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Crownland International Co Ltd v Pioneer Freight Futures Co Ltd BVI [2009] WSSC 102 (28 October 2009)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

IN THE MATTER: of an application under Rule 28 of the Supreme Court
(Civil Procedure Rules) 1980.

BETWEEN:

CROWNLAND INTERNATIONAL CO. LIMITED
an international company having its registered office at Offshore Chambers,
NPF Building, Beach Road, Apia, Samoa.
Applicant

AND:

PIONEER FREIGHT FUTURES CO. LTD BV1,
a Corporation having its place of business at Tower Two, Lippo Centre, No. 89
Queens way Central, Hong Kong SAR.
Respondent

Counsels: Mrs R. Drake for the applicant
Mr G. Latu for the respondent

Decision: 28 October 2009

DECISION OF NELSON J. (as to costs)

1. Submissions in writing have now been received from both parties. As indicated to counsels a written ruling would issue in due course.

The relevant facts:

2. The applicant is an international company registered in Samoa under the International Companies Act 1987. The respondent is a company registered in the British Virgin Islands but carrying on business in the Hong Kong Special Administrative Region of the Peoples Republic of China. In December 2008 the parties became embroiled in a dispute regarding payments due under certain freight forwarding contracts. On 26 January 2009 the respondent served on the applicant in Samoa formal notice under section 159 of the International Companies Act demanding payment of US$32,207,236 said to be owing pursuant to the aforesaid contracts. The notice further required payment to be made to the offices of the respondents solicitors within 30 days, failing which the respondent would petition the Supreme Court for an order winding up the applicant. On or about 9 February 2009 the respondent commenced proceedings in the London High Court Queens Bench Division to recover these monies.

3. By letter dated 13 February 2009, the applicants solicitors advised the respondents solicitors that the claim was in dispute and the London proceedings would be "vigorously defended". They also requested that because the claim was disputed, the demand served in Samoa be immediately withdrawn. They further gave notice that if "an application is necessary, our clients will be looking to your clients for costs".

4. By email reply dated 17 February 2009 the respondent through its solicitors acknowledged the applicants position but advised proceedings would continue and would in due course be served on the applicant in Samoa as well as China. It reiterated that unless payment was made in full "our instructions are to progress the London proceedings and/or wind them (i.e. the applicant) up". In an email response of the same date the applicants solicitors reiterated that the claim was in dispute and sought withdrawal of the statutory demand "wrongfully served in Samoa. Otherwise we will apply to set it aside and we will be seeking indemnity costs against your clients".

5. On 23 February 2009 the London proceedings were served on the applicant: see the affidavit of service of Mr Drake for the respondent. On the same day the applicant filed proceedings for orders declaring the demand notice null and void, setting it aside and seeking indemnity costs. On 26 March 2009 the respondent moved to stay the proceedings pending the outcome of the London litigation. Both applications were adjourned to 27 May 2009 for hearing and at the various call-overs there was no indication these matters would not proceed to hearing.

The 27 May 2009 hearing:

6. A day or so before the assigned trial date the respondents solicitors advised they had received instructions to withdraw the demand notice served on the applicant. This had the effect of making the application to set it aside redundant and the respondents motion to stay it unnecessary. Counsels sought and were granted firstly leave for the respondent to withdraw its motion to stay and secondly, for the applicant to discontinue its action which I accordingly dismissed leaving only the question of costs which the applicant is not surprisingly pursuing.

Costs – the law:

7. The law as to when these can be awarded is well settled. The court is not bound by the antediluvian scale contained in the Supreme Court Fees and Costs Rules 1971 and in appropriate cases can and has awarded costs on a party to party basis or indemnity basis: see Alesana v Samoa Observer Co. Ltd (unreported) 16 September 1998, Vaai v Meredith [1998] WSSC 30, Polynesian Ltd v Samoa Observer [1999] WSSC 35 and more recently Keil v Ministry of Natural Resources & Environment [2004] WSSC 31 and Westpack Bank Samoa Ltd v Tapusoa [2005] WSSC 51. The principles governing the exercise of the courts discretion are outlined in those cases.

The arguments:

8. The applicant seeks indemnity costs or in the alternative ⅔ of its costs as was awarded in Keil. It argues the respondent has acted frivolously vexatiously and improperly in refusing to withdraw its demand despite being advised the debt was in dispute. This refusal necessitated the applicant filing proceedings challenging the demand in order to avert the threatened winding-up of the company within 30 days. Proceedings were filed on the eve of the expiry of the demand.

9. The applicant further says the respondent has acted improperly in keeping the demand and therefore the challenge proceedings on foot until the day before trial. The respondent had itself filed an application to stay the proceedings to await the outcome of the London litigation. It is not clear from the material before the court why the respondent chose that route and not the option of staying or withdrawing the demand to await adjudication of the London claim.

