HANWA CO., (HK) LTD. v. EVERBRIGHT SHIPPING CO LTD AND OTHERS

A.J. 153 of 1988

_______________

H E A D N O T E

_______________

Costs - scheme of s. 51A, Cap. 4, O. 62 r. 4 and r. 28 - between parties, court has discretion to order costs only on a party and party or common fund basis - no power to order indemnity costs.

A.J. 153 of 1988

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ADMIRWILY JURISDICTION

----------------

--------------------------

------------------------

J U D G M E N T

------------------------

1. In this case, the plaintiff is seeking damages for the loss of a cargo of steel bars,  a loss which occured in February 1987.

2. The plaintiff was apparently in a chain of purchasers and bought only documents, which included two bills of lading. The bills of lading are those of the 1st defendant. The 2nd defendant is the owner of the vessel on which the cargo was carried, a vessel which is presumed to have been sunk. The 3rd defendant is named in the bill as being responsible for the carriage.

3. After the vessel was presumed lost, the only information which the plaintiff could glean about the 1st defendant was that it was a company in Hong Kong. A company search revealed a company of that name, save that it is written "Ever Bright" in two words, whereas in the writ it will be observed that "Ever Bright" is written as one word. So I shall refer from now on respectively to the 1st defendant, meaning as written in the writ, and "Ever Bright" as referring to the name of the party which has been before me during this hearing.

4. The registered office of Ever Bright was included in the writ which was issued on the 26th February 1988. The writ was served on the same day by post at that registered office. Immediately, Ever Bright protested. It protested both itself, and through its solicitors, that the bill of lading was not Ever Bright's bill of lading and that it was not involved in this carriage. These protests were perhaps understandably treated with suspicion on the part of the plaintiff.

5. Ever Bright acknowledged service on the 7th March. On the 11th April, the plaintiff obtained leave to issue a concurrent writ and to serve it on the 2nd and 3rd defendants out of the jurisdiction. Ever Bripht insisted on the service of a Statement of Claim. For this purpose, the plaintiff had to apply by summons on the 5th July for an extension of time for serving the Statement of Claim; the necessary extension was granted on the 7th July.

6. By this time, however, i.e. the begining of July, the plaintiff was concerned as to whether Ever Bright was involved. By affirmation by the plaintiff's solicitor dated the 11th July, the plaintiff's then solicitor applied for leave to serve the 1st defendant by way of service on a Hong Kong agent of an overseas principal. The affidavit which was sworn was wholly insufficient and, not surprisingly, the relief which was sought was refused. The affidavit is, however, in part, relevant. I refer to the affidavit of Mr Large which as I say was sworn on the 11th July 1988. The last sentence of paragraph 2 reads:

"The evidence which I have obtained to date implicating Ever Bright Shipping Co. Ltd. is merely circumstantial."  (my emphasis)

7. In paragraph 3, Mr. Large goes on to produce a letter company called Bright Pacific Co. and he says:

"It will be noted in the letter dated 16th "'March 1987 that Bright Pacific Co. Ltd. is stated to be the agent of Everbright Shipping Co. Ltd. and gives notice of the loss of the vessel."  (my emphasis.)

In the final sentence of paragraph 4, Mr Large deposes:

".....on the evidence to date Everbright Shipping Co. Ltd. is a body corporate outside the jurisdiction and that so far as I am aware Bright Pacific Co. is still the agent of Everbright Shipping Co. Ltd." (my emphasis)

8. The only conclusion I can reach on that affidavit is that the plaintiff's solicitors were by then satistied that Ever Bright was not responsible the bill of lading.

9. Following that, the 2nd and 3rd defendants were apparently served with the concurrent writ and they acknowledged service. A Statement of Claim was served by the plaintiff 12th of September.  By summons dated the 24th September, the 2nd defendant disputed jurisdiction and applied for discharge of the concurrent writ and for the writ and service to be set aside on the grounds specified in the summons.

