  For the above reasons, we reject the submissions of Mr Sussex.

18.  It is necessary for the 2^nd defendant to pursue the appeal to set aside the costs order of the judge.  In allowing the appeal and setting aside the costs order, we take into consideration that the substantive appeal would have been allowed but for the abandonment of the contract claim.  We would not disturb the 40% reduction of the plaintiff’s costs made by the judge for the reasons given in the judge’s ruling.  But the plaintiff should be deprived of a further portion of the costs awarded in its favour in the setting aside application (including the costs of the application to vary the costs order nisi) to take into account the abandonment of the contract claim.

19.  Mr Sussex submitted that it could not be said that a significant amount of time was taken up by the contract claim as it was closely intertwined with the conversion claim.  He suggested that in total the plaintiff should be deprived of no more than 50% of the costs below.

20.  We are inclined to think that more than 10% of the costs should be deducted on top of the 40% reduction made by the judge.  We think it would be appropriate to reduce a further 30% of the plaintiff’s costs. So the effect of our order is that the 2^nd defendant is to pay the plaintiff 30% of the costs of the setting aside application.

21.  As to the costs of the appeal, Mr Sussex submitted there should be no order as to costs as the 2^nd defendant has asked for much more than is appropriate.  Had it been the case that only the 2^nd defendant had taken an unrealistic position, we might have been more sympathetic to Mr Sussex’s argument.  But both have taken up unrealistic and entrenched positions on costs. Senior counsel were engaged to argue costs when it should have been resolved sensibly without a hearing in the interests of saving time and costs.  In this instance, we are not minded to depart from the rule that costs should follow the event.  We order the plaintiff to pay the 2^nd defendant the costs of the appeal.  As half of the costs of the leave applications were made costs in the cause of the 2^nd defendant’s appeal, those costs would be awarded to the 2^nd defendant as well.