M & B LTD v. GEMOLOGICAL INSTITUTE OF AMERICA INC.AND OTHERS

HCMP 874/2019

[2020] HKCFI 1942

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 874 OF 2019

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D E C I S I O N

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A. INTRODUCTION

A1.    The application

1.  By a summons of 11 June 2020, the Plaintiff seeks leave to appeal against my decision of 28 May 2020 (“the Decision”). In the Decision, I dismissed the Plaintiff’s appeal (“the Original Appeal”) against the decision of Master Chow of 14 January 2020, which in turn dismissed the Plaintiff’s ex parte application for leave to issue a concurrent amended Originating Summons and serve it out of the jurisdiction on the four Defendants named therein.

A2.    The test

2.  Leave to appeal is not lightly granted. The relevant test is set out in s.14AA(4) of the High Court Ordinance, Cap.4. The section requires that the court be satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard before granting leave. Reasonable prospects of success involves the notion that the prospects of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable”. See SMSE v KL [2009] 4 HKLRD 125 at [17] per Le Pichon JA.

A3.    The grounds

3.  The Plaintiff advances three grounds in its draft Notice of Appeal.

3.1  That the court failed to take into account the “wide definition” of “or otherwise affect” under RHC O.11 r.1(1)(d) and erred in failing to hold that the Plaintiff’s claim falls within the O.11 r.1(1)(d) gateway as a claim to “affect” a contract.

3.2  That the applicable test, where a defendant is not a party to the subject contract, is one of “sufficient connection to the contract”, and that the test was satisfied in the present case.

3.3  That the court failed to consider the Plaintiff’s argument that the declaration sought is one that “affects” a contract.

B.    THE GROUNDS

B1.  That the court failed to take into account the wide definition of “or otherwise affect” under RHC O.11 r.1(1)(d)

4.  The Plaintiff submitted that the words “or otherwise affect” are “almost as wide as they can be”, and that “to affect” means “to produce a material effect on something” citing BP Exploration Co (Libya) v Hunt [1976] 3 All 879 at 885g, 886g. The Plaintiff submitted that its case was similar to that in BP Exploration Co as “both concern right conferred by legislation in relation to a contract. In this case, it is also clear that if the declaratory relief sought is granted it would have produced a material effect on the contract by conferring P property right for the Diamond that P otherwise may not have”.[1]

5.  In BP Exploration Co, the plaintiffs sought a declaration that the agreements with the defendant had been frustrated, and sought payment of sums in respect of benefits obtained by the defendant under the agreements, pursuant to the Law Reform (Frustrated Contracts) Act 1943. The defendant argued that a contract which had been discharged by frustration could not fall with the phrase an “action begun … to enforce, rescind, dissolve, annul or otherwise affect a contract …” since ex hypothesi there was no longer any contract to be affected. Kerr J rejected the argument, holding that a claim for a declaration that a contract had been discharged was a claim which affected the contract. Furthermore, the 1943 Act provided for certain consequences in relation to a frustrated contract. A claim under the relevant provision of the 1943 Act was therefore a claim which “affected” the contract.

6.  The declaration sought in BP Exploration would have affected the agreements between the parties because it would have declared them to be discharged, as a matter of law, by reason of frustration.

7.  I do not consider that it is reasonably arguable that the Plaintiff’s claim would “have a material effect on the contract”. Whilst the Contract[2] may form an important part of the factual background as to why the Plaintiff says that it has title to the Diamond, the declaration sought in the Originating Summons would not have any impact on the Contract (no matter whether it were to be granted or not). Even if, as the Plaintiff claims, the declaratory relief would “[confer on] P property right for the Diamond that P otherwise may not have”, this does not affect or produce a material effect on the Contract.

B2.  That the applicable test, where a defendant is not a party to the subject contract, is one of “sufficient connection to the contract”

8.  The Plaintiff’s stance in the Original Appeal was that a defendant to be served out of the jurisdiction did not necessarily have to be a party to the contract, so that no specific submissions were made as to why, despite the Defendants not being party to the Contract, leave should be granted under O.11 r.1(1)(d).