10. By summons dated the 26th November the 2nd defendant further applied for the writ and service to be set aside on the additional ground of material non-disclosure. In that summons, the 2nd defendant sought indemnity costs. By summons dated the 30th November, ever Bright applied to strike out the action principally upon the basis that it was an abuse of the process of the court.

11. As far as the 2nd defendant is concerned, it has been agreed with the plaintiff that the order for leave to issue and serve the concurrent writ be discharged and that the writ and service be set aside with costs to be taxed paid.

12. As far as Ever Bright is concerned, it has been agreed to withdraw service of the writ. There is no agreement about costs.

13. So, although there are three summonses outstanding, the only matters which are in issue relate to costs; and the matters which are outstanding are whether Ever Bright should in fact be awarded any costs at all; secondly, whether costs which are awarded to Ever Bight, if any, and to the 2nd defendant should be on an indemnity basis.

14. On behalf of Ever Bright, Mr. Smith has argued that the plaintiff has been aware since early July that Ever Bright was not the proper party to these proceedings. From that day, say Mr Smith, the action against Ever Bright was doomed to failure. And at least from that day, the action became an abuse of the process of this Court and should be dismissed with indemnity costs. Ever Bight should not be saddled with any of the costs which it has incurred.

15. In relation to the 2nd defendant Mr Smith pointed out that the leave to issue and serve the concurrent writ depended upon proper service on the 1st defendant. Once it was clear that there was no proper service on the 1st defendant, there was no basis for effecting service on the 2nd defendant. The 2nd defendant was served only after the plaintiff became aware, at the beginning of July, that Ever Bright was not the proper party. In those circumstances, Mr. Smith contended that the 2nd defendant should get its costs on an indemnity basis.

16. Mr Emerson who appeared for the plaintiff (I must emphasise at once that he has only recently been instructed by the plaintiff and is not responsible for what he described as this shambles") opposed the award of indemnity costs on three grounds. First, it was his submission that the Court has no power to award indemnity costs between parties to litigation; second, he said that Ever Bright is not a party to this action and has no locus standi; thirdly, he said that Ever Bright and the 2nd defendant have contributed to this shambles, so that the plaintiff should not be penalised by an award of indemnity costs against it.

17. As far as indemnity costs are concerned, the English Order 62, rule 3 now expressly provides for indemnity costs. Indeed, rule 3 of that order now provides for costs to be awarded on only two bases, i.e. standard or indemnity, basis.

Costs between parties in Hong Kong are governed by section 52A of the Supreme Court Ordinance, and by rule 2(4) and rule 28 of Order 62 which read:

"52A. (1) Sybhect to the provisions of rules of Court, the costs of and incidental to all proceedings in the Court of Appeal its civil jurisdiction and in the High Court, including the administration of estates and trusts, shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid.

(2) Subject to specific provision made in this or any other Ordinance (other than subsidiary legislation) nothing in subsection (1) shall authorize an award of costs against a person who, is not a party to the relevant proceedings.

(3) Nothing in subsection (1) shall alter the practice in any criminal cause or matter, or in bankruptcy."

"Order 62 -

2.(4) The powers and discretion of the Court as to costs under section 52A of the Ordinance (which provides that the costs of and incidental to proceedings in the Supreme Court shall be in the discretion of Supreme Court and that the Court shall have full power to determine by whom and to what extent the costs are to be paid) and under the enactments relating to the costs of criminal proceedings to which this Order applies shall be exercised subject to and in accordance with this Order.

28.(1) This rule applies to costs which by or under these rules or any order or direction of the Court are to be paid to a party to any proceedings either by another party to those proceedings or out of any fund (other than a fund which the party to whom the costs are to be paid holds as trustee or personal representative).

(2) Subject to the following provisions of this rule, costs to which this rule applies shall be taxed on the party and party basis, and on a taxation on that basis there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed.

