CASPIAN RESOURCES DEVELOPMENT PTE LTD v. FORTUNE OIL PLC AND OTHERS

HCA 605/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 605 OF 2012

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REASONS  FOR DECISION
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1. This was an appeal from a decision of Master K Lo dated 18 May 2015 (“the May decision”) and her decision dated 22 June 2015 reaffirming the May decision whereby she refused the application of Fortune Oil Plc and Giant Global Development Limited (“the defendants”) for an order that the taxation proceedings in the action be allowed to be carried on and ordered that the registration of Caspian Resources Development Pte Ltd (“the plaintiff”) be restored before further proceedings against the plaintiff could take place. 

2. At the conclusion of the hearing the appeal was allowed with costs.  My reasons appear below.

3. The question that arises in this appeal is not without interest.  It concerns the proper approach of the court where a foreign company who is a party to the action is deregistered or struck off in the course of the proceedings.

Background facts

4. The circumstances giving rise to the appeal are outlined in some detail below.

5. The plaintiff was incorporated in Singapore in 2007.  It commenced this action in Hong Kong against the defendants in April 2012.

6. In September 2012 on the application of the 2^nd defendant, an order for security for costs in the sum of $400,000 was made in its favour. 

7. On 3 September 2014, the plaintiff’s former solicitors applied for and obtained an order to cease to act upon compliance with the requirements of Order 67, rule 6(1) of the Rules of the High Court.

8. At the case management conference on 10 September 2014 the Registrar made an order pursuant to Order 25, rule 1C(1) that the plaintiff’s claim be provisionally struck out and that the costs of the action (including all costs reserved) and the hearing be paid by the plaintiff to the defendants to be taxed if not agreed (“the striking out order”).

9. The striking out order was served on the plaintiff at its registered office in Singapore the receipt of which was acknowledged by one Parker Randall, its auditor.

10. As no application was made to restore the plaintiff’s claim within three months in accordance with Order 25, rule 1C(3), the plaintiff’s claim was struck out upon the expiration of the 3‑month period. 

11. On 17 February 2015 the defendants’ solicitors DLA Piper Hong Kong (“DLA”) filed a notice of commencement of taxation and a bill of costs (“the taxation documents”) and arranged for the same to be served on the plaintiff as its registered office the receipt of which was acknowledged.

12. Meanwhile, on 12 February 2015 upon a company search being conducted, DLA became aware that the plaintiff’s status was gazetted to be struck off.  DLA then caused a Singaporean gazette search to be conducted which revealed that the plaintiff would be struck off the Singapore register of companies within three months of the gazette notice which was dated 21 January 2015.  In other words, the plaintiff would be struck off on 20 April 2015.  The plaintiff did not give notice to the defendants that it was due to be struck off or deregistered.

13. On 24 March 2015, the defendants applied to set a bill down for taxation.  The application was scheduled to be dealt with by the court (on paper disposal) on 5 May 2015, and in relation to that application the defendants had voluntarily disclosed the fact that the plaintiff had been scheduled to be struck off the Singapore register.

14. On 25 March 2015, the court made a written requisition concerning leave for service out of the jurisdiction of the striking out order.  On 23 April 2015, upon the defendants’ ex parte application, leave for service out was granted and it was ordered that the previous service of the striking out order and the taxation documents be deemed good service.

15. On 5 May 2015 the master asked the defendants to confirm whether the plaintiff had been deregistered.  Upon receiving the DLA’s confirmation that according to the Singapore gazette published on 27 April 2015 that the plaintiff had been struck off the Singapore register with effect from 21 April 2015, on 11 May 2011 the master directed the defendants “to confirm how they would proceed with the taxation of the bill and adjourned the bill sine die”.

16. On 13 May 2015, DLA requested the court to proceed with the taxation application, noting that the plaintiff had probably been wrongly deregistered in Singapore and that the taxation documents had been duly served on the plaintiff before the plaintiff’s deregistration.

17. On 18 May 2015, the master made the following order:

“Unless there is foreign law opinion to the contrary, law in Singapore treated by this Court is same as HK law. The registration of the company deregistered need be restored before further legal proceedings against the company can take place.”

18. Upon receipt of the defendants’ further explanation as to why the striking off of the plaintiff from the register should have no legal effect and invalid, by a note dated 22 June 2015, the master reaffirmed the May decision.