9.  The Plaintiff now cites East Asia v New Cotai LLC and others, unreported, HCA 2189/2009, 16 July 2010 in support of that stance, arguing that it contradicts Pacific Dunlop Garments Ltd v Fundamental Global Ltd, unreported, HCA 1655/2088, 17 May 2012, and Newocean Petroleum Co Ltd v OW Bunker China Ltd [2016] 3 HKLRD 892, which were referred to in paragraphs 30 to 33 of the Decision.[3] However, in East Asia at [63] to [70], Reyes J was considering the question of whether a claim against overseas defendants for inducing a Hong Kong defendant to breach a contract constituted a claim “to recover damages … in respect of the breach of a contract” under O.11 r.1(1)(d). In holding that that it did, Reyes J was not purporting to lay down any general rule that service under O.11 r.1(1)(d) on a defendant out of the jurisdiction who is not a party to the contract is “generally allowed so long as there is sufficient connection between the contract and Hong Kong”.

10.  The Plaintiff then says that leave to serve a defendant out of the jurisdiction under O.11 r.1(1)(d) should be granted if there is a sufficiently close connection between the claim and the contract, and accepts that in cases where the defendant is not a party to the contract, the requisite connection needs to be stronger, citing, Greene Wood & McClean LLP v. Templeton Insurance Ltd [2009] 1 WLR 2013, Alliance Bank JSC v Aquanta Corporation and others [2013] 1 All ER (Comm) 819 and The Yusuf Cepnioglu [2015] 1 Lloyd’s Rep 567. Tomlinson LJ’s observations in Alliance Bank JSC have already been referred to in paragraph 35 of the Decision, in addressing the Plaintiff’s original stance that a defendant to be served out of the jurisdiction under O.11 r.1(1)(d) did not necessarily have to be a party to the contract. I do not consider it to be reasonably arguable (if that be the argument) that the wrong test was applied.

11.  The crux of the matter, however, is whether the Plaintiff has a reasonable prospect of arguing that on the facts of this case, it should be given leave under O.11 r.1(1)(d) despite the Defendants not being party to the Contract. The Plaintiff complains that the court failed to consider the point,[4] but in fact, the point was addressed in paragraphs 18 and 39 of the Decision. It should be noted that in the Original Appeal, the Plaintiff had not in fact sought to demonstrate why, despite the Defendants not being party to the Contract, leave should be granted under O.11 r.1(1)(d), because of its stance that a party to be served out under O.11 r.1(1)(d) does not need to be party to the contract in the first place.[5]

12.  The Plaintiff now says that there is a sufficient connection between the Plaintiff’s claim and the Contract because the Plaintiff is asserting a property right in the Diamond derived from either (1) the Contract itself in the event that the Defendants cannot prove that the Diamond was the one that they have lost, or (2) s.24 of the Sale of Goods Ordinance, Cap.24.[6]

13.  As to (1), the Plaintiff’s claim turns on the Defendant’s (in)ability to prove that the Diamond was the one which they have lost. As to (2), the Plaintiff’s claim turns on the operation of s.24 of the Sale of Goods Ordinance. I do not consider that it is reasonably arguable that under either scenario, there is a sufficient connection between the Plaintiff’s claim and the Contract.

B3.  That the court failed to consider the Plaintiff’s argument that the declaration sought is one that “affects” a contract

14.  The premise of the Plaintiff’s third ground is that paragraph 36 of the Decision fails to fully represent the Plaintiff’s argument.[7] However, as that paragraph itself indicates, it was referring to note 11/1/21C, not the Plaintiff’s argument. As the Plaintiff indicates,[8] the Plaintiff’s argument was set out in paragraph 20.3 of the Decision.

15.  The remainder of this ground of appeal repeats the complaint under the first ground that the Decision failed to consider the argument that the Plaintiff’s claim is one that “affects” the Contract. I have already explained why I do not consider this to be reasonably arguable.

C.    DISPOSITION

16.  I am therefore of the view that the Plaintiff has failed to show that the intended appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard. I dismiss the summons of 11 June 2020.