(3) The Court in awarding costs to which this rule applies may in any case in which it thinks fit to do so order or direct that the costs shall be taxed on the common fundbasis.

(4) On a taxation on the common fund basis, being a more generous, basis than that provided for by paragraph (2), there shall be allowed a reasonable amount in respect of all costs reasonably incurred,  and paragraph (2) shal not apply; and accordingly in all cases where costs are to be taxed on the common fund basis the ordinary rules applicable on a taxation as between solicitor and client where the costs are to be paid out of a common fund in which the client and others are interested shall be applied, whether or not the costs are in fact to be so paid.

(5) The Court in awarding costs to which this rule applies to any person may if it thinks fit and if -

(a) the costs are to be paid out of a fund, or

(b) the person to whom the costs are to be paid is or was a party to the proceedings in the capacity of trustee or personal representative,

order or direct that the costs shall be taxed as if that person were a trustee of the fund or as if the costs were to be paid out of a fund held by that person, as the case may be, and where the Court so orders or directs rule 31(2) shall have effect in relation to the taxation in substitution for paragraph (2) of this rule.

(6)    .........."

18. It is argued for the plaintiff that the Court has no discretion to go beyond what is provided for in rule 28 so as to award other than costs on a party and party or common fund basis.

19. Before the recent amendments to the English Rule, the provisions of section 51(l) of the Supreme Court Act 1981 and O.62, r.28 of the English Rules governed the provisions for costs in England and those English provisions were identical with our own, save that section 51(1) of the Supreme Court Act commenced "Subject to the provisions of this Act and to rules of court"; thereafter the subsection reads the same. Section 52A of the Supreme Court Ordinance has no reference to Act or  Ordinance, but begins simply "Subject to rules of court".

20. In an English case, EMI Records Ltd v. Ian Cameron Wallace Ltd. and Another [1982]2 All E. R. 980, Sir Robert Megarry V-C held that on the true construction of section 51(1) and r.28, the court had no power to award costs on a basis other than that of party and party or common fund.

21. As far as that case is concerned, Mr Emerson said that the Vice-Chancellor was somewhat hesitant in reaching his decision. He also pointed out the difference between the wording of the Supreme Court Act and the Supreme Court Ordinance. He urged that, in those circumstances, I should construe our legislation as not permitting an award of costs other than on a party and party or common fund basis.

22. I say at once that the difference in wording between the English and Hong Kong sections seems to me to be immaterial.

23. In the EMI case, the learned Vice-Chancellor, after reviewing some scanty authority, came to consider the decision of the Court of Appeal in Greenhouse v. Hetherington (1977)122 SJ 47. That decision concerned county court costs, but the principles remain the same. There is, of Course, no full report of the Greenhouse case, but the Vice-Chancellor had the benefit of a transcript. After hearing argument and after referring to that transcript, the Vice-Chancellor said at page 986, Letter J :

"Roskill L. J. who delivered the judgment, did not find it necessary to go throught that rule in any detail because, as he pointed out, solicitor and own client costs were dealt with by r.29. He said that counsel for the defendants had accepted, albeit a trifle reluctantly that if his argument were right, no High Court Judge could order the unsuccessful party in High Court  litigation to pay costs to the successful party on a solicitor and own cllent basis. He then said :

That submission seems to me quite untenable. The position is absolutely plain. In the county court, all costs are in the discretion of the trial judge :  it is for him to determine upon what basis, whether party and party, common fund solicitor or and own client or whatever he may think best, the assessment will take place in accordance with, the relevant rule applicable to that class of order.

Accordingly, he said that he would dismiss the appeal; and Browne and Megaw L.JJ. agreed, saying nothing further on this point."

That is how the learned Vice-Chancellor Saw the Greenhouse case.

24. With respect, the Court of Appeal appeared to have reached their decision on the basis that costs had always been awarded at the total discretion of the court, thereby upholding tradition, rather than after a close analysis of relevant legislation.

