NATWEST MARKETS PLC AND ANOTHER v. THE OWNER OF THE SHIP OR VESSEL “ANGELIC GLORY”

HCAJ 62/2020 & HCAJ 90/2020
(Heard together)

[2023] HKCFI 644

HCAJ 62/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 62 OF 2020

Admiralty action in rem against: the ship or vessel “ANGELIC GLORY” (IMO No 9261798)

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HCAJ 90/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 90 OF 2020

Admiralty Action in rem against: the ship or vessel “ANGELIC GLORY” (IMO No 9261798)

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 (Heard Together)

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DECISION

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1.  There are two Summonses before the court :

(1)  A Summons filed on 6 January 2023 by the Plaintiffs (“Banks”)  in HCAJ 62/2020 (“Banks Summons”)  seeking the payment out of their taxed costs in the sum of HK$4,741,569.07 (equivalent to US$609,456.17)  from the sales proceeds (“Proceeds”)  of “ANGELIC GLORY” (“Vessel”); and

(2)  An Amended Summons filed on 16 February 2023 by the Plaintiff (“Itiro”)  in HCAJ 90/2020 (“Itiro Summons”)  seeking the payment out of the sum of US$250,000 together with accrued interest from the Proceeds.

2.  The total amount of Proceeds retained in court stood at US$520,665.22 as of the date of hearing.  Since October 2021, the money remaining as Proceeds was made up of two sums, US$265,000 and US$250,000, and the interest accrued thereon. 

3.  The Banks Summons is opposed by Itiro, whereas the Itiro Summons is resisted by two interested parties, namely, the Plaintiff (“Diamlemos”)  in HCAJ 92/2020 and the Plaintiff (“Panthalassa”)  in HCAJ 7/2021.

4.  The Banks were represented by Mr Wright.  Itiro was represented by Mr Kirpalani.  Both interested parties were represented by Mr Brown.

5.  The issues before the court turn upon the proper construction of two Orders of this court dated respectively 28 May 2021 (“May Order”)  and 12 October 2021 (“October Order”).

Background

6.  The background facts can be succinctly stated. On 14 September 2020, the Vessel was arrested on the application of the Banks in their capacity as first priority mortgagees. 

7.  On 30 October 2020, judgment was entered in favour of the Banks in the sum of US$930,000 together with interest in the sum of US$28,647.98 up to the date of judgment and thereafter at judgment rate until payment and costs. 

8.  On the same day, the Banks obtained an Order for Appraisement and Sale of the Vessel.  The proceeds of sale of the Vessel amounted to US$4,330,000 and the proceeds of sale of the bunkers amounted to US$95,044.75.  All the proceeds were paid into court on 5 January 2021.

9.  A number of claimants, having previously lodged caveats against release of the Vessel, subsequently obtained judgments.  On 20 January 2021, Rudder S.A.M. (“Rudder”)  obtained judgment in HCAJ 67/2020 in the sum of US$347,115 together with interest in the sum of US$56,840.83 up to the date of judgment and thereafter at judgment rate until payment and costs in the sum of HK$100,000.

10.  On 2 February 2021, Diamlemos obtained judgment in HCAJ 92/2020 in the total sum of US$2,096,299.27 together with interest thereon and costs of HK$125,000.

11.  On 23 March 2021, Panthalassa obtained judgment in HCAJ 7/2021 in the sum of US$2,293,441.88 together with interest thereon and costs of US$12,000.

12.  On 13 April 2021, Itiro obtained judgment in HCAJ 90 of 2020 in the sum of US$108,475.75 together with interest and costs in the sum of HK$120,000. 

13.  By a Notice of Motion filed on 30 April 2021 (“NM(1)”), which was served on all the caveators, the Banks applied for determination of priorities and partial payment out.  By the May Order, (i)  the priority of the claims against the Proceeds was determined (para 1 of the May Order); and (ii)  payment out was allowed in favour of the Banks in respect of the amount of the judgment they had obtained, together with interest thereon (para 2). 

14.  In respect of the payment out in the sum of US$1,348,169.65 sought by the Banks for their costs and expenses (including the cost of enforcement of the arrest and preservation of the res), the court declined to order a payment out of the full amount.  Instead, a lesser sum of US$1,148,169.65 (a reduction of US$200,000)  was to be paid out to the Banks. 

