HARTANTO HADY v. RADNAABAZAR BAZAR

HCA 89/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 89 OF 2008

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J U D G M E N T

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A. Introduction

1.  By Order dated 17 October 2011, Master de Souza set aside (a) leave granted by Master Ho on 14 March 2008 to the Plaintiff to serve the Concurrent Writ out of the jurisdiction, and (b) service of the Concurrent Writ on the Defendant out of the jurisdiction (“Master de Souza’s Order”), on the grounds that Hong Kong was not the appropriate forum and material non-disclosure.

2.  There are now two matters before the court:

(1)     The Defendant’s Summons dated 28 October 2011 to formally dismiss this Action on the basis that leave to serve out of the jurisdiction has been set aside (“the Dismissal Application”);

(2)     The Plaintiff’s Summons dated 8 November 2011 for leave to appeal against Master de Souza’s Order out of time (“the Leave Application”); and, if leave is granted, the Plaintiff’s substantive appeal against Master de Souza’s Order (“the Appeal”).

B.  Factual Background

3.  The Plaintiff is a businessman resident in Hong Kong.  The Defendant is a citizen and resident of Mongolia who travels and conducts business around the world.

4.  The dispute between the parties arose from their joint venture to acquire a Mongolian company and exploit 51 mining Licences in Mongolia. The acquisition was to be made via Hong Kong companies jointly owned by the Plaintiff and the Defendant. Details of the joint venture changed from time to time and the parties, as well as their related entities, had entered into a number of written agreements between December 2006 and March 2007. 

5.  As pleaded in the Statement of Claim, the Plaintiff’s case against the Defendant is for breaches of only three agreements between the Plaintiff and the Defendant:

(1)  an agreement in writing dated 9 December 2006 (“the 1^st Agreement”);

(2)  an agreement in writing dated 18 December 2006 (“the Agreement”); as varied by

(3)  an agreement in writing dated 2 February 2007 (“the Supplemental Agreement”).

6.  In the prayer for relief, the Plaintiff claims against the Defendant for:

(1) the transfer of all the issued shares of Bulgan Alt LLC, a Mongolian company, to Bulgan Alt (HK) Limited (“Bulgan Alt HK”), pursuant to clause 4(a) of the 1^st Agreement;

(2) the vesting of Licence No. 10840 in Bulgan Alt LLC, or such other entity as the Plaintiff might prescribe, pursuant to clause 4(a) of the Agreement as varied by clause 2 of the Supplemental Agreement;

(3) the transfer of his 30% shareholding in Bulgan Gold (HK) Limited (“Bulgan Gold HK”) to the Plaintiff, pursuant to clause 8 of the Agreement;

(4) removal of him/his nominee as director of Bulgan Alt HK and Bulgan Gold HK;

(5) damages.

7.  All three agreements were prepared by the Plaintiff’s solicitors in Hong Kong, executed by the Plaintiff and the Defendant in Hong Kong, and expressly governed by Hong Kong law. 

8.  When the Plaintiff applied for leave to serve the Concurrent Writ out of the jurisdiction under RHC Order 11 r 1 (1)(d)(iii), on the basis that the claim was brought to recover damages or obtain other relief in respect of the breach of contracts which were by their terms governed by Hong Kong law, only these three agreements were disclosed to the court.

9.  As one of the issues in the Appeal is whether the Plaintiff had been guilty of material non-disclosure for failing to disclose to the court inter alia the other agreements entered into for the purpose of the joint venture, I shall set out a brief summary of all the agreements for ease of reference.

The Agreements

10.  First, a letter of agreement dated 5 December 2006 (“Agreement No 1”). The parties were the Defendant (Party A) and the Plaintiff and Teams (Party B). This was said to be a framework agreement on the exploitation of the 51 Licences.

11.  According to this agreement,

(1)  29 of the 51 Licences were at the time held by Bulgan Alt LLC while the other 22 were held on trust by the Defendant’s relatives. The Defendant agreed to procure the transfer of the 22 Licences to Bulgan Alt LLC.

(2)  Bulgen Alt LLC was at the time owned as to 50% by the Defendant.  The Defendant undertook to acquire the remaining 50%.

(3)  The parties agreed to set up a Hong Kong company, Bulgan Gold HK, to hold 100% of Bulgan Alt LLC. The Plaintiff and Teams were given an option to purchase 70% of Bulgan Gold HK’s new issued shares at US$5m.

(4)  The Plaintiff and Teams were to advance an initial sum of USD250,000 to the Defendant to enable him to renew the 51 Licences. The balance of US$4.75m should be paid after the completion of a business plan to be entered into by the parties with Worldstar Limited.

12.  No governing law was expressly stated in this agreement.

13.  Second, an agreement dated 9 December 2006 between the Plaintiff and the Defendant (“Agreement No 2”). This is the 1^st Agreement defined in the Statement of Claim. By this agreement, the parties agreed to enter into a joint venture on a 3 to 7 basis in Hong Kong to finance through a Hong Kong company the acquisition of Bulgan Alt LLC and the 51 Licences. The principal terms of this agreement were inter alia:

(1) An existing Hong Kong company, held as to 70% (7 shares) by the Plaintiff and as to 30% (3 shares) by the Defendant, would be renamed Bulgan Alt HK. 1 nominee each of the Plaintiff and the Defendant would be appointed director of Bulgan Alt HK.

(2) The Plaintiff should pay USD250,000 to the Defendant, thereupon the Defendant should procure the transfer of all the shares of Bulgan Alt LLC to Bulgan Alt HK and the transfer of the 51 Licences to a new Mongolian holding company viz Bulgan International LLC.

(3) An existing Hong Kong company, held as to 70% (7 shares) by the Plaintiff and as to 30% (3 shares) by the Defendant, would be renamed Bulgan Gold HK and would hold all the shares in this Bulgan International LLC.