25. It is interesting to note that the tradition, at least in so far as it relates to indemnity costs, was so wellknown, or perhaps otherwise, that the Vice-Chancellor had to spend several pages of his judgment discussing what the phase "indemnity costs" means and formulating a basis for their taxation. He was assisted in his deliberations which as I say, took several pages, by two assessors including the Chief Taxing Master.

26. The Vice-Chancellor then went on to follow the decision of the Court of peal in Greenhouse at page 987 :-

"It seems to me that the decision of the Court of Appeal can be rested on reasoning on the following lines. The wide general discretion given by the Supreme Court of Judicature (Consolidation) Act 1925, s 50(1), can be curtailed by, rules of court, because the subsection is expressed to be subject to them.   Where there are rules which express a plain prohibition, as in Thomason's case [1954]2 All ER 859, [1954]1 WLR 1220, then the discretion cannot be exercised so as to disregard that prohibition. On the other hand, where there is no express prohibition, but merely an affirmative provision in the rules, then even if that affirmative is expressed in imperative terms, as by the word 'shall', the court is not deprived of its statutory discretion to order costs on some basis other than that set out in the affirmative provision. On this footing, the provision that all taxations 'shall' be on a party and party basis operates as a provision that all taxations shall be on that basis unless the court either exercises the express powers given by the rules to direct some other basis of taxation, else exercises its statutory discretion to go outside r.28. In my judgment, the wording of the rules is not strong enough to confine the courts to making orders within r 28 and exclude their discretionary power to make orders on other bases.

Now I can well see that such a process of reasoning is open to attack, just as I accept that this might not be the process which the Court of Appeal itself would have expressed. I also accept that, sitting at first instance, it is a delicate matter to provide reasons for decisions or orders of the Court of Appeal which that court has not given....... I think that it is my duty to carry out and apply what the Court of Appeal has done. I know that there was a time when Vice -Cancellors enjoyed the luxury of refusing to follow a decision of the Court of Appeal that they considered to be clearly erroneous, :Dugdale v. Dugdale (1872) LR 14 Eq 234 at 235 (Sir John Stuart V-C); and see Farquharson v Floyer (1876) 3 Ch D 109.  Yet I would be most reluctant to consider applying this precedent unless I were very sure of myself; and I am not. On the contrary I would respectfully agree with the decisions and orders of the Court of Appeal, and give them full faith and credit. My only hesitation is about the process of reasoning that is required to support them. Whatever the Court of Appeal may say hereafter, I do not think that it is for me to suggest that these orders, made in the Court of Appeal per curiam, were nevertheless made per incuriam."

27. It will be seen clearly, I think, that the learned  Vice-Chancellor's only hesitation in the EMI case was in attributing his reasoning to the Court of Appeal. He was in no doubt about the rightness of his decision. But with the greatest respect,  the learned Vice-Chancellor appears to me to have been straining the plain wording of rule 28 in order to justify his decision. Read together, section 52A of our Ordinance, Order 62, rule 2(4) and rule 28 contain a complete scheme for the award of costs between parties. The legislature and the rule making authority have seen fit to give the court a discretion in relation to costs but have prescribed limits within which that discretion can be exercised. It is true that those limits are not wide, and certainly not as wide, I have no doubt, as the courts would like, but within those limits, the court has a discretion which can be exercised.

28. In addition to deciding whether costs should be awarded on a party and party or common fund basis under rule 28, the court has undoubtedly further discretion to direct that certain items be allowed or disallowed, having regard to what the court has heard during the conduct of the proceeding before it.

29. I cannot accept, in view of the use of the word "shall" in rule 28, that a court is permitted to go beyond what is prescribed in that rule in the absence of an express prohibition. I am unable to agree with the learned Vice-Chancellor. If the rule making authority felt that the court should have a wider power, they could, have added a reference to indemnity costs or, indeed, have left the costs totally to the court's discretion. They could perhaps, have incorporated rule 29 which relates to costs on taxation between a solicitor and own client and whicyh are, in effect, indemnity costs, if they had so wished. But the rule making authority did not do so and rule 29 constitutes a code entirely separate from rule 28.