15.  The court was concerned about the amount of costs incurred by the Banks, notwithstanding that such costs were to be assessed on indemnity basis.  In particular, despite the fact that the Vessel was sold and the Proceeds were paid into court on 5 January 2021, large amount of costs continued to be incurred.  Counsel for the Bank was unable to provide any satisfactory explanation for the same at the hearing of NM(1). Consequently, by para 3 of the May Order, the court ordered that the Banks’ legal costs be subject to taxation.

16.  Under para 2(iii)  of NM(1), the Banks sought an order that “the sum of US$130,000 be retained in court as security for [their] costs of this action from 31 March 2021 until the date of final payment out …”. The court took the view that the sum was excessive given that the only substantive work outstanding was the taxation.  Regrettably, in amending the sum under para 2(iii)  (which became para 2(iii)  of the May Order)  to US$265,000 the court had omitted to amend the purpose of the retention, which was to reflect the reduction of the Banks’ costs pending taxation and a reduced sum for the future costs.  Fortunately, nothing turns on this mistake (see also the terms of para 2(a)  of the October Order below which better reflected the intention behind para 2(iii))[1].

17.  Finally, at the time of the hearing of NM(1), Itiro intended to lodge an appeal (“Appeal”)  over the court’s rejection of two of its claims.  Itiro appeared at the hearing and gave an undertaking to prosecute the Appeal with due diligence.  By para 2(iv)  of the May Order, there would be no further payment out of the Proceeds until after the final determination of the Appeal.

18.  Under para 1 of the May Order, save for the Chief Bailiff’s costs and expenses, the Banks enjoyed priority over all other claimants.  The claims of Rudder, Itiro, Diamlemos and Panthalassa ranked pari passu with each other.

19.  On 12 October 2021, the October Order was made, under Diamlemos’ action HCAJ 92/2020, in the following terms :

“UPON the joint application by [Diamlemos] and [Rudder], [Itiro] and [Panthalassa] by way of Consent Summons filed on 12 October 2021

IT IS BY CONSENT ORDERED THAT:

1. The [Proceeds] retained by the Court after payment out to the [Banks] in compliance with the [May Order], together with any interest accrued thereon be dealt with as set out in paragraphs 2 to 4 below:

2. The following amounts be retained in Court from the [Proceeds]:

(a)  The sum of US$265,000 as security for the further costs claimed by the [Banks]; and

(b)  The sum of US$250,000 as security for further sum claimed by [Itiro].

3. Costs in this action, including the costs of, incidental to and occasioned by the Diamlemos’ Notice of Motion filed on 31 August 2021, be to [Diamlemos] in any event and summarily assessed at HK$100,000;

4. After retention of the sums referred to in paragraph 2 above and payment of the costs referred to in paragraph 3 above, the balance of the [Proceeds] be distributed as follows:

(a)  43.02% of the [Proceeds] plus interest accrued thereon be paid to [Diamlemos];

(b)  8.08% of the [Proceeds] plus interest accrued thereon to be paid to [Rudder];

(c)  2.51% of the [Proceeds] plus interest accrued thereon to be paid to [Itiro];

(d)  46.39% of the [Proceeds] plus interest accrued thereon to be paid to [Panthalassa]; and

5.   The hearing scheduled for … Notice of Motion dated 31 August 2021 be vacated.”

20.  The said Notice of Motion (“NM(2)”)  was served on the Banks’ solicitors, although they were not parties to the October Order. In addition, the correspondence between the parties in negotiating the Consent Order were copied to the Banks’ solicitors. 

21.  On 1 December 2021, the Appeal succeeded in part, which meant that Itiro was entitled to an additional sum of US$234,955 plus interest and costs of HK$138,425.  With interest calculated up to 1 December 2021 and conversion into USD, the total amounted to US$268,311.82.

22.  By an Allocatur dated 14 November 2022 (“Allocatur”), Master D Ho certified that the Banks’ Bill of Costs filed on 19 May 2022 had been taxed and allowed in the total sum of HK$4,741,569.07 (equivalent to US$609,456.17 at the exchange rate of 7.78).

23.  Despite the terms of the Banks Summons, Mr Wright had made clear in his skeleton arguments lodged on 17 February 2023 that, after deduction of costs already received, the total amount of costs outstanding was only US$298,006.10.  There was, however, no attempt to amend the Banks Summons.