The appeal

19. The defendants seek the following relief: (1) leave to appeal out of time; (2) the taxation proceeding and all incidental applications consequential thereto be allowed to be carried on; (3) a taxation hearing be fixed; and (4) costs of the appeal. 

20. This case is not about the commencement of proceedings against a foreign company that has been deregistered or struck off the register of companies of the foreign country.  It concerns a foreign company (in the present case the plaintiff) that has been struck off the register in its place of incorporation after:

(1) its claim against the defendants had been struck out;

(2) adverse costs order had been made against it; and

(3) it had been served with the notice of commencement of taxation and a bill of costs.

21. The action was validly commenced and had been ongoing for over 2½ years when it was struck out pursuant to RHC Order 25, rule 1C(1) and (6)(a). 

22. The defendants’ appeal is based on two grounds:

(1) Assuming that the plaintiff was dissolved or its corporate existence had been extinguished by the striking off or deregistration in the place of incorporation, the court has a discretion to either stay the proceedings pending the restoration of the corporation, or to enter judgment against the corporation and allow costs against the corporation to be taxed.

(2) There is no room for the application of the “default rule” which concerns proof of foreign law in circumstances where no party chooses to plead it or rely on it.

The court’s discretion

23. Mr Man who appeared for the defendants submitted on the authority of the English Court of Appeal’s decision in Steans Fashions Ltd v Legal and General Assurance Society Ltd [1995] 1 BCLC 332 (at 335H‑I) that the court has a discretion to make an appropriate order on the facts of the particular case. 

24. In the ordinary case, logic and convenience point to the action being stayed because whatever order is made during the period of dissolution will be retrospectively validated when and if the company is restored to the register.  An order of dismissal would have to be set aside because it would be inconsistent with the action being resumed.  An action which may be revived should not sensibly be dismissed now.  But an action that is presently “dead” may sensibly be stayed, assuming any order can be made now, until such time as circumstances change and the action is revived: see the judgment of Nourse LJ in Steans Fashions at 335E‑H citing the judgment of Evans J in Eastern Capital Holdings Ltd v Fitter, unreported, 19 December 1991.

25. Steans Fashions is an example of the ordinary case.  In that case, earlier in the day of the hearing it was discovered that the plaintiff (a company) had been struck off the register a few months earlier for failure to deliver annual returns.  The judge adjourned the hearing to the following day so that the position could be clarified.  On the same day the plaintiff applied to the Companies Court for its name to be restored to the register.  At the resumed hearing the following day the judge declined the plaintiff’s request for an adjournment pending resolution of its application to the Companies Court and dismissed the plaintiff’s action.  The Court of Appeal allowed the plaintiff’s appeal.

26. In exercising its discretion the court has to form a view as to the likelihood of the action being revived.  In reversing the judge, while the Court of Appeal differed from the judge on the proper exercise of the discretion on the facts of that case, relevantly, it did not hold or consider that the judge had no jurisdiction to dismiss an action and to order costs against the unsuccessful party.  What is clear from Steans Fashions is that the court may make such order as is appropriate on the facts of the particular case.

27. When one turns to the facts of the present case, the striking features are that:

(1) the plaintiff was aware of the adverse costs order against it and thus of its outstanding liability yet it allowed the striking off or deregistration to proceed;

(2) it was equally aware of the taxation documents before it was struck off or deregistered but did not bother to raise any objections;

(3) it is unclear whether the defendants had any practical means of objecting to the striking off or deregistration of the plaintiff at the material time;

(4) the defendants seek to recover the security paid into court which with interest currently stands at approximately $416,000;

(5) that sum is the plaintiff’s only known asset against which the defendants (who have incurred over $2.3 million in costs) can realistically expect to recover;

(6) if the plaintiff has been prejudiced it could still set aside the decision after the restoration of the plaintiff to the register; and

(7) for the purpose of taxation proceedings, there is no discernible difference whether the plaintiff is or is not restored to the register: it has not seen fit to put forward objections to the bill and, in any event, given the amount of costs the defendants have incurred to date, the amount they would receive on a taxation is bound to exceed the sum currently in court. 