10. In reply the respondent firstly raises the issue of inadequate service of the applicants application. That argument has no merit as the respondent by virtue of its application to stay the proceedings has accepted service was validly effected. No complaint otherwise was made.

11. Secondly the respondent raises its request of 24 March 2009 to local counsel for the applicant to adjourn its application pending determination of the London proceedings. The respondent says no response to that was received necessitating its application to stay filed on 26 March 2009. The applicant does not address this in its submission but I accept the 26 March application was an attempt by the respondent to mitigate what were obviously growing costs.

12. The respondent also says it has an absolute and unfettered right to withdraw its statutory demand at any time. There is no question about that, what is in issue is the timing of the withdrawal.

13. Finally the respondent argues that the withdrawal of the demand leading to the collapse of all proceedings means the court is left wanting for jurisdiction and there is nothing upon which to base any order for costs. That submission is rejected. The Supreme Court being a court of record retains an inherent residual jurisdiction to award costs where proceedings have been wrongly or inappropriately instituted or continued. That jurisdiction is preserved by provisions such as rule 109(3) of the Supreme Court Rules allowing the court to award to a defendant against whom an action has been discontinued such costs as it thinks fit. The present scenario is in a sense the reverse of r.109(3) but if any sanction apart from the inherent jurisdiction of the court to award costs be necessary, rule 206 provides it. That allows the court in matters not provided for by the Rules to "dispose of the case in such manner as the court deems best calculated to promote the ends of justice."

Decision – reasons:

14. This is a case where indemnity costs are warranted. The respondent was given full notice after service of the demand that the debt was in dispute and if the demand was not immediately withdrawn, costs for any resultant application would be sought. This was made plain by the correspondences dated 13 February and 17 February 2009 from the applicants solicitors. Despite this the respondent took no steps towards withdrawal. Meantime the clock kept ticking and the 30 days purported to be given by the demand was nearing expiry.

15. On 23 February 2009 before expiry of the 30 days and in order to protect their position and thwart a threatened liquidation, the applicant filed an application to declare the demand null and void. The affidavit in support of that application makes clear the grounds of the challenge: firstly, the demand notice was defective as it is dated 23 February 2008, one year earlier; and secondly, the grounds for dispute of the debt are set out. Leave was obtained as required from the court to serve the applicants proceedings out of Samoa and as noted earlier, no issue was made as to defective service of this application.

16. It should have been clear by that stage the statutory demand was prima facie defective and would be liable to be set aside. Yet the respondent took no steps for withdrawal but only sought a stay of the applicants motion to await the outcome of the London litigation. And it took no action until a day or so before trial on 27 May 2009 other than to maintain through its solicitors that the matter was ready to proceed to a hearing.

The respondents conduct has incurred unnecessary costs to the applicant which the respondent must pay, initial costs as well as costs in persisting with an obviously defective statutory demand. As noted by the court on Ora Ltd v Kirkley (unreported) 09 March 2009 High Court, Auckland 13C 200915115:
"Had the statutory demand not been answered the applicant would have been presumed to have been insolvent. In this case an answer was given which challenged the basis ........ of the demand."

And earlier in the judgment when dealing with correspondence between the parties and a request that the demand be withdrawn:

"At this point had the respondent conceded that her statutory demand ought to be withdrawn, likely the court would have adopted the view that costs should lie where they fall. However the respondent’s solicitors replied insisting the funds were still payable ..."

18. Those observations apply equally to this case and like the court there, I am satisfied the applicant responded appropriately and responsibly to the demand. The Respondent should have withdrawn or stayed its demand once it was clear the debt was in dispute for valid reasons. Certainly it should have done so when it became apparent the demand was defective.

In the words of Polynesian Ltd v Samoa Observer:

"I am satisfied that the defendants acted unreasonably and pursued a wholly unmeritorious and hopeless course of action .... in circumstances where the defendants, properly advised should have known that they had no chance of success.... There is some special or unusual feature in this case warranting this court exercising its discretion in this way. Indeed the justice of this case so requires."

Decision – quantum:

18. The applicant has submitted 3 itemized bills of costs for services rendered by their solicitors. This is the extent of the costs claimed as a result of the demand.

(i) Period 04/02/09 US$15,745.50

(ii) Period 24/02/09 – 21/04/09 7,218.75

(iii) Period 28/04/09 – 04/06/09 2,750.00

Costs in respect of (i) are approved. However in relation to (ii) it is not clear what portion of the account relates to the demand and how much to other aspects of the respondents claim. Accordingly I allow only 50% thereof. In respect of (iii), no itemized bill has been provided and I also note this period extends beyond the allotted hearing date, these costs are disallowed.

19. The respondent is therefore ordered to pay the applicants costs of US$19,354.87.

JUSTICE NELSON