Applicable principles

24.  The principles regarding construction of court orders were set out by the Court of Appeal in Essilor Manufacturing (Thailand)  Co Ltd v Wong Kam Wai & Ors [2020] HKCA 351 at [25].  The starting point is the natural and ordinary meaning of the words used in light of the syntax, context and background in which those words were used.

25.  I agree with Mr Kirpalani that the principles are not dissimilar to those of contractual interpretation.

Purpose of the May and October Orders

26.  It is quite clear from the terms of the May Order that its main purposes were (i)  to determine priority; and (ii)  allow payment out to the Chief Bailiff and the Banks, who enjoyed priority.  In respect of the Banks’ unpaid costs, they were protected under a retention sum. Due to the Appeal, there was to be no further payment out until after the determination thereof.  There reason was that a successful Appeal was likely to alter the pari passu entitlement of Itiro.

27.  The October Order was designed to obtain payment out by the pari passu claimants notwithstanding the fact that the Appeal had not been determined.  It was clearly in the interest of them all.  The sum of US$265,000 (“Sum A”)  retained in favour of the Banks under the May Order remained so, and a further sum of US$250,000 (“Sum B”)  was retained for “further sum claimed by [Itiro]”. 

The issues

28.  There are two issues.  Firstly, whether the Banks’ entitlement to unpaid costs is limited to Sum A which has been retained for the purpose.  Secondly, if the Banks are not so confined, whether they are entitled to look to Sum B for payment when it was retained for further claim by Itiro. 

29.  Both issues are relevant to the Banks Summons. Itiro’s Summons only turns on the second issue, which has to be formulated a little differently – whether Sum B is retained exclusively for Itiro to the exclusion of other claimants.

Sum A

30.  The arguments can be boiled down to whether the retention “as security” means that it was a cap to the Banks’ costs claim. Firstly, I am unable to see it as a natural and ordinary meaning of those words or of the entire para 2(iii)  of the May Order (see para 16 above)  or even para 2(a)  of the October Order.  

31.  Secondly, at the time when para 2(iii)  was made, the final costs of the Banks were not known.  The retention was made to secure the Banks’ interest as a priority claimant.  There was no good reason for a cap to be imposed, especially when there was to be no further distribution of the Proceeds.

32.  Thirdly, if the outcome of the taxation was that the Banks’ costs claim was not fully justified resulting in an entitlement below US$265,000, there can be little doubt that they would not be paid the full amount.  I am unable to see why the converse should not apply.  If, after taxation, the Banks were entitled to more than US$265,000, why should they be limited to the lower sum?

33.  Finally, there is nothing in the May Order which was designed to curtail the Banks’ entitlement as a priority claimant.

34.  Mr Kirpalani’s main argument was that, based on the October Order, there was a tacit agreement by the Banks to limit their costs claim to Sum A.  The tacit agreement was based on (i)  the fact that NM(2), the negotiation correspondence and the draft Consent Summons were copied to the Banks; (ii)  it was plain that only Sum A and Sum B would be retained after the distribution to the pari passu claimants; and (iii)  no disagreement was ever raised by the Banks. 

35.  Mr Kirpalani also made the point that the Banks had indicated in a letter to the caveators dated 6 July 2021 that their unpaid costs were less than US$260,000, which demonstrated that the Banks were content with limiting their claim at US$265,000.  The letter was written for the purpose of eliciting the recipients’ consent to the costs so that taxation could be avoided.

36.  The submission is not without force.  However, I am unable to accept it for 3 reasons.  First, the Banks were not party to the October Order.  The fact that they did not, for whatever reason(s), oppose NM(2)  cannot simply be equated with giving up their priority over the Proceeds.  I see no reason for them to have done so.

37.  Second, although it would have been apparent to the Banks that the only money left in the Proceeds after distribution, apart from Sum A, would be Sum B, they might have taken the view their priority would trump Itiro’s claim to the same.  In fact, that was the position taken by the Banks at the hearing.  Whether or not that position is correct, I am unable to come to the view that the Banks had agreed to limit their costs claim.

38.  Third, the letter of Diamlemos’ solicitors dated 1 June 2021 referred to in para 42(1)  below was copied to the Banks.  It was one of the correspondence between the caveators on payment out of the Proceeds.  The suggestion was not that Sum B would be retained exclusively for Itiro but that it would be dealt with after final determination of the Appeal.