(4) Unless the Plaintiff could bring in a new shareholder of Bulgan Gold HK and cause Bulgan Gold HK to pay USD7,142,857 to the Defendant or Bulgan Alt LLC within 14 working days of the transfer of the 51 Licences to Bulgan International LLC, he would transfer his 7 shares in Bulgan Gold HK to the Defendant.

(5) Hong Kong law was expressly stated as the governing law.

14.  Third, an Agreement dated 18 December 2006 between the Plaintiff and the Defendant. This is the Agreement as defined in the Statement of Claim. The principal terms of this agreement were inter alia:

(1) The Defendant should procure that the 51 Licences were to be vested in another Mongolian company viz. Bulgan Gold LLC, and that all the shares in this Bulgan Gold LLC were to be transferred to Bulgan Gold HK, then held as to 70% (7 shares) by the Plaintiff and as to 30% (3 shares) by the Defendant.

(2) The Plaintiff, the Defendant and the new shareholder would lend a total of US$7,142,857 (US$1,285,714 + US$2,142,857 + US$3,714,286) to Bulgan Gold HK and apply to Bulgan Gold HK for the allotment of a total of 90 shares.  After the allotment, the Defendant would hold 30% of Bulgan Gold HK while the Plaintiff and the new shareholder would hold 70%.

(3) The Plaintiff and the Defendant would procure the appointment of 1 nominee of the Defendant, 1 nominee of the Plaintiff and 2 nominees of the new shareholder as directors of Bulgan Gold HK.

(4) If the Plaintiff failed to bring in a new shareholder of Bulgan Gold HK and cause Bulgan Gold HK to pay the USD7,142,857 to the Defendant or Bulgan Alt LLC within 14 days after the transfer of the 51 Licences to Bulgan Gold LLC, the Defendant would be entitled to forfeit the USD250,000 previously paid by the Plaintiff, and the Plaintiff would transfer his 7 shares in Bulgan Gold HK to the Defendant.

(5) Hong Kong law was expressly stated as the governing law.

15.  The Defendant refers to another document dated 18 December 2006, said to be an agreement between the Plaintiff and the Defendant (“Agreement No 3”) but was signed by the Defendant only.

16.  Under this document, only 50 Licences were to be vested in Bulgan Gold LLC.  The one excluded from it ie Licence No. 10840 was allegedly the subject of a dispute between the holder of the Licence and the Mongolian authority. The Defendant’s case is that this was the reason why Agreement No 3 only referred to 50 Licences.

17.  Hong Kong law was expressly stated as the governing law of this document.

18.  Fourth, an agreement dated 21 December 2006 between the Plaintiff and the Defendant (“Agreement No 4”). Save for the date, this Agreement No. 4 contained identical terms as the Agreement defined in the Statement of Claim and was apparently signed by both the Plaintiff and the Defendant. Hong Kong law was expressly stated as the governing law.

19.  Fifth, an agreement dated 28 December 2006 between the Defendant and Bulgan Gold HK (“Agreement No 5”). This agreement concerned the sale and purchase of the 50, rather than 51, Licences which were to be vested in Bulgan Gold LLC.

20.  In Recital (2) of this agreement, it was stated that the Defendant and his associates were the registered and beneficial owners of 50 Licences listed in the attached Exhibit “A”. In Recital (3) of this agreement, it was stated that the Plaintiff and the Defendant were all the shareholders of Bulgan Gold HK and had entered into an agreement dated 18 December 2006 in respect of the 50 Licences.

21.  Clause 3 of this agreement provided that the 50 Licences should be vested in Bulgan Gold LLC on or before 31 January 2007.

22.  No governing law was expressly stated in this agreement.

23.  As far as the 50 Licences are concerned, no serious issue arises as to whether they had been transferred to Bulgan Gold LLC – the Plaintiff’s claim in this Action relates to 1 outstanding Licence only ie Licence No. 10840. The significance of this agreement according to the Defendant is that the parties clearly intended to deal with Licence No. 10840 separately, because it was the subject of a dispute with the Mongolian authority.

24.  Sixth, an agreement dated 2 February 2007 between the Plaintiff and the Defendant (“Agreement No 6”). This is the Supplemental Agreement defined in the Statement of Claim. The principal terms of this agreement were inter alia:

(1) The Defendant should cause Licence No.10840 to be vested in Bulgan Alt LLC, or such other entity as the Plaintiff might prescribe, on or before 5 March 2007, free from encumbrances.

(2) The date of payment of the US$7,142,857 to the Defendant or Bulgan Alt LLC was postponed to 5 March 2007.

25.  This agreement was expressed to be supplemental to the Agreement and the two were to be read and construed as one. Save for the two changes mentioned above, all the other terms in the Agreement remained in full force and effect and binding on the parties. For that reason, it seems reasonably clear that this Supplemental Agreement should also be governed by Hong Kong law.

26.  It is the Defendant’s case that at the time of this agreement, it was understood by the parties that Licence No. 10840 could only be transferred if it was not revoked by the Mongolian authority.

27.  Lastly, a “Securities Transfer Agreement” dated 5 March 2007 between the Defendant and Bulgan Gold HK (“Agreement No 7”). This agreement set out the terms of the transfer of the entire shareholding of Bulgan Gold LLC from the Defendant to Bulgan Gold HK. This agreement was expressly governed by Mongolian law but provided for arbitration in Hong Kong in accordance with UNCITRAL Rules. 

28.  In the Recital, it was stated that Bulgan Gold LLC owned all the 51 Licences listed in Exhibit A, albeit Licence No. 10840 was separately listed under the Heading “Under Dispute”.

29.  In the agreement itself, the Defendant warranted and represented that Bulgan Gold LLC lawfully owned and had good title over all the 51 Licences and that they were free of all encumbrances and liabilities.