30. In my judgment, therefore, on a true construction of our legislation, a court has no power to award costs between legislation, a court has no power to award costs between parties other than on a party and party or common fund basis.

31. I come to Mr Emerson's second submission on which is that Ever Bright has no locus standi. Mr Emerson said that Ever Bright has in fact never been a party to this action or, if it was at any stage a party, it is certainly no longer a party once agreement was reached before this hearing, that service upon it would be withdrawn. As Ever Bright has no locus, therefore there should be no order as to costs in Ever Bright's favour.

32. It is Mr. Emerson's contention that Mr. Ever Bright is not the 1st defendant and that service upon it or purported service upon it was not effective. But the writ named Ever Bright, save that the name is spelt as one word, and it gave Ever Bright's rgistered office. The spelling of the name could have been easily corrected if it was felt to be necessary under the provisions of rule 5 of Order 20. In my view, Ever Bright clearly became a party, and as such was entitled to acknowledge service and take part In the proceedings. In the absence of a clear indication from the plaintiff that it had made a mistake it would have been foolish for Ever Bright not to have taken part in the proceedings in order to prevent liability against it from possibly being established.

33. What then is the effect of the agreement that was apparently reached that there should be a withdrawal of service upon Ever Bright? Withdrawal of service, as Mr Emerson has acknowledged, is not a procedure prescribed by our rules of court. It is simply a convenient procedure adopted by solicitors which acknowledges that a mistake has been made. Mr Emerson contended, however, that the position is now as if  the proceedings against Ever Bright had never been; that Ever Bright should not be before ths court and that it should not get any costs, having rejected an offer on the part of the plaintiff to pay costs on a party and party basis. In effect, the slate it wiped clean as far as the plaintiff concerned in relation Ever Bright.

34. The curious agreement which was reached was based on an offer apparently made by Ever Bright's solicitors In March, that is, when the proceedings were commenced and the writ was served, to let the service be withdrawn. In my judgment, that convenient procedure was not capable of being adopted or acted upon in the state of proceedings in December this year so as to leave Ever Bright without a remedy for costs incurred by reason of the plaintiff's mistake. In my view, even if service is withdrawn, or was withdrawn, it would not affect the proceedings. They remain in existence between the plaintiff  and Ever Bright until some step recognised by the rules is takin to bring the proceedings to a conclusion, e. g. by an application for leave to discontinue. No such application has been made by the plaintiff. There is, however, still outstanding, Ever Bright's summons to strike out which, in view of my finding about it being a party, is not a nullity. Subject to any further argument that may be submitted to me, I propose in the event to strike out the action as between the plaintiff and Ever Bright.

35. Mr Emerson's further argument was that Ever Brightand and the 2nd defendant have contributed to the somewhat shambolic state of affairs which now prevails. Mr Emerson urged that Ever Bright brought most of the cost which it has incurred on self by not seeking, at an early stage, to set aside service or to cease to be a party to the proceedings. Instead, Ever Bright insisted on service of a Statement of Claim and opposed, although not very strongly I think, an extension of time for such service.

36. As far is the 2nd defendant is concerned, I am told that it was wholly unco-oporative in supplying the plaintiff with any information about the 1st defendant and that even now it declines to assist the cargo interests. It has not supplied a copy of the charter party or note although it must have engaged with the 1st defendant.

37. I was also referred generally to the decision of Hunter J. (as he then was) in the Shoman Trading Co. Ltd. v. Yee Tung Industrial Co. CL116 of 1985 where he said, at page 13 :-

"As to the matter of costs, Mr Bunting for the plaintiff invites me to make an order for indemnity costs as defined by Sir Robert Megarry, V.C. in EMI Records v. Ian Morris [1983] Ch. 59 at 74 as an order for taxation undert O.62, r.29(l) to which the presumptions in sub-rules (2) and (3) do not apply, with the intent that his client should recover all costs 'except insofar as they are unreasonable in amount or have been unreasonably incurred'.

