DONGHWA LEASING CO. v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP "HALLA LIBERTY"

HCAJ60/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY JURISDICTION ACTION NO.60 OF 1998

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Admiralty Action in rem against :
the ship or vessel "HALLA LIBERTY" (South Korean Flag)

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J U D G M E N T

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1. I have before me three applications. An application by the Plaintiff for default judgment which would entitle them, if granted, as mortgagee enjoying high priority to take up all of the proceeds of sale of the vessel. Two applications by the 2nd Intervener and 3rd Intervener for leave to defend. The claim of the Plaintiff as mortgagee is of long standing. It was first interrupted by the 1st Intervener, Dongnama Shipping Co. Ltd (which was granted leave to intervene and granted leave to defend). The 1st Intervener put up a substantial defence, leading to many many interlocutory applications, both for discovery as well as for stay. In a judgment of mine, given on 12 December 2000 where the question was whether there should be a stay of the Hong Kong proceedings in view of the Korean proceedings, I referred to the fact of that this dispute between the Plaintiff and the 1st Intervener raised four substantial issues. It is not necessary for me now to go into what were the disputes in that action except to say that it clearly shows that the case was a heavy case. I declined to grant a stay of Hong Kong proceedings.

2. The action between the Plaintiff and the 1st Intervener then went on with parallel proceedings in Korea leading to a judgment in the Korean court of first instance. There was an appeal launched in Korea but I understand subsequently that appeal was dropped at the same time as the 1st Intervener decided to gracefully leave the present proceedings. The path seemed to be cleared for the Plaintiff to enter judgment. This is when the 2nd Intervener came in. The 2nd Intervener in fact had been granted leave to intervene as far back as, I am told, December 2000. The 2nd Intervener had known about this case since 1998 and no doubt they had been keeping a very close watch on the case. The reason for their interest is that the 2nd Intervener would be able to collect nothing from its claim against the vessel if the Plaintiff in this case succeeds since the 2nd Intervener would have a low priority. The 2nd Intervener could have come in and asked not just leave to intervene but for leave to defend and become an active party. They chose not to. It was only upon the dropping out of the 1st Intervener that the 2nd Intervener decided to come in to defend more or less along the same line as the 1st Intervener. The draft pleading put before the court shows clearly that it is a defence wherein it alleges misrepresentation and fraud.

3. The question I have to ask is should I allow in a admiralty action in rem for successive serial attacks when it is plain that the attackers knew all about the necessity to attack if they wished to protect their position on priorities. They could have come in but they did not. I think in principle the admiralty court must take the position and follow the principle that people who want to come in to attack must do it at the earliest possible time and would not permit a serial and successive attack in the fashion of a relay, passing the baton. Turning to the facts of this case, the question now put before me is that the 2nd Intervener should be allowed to attack by way of putting in the full defence and prevent the Plaintiff from obtaining judgment, with allegations by the 2nd Intervener of fraud and misrepresentation.

4. In answer to the matter of condition imposed by the court for leave to defend, a number of points have been put to me by Mr Ng, on behalf of the 2nd Intervener and to a certain extent that was supported by Mr Mallard, for the 3rd Intervener, Jade Marine S.A, which has seen fit to jump on the band wagon this week and has taken out an application today for leave to defend in the same way as the 2nd Intervener.

5. The first point that was put to me is that the court has no jurisdiction to order any sum to be paid in by way of security for costs because it is said that on the authority of the Shell case in England, the court has no jurisdiction to order security for costs against defendant or intervener/defendant even though they may be foreign. I think the short answer to this is that the stage reached in this case are different from the stage reached in the Shell case. Here all that the 2nd and 3rd Interveners have is a status of being heard by this court - they have been given leave to intervene so that they can be heard in this action. But what they can do is still to be decided by the court and the court takes the view that in the particular circumstances of this case it would be monstrously unjust to allow them the full liberty without condition to attack the mortgage and to attack the Plaintiff in this case. It is to be noted that their claims got nothing to do with the claims of the Plaintiff or the validity of the mortgage. The reason that they need to attack the Plaintiff and the Plaintiff's case is because of priority. They cannot afford to allow the Plaintiff to obtain judgment on the mortgage because the consequence of that is the Plaintiff would have higher priority and therefore would be paid out all the proceeds of sale. So they are in the form of foreign attackers who decided to come in and ask for leave to attack. In my view, it is imperative that if they are allowed to do this that they must protect the interest of the Plaintiff by an appropriate order of payment in of a sum of money for the security of costs of the Plaintiff. I see no problem so far as jurisdiction is concerned. It is worth noting that a unique feature of the in rem proceedings in the admiralty court is that a plaintiff is able to obtain security of costs from the defendant at the start of the proceedings when the vessel was arrested. And that is when security had to be put up by the defendant which security includes not only the amount of the claim by way of equivalent of a Mareva injunction but also would include as the security to be provided, the full costs of the plaintiff on the best case basis for a period of about two years. So there is nothing peculiar in the admiralty court about security of costs being provided by the defendant. But the fact of this case speaks for itself and I have no doubt that there is jurisdiction to make an order on condition of paying into court of security for Plaintiff's costs.