The Proceedings

30.  On 15 January 2008, the Plaintiff issued the Writ of Summons in this Action. On the same day, the Plaintiff applied ex parte for leave to serve the Writ out of the jurisdiction. As I said earlier, the application was made under RHC Order 11 r 1 (1)(d)(iii) on the basis that the claim was brought to recover damages or obtain other relief in respect of the breach of contracts which were by their terms governed by Hong Kong law.

31.  On 13 February 2008, the Plaintiff filed a second affirmation in response to comments made by Master de Souza and Master Levy that he should satisfy the court that Hong Kong was the appropriate forum. In this affirmation, the Plaintiff highlighted the following aspects of his case which pointed to Hong Kong as the natural and appropriate forum:

(1) His pleaded claims against the Defendant;

(2) Both subject companies viz. Bulgan Alt HK and Bulgan Gold HK, were incorporated in Hong Kong;

(3) The appointment of the Defendant as director of Bulgan Gold HK was made in accordance with the Companies Ordinance, Cap. 32, and hence the removal of him would also have to be made in accordance with the Ordinance;

(4) The Agreements sued upon were governed by Hong Kong law.

32.  On 14 March 2008, Master Ho granted the Plaintiff leave to issue a Concurrent Writ of Summons and to serve it on the Defendant in Mongolia (“the Ex Parte Leave”).

33.  On 3 April 2008, the Plaintiff issued a Concurrent Writ of Summons pursuant to the Ex Parte Leave and proceeded to instruct a professional law firm in Mongolia to serve it on the Defendant.

34.  On 6 January 2010, Deputy Judge L. Chan entered default judgment for the Plaintiff.

35.  On 1 March 2010, the Defendant applied, inter alia, to set aside the default judgment.

36.  On 12 August 2010, Deputy Judge L. Chan set aside the default judgment on the ground of irregularity of service of the Concurrent Writ in Mongolia. As can be seen from the Defendant’s amended summons dated 1 March 2010 and the Decision dated 12 August 2010, the Defendant also relied on the grounds of inter alia material non-disclosure and forum non conveniens but did not pursue them at the hearing before Deputy Judge L Chan.

37.  On 12 October 2010, upon the Plaintiff’s paper application, Rogers VP granted leave to appeal against the Decision of Deputy Judge L. Chan. However, the leave granted was limited in the following terms:

“Leave be to the Plaintiff to appeal solely in respect of whether an Order should have been made that further service of these proceedings should be dispensed with.”

38.  On 3 November 2010, the parties filed a Consent Summons to dispose of the appeal, pursuant to which Rogers VP made an Order in terms on 4 November 2010 (“the Consent Order”) as follows: 

“1. Upon the undertaking of the Plaintiff not to proceed with the appeal against the Order made by Deputy High Court Judge L Chan dated 12 August 2010 pursuant to the leave granted under the Order made by the Honourable Mr Justice Rogers, Vice President dated 12 October 2010 and subject to paragraph 2 below, further service of the Writ dated 15 January 2008 be dispensed with and the date of service of the Writ be deemed to be the date of the Order hereof;

2.  Paragraph 1 above shall not in any way affect or prejudice the Defendant’s exercise of any of its rights in the usual way under Order 12 Rule 8 of the Rules of the High Court including in particular the rights to dispute the jurisdiction of the Court and challenge the forum and the propriety of the leave for service of the Concurrent Writ out of jurisdiction.” 

39.  On 29 December 2010, the Defendant applied under RHC Order 12 r 8 to set aside the Ex Parte Leave to serve the Concurrent Writ out of the jurisdiction, and the service of it on the Defendant (“the Setting Aside Application”) on the grounds that (1) the court of Hong Kong was not the appropriate forum; and (2) material non-disclosure.

40.  On 17 October 2011, Master de Souza granted the Setting Aside Application and made the Order the subject of the Plaintiff’s appeal. 

41.  Notwithstanding Master de Souza’s Order, on 27 October 2011, the Plaintiff gave Notice of Intention to Enter Judgment against the Defendant. In response, on 28 October 2011, the Defendant made the Dismissal Application and obtained an Order from Master de Souza that no default judgment be entered until after the determination of the Dismissal Application.

42.  On 8 November 2011, the Plaintiff made the Leave Application.

C.  Leave Application

43.  Under RHC Order 58 r 1, the Plaintiff had 14 days to appeal against Master de Souza’s Order. The last day for appeal thus fell on 31 October 2011.  The Plaintiff’s delay in filing a Notice of Appeal was 8 days. There was no suggestion that the Defendant had suffered any prejudice from such delay. On that basis, Mr Chan, for the Plaintiff, submitted that leave to appeal out of time should be granted.

44.  The Defendant opposed the Leave Application principally on the ground that no proper explanation had been given for the delay.  In this regard, Mr Westbrook, for the Defendant, referred me to Postwell Ltd v Cheng Kap Sang[2004] 2 HKLRD 355 at para. 35.

45.  In considering whether to extend time to appeal, this court has to consider all relevant factors, particularly:

(1) the length of the delay;

(2) the reasons for the delay;

(3) the merits of the proposed appeal;

(4) the degree of prejudice to the other party.

Postwell Ltd v Cheng Kap Sang[2004] 2 HKLRD 355 at para. 33; Menno Leendert Vos v Global Fair Industrial Ltd & Ors unrep.; HCMP796 of 2010; 21 June 2010; Cheung and Kwan JJA; para. 16

46.  Now that we are in the post-CJR era, it is incumbent on this court to give effect to the underlying objectives of the Rules of the High Court when exercising any of its powers: RHC Order 1A rr 1 & 2.  In particular, this court must always recognize that the primary aim in exercising the powers of the court is to secure the just resolution of disputes in accordance with the substantive rights of the parties: RHC Order 1A r 2(2).

47.  Going back to the reason for the delay, the explanation given was this: although Master de Souza should have dismissed the Setting Aside Application as being academic because of what the Plaintiff contended to be the effect of the Consent Order (as to which see section D(1) below), he did not lodge an appeal within time because “he did not wish to spend further legal costs to resolve what is essentially an academic issue which does not affect his position as regards service of the Writ”. It was only after receiving the Dismissal Application that the Plaintiff sought Senior Counsel’s advice. After obtaining such advice, the Plaintiff decided to appeal.