.... Likewise there is some support for the view that that form indemnity cost's should be reserved for cases with a penal element, particularly cases like contempt. I am aware that I have expressed that view in the past in the belief that it had the support of others. That is a way of pointing the difference.

This has been an unusual case. There are a number of puzzling aspects to it ....... What they reveal in my judgment is that this is a case which should never have reached court, because it reached court, only by use of documents which I have already condemned as fabrications. It is certainly a very unusual case to reach the commercial court in this jurisdiction and I certainly hope there will not be any others.

That is a factor which I think I have to recognise, but I do not think it would be right to recognise it to the extent that Mr Bunting has invited me to. I do not think it would be right for this court to start making orders for indemnity costs, whenever it takes the view that I have taken about a litigant's conduct in this sort of case. I say that not from any moral standpoint but by reason of the deep ingrown stance that the court has adopted in respect to costs orders in the past. We cannot,  I think, so readily shake off our past like that. But I do believe that this is a proper case for the making of an order for common fund taxation so that the plaintiff will recover all the costs reasonably incurred."

38. Apart from EMI, which was a case involving contempt, no authorities were canvassed before Hunter J. I have not been directed to any cases which support the view that indemnity costs (if they can be awarded) should be reserved for cases with a penal element.

39. For my part, I would be inclined to add cases which involve an abuse of the process of the Court. Not every such case, of course, but certainly a case where there has been a really serious abuse.

40. By the 11th July, the plaintiff's solicitors knew that Ever Bright was not the 1st defendant. It behove the plaintiff then promptly to advise Ever Bright and to discontinue the action against it, seeking leave if necessary, by laying the history fully and openly before the Court. The plaintiff failed to do this and also failed to take any point as to Ever Bright's locus until this hearing. In my view, that was a serious abuse.

41. In view of my ruling about indemnity costs, I order that Ever Bright should get the costs of the action against the plaintiff, such costs to be on a common fund basis with effect from the 11th July 1988. I recongise that Ever Bright did not asked for indemnity or common fund costs in its summons, but the matter has been fully argued before me. I do not think the omission to ask for indemnity costs in the summons is a factor which demonstrates Ever Bright's true appreciation of the situation.

42. I accept that the 2nd defendant was unco-operative with the cargo interests about identifying the 1st defendant, but the 2nd defendant was only served with the writ after the plaintiff knew that Ever Bright was not involved so that the whole basis for serving the 2nd defendant had fallen away. In my view, the plaintiff should have recognised that and refrained from effecting service. I have the greatest sympathy for the plaintiff's then solicitors up to that date, but none after that date. Again, I take the view that this was a serious abuse, i.e. the serving of a document, the foundation for the issue and service of which had been removed.

43. If it had been open to me I would award indemnity costs, but, in view of my ruling, it is not now open; I think that the 2nd defendant should get costs on a common fund basis. The order which I shall make then:

(1) As against Ever Bright Shipping Co. Ltd. whose registered office is at the 21st Floor, Western Centre, 40-50 Des Voeux Road West, Hong Kong, the plaintiff's claim be struck out and the action dismissed. Ever Bright is to have its costs and the costs to be on a common fund basis with effect from the 11th July, costs to be taxed and paid.

(2) The Order dated the 11th April 1988 is discharged and the issue and service of the concurrent wit set aside. The 2nd defendant is to have its costs on a common fund basis, the costs to be taxed and paid.

44. The whole thrust of  the hearing before me has been that Ever Bright and the 2nd defendant should have costs on an indemnity basis. That has been unsuccessful. I therefore order that the costs of the hearing before me should go to the plaintiff on a party and party basis the costs to be taxed and paid.