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

CAMP 142/2020

[2021] HKCA 18

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 142OF 2020

(ON AN INTENDED APPEAL FROM HCMP 874/2019)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  This is the renewed application of the Plaintiff for leave to appeal to the Court of Appeal against the Decision of Recorder Yvonne Cheng SC (“the Judge”) on 28 May 2020 (“the Decision”). The Decision arose from an appeal against Master Chow’s decision of 14 January 2020 dismissing the Plaintiff’s ex parte application for leave to issue a concurrent amended Originating Summons and service it out of the jurisdiction on the four Defendants named therein. The Judge dismissed the Plaintiff’s appeal and affirmed Master Chow’s decision.

2.  The Plaintiff sought leave to appeal against the Decision.  This was refused by the Judge on 11 August 2020 (“the Leave Decision”).  The present summons renewing the application before the Court of Appeal was issued on 25 August 2020.

3.  Having considered the papers, we think it appropriate to exercise the power under O.59 r.2A(5)(a) of the Rules of the High Court, Cap 4A (“RHC”) to determine this application without an oral hearing on the basis of the written submissions before us.

4.  We do not propose to set out the background matters, which have been stated in the Decision at §§3 to 14.

5.  At the outset, it is noteworthy that the Plaintiff did have a contract with the 1^st Defendant (the GIA Client Agreement: see §7 of the Decision) by which the Plaintiff engaged the service of the 1^st Defendant in having the Diamond graded. But the Plaintiff did not pursue any claims against the Defendants under that contract.  Neither did the Plaintiff support its application under Order 11 by reference to any claims under the GIA Client Agreement.

6.  Instead, for the purpose of the Order 11 application (both here and below), the Plaintiff relied on another contract (“the Contract”), made between it and the unidentified couple with whom it exchanged the Diamond for another diamond: see §5 of the Decision.  The Defendants were not parties to and have no connection with this contract.  Still, the Plaintiff is making the present application based on claims advanced under it.

7.  The substantive relief as prayed for in the Amended Originating Summons are as follows:

(a)  A declaration that the Plaintiff acquired good title to the Diamond;

(b)  The Diamond be returned to the Plaintiff.

As shall be further explained below, a judgment on the validity of the Contract or the enforceability of the Contract against the unknown couple is not sufficient to sustain these claims against the Defendants.  

8.  For leave to appeal to be granted under Section 14AA(4) of the High Court Ordinance, Cap 4, the court must 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.  The Judge held that the Plaintiff has failed to satisfy both limbs and accordingly refused leave to appeal[1].

9.  The grounds of appeal advanced in this renewed application for leave to appeal are as follows: (1) the Judge erred in law in ruling that the Plaintiff’s claim was not brought to enforce, rescind, dissolve, annul or otherwise affect a contract under O.11 r.1(1)(d) of RHC (“Ground 1”); and (2) the Judge erred in law in ruling that the Plaintiff’s claim may not be served out on the 1^st to 4^th Defendants who are not parties to the Contract (“Ground 2”).

Ground 1

10.  In the appeal before the Judge, it was contended on behalf of the Plaintiff that so long as a contract satisfies one of the criteria in O.11 r.1(1)(d)(i) to (iv) of RHC, any legal claim “in respect of that contract” would satisfy the O.11 r.1(1)(d) gateway.

11.  The Judge rejected that contention and referred to Pacific Dunlop Garments Ltd v Fundamental Global Ltd, unreported, HCA 1655/2008, 17 May 2012 at §38, and NewOcean Petroleum Co Ltd v OW Bunker China Ltd [2016] 3 HKLRD 892 at §58 as examples which directly contradicted with that contention[2].

12.  In the application for leave to appeal to the Court of Appeal before the Judge, as with the renewed application before this court, the Plaintiff argued that the words “or otherwise affect” under O.11 r.1(1)(d) of RHC were “almost as wide as they can be”, and that “to affect” means “to produce a material effect” on something citing BP Exploration Co (Libya) Ltd v Hunt [1976] 3 All ER 879 at 885g, 886g.  The Plaintiff submitted that its case was similar to that in BP Exploration Co as both concerned rights conferred by legislation in relation to a contract and that in the Plaintiff’s case if the declaratory relief sought is granted it would have produced a material effect on the contract by conferring the Plaintiff proprietary right for the Diamond that the Plaintiff otherwise may not have.

13.  This argument was rejected by the Judge in the Leave Decision. The declaration sought in BP Exploration would have affected the agreements between the parties because it would have declared them to be discharged by reason of frustration. In contrast, the Judge held that it is not reasonably arguable that the Plaintiff’s claims in the present proceedings would have a material effect on the Contract.  The Judge held that whilst the Contract may form an important part of the factual background as to why the Plaintiff says that it has title to the Diamond, the grant or refusal of the declaration sought would not have any impact on the Contract.  Even if the declaratory relief would confer on the Plaintiff property right for the Diamond that the Plaintiff otherwise may not have, this does not affect or produce a material effect on the Contract[3].

14.  We agree with the Judge. Neither the enforceability nor the validity of the Contract would be affected by the outcome of the Amended Originating Summons. Indeed, the Plaintiff is not interested in enforcing or seeking adjudication of its rights under the Contract.  The Contract had been performed upon the exchange of the diamonds.  The sending of the Diamond by the Plaintiff to the 1^st Defendant for grading was not part of the Contract.  There is nothing in the Contract which could provide the Plaintiff with any causes of action against these Defendants.