48.  I agree with Mr Westbrook that the explanation given is wholly unsatisfactory. For one, the Plaintiff’s contention as to the effect of the Consent Order is in my view untenable. Further, the Plaintiff’s wishes of not spending further legal costs are totally unacceptable as a reason for delay. I can imagine very few litigants in this world who positively wish to incur the legal costs of an appeal. But the timetable set down in the Rules, whether for lodging an appeal or otherwise, are there to be complied with. They are not options waiting for litigants to exercise if and when they wish to spend further legal costs.

49.  Nevertheless, the (lack of) reasons for the delay is only one factor to be taken into account in the exercise of my discretion. It must be acknowledged that the Plaintiff’s delay is a mere 8 days and there is no conceivable prejudice to the Defendant as a result. In these circumstances, I consider the primary consideration in the exercise of my discretion is to secure the just resolution of the disputes between the parties in the appeal. For reasons to be explained later in this judgment, I consider the Plaintiff’s appeal is meritorious.

50.  I therefore allow the Leave Application.

D.  The Appeal

(1) Effect of the Consent Order

51.  The first point taken by the Plaintiff was that the Setting Aside Application was academic in light of the Consent Order and should have been dismissed by the learned Master.

52.  According to Mr Chan, by virtue of the Consent Order, service of the Writ (as opposed to the Concurrent Writ which was held by Deputy Judge L. Chan to have been invalidly served) on the Defendant in Hong Kong was effected on 4 November 2010.  The jurisdiction of Hong Kong court over the Defendant was thus invoked.

53.  While Mr Chan did not dispute that paragraph 2 of the Consent Order sought to preserve the Defendant’s rights under RHC Order 12 rule 8, he submitted that the paragraph did not confer rights on the Defendant which he did not otherwise have. 

54.  On that basis, Mr Chan submitted that the Setting Aside Application was fundamentally misconceived because the only subject matter therein ie the validity of the Concurrent Writ and the service of it, had been rendered academic by the Consent Order which finally confirmed that service of the Writ on the Defendant had been effected, or more accurately, deemed to have been effected on 4 November 2010. By reason of the Consent Order, the Plaintiff did not have to rely on the Ex Parte Leave in establishing Hong Kong court’s jurisdiction over the Defendant.

55.  In these circumstances, Master de Souza should have declined to hear the Setting Aside Application because of its purely academic nature. If so, Master de Souza’s Order should be set aside.  

56.  In the course of his submissions, Mr Chan put forward two general propositions which are not controversial:

(1) First, the parties are free to agree on service of proceedings, and jurisdiction can be conferred by accepting service ie by consent. On the other hand, while acceptance of service confers jurisdiction, the court may decline jurisdiction on the ground that it is contrary to its duty to entertain it: per Viscount Haldane in John Russell & Co Ltd v Cayzer, Irvine & Co Ltd [1916] 2 AC 298 at 302 - 303.  

(2) Second, on the whole, the courts perform the function of adjudicating on real disputes and controversies and not fictitious ones - one of the recognized dangers of dealing with hypothetical or academic cases is that the court may be asked to decide important principles without the benefit of a full set of facts: per Ma CJHC (as he then was) in Leung TC William Roy v Secretary for Justice [2006] 4 HKLRD 211 at para. 28(7).

57.  The first proposition is correct as far as it goes. Applications of this proposition can be found within the Rules of the High Court eg RHC Order 10 r 1(4) & r 3 and outside them: Kenneth Allison Ltd v AE Limehouse & Co [1992] 2 AC 105. The issue before this court is whether the Consent Order embodied such consent to confer jurisdiction.

58.  The second proposition is also correct as far as it goes, but it only assists the Plaintiff if this court accepts Mr Chan’s submission on the effect of the Consent Order.

59.  Mr Westbrook, not surprisingly, invited this court to place more emphasis on paragraph 2 of the Consent Order in which his client’s right to challenge jurisdiction and the propriety of leave for service out of the jurisdiction in the usual way was expressly preserved. What was agreed in paragraph 1 of the Consent Order was simply that further service of the Concurrent Writ in Mongolia would not be necessary.

60.  The issue is one of construction of the Consent Order. The resolution of this issue is to be conducted by reference to the ordinary principles governing the construction of contracts. For the purpose of construction, the court is permitted to have regard to relevant background facts known to the parties when they made their bargain, but not the parties’ negotiations: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Sirius International Insurance Company v FAI General Insurance Ltd [2004] UKHL 54, [2004] 1 WLR 3251; Foskett The Law and Practice of Compromise 7^th Ed para 5-36.

61.  In the present case, the relevant background to the Consent Order is that:

(1) It was entered into by the parties to dispose of an appeal against Deputy Judge L. Chan’s Order setting aside the default judgment on the ground of irregularity of service of the Concurrent Writ in Mongolia.

(2) The leave to appeal granted by Rogers VP was confined to whether an Order should have been made that “further service of these proceedings should be dispensed with”.

(3) “Further service of these proceedings” in the present context should be taken to mean “further service of the Concurrent Writ in Mongolia” since the subject of the appeal was whether the original service of the Concurrent Writ in Mongolia was invalid. There is no evidence before this court that the Plaintiff had tried to serve the Writ on the Defendant within the jurisdiction, or that he intended so to serve the Writ. It is rather unlikely that Rogers VP would have granted leave to appeal on the issue of whether “further service of the Writ within the jurisdiction” should be dispensed with.

62.  With that in mind, in my view, the words “further service of the Writ dated 15 January 2008 be dispensed with” in paragraph 1 of the Consent Order would only make sense if they meant further service of the “Concurrent Writ” be dispensed with, rather than further service of the Writ issued out of the High Court Registry on 15 January 2008 which was only valid for service within the jurisdiction.

