XL INSURANCE COMPANY SE v. MANLEY TOYS LTD AND OTHERS

HCA 2233/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2233 OF 2013

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REASONS FOR DECISION

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1.  At the conclusion of the hearing on 27 May 2015 I made orders in relation to two inter partes summonses; one taken out by the plaintiff (“XL”) on 24 March 2015, and one taken out by the 1^st defendant (“Manley”) on 26 March 2015. The XL’s summons sought injunction and associated orders, whichorders had been made ex parteon 23 March 2015, and continued on 27 March 2015. Manley’s summons sought the discharge of those orders. Upon undertakings being given on behalf of Manley, XL’s summons was discharged. Manley’s summons seeking the discharge of the injunction orders was dismissed. I ordered the costs of each summons to be to XL, to be taxed on an indemnity basis. The principle reasons for the orders I made are given below.

Background

2.  In the underlying proceedings between the parties XL Insurance Company seeks declarations in regard to its liability, or otherwise, to indemnify Manley under certain insurance policies.  The detail of the claims are not germane for present purposes, nor are the terms of the insurance policies, save that it is undisputed that the insurance policies are governed by Hong Kong law and contain an exclusive jurisdiction clause by which the parties bound themselves to submit disputes to the courts in Hong Kong.

Maryland proceedings

3.  Notwithstanding that exclusive jurisdiction clause, on 18 March 2015 XL received from Manley a “Summons on a 4^th Party Complaint” by which Manley sought to involve XL in proceedings instigated in the District Court in Maryland, USA.  XL therefore considered that it was necessary to seek the assistance of the Hong Kong court by way of an anti‑suit injunction prohibiting Manley from persisting with the Maryland proceedings in breach of the exclusive jurisdiction agreement.  XL was of the view that this was an urgent matter, for reasons which were set out in the affirmation of Tam Tsz Kiu Jason dated 23 March 2015 made in support of the application for the injunction.  As noted at paragraph 22 of that affirmation, the Summons on a 4^th Party Complaint allowed a period of 21 days for the entering of an appearance to contest the 4^th party claim which period, as it happens, was to expire on 8 April 2015, the day following the Hong Kong Easter holidays.

4.  XL wrote to Manley and Manley’s solicitors on Friday, 20 March 2015, “reminding” them of the existence of the exclusive jurisdiction clause and demanding that a written undertaking be given by first thing the following Monday (23 March) not to further contravene the exclusive jurisdiction clause.

5.  No such undertaking was received, nor indeed was there any response to the letter.  XL then took out an application, ex parte on notice, seeking the injunction orders which were granted on 23 March 2015.  Manley did not attend the hearing.

6.  The return date for the summons was Friday, 27 March 2015 at which hearing, before Madam Justice Mimmie Chan, both parties were represented by counsel.  The injunction orders were continued and both summonses were adjourned to be heard together.

7.  Shortly thereafter the parties began to exchange correspondence and hold discussions seeking to resolve the issues arising out of the Maryland proceedings and the exclusive jurisdiction clause. Both parties quite quickly concluded that the Maryland proceedings should be discontinued or withdrawn as against XL in which eventuality the injunctions could be discharged.  Despite this apparent consensus no concluded agreement was reached, nor were the Maryland proceedings discontinued until 22 May 2015.  The correspondence exchanged between the parties in the course of their attempt to agree a resolution to the issue arising out of the instigation of the Maryland proceedings became enmeshed with correspondence relating to a proposed amendment to the Statement of Claim.  In due course, both parties appeared before me to deal with their respective summonses.

The submissions on 27 May

8.  Both parties served written skeleton submissions and responsive submissions.  Mr Barrie Barlow SC, on behalf of XL, in his initial skeleton set out his submissions as to why the injunction orders should be maintained, responding to the matters raised on behalf of Manley in the affirmation evidence in support of the application to discharge the injunction orders.  However between Mr Barlow filing his skeleton submissions and the hearing, Manley procured the voluntary dismissal of the Maryland proceedings against XL.  Therefore, Mr Andy Hung, on behalf of Manley, contended that the injunction issue had become “academic”.  Academic or otherwise Mr Hung then set out in his written submission his contentions as to why Manley’s summons for the discharge of the injunction should be allowed, these being material non‑disclosure on the part of XL, a lack of urgency in the application, meaning that the application should have been made inter partes, and that the application constituted an abuse of process on the part of XL.

9.  As indicated above, at the outset of the hearing Mr Hung offered an undertaking on behalf of Manley in lieu of the injunction.  The submissions advanced in his skeleton argument therefore became relevant primarily as to the costs of the summonses. Each party sought to recover the costs of its summons from the other party on an indemnity basis.

10.  So far as material non‑disclosure was concerned Mr Hung’s complaint was that the judge granting the injunction should have been informed of the possibility of an application being made (by XL) to the court in Maryland for an extension of time for an appearance to be entered in those proceedings.  Not only was this ‘omitted disclosure’ pertinent, it would also, it was suggested, have mitigated or removed the perceived urgency, allowing an inter partes hearing of the injunction application to have been convened. 