15.  Examining the Plaintiff’s claim from another angle, as stated above, the mere proof by the Plaintiff that the Contract had been made and that it acquired the Diamond pursuant to the Contract would not be sufficient to support its claims for relief in the present proceedings. Such proof only establishes its title to the Diamond vis-à-vis the unknown couple.

16.  As between the Plaintiff and these Defendants, the Plaintiff has to rely on the doctrine of market overt under Section 24 of the Sale of Goods Ordinance, Cap 26 in the supporting affirmation to support its claim regarding its title of the Diamond.  It is not a contractual claim or a claim within the scope of O. 11 r.1(1)(d).

17.  O.11 r.1(1)(d) is only engaged if the claim “is brought to enforce, rescind, dissolve, annul or otherwise affect a contract” or “to recover damages or obtain other relief in respect of the breach of a contract.  The market overt claim is not brought to enforce, rescind, dissolve, annul or otherwise affect a contract.   

18.  Apart from referring to the “wide definition” of the words “enforce” and “or otherwise affect” under O. 11 r.1(1)(d) of RHC, the Plaintiff has not demonstrated how the Plaintiff’s claim “enforces” or “affects” the Contract.

19.  Since the only parties to these proceedings were neither party nor privy to the Contract, the claims are not brought to recover damages or obtain other relief in respect of the breach of the Contract.

20.  For the above reasons, we do not think Ground 1 has reasonable prospects of success. 

Ground 2

21.  In the appeal before the Judge, the Plaintiff argued that the party to be served out of the jurisdiction does not have to be a party to the contract. No submission was made as to why, despite the Defendants not being party to the Contract, leave should be granted under O.11 r.1(1)(d) of RHC.

22.  The Judge rejected that general proposition. She held that whilst it may be the case that the wording of O.11 r.1(1)(d) of RHC does not expressly require the Defendant to be a party to the contract which is the subject of the action, so that in certain circumstances, such as when there is a dispute as to whether the party sought to be served is a party to the contract or not, leave may be granted to serve such a party under this rule, this is a far cry from the suggestion that generally a party to be served under this rule does not need to be a party to the contract[4]. 

23.  In this regard, the Judge referred to Alliance Bank JSC v Aquanta Corporation and others [2013] 1 All ER (Comm) 819 where Tomlinson LJ said the following at §71 in relation to the broader formulation of the corresponding English rule:

“ … I am for my part attracted by the argument that a claim is not for that purpose properly described as ‘made in respect of a contract’ where the contract in question is not one to which the defendant is party. For my part I see great force in the argument that it is implicit in the rule that the contract upon which reliance is placed must be one to which the intended defendant is party. I am also attracted by Mr Morgan’s formulation which I would tentatively restate as follows: unless the claimant is suing in order to assert a contractual right or a right which has arisen as a result of the non-performance of a contract, his claim is not in this context properly to be regarded as one made in respect of a contract. I think it likely that ordinarily such claims can only be made in respect of contracts to which the intended defendant is party. However, the case of the intended defendant, Warner, considered by Hamblen J in Cecil v Bayat may show that that will not always be so. It is sufficient to dispose of the point in this case to indicate that the required connection between claim and contract must inevitably be the more difficult to establish in a case where the intended defendant is not party to the contract upon which reliance is placed than in a case where he is party to it.” (emphasis added)

24.  In the application for leave to appeal to the Court of Appeal before the Judge, as with the renewed application before this court, the Plaintiff contended that order for service out of jurisdiction against the 1^st to 4^th Defendants should have been made as there is a sufficient connection between the Plaintiff’s claim and the Contract on the basis that 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 had been lost; or (2) the Contract operating in conjunction with Section 24 of the Sale of Goods Ordinance, Cap 26.

25.  This argument was correctly rejected by the Judge. As the Judge held, insofar as (1) is concerned, the Plaintiff’s claim turns on the Defendants’ (in)ability to prove that the Diamond was the one which they have lost. With regards to (2), the Plaintiff’s claim turns on the operation of Section 24 of the Sale of Goods Ordinance, Cap 26. In neither scenario is it reasonably arguable that there is a sufficient connection between the Plaintiff’s claim and the Contract[5].

26.  As we have said earlier, the claims of the Plaintiff as presently advanced before us are not one coming within O.11 r.1(1)(d) with reference to the Contract.

27.  Whether the Plaintiff could make good a case coming within Rule 1(1)(d) by reference to the GIA Client Agreement, which appears to be the relevant claim based on contract (if any) to seek the return of the Diamond from the 1^st Defendant, is not an issue before us.

28.  In light of the above, we do not consider that Ground 2 has any reasonable prospects of success. 

29.  We do not see any reason for granting leave to appeal in the interest of justice. The relevant gateway for determining proprietary rights over movable property is O.11 r.1(1)(i) and the Plaintiff could not satisfy the same because the Diamond was not situated within the jurisdiction.

Conclusion

30.  For the above reasons, we dismiss the Plaintiff’s application for leave to appeal.  

31.  As the application is wholly without merit, we make a further order pursuant to O.59 r.2A(8) of RHC that no party may under O.59 r.2A(7) of RHC request the determination to be reconsidered at an oral hearing.