63.  The words “subject to paragraph 2 below” in paragraph 1 of the Consent Order lend further support to this view.

64.  It is abundantly clear from paragraph 2 of the Consent Order that the Defendant was at the time already contemplating a challenge to inter alia the propriety of the Ex Parte Leave. He did so on 29 December 2010. If paragraph 1 of the Consent Order took effect as an agreement to confer jurisdiction on the Hong Kong court by accepting service, and that service of the Writ on the Defendant was deemed to take place on 4 November 2010, it would be utterly pointless for the Defendant to reserve his position to challenge the Ex Parte Leave. This is because the Hong Kong court’s jurisdiction over the Defendant having ex hypothesi been conferred by that agreement as from 4 November 2010, it mattered not whether the Ex Parte Leave was liable to be set aside. In other words, if the Plaintiff’s submissions are correct, paragraph 2 of the Consent Order would be largely superfluous.

65.  For these reasons, I do not accept the Plaintiff’s submissions as to the effect of the Consent Order, and shall proceed to consider the remaining issues in the appeal.

(2) Whether Hong Kong is the appropriate forum

The governing principles

66.  An applicant seeking leave to effect service of process out of the jurisdiction bears the burden of showing 

(1) a good arguable case that the claim falls within one of the sub-paragraphs of RHC Order 11 r 1(1);

(2) a serious issue to be tried on the merits; and

(3) the case is a proper one for service out of the jurisdiction within RHC Order 11 r 4(2).

Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] HKC 10, 22

Robin Hargreaves v Taian Insurance Co Ltd [2006] 3 HKLRD 70 para. 24

67.  Before this court, no point is taken by the Defendant on (1) that the Plaintiff’s claim properly falls within RHC Order 11 r 1 (1)(d)(iii) or (2) that there is a serious issue to be tried on the merits. 

68.  As far as (3) is concerned, the relevant test is whether the Hong Kong court is shown to be clearly and distinctly the appropriate forum for the trial of the action: Spiliada Maritime Corp. v Cansulex Ltd [1987] AC 460, 481D - E; 484E - F; Robin Hargreaves v Taian Insurance Co Ltd [2006] 3 HKLRD 70 para. 50.

69.  In considering this question, the court will 

(1) take into account

(a) the nature of the dispute, the legal and practical issues involved, such question as local knowledge, availability of witnesses and their evidence and expense;

(b) the residence or place of business of the defendant and the relevant ground invoked by the plaintiff as giving rise to jurisdiction under RHC Order 11;

(2) give to such factors the weight which in all the circumstances of the case it considers to be appropriate.

Amin Rasheed Shipping Corp. v Kuwait Insurance Company [1984] AC 50, 72C - D

Spiliada Maritime Corp. v Cansulex Ltd [1987] AC 460, 481F -482A

70.  Lastly, the court should bear in mind the “exorbitant” nature of the jurisdiction under RHC Order 11 and that it must be exercised with caution: Amin Rasheed Shipping Corp. v Kuwait Insurance Company [1984] AC 50, 65G - 66A; Spiliada Maritime Corp. v Cansulex Ltd  [1987] AC 460, 481E; Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] HKC 10, 22.

Discussion

71.  The Defendant submits that the Plaintiff has failed to discharge the burden of showing the Hong Kong courts are clearly and distinctly the natural forum to try the present dispute. Without accepting that he has to identify an alternative forum, the Defendant nevertheless submits that the present dispute should be tried by the courts in Mongolia.

72.  It is the Defendant’s case that the principal issue on the merits is the true agreement between the Plaintiff and the Defendant concerning Licence No. 10840, and specifically whether the Defendant has warranted that this Licence would be transferred to the Plaintiff regardless of the result of the dispute with the Mongolian authority.

73.  Pausing here, on the Plaintiff’s case, the true agreement between the Plaintiff and the Defendant is simply what was stipulated in the Agreement, as varied by the Supplemental Agreement ie the Defendant should cause Licence No.10840 to be vested in Bulgan Alt LLC, or such other entity as the Plaintiff might prescribe, on or before 5 March 2007 free from encumbrances.

74.  On the other hand, the Defendant contends that it was understood by the parties at the time of the Supplemental Agreement that Licence No. 10840 could only be transferred if it was not revoked by the Mongolian authority.

75.  Presently, it is unclear to me how the understanding of the parties would be deployed to modify the express obligation of the Defendant in the Supplemental Agreement. That is not something I have to decide in this appeal. What is clear to me is that while the existence or otherwise of this understanding is an issue of fact, the legal effect, if any, of this understanding on the Supplemental Agreement is an issue of law, to be more precise, an issue of Hong Kong law.

76.  The Defendant submits that the likelihood of whether he would promise the Plaintiff to convey this Licence, notwithstanding the existence of the dispute, would depend on the nature of the dispute with the Mongolian authority, the practice of sales of mining licences in Mongolia, and the likelihood of an individual in his position thinking or believing that the dispute would be resolved in his favour.  This in turn would depend on, inter alia, the Mongolian courts’ attitude towards mining disputes between individuals and the state, the state’s policies and practice on the revocation of mining licences and the practices of the Mongolian mining industry, especially in relation to the sale and purchase of licences. The Mongolian courts, with their familiarity with these local issues, would be eminently better placed to make judgments on them.

77.  Next, the Defendant invites this court to pay attention to the predominant language and location of the documents and the witnesses.

78.  The Defendant submits that while the agreements are expressed in English, many of the key documents relating to the dispute are in the Mongolian language, in particular, the correspondence with the Mongolian authority over Licence No. 10840 and the court documents relating to the dispute over that Licence. These documents are critical for the court to understand the nature of the dispute with the Mongolian authority, and whether it is likely for the parties to have agreed that the Defendant should bear all the risk of the result of the dispute.

