World Fuel v. Florens Container

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World Fuel Services (Singapore) Pte Ltd v. Florens Container Inc. ("The Liberty Container")
Hong Kong SAR: Court of Final Appeal: Mr Justice Bokhary, Mr Justice Chan and Mr Justice Ribeiro PJJ, Mr Justice Nazareth NPJ and Lord Millett, NPJ: 16 May 2007

Mr Colin Wright and Miss Shannon Leung, instructed by Johnson Stokes and Master, for World Fuel Services
Mr Clifford Smith and Miss Rachel Lam, instructed by Holman Fenwick & Willan, for Florens 

Florens had appeared as intervenor in proceedings between World Fuel Services and Powick, owners of four vessels which had been sold by judicial sale in Hong Kong pendente lite (pending the outcome of proceedings). World Fuel had supplied bunkers to the vessels but had not been paid for them. In this appeal, the Final Court of Appeal restored the judgment at first instance. This had ordered Florens to pay World Fuel such costs of the litigation as could not be recovered from the proceeds of sale of the vessels concerned. The court considered the principles to be applied in such cases and in particular the impact of s.52(A) of the High Court Ordinance and s.265(B) of the Companies Ordinance

DMC Category Rating: Developed

The Editor has compiled this case note in conjunction with Crump & Co, the International Contributors to this website for Hong Kong

Section 52A of the Hong Kong High Court Ordinance (Cap.4) provides in subsection (1) that the court "shall have full power to determine by whom and to what extent costs are to be paid", whereas subsection (2) provides "…nothing in subsection (1) shall authorise an award of costs against a person who is not a party to the relevant proceedings."

The point at issue in this case was "whether s.52A confers jurisdiction to order costs against a person who, though not a party to the application giving rise to those costs, is a party of record in the action and had funded the application for his own financial benefit."

Three subsidiary points arose:
1. was it necessary to show, "before costs can be awarded against a funder, that it was with a view to becoming the sole or substantial beneficiary that he funded the litigation?"
2. is the making of a costs order against an unsecured creditor who funded the liquidation in the name of a company in liquidation in the hope of recovering assets for the general body of unsecured creditors proving in the liquidation including himself prohibited by s.265(B) of the Companies Ordinance, Cap.32? This provides that:
"Where in any winding up assets have been recovered under an indemnity for costs of litigation given by certain creditors…or where expenses in relation to which a creditor has indemnified the liquidator have been recovered, the court may…make such order as it deems just with respect to the distribution of those assets and the amount of those expenses so received, with a view to giving those creditors an advantage over others in consideration of the risks run by them in so doing."
3. does ordering costs against the litigant who has been funded, exhaust the powers of the court to order costs against a funder?

The facts were as follows. World Fuel was a Singaporean company. So was Powick. Powick owned a fleet of container vessels including the Convenience Container, the Kingdom Container", the Liberty Container and the Mandarin Container ("the four vessels").  World Fuel claimed US$350,750 for bunkers supplied to the Kingdom Container and the Mandarin Container during March and April 2003 when they were under time charter to Kien Hung Shipping Co. Ltd ("Kien Hung"), a Taiwanese company which was under the same beneficial ownership as Powick.  Pursuing that claim, World Fuel commenced in Hong Kong on 9 May 2003 an admiralty action in rem against the owners of the Liberty Container.

On 13 May 2003 Powick commenced proceedings for the purpose of putting itself into voluntary liquidation, and – by the time of the judgment at first instance in September 2005 – it and Kien Hung were in liquidation. During the period from 16 May to 2 June 2003 the four vessels were arrested in Hong Kong and in July 2003 were sold by the High Court pendente lite (pending the outcome of litigation). 