Sum B

39.  Mr Kirpalani was on solid ground concerning the natural and ordinary meaning of para 2(a)  of the October Order: “The sum of US$250,000 [be retained in court] as security for further sum claimed by [Itiro]”.  Those words suggest that Sum B was secured for Itiro’s further claim.  Itiro had in fact succeeded in the Appeal and there is no question of any balance left. 

40.  However, notwithstanding the clear wording of para 2(a), it does not sit very well with the pari passu distribution to the caveators (putting aside the Banks’ priority claim), which was provided under 4 of the October Order.  It has often been said that for purpose of construction the context and purpose of a document is equally if not more important.  On this aspect, Mr Brown had focused his submissions.

41.  According to para 4 of the October Order, Itiro was only entitled to 2.51% of distribution unless the Appeal became successful.  A successful Appeal would require such percentage to be uplifted.  On the assessment of Itiro’s solicitors by their letter dated 23 August 2021, there should be an uplift by an additional 5.604% (in addition to the 2.51%).  However, there is no dispute that if Itiro is to have the entire Sum B to itself, it would be out of proportion to the return it is entitled as a pari passu claimant.

42.  First, there is nothing on the face of the October Order suggesting that the pari passu entitlement was to be altered.  Second, there is no reason to believe that it was the intention of Diamlemos, Panthalassa or Rudder to give up any of their entitlement as pari passu claimants.  Third, the contemporaneous correspondence clearly show that there was no such notion in the minds of the parties :

(1)  By a letter from its solicitors, Clyde & Co, dated 1 June 2021 Diamlemos began the process which led to the October Order:

“We wonder whether the other interested parties would now be minded to apply to the Court for a pro-rata interim payment out from the balance of the funds in Court, retaining, say, US$250,000 to be dealt with after the final determination of the [Appeal].”

(2)  By a letter dated 23 August 2021, Itiro’s solicitors, Tsui & Co, set out the calculation of Itiro’s pro rata entitlement to the Proceeds in the event of success of the Appeal (8.112%), and proposed that 5.604% (8.112% minus the anticipated distribution of 2.508%)  of the Proceeds be retained exclusively for Itiro in light of the Appeal.

(3)  After taking out NM(2), by a letter dated 1 September 2021 Clyde & Co indicated that US$250,000 originally proposed by them was preferred but as this exceeded the sum proposed by Itiro there was no prejudice to Itiro.  The letter went on to state:

“Depending on the outcome of your client’s Appeal, distribution of the sum retained in Court can then be reassessed and made to the claimants who still have claims against the Sale Proceeds proportionally, making necessary adjustments of course to the percentage split and the sum payable to your clients should their Appeal succeed.

We trust this is agreeable. Please let us know if you/your clients have any objections regards the Application.”

(4)  On 29 September 2021, Tsui & Co responded by agreeing with Clyde & Co in principle, with only a reservation (later resolved)  on the priority of Diamlemos’ costs of NM(2).

(5)  The Consent Summons which led to the October Order was signed by Tsui & Co.

43.  The contemporaneous documents are inconsistent with Itiro’s construction of the October Order notwithstanding the clear wording of para 2(b).

44.  On the above analysis, Sum B is not retained exclusively for Itiro.  It must follow that the Banks are entitled to look to Sum B for their taxed costs which have not been covered by Sum A. 

Disposition

45.  In the premises,I hold that the Proceeds are to be distributed, firstly, to the Banks in the sum of US$298,006.10.  The balance of the Proceeds, including any accrued interest, be distributed to Diamlemos, Rudder, Itiro and Panthalassa on pari passu basis taking into the account Itiro’s increased judgment sum. 

46.  As for costs, the Banks’ defective Summons had resulted in unnecessary opposition from Diamlemos and Panthalassa at the last hearing, as well as waste of time and costs.  Diamlemos and Panthalassa had withdrawn their opposition after having received the Banks’ skeleton arguments setting out the proper amount of claim.  I order that the Banks should bear the costs of Diamlemos and Panthalassa in respect of the Banks Summons up to and including the date of their skeleton arguments, 17 February 2023.

47.  As between the Banks and Itiro, the Banks are to have the costs of their Summons from 17 February 2023.  To make the matter absolutely clear, the Banks are not to get the costs of their Summons incurred prior to 17 February 2023. 

48.  In respect of the costs of Itiro’s Summons (including the costs of the hearing on 15 February 2023), they should be borne by Itiro in favour of Daimlemos and Panthalassa.