79.  Further, it is the intention of the Defendant to call witnesses who reside in Mongolia and speak only Mongolian. One name which surfaces in the Defendant’s submissions is the previous holder of Licence No. 10840 viz. Ms B Naranchimeg. It is said that substantial time and costs will likely be involved not only in translation and interpretation but also in arranging Mongolian witnesses to come to Hong Kong. Further, where disputes of fact are involved and credibility is in issue, a Mongolian tribunal will be much better placed to assess the evidence in the native language of the Mongolian witnesses.

80.  Lastly, this court is asked to take into consideration the main thrust of the joint venture between the parties is the transfer of Licences which are issued in Mongolia and regulated by the Mongolian Government and that the mines to which the Licences relate are located in Mongolia.

81.  With respect, I am unable to accept the Defendant’s submissions that the present dispute should be tried by the courts in Mongolia.

82.  The primary question for this court is: Which is the most appropriate forum in which the issues in the case may be tried more suitably in the interest of all the parties and the ends of justice: Spiliada Maritime Corp. v Cansulex Ltd [1987] AC 460, 480G; Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] HKC 10, 22E.

83.  In my view, if one focuses on the interest of all the parties and the ends of justice, the predominant factors in the present case must be that the agreements sued upon are expressly governed by Hong Kong law and entered into in Hong Kong. These factors point to the Hong Kong courts as the natural and appropriate forum for the trial of this case. Let me explain.

84.  First and foremost, what any court trying this Action has to do is to ascertain the meaning of the agreements, applying Hong Kong rules of construction of contracts. Given that the agreements are all in writing, interpretation is the ascertainment of the meaning which the documents would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contract: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912.

85.  As the court’s primary task is to ascertain the meaning of the agreements, it seems to me the Hong Kong courts would be at a distinct advantage because they are able to directly apply the rules of construction of contracts and ascertain the extent to which the surrounding circumstances may properly be admitted in evidence as an aid to interpretation.  The Mongolian courts, on the other hand, would have to rely on expert evidence on Hong Kong law by Hong Kong lawyers brought to Mongolia at considerable expense. This is a serious disadvantage: The Standard Steamship Owners’ P & I Association v Gann [1992] 2 Lloyd’s Rep 528, 536. 

86.  Further, compared to Mongolia where the official language is Mongolian, the Hong Kong courts have the added advantage of being in a position to construe the agreements directly without the necessity for translation. Normally, where the decision depends upon the construction of documents in one language and the competing courts are, on the one hand, courts whose native language is that of the documents and, on the other hand, courts whose native language is not, it is in the interests of the parties and the ends of justice that the true meaning should be decided by the courts whose native language is that of the documents: The Magnum [1989] 1 Lloyd’s Rep 47, 51.

87.  In so far as the Defendant contends that the effects of the written agreements have somehow been modified by the parties’ understanding, as I said earlier, the existence or otherwise of this understanding is an issue of fact which, in my view, can just as well be resolved in the Hong Kong courts as in the Mongolian courts.

88.  I am prepared to accept that the local circumstances prevailing in Mongolia at the time the agreements were entered into could form part of the background, or the “matrix of fact”, against which the court carries out the task of construing the agreements, provided that knowledge of it would reasonably have been available to both parties at the time. But these are objective facts which are susceptible to proof and capable of being understood by the Hong Kong courts.

89.  Anyway, there is presently very little evidence on the sort of local circumstances which the Defendant seeks to rely on or the extent to which they were known not just to the Defendant himself, but to the Plaintiff as well. In these circumstances, the significance of the Mongolian courts’ superior understanding of local circumstances in resolving the principal issue on the merits is really a matter of conjecture.

90.  In my view, in a case which turns on the true construction of written agreements, it would be putting the cart before the horse if this court were to put one forum’s superior understanding of some parts of the factual matrix before the other forum’s superior knowledge of the governing law and specifically the rules of construction.

91.  Regarding the language of the documents and location of witnesses, any court exercising jurisdiction over a foreigner inevitably subjects him to greater inconvenience and expense than if he could contest the claim in the court of his own jurisdiction. Conversely, similar inconvenience and expense will be imposed on the Plaintiff in the present case if this court declines jurisdiction so that he has to make a claim in Mongolia, if he is to make a claim at all.

92.  In general, where a foreign businessman enters into a joint venture in Hong Kong with a Hong Kong resident and consciously adopts Hong Kong law as the governing law, I can see no great objection if a commercial dispute arising from it is tried in the Hong Kong courts thereby subjecting him to the inconvenience and expense of the nature under discussion.

93.  More importantly, the Plaintiff and the Defendant are likely to be the two key witnesses in this case. The Plaintiff speaks and reads English, but there is no suggestion that he understands Mongolian. The Defendant, while obviously Mongolian-speaking, says he reads some but does not speak English. Be that as it may, at least he was content with the use of English in his business dealings with the Plaintiff, albeit with the assistance of interpreter(s), and in the agreements which he signed with the Plaintiff.  It would seem that the impact of the language barrier will be more equitably distributed between the parties if their dispute is tried in the Hong Kong courts, with English being one of its official languages, than if the dispute is to be tried in Mongolia where one party will have no language barrier while the other is likely to suffer maximum inconvenience.

94.  Lastly, concerning the point that the main thrust of the joint venture is the transfer and exploitation of mining Licences in Mongolia, that is of course true as far as it goes. But we are here concerned with the forum most suited to try the issues in dispute between the parties, not the forum most suited to enforce the transfer of the Licences or to supervise the continuous exploitation of the Licences in Mongolia.

95.  In fact, it is the Defendant’s case that after the 50 Licences had been transferred to Bulgan Gold LLC, they were either sold or cancelled by the Mongolian authority, allegedly owing to the Plaintiff’s fault. As for Licence No. 10840, the Defendant’s case is that it had been revoked by the Mongolian authority in a Decision dated 26 March 2007 and could not be transferred to the Plaintiff. Hence, on the Defendant’s case, there is nothing left of the Licences to be transferred or exploited in Mongolia. 