6. Then the question of the exercise of discretion is also raised. I believe that Mr Ng realises that there are plainly good grounds for ordering security and the two points he made against discretion are not good points. One point is that the 2nd Intervener has merit in its defence. But that is begging the question. The other point raised is that there should be reciprocity between the Plaintiff and the 2nd Intervener in terms of security, that is to say the Plaintiff should also give security of costs to the 2nd Intervener. It was pointed out to Mr Ng that there would be in any event, plenty of money in court which the Plaintiff will be able to look to even on basis not as mortgagee. The point was not pursued by Mr Ng.

7. The main argument raised at the hearing by both Mr Ng and Mr Mallard is as to the quantum of the amount that should be paid in. Two scenarios were envisaged. The first is whether the amount pay in should be a relatively small sum to take it only up to the stage of completion of discovery. The second scenario is a larger sum to take it all the way up to the setting down for the trial. The amount I mentioned at the last hearing, which is supported by the Plaintiff is that there should be security of US$100,000 up to the stage of before setting down. The question is whether it should be up to what stage.

8. In my view, if the interveners are serious about coming in and attacking the plaintiff's claim, then they must be serious up to at least the trial about to begin, that is before the setting down. It is at that stage that one can then see what would be the further costs that would have to be incurred for the trial: how long the trial is going to take. I can see merits in the submission that the security for costs should be granted in the full sum of US$100,000 up to the stage of setting down rather than the earlier period. So far as the Plaintiff is concerned, they need to be properly protected so that they have the comfort of security of costs in preparing for a fully fought out case in the way that this heavy case would call for. So my order therefore is that the 2nd and 3rd Interveners each be allowed to put in their defence and defend, but on condition that within 21 days each party do pay into court or provide satisfactory security to the Plaintiff in the sum of US$100,000.

Representation:

Ms Campbell-Moffat, instructed by Messrs Sinclair Roche & Temperley, for the Plaintiff

Mr Kenneth Ng, instructed by Messrs Richards Butler, for the 2nd Intervener

Mr Mallard of Messrs Dibb Lupton Alsop, for the 3rd Intervener

HCAJ60/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY JURISDICTION ACTION NO.60 OF 1998

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Admiralty Action in rem against :
the ship or vessel "HALLA LIBERTY" (South Korean Flag)

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J U D G M E N T

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1. I have before me an application for specific discovery by the intervener against the plaintiffs. This matter has been troubling the court time and again and there had been a large number of interlocutory applications which came before the court in this action.

2. The parties have, as of last night, agreed on the form of the discovery order to be made and have submitted to me this morning a draft minute of the order which, under paragraph 1, provides specifically for the filing of an affirmation relating to three categories of specific documents because the Third Supplementary List has now been filed by the plaintiffs.

3. What divides the parties today is the question of costs, in particular as to the quantum of the costs of the application, the plaintiffs, having admitted that they are liable for the costs of the intervener's application for specific discovery. In my view, the intervener is substantially correct in seeking its costs which it has particularized by way of a Costs Schedule put before me. The Costs Schedule includes work done both by Mr Chung, Senior Assistant Solicitor as well as by Mr Andrew Cutler, the partner. Of course the partner's charging rates are much higher than those of Mr Chung. It also includes fees for consulting Korean lawyers and for liaising with counsel.

4. The history of the matter had been outlined to me by both Mr Toms and by Mr Chung. I do not think it is necessary for me to go into the complicated history of this. It seems to me having regard to the long history of this unsolved Action that the costs set out in the Costs Schedule of the intervener are justified and, in my judgment, the proper costs of the application, the subject now, of gross sum assessment should be in the sum of $28,000, which includes the costs of today's hearing, and this is the amount which I have determined.

HCAJ 60/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 60 OF 1998

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Admiralty Action in rem against the ship or vessel "HALLA LIBERTY"
(South Korean Flag)

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J U D G M E N T

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1. This is an application by the intervener, Dongnama Shipping Co. Ltd, against the plaintiff, Donghwa Leasing Company, for a stay of the proceeding until such time as the Korean court has finally disposed of the dispute in Korea arising out of Article 406 of the Korean Civil Code.

2. The dispute between the parties is of long standing. The plaintiff claimed in rem against the vessel for some US$18 million, said to arise in two ways, first by reason of a lease agreement whereby the plaintiff was the lessor and the defendant was the lessee, and by reason of the failure of a breach of the lease agreement, it was eventually terminated and the plaintiff claimed against the defendant for the US$18 million.

3. It is also said that there was a mortgage whereby the vessel was mortgaged and the same sum claimed under the lease agreement was claimed under the mortgage by the plaintiff against the vessel.

4. The intervener, having itself a substantial claim in other Admiralty action against the ship (with a lower priority than the plaintiff's claim as mortgagee), came in to contest the proceedings and it is now substantially defending the present AJ60 of 1998. Pleadings had been filed which together with what are said today reveal that there are at least four possible disputes between the parties.