11.  The submission however presupposes that XL had sufficient knowledge of the legal system in Maryland to be able to discern that Manley’s summons in Maryland, which stated in terms that judgment in default would be entered against XL unless an appearance was entered by 8 April 2015, misrepresented the true position.  There is nothing to suggest that XL had, or should have had, such knowledge.  As was pointed out by counsel for XL this was not a point raised by Manley itself when counsel appeared before the court on the return date on 27 March 2015.  I reject any suggestion of material non‑disclosure by XL.

12.  Mr Hung also contended that the application was an abuse of the process.  This complaint centred on the timing of the application and whether or not, as it was described by Mr Hung, an “ex parte application” was appropriate.  Mr Barlow submits, correctly, that this is a mischaracterisation.  Notice of the intended application had, in fact, been given on (Friday) 20 March, albeit in the afternoon, and, further attempts at notifying Manley’s lawyers were made on 23 March. I was also informed, the court hearing the application on (Monday) 23 March made unsuccessful attempts to contact Manley’s solicitors before proceeding to hear the application. 

13.  With the benefit of hindsight it can be seen to be probable that XL could have given a greater period of notice to Manley of the injunction application.  Does that fact make it an abuse of the process for XL to proceed in the way that it did?  In my view the answer, on the facts of this case must be “no”. 

14.  It hardly requires stating, I think, that parties to litigation have a right to be heard on matters affecting them and that proceeding ex parte inevitably infringes that right.  Such applications will be countenanced only in closely circumscribed situations such as, for example, where delay in proceeding will cause an applicant significant injustice.

15.  In the present case XL were faced with the fact of proceedings in Maryland, taken out in breach of the agreed exclusive jurisdiction clause, in respect of which a default judgment was threatened, and a holiday period was imminent.  The alternative to seeking to enforce the exclusive jurisdiction clause was, at the least, engaging lawyers to advise on the initial steps to be taken in relation to the Maryland proceedings.

16.  Those circumstances are probably insufficient to justify an ex parte application by a party in the position of XL.  I express no firm view.  XL did not however move an ex parte application.  Theirs was an application made on notice to Manley.  The notice period was short, and possibly could have been longer, but it was neither notional nor illusory.  In my judgment these do not constitute circumstances that amount to an abuse of the process by XL.

17.  In reaching this conclusion I have not taken into account the fact that the court itself made efforts to contact Manley’s legal representatives, without success.  This however would only reinforce my conclusion that the process of the court was not in fact abused by XL.

18.  Mr Hung’s submissions as to XL’s “abuse of the process” have to be considered in context.  The injunction XL sought was to restrain proceedings brought by Manley (and continued for some time) in breach of contract.  The onus lies on the party acting otherwise than in accordance with the contractual agreement to justify so acting. 

19.  This was recently reiterated by Godfrey Lam J in Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi [2015] 3 HKC 246:

“It is clear, therefore, as a matter of Hong Kong law that the court in this jurisdiction should ordinarily grant an injunction to restrain the pursuit of foreign proceedings brought in breach of an agreement for Hong Kong arbitration, at any rate where the injunction has been sought without delay and the foreign proceedings are not too far advanced, unless the defendant can demonstrate strong reason to the contrary.”

20.  That passage addresses the breach of an arbitration agreement, but as that judgment makes clear, the court’s approach to such contractual agreements is the same where there is an express choice of jurisdiction clause.

21.  Hindsight reveals that somewhat inexplicably Manley took no steps to bring the Maryland proceedings to an end until very shortly before the hearing before me.  Whatever “threat” those proceedings represented to XL’s interests continued for approximately two months. 

22.  For the above reasons Manley’s application to have the injunction order set aside was, in my view, plainly inappropriate.  As noted, the matter was primarily argued in the context of, and relevant to, costs.  In that regard Mr Barlow referred me to authority from the commercial court in England in the case of A v B [2007] 1 Lloyd’s 358 in which the judge (Colman J) awarded indemnity costs to a party successfully seeking an anti‑suit injunction.

23.  At paragraph 11 the judge stated:

“… in my judgment, provided that it can be established by a successful application for a stay or an anti-suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach has caused the innocent party reasonably to incur legal costs, those costs should normally be recoverable on an indemnity basis.”

And at paragraph 15:

“The conduct of a party who deliberately ignores an arbitration or a jurisdiction clause so as to derive from its own breach of contract an unjustifiable procedural advantage is in substance acting in a manner which not only constitutes a breach of contract but which mis-uses the judicial facilities offered by the English courts or a foreign court.  In the ordinary way it can therefore normally be characterised as so serious a departure from “the norm” as to require judicial discouragement by more stringent means than an order for costs on the standard basis…”

24.  I respectfully agree with the sentiments expressed and, in my judgment, having regard to the relatively lengthy period of time before Manley conformed to its agreement to be bound to the exclusive jurisdiction of the Hong Kong courts, such a costs order was appropriate here.  XL should not be faced with bearing some proportion of the legal costs when Manley’s own conduct constitutes, in the words of Colman J, a misuse of the relevant, consequential judicial facilities.  Accordingly I ordered costs to XL on an indemnity basis.

25.  Correspondingly, and for the same reasons, the summons taken out by Manley was dismissed with a like order as to costs.