96.  Importantly, no issues concerning the transfer or exploitation of the Licences in Mongolia have been identified by the Defendant. Hence, the main thrust of the joint venture, as such, has little bearing on the question of forum. It is true that, if the Plaintiff disputes it, whether Licence No. 10840 had been revoked by the Mongolian authority remains to be tried. That however is an issue of fact which can suitably be tried in the Hong Kong courts as any other issue of fact.

97.  For these reasons, I would respectfully differ from the learned Master and conclude that the Hong Kong courts are clearly and distinctly the natural and appropriate forum.

(3) Material Non-Disclosure

98.  In his submissions, Mr Westbrook highlighted the following as the “most glaring instances of non-disclosure” when the Plaintiff applied for the Ex Part Leave:

(1) The Plaintiff selectively referred to only three out of the seven agreements that he knew had been signed.

(2) While the Plaintiff relied on the three agreements he sued upon as being expressly governed by Hong Kong law, the last of the agreements in question ie Agreement No. 7 expressly provided for Mongolian law to apply.

(3) There was no mention at all of the fact that Licence No. 10840 was the subject of a dispute with the Mongolian authority.

The governing principles

99.  The applicant in any ex parte application owes a duty to make full and frank disclosure of all material facts to the court. This is well established.

100.  In Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] HKC 10 at pp 23I - 24F, Hunter JA explained this duty in the context of an Order 11 application as follows.

“I turn now to the two principles I conceive to be relevant in relation to non-disclosure. First the court’s power to discharge any order obtained ex-parte for material non-disclosure is salutary and necessary. As one of the earlier cases shows, R v Kensington Income Tax commissioners ex parte Polignac (Princess) [1917] 1 KB 486, it is there for the court’s own protection. It is necessary to prevent its processes being abused. Secondly, there is another equally significant principle in this jurisdiction. This is to make sure that the court does not get itself in a position of what might be called ‘counter abuse’: where this sort of point is regarded by litigants as ‘a very present help in trouble’; and where problems arise on the substance to resort to attack as the best method of defence. The point was put in words upon which I will not attempt to improve, by this court in Citibank v Express Ship Management Service [1987] HKLR 1184; first in the judgment of my Lord, the Vice-President. He starts by citing from the judgment of Browne-Wilkinson J. in Thermax Limited v Schott Industrial Glass Limited [1981] FSR 289 that what are material are:

“… all facts that are relevant to the weighing operation which the court has to make in deciding the point before it.”

My Lord went onin these terms:

“While the courts must be vigilant, and insist that full and frank disclosure be made in grounding affidavits for ex parte applications for injunctions, Anton Piller orders etc, it is essential to bear in mind the true principle upon which this rule is based. Unless the courts use the sanction which the principle gives them only where the non-disclosure is of facts which are relevant to the ex parte judges’ ‘weighing operation’, an impossible burden would be placed upon applicants and their advisers, and affidavits ex abundanti will tend to contain all sorts of facts and exhibits which are not really necessary for the proper exercise of the court’s discretion when ex parte relief is sought”.

101.  In Mattel Inc v Tonka Corp [1991] 2 HKC 411, at 430A - B, Deputy High Court Judge Andrew Li QC (as he then was) reiterated the principle that material facts were those which were material for the judge to know in dealing with the particular application before it. Materiality was to be decided by the court.

102.  Hence, even though the principle requiring full and frank disclosure is the same whether the application is for the grant of an injunction or for leave to serve a writ outside jurisdiction, the context and the focus of the inquiry is different.

103.  In an application for leave to serve a writ outside jurisdiction, the court is concerned with whether it should assume jurisdiction – it is not concerned with the merits of the case, save that it has to be satisfied that there are serious issues to be tried: Ren Yun Liang & Ors v China Merchants Bank Company Ltd & Ors unrep.; HCA1456 of 2005; 29 January 2007; Recorder B Yu SC; paras 26 – 7; Hong Jing Company Ltd v Zhuhai Kwok Yuen Company Ltd unrep.; HCA156 of 2006; 14 September 2006; Deputy High Court Judge Saunders; para 17. In general, a failure to refer to arguments on the merits which the defendant may seek to raise in answer to the plaintiff’s claim would not amount to material non-disclosure, unless they are of such weight that their omission may mislead the court in exercising its jurisdiction under the rule and its discretion whether or not to grant leave: BP Exploration Company (Libya) v Hunt [1976] 3 All ER 879, 893 h – j.

Discussion

104.  First, the Plaintiff’s failure to disclose all the agreements, including Agreement No. 7.

105.  The existence of the agreements is not disputed by the Plaintiff as such. His case is that, other than the three identified in the Statement of Claim, they are irrelevant for the present purpose. In particular, regarding Agreement No. 7, it is an agreement entered into between different parties and, it is said, for the sole purpose of complying with some procedural requirements in Mongolia. That agreement has no real bearing on this Action.

106.  I agree.

107.  Agreement No. 1 is even on the Defendant’s case only a framework agreement, and between parties not identical to the three agreements sued upon. In so far as its terms are inconsistent with those found in subsequent agreements between the Plaintiff and the Defendant, one can reasonably assume that they have been superseded and can be ignored. The Defendant has not identified any part of this agreement which, on his case, survives the subsequent agreements and bears upon a live issue between the parties. It is just a background document.

108.  Agreement No. 3 is a document signed by the Defendant only. Agreement No. 5 is an agreement between different parties viz. the Defendant and Bulgan Gold HK. The only significance of these two documents lies in the fact that they refer to the vesting of 50 Licences, instead of 51, in Bulgan Gold LLC and support the Defendant’s case that at the time of these agreements, there was a pending dispute with the Mongolian authority concerning Licence No. 10840. So the relevance of these two documents falls to be decided on the materiality or otherwise of the dispute concerning Licence No. 10840, a subject to which I shall return.