Florens was a Delaware company in the business of leasing containers. Its claim against Powick was under a guarantee executed in its favour by Powick on 17 March 2003 in respect of all sums due and payable under various agreements by which it, Florens, had leased containers to Kien Hung. Florens asserted a vested interest in ascertaining whether or not World Fuel could establish its claim against Powick, the quantum thereof and its priority. On the basis of that assertion, Florens obtained leave from Waung J on 12 June 2003 to intervene in the action. The reason it did so was the common one in admiralty actions in rem of putting itself in a position, if necessary, to take over the shipowner’s defence.

After Florens became an intervener, World Fuel’s action proceeded through numerous stages until in April 2005, just before trial was due to commence, Powick notified World Fuel that it would not contest judgment in rem. World Fuel reacted by immediately taking out a summons for an order requiring Florens to contribute to World Fuel’s costs to the extent that such costs were not recovered out of the funds remaining in court from the sale of the four arrested vessels. On 11 April 2005 Waung J gave judgment in rem in favour of World Fuel for its claim in full, with costs.

World Fuel’s costs application against Florens resumed on 6 September 2005, and on the 13th of that month Waung J gave his decision on it. As to the facts, he found that Florens had funded the steps in which the costs in question were incurred and had funded them in pursuit of a prospect of gain for itself. On the law, Waung J relied in particular on the decision of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v. Todd [2004] 1 WLR 2807 He rejected Florens’ argument that costs can only be ordered against a funder if it had funded the litigation with a view to becoming the sole or substantial financial beneficiary of the litigation. H proceeded broadly on the basis that a person who funded litigation to gain access to justice for himself should, where the funded litigation fails, be responsible for the successful party’s costs. In the result, he ordered that in so far as the proceeds of the sale of the Liberty Container remaining in court were insufficient to meet World Fuel’s judgment and costs, Florens should pay World Fuel the costs in question.

The judgment of Waung J was, however, overruled by the Hong Kong Court of Appeal. From that judgment, World Fuel appealed to the Court of Final Appeal.

1. The court held that the wording of s.52A(2) of the High Court Ordinance gave it the power to award costs against a funder who, though not a party to the application giving rise to those costs, was a party of record in the action and had funded the application for his own financial benefit.

2. The court went on to reject the argument that, even where a funder comes within the scope of s.52A of the Ordinance, costs should never be awarded against it unless it had stood to gain as a sole or substantial beneficiary of the litigation. Similarly the court rejected the submission that, before costs could be ordered against a creditor who funded litigation, it must be shown that it did so solely or substantially for its own benefit rather than for the benefit of the general body of creditors, including itself.

A distinction should be drawn, the court said, between, on the one hand, a pure funder who funds litigation to facilitate access to justice by the funded litigant and, on the other hand, a self-interested funder who funds litigation not so much to do that as to gain access to justice for his own purposes. The court did not, however, devise any hard and fast test for deciding who was, or was not, a pure funder.

Whilst normally, costs should not be ordered against a pure funder, "justice will normally require that a self-interested funder whom the law can reach be ordered to pay the costs of the funded litigant’s successful opponent." In this case, Florens clearly fell into the latter category.

3. As regards s.265(B) of the Companies Ordinance, the court said that, while it could well accept that the policy underlying the section was to encourage creditors to fund litigation by the liquidator for the benefit of the general body of creditors, it could not accept that such litigation was to be undertaken without risk as to costs, either on the part of the company in liquidation or of a funder, where the action, defence or appeal were unsuccessful. It was, the court said, "plainly not the subsection’s underlying policy to immunize such funders from liability as to costs".

4. Finally, the court rejected the argument that, by making a costs order against the insolvent Powick, it had exhausted its powers in that regard and could not, therefore, make an additional costs order against Florens. "Making an order that has to be supplemented by another order to achieve justice doe not," the court said, "exhaust the power to make that supplementary order.

Accordingly, the court ordered that, whilst Powick remained fully liable for the costs of the proceedings, Florens would itself be liable to the extent of any shortfall. The judgment of Waung J. at first instance was accordingly restored.

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