5. The first dispute is the Article 406 defence attacking the mortgage. This is pleaded in paragraph 12 of the defence at page 13 of the Bundle. The second defence, also attacking the mortgage is what is said to be the section 60 of the Conveyancing and Property Ordinance of Hong Kong defence whereby it is said that the mortgage was a disposition of property which was made with intent to defraud creditors and therefore liable to be avoided at the instance of the intervener.

6. The third dispute relates to the recoverability under the lease. It is said that the accelerated provision under the lease was a penalty.

7. Finally, there may, or it would seem from today's hearing, be a dispute as to whether the claim under the lease could be said to be a proper claim which is actionable in rem covered by section 12B of the High Court Ordinance.

8. The original position of the intervener on this application is that there should be a total stay of the proceedings pending the decision of the Korean court. When the application was issued in May, the Korean court at first instance had not yet decided on the matter. In September this year, the Korean court apparently had decided in favour of the plaintiff and held against the intervener on the Article 406 proceedings. The intervener had appealed and it is now going up to the Court of Appeal in Korea. This is going to take some time, and there is a disagreement between the parties as to how much time it would take.

9. From the decision of the Court of Appeal in Korea, there is the possibility of a further appeal to the Supreme Court of Korea. Again, there is a disagreement as to how long that would take. I think it is fair to say that, even taking a reasonable low estimate on the part of the intervener, the whole process up to the Supreme Court could easily take another year and a half. Therefore, it would take up to mid-2002. The evidence from the other side is that it may take a little bit longer. It is clear, however, that there is going to be considerable time before the final resolution by the Korean court on Article 406 proceedings.

10. In the course of the hearing, as the various issues are canvassed and consideration was given to the possibility of the matter proceeding in Hong Kong on some of the issues that are bound to be litigated in Hong Kong, such as the lease agreement - whether it is a penalty or not; and whether the lease claim falls within the in rem proceedings jurisdiction of the court. In the light of these matters having to be decided by the Hong Kong court in any event, it is said that whether it is right to stay the proceedings altogether.

11. The revised position of Mr Coleman, representing the intervener, is that there should be a stay covering, as a package, the dispute relating to Article 406 of the Korean Civil Code and section 60 of the Hong Kong Ordinance. It is said that the two are very much interconnected and that the Hong Kong court should wait for the final outcome of the Korean proceedings, and in the light of that and the findings of fact in the final Korean court, then to decide to act accordingly because if the intervener succeeded in Korea on the Article 406 defence, then both paragraphs 12 and 13 of the defence would no longer become live. I can see that there is much force in the argument.

12. On the other hand, it seems to me that much time would be lost by just the Hong Kong court waiting for the Korean court to decide, and that there is much the Hong Kong court can and should order the parties to do in the meantime, and that a flexible approach should be adopted by the Hong Kong court in relation to the progress of the Hong Kong proceedings, in particular in relation to the Article 406 and section 60 defences.

13. The alternative suggested was that either this court should stay as a package both defences, i.e. 406 and 60, or just stay 406. If one looks at just Article 406 first, the parties acknowledge and Mr Sussex very frankly admits that that aspect would be largely the subject of issue estoppel depending on the decision of the Korean court and he would be pleading accordingly. It is suggested that there is no sense in staying now Article 406 aspect, and the court should adopt a flexible approach, and allow it to go forward and then perhaps to review the position at a stage shortly before trial, which is estimated, in any event, not likely to be taking place much before the summer of 2001. I think there is much force in that suggestion. I am therefore reluctant, notwithstanding all the points made by Mr Coleman, to stay the Article 406 defence.

14. Having said that, then it seems to me that obviously the section 60 stay will not be granted. But assuming I am wrong on Article 406 stay and that there ought to be a stay in Article 406 aspect, I still take the view that there should be no separate stay of section 60 or, to use the language of Mr Coleman, there should not be a package stay.

15. Section 406 defence is a defence based on a particular Hong Kong statutory provision. Although there may be some amount of factual overlap between Article 406 point and section 60 point, there is nothing which should inhibit the Hong Kong court from, quite legitimately, whether now or in a year's time, trying the section 60 point (of course with the benefit of the material then available from Korea). I think Mr Sussex has succinctly pointed out that if you look at the Korean judgment at first instance that has been exhibited, there is really very little or no findings of fact in that judgment which overlap section 60, and which can be the subject of an issue estoppel.

16. At the end of the day, I suspect that the Hong Kong court will have to decide, with all the material before it, of what is the right answer to the section 60. I acknowledge, of course, Mr Coleman's point that by pushing forward section 60, the court may be putting the parties to unnecessary expense in the sense that the intervener may ultimately succeed in Korea and that the section 60 issue would become redundant as a result of the success of the intervener. But the intervener may fail in its appeals.

17. This is a balancing exercise that the court unfortunately has to undertake. It seems to me that the circumstances are such that it is far better the matter should push ahead, and then the court, as always, has the liberty to review the position shortly before the trial. In the circumstances, it seems to me that although I have the widest discretion and jurisdiction to order a stay on any terms, it is not appropriate at present to order the stay sought by the intervener either in terms of an absolute stay or in terms of the package stay as sought in the revised version by Mr Coleman.

18. The application of the intervener is therefore refused with costs.