109.  Save that it bears a different date, Agreement No. 4 contains identical terms as the Agreement and is expressly governed by Hong Kong law. Nothing material turns on the failure to disclose this document to the court.  

110.  Lastly, Agreement No. 7 is an agreement between different parties viz. the Defendant and Bulgan Gold HK. It is not expressed as a supplemental agreement to any of the three now sued upon by the Plaintiff. This agreement is concerned with a different subject matter ie the transfer of Bulgan Gold LLC shares by the Defendant to Bulgan Gold HK, which is not part of the reliefs sought in the Statement of Claim (and cannot be since Bulgan Gold HK is not a co-plaintiff in this Action). In substance, this is an agreement ancillary to the joint venture between the Plaintiff and the Defendant.

111.  Superficially, the fact that one of the agreements made in the course of the joint venture is expressly governed by Mongolian law may appear to have some bearing on the question of forum. However, the question of forum cannot be decided in a vacuum, but only in relation to issues raised or likely to be raised by a defendant which require adjudication at trial. As the Defendant has not raised any issues of Mongolian law, whether in construing the terms of Agreement No. 7 or otherwise, the fact that Mongolian law governs this agreement is in my view immaterial for the present purpose.

112.  In so far as Agreement No. 7 supports the Defendant’s case that there was a dispute with the Mongolian authority concerning Licence No. 10840, the relevance of it falls to be decided on the materiality or otherwise of the dispute itself, to which I now turn.

113.  Next, the Plaintiff’s failure to disclose the fact that Licence No. 10840 was the subject of a dispute in Mongolia.

114.  On the evidence, it is reasonably clear the Plaintiff was aware that Licence No. 10840 was the subject of a dispute between the holder of the Licence and the Mongolian authority. This is borne out by inter alia the fact that in Agreement No. 7, Licence No. 10840 was separately listed in the Exhibit A attached thereto as “Under Dispute” and Agreement No. 7 was signed by the Plaintiff as director of Bulgan Gold HK. The Plaintiff himself admitted that he knew about the licence dispute in Mongolia, although his evidence was that he was told by the Defendant that the dispute was trivial and would not affect the Defendant’s ability to procure the transfer of Licence No.10840. His evidence is disputed by the Defendant, but this is not the occasion to resolve it. 

115.  The Defendant contends that the major dispute in this case is whether it was agreed that the Defendant should be responsible for transferring Licence No. 10840 if the Mongolian authority decided to revoke it.

116.  If the contention stops there, there is no doubt that the Plaintiff need not have disclosed the dispute concerning Licence No. 10840 when he applied for the Ex Parte Leave. This is because the point only goes towards a potential defence which the Defendant may raise in relation to the claims, but it is not of such weight as to render the claims groundless.

117.  The Defendant’s contention, however, goes further. It is said that the determination of this dispute requires knowledge of local custom and points to Mongolia as the forum conveniens. The Plaintiff’s default lies in his failure to identify a clear issue which any court hearing the case would need to determine and which would adversely affect the contention that Hong Kong is clearly and distinctly the more appropriate forum to try the issue.

118.  The Plaintiff submits that the aforesaid major dispute was raised for the first time only in the Defendant’s affirmations filed after the Ex Parte Leave had been granted. In other words, he did not know that the Defendant would raise the aforesaid major dispute and rely on the dispute concerning Licence No. 10840 in support.

119.  In my view, if the Defendant cannot establish that, at the time the Plaintiff applied for the Ex Parte Leave, he knew or ought reasonably to have anticipated what the Defendant was going to raise as the major dispute, and his reliance on the dispute concerning Licence No. 10840 in support, there was no duty on the part of the Plaintiff to disclose it.

120.  In the present case, the Defendant has not referred this court to, nor can this court find, anything in the evidence which suggests such knowledge on the part of the Plaintiff or that he should reasonably have anticipated it. What is more, there is nothing from which this court can infer that the Plaintiff knew or ought reasonably to have anticipated that the Defendant would contend that the determination of the said major dispute required knowledge of local custom, so that the dispute concerning Licence No. 10840 not only went to the merits of the defence, but also to the question of forum.

121.  As I said earlier, the local circumstances prevailing in Mongolia at the time the agreements were entered into could form part of the “matrix of fact” against which the court carries out the task of construing the agreements, provided that knowledge of it would reasonably have been available to both parties at the time. But there is very little evidence on the sort of local circumstances which the Defendant seeks to rely on or the extent to which they were said to be known to both parties.  It is therefore a matter of conjecture as to the degree to which local circumstances in Mongolia would be relevant to the adjudication of the present dispute, and hence the question of the appropriate forum. If that is the state of play now, it would have been even more unclear to the Plaintiff that the dispute concerning Licence No. 10840 would be relevant to forum, when he applied for the Ex Parte Leave. 

122.  In these circumstances, I am not persuaded that the existence of the dispute in relation to Licence No. 10840 was a material fact which the Plaintiff ought to have disclosed to the court when the application for the Ex Parte Leave was made.

123.  For these reasons, I would respectfully differ from the learned Master and conclude that there was no material non-disclosure on the part of the Plaintiff.

E.  The Dismissal Application

124.  The Dismissal application is predicated on the validity of Master de Souza’s Order to set aside the leave granted by Master Ho. Given my decision to allow the Appeal and set aside Master de Souza’s Order, it follows that the Dismissal Application must fail.

F. Disposition

125.  Accordingly, I give leave to the Plaintiff to appeal out of time, allow the Plaintiff’s appeal and set aside Master de Souza’s Order. I also dismiss the Defendant’s application to dismiss this Action.

126.  There will be an Order Nisi that (1) the Plaintiff is to have the costs of the Appeal and below, as well as the costs of the Dismissal Application, such costs to be taxed if not agreed, with Certificate for two counsel; (2) no order as to the Costs of the Leave Application.

127.  Lastly, I thank counsel on both sides for their helpful submissions.