28. The plaintiff’s conduct smacks of dishonesty and has the hallmarks of evading its liabilities in respect of costs.  Such conduct cannot be condoned and should not be tolerated.  In the circumstances, in principle, it is neither just nor fair to require the defendants to incur costs by having to take steps to restore the plaintiff’s corporate existence in the foreign jurisdiction.  Not only is it unclear that such a course exists, how long it would take and how much it would cost are unknown.

29. In my view, staying the proceedings would achieve no purpose.  It would simply result in unnecessary additional costs having to be incurred and, at the same time, denying the defendants of the little that is left for them to recover by way of costs when it is the plaintiff who has chosen to abandon the action it commenced and pursued for over 2½ years.  The defendants have been made to incur significant costs as a result but most of which they now have no prospect of recovering.

The default rule

30. It is an established principle that the default rule concerns proof of foreign law and only applies when foreign law has been pleaded but not proved.  In cases where the default rule applies, foreign law is presumed to be the same as Hong Kong law.

31. It is important to bear in mind that the rule has no application unless a party has specifically pleaded or relied on foreign law.  In the present case, neither party has pleaded or relied on Singaporean law.  In those circumstances it would be wrong for a court to do so of its own motion: see Johnston, The Conflict of Laws in Hong Kong, 2^nd edn, at §§2.061 and 2.077.  Plainly there is no scope for the application of the default rule.

32. Although the master did not expressly state that the default rule was applicable, underpinning the May decision was the assumption that the law of Singapore was the same as HK law.  While a company ceases to exist upon dissolution rather than upon being struck off the register or deregistration, section 746(3) of the Companies Ordinance, Cap 622 (“the Ordinance”) provides that a company that has been struck off the Companies Register is dissolved on publication of the relevant notice in the Gazette and section 751(6) provides that a company that has been deregistered is dissolved upon deregistration.  So, under Hong Kong law, a company is dissolved upon its being struck off or deregistered.

33. If foreign law has not been pleaded (as here), a case with foreign elements would be decided as though it were a purely domestic case: Dicey, Morris & Collins, The Conflict of Laws, 15^th edn, Vol 1 at §9‑003.  Nevertheless, as the learned authors noted (at §9‑026), recent authorities demonstrate that there are cases in which neither the presumption of similarity nor the default application of the lex fori will be suitable for the disposition of the case.  Obtaining precise guidance as to when this point will be reached is another matter.

34. The recent practice of the English courts shows that the default application of English law where foreign law is not proved is not unqualified, and is more likely to be challenged where the rule of English law is statutory rather than being a rule of the common law.  Dicey states (at §9‑027) that:

“In principle, an English statute may not be applied to a matter governed by a foreign law, in circumstances where that foreign law has not been proved, if the English statutory rule appears to state a rule of purely domestic law, or where the wording of the statute would need to be adapted or changed in order to be made applicable to facts which do not otherwise fall within it.”

35. In Shaker v Al‑Bedrawi [2003] Ch 350, the English Court of Appeal (at 372B‑C) accepted the submission that domestic statute law could be applied “where the statute potentially had some degree of universality”.  At §67, Peter Gibson LJ in delivering the judgment of the court stated as follows:

“ The starting point must be that not every English statute is to be applied to a transaction because a party has either chosen not to prove or failed to prove the law which is otherwise applicable. On the face of it, Part VIII is inapplicable to a company not registered under the Companies Acts. Thus the judge was correct to seek to satisfy himself that Part VIII did not represent some merely domestic rule of English law. He did so by asking whether the requirements of Part VIII with which he was concerned represented a generally applicable rule of company law. As we have said, Mr Lyndon‑Stanford has made his submissions on the basis that this requirement has to be met and we are content also to accept that as the test in the circumstances of this case. However if a rule of English statute law has to be adapted in the way explained above before it can apply, then, although it is not necessary to express a final view on this point on this appeal, it may well be that that factor alone is a sufficient indication that the case falls within the class of case where English statute law creates some special institution and thus cannot be applied simply because a party has failed to prove the relevant foreign law.”

36. It is noteworthy that counsel advocating the application of the default rule in that case also submitted (at §65) that the court was bound to apply the default rule unless the result was unfair (see p372C).

37. The observations of Peter Gibson LJ set out in §35 above are equally apposite to the facts of the present case.  The Ordinance as drawn is clearly intended to apply to companies incorporated in Hong Kong or registered in Hong Kong.  Not only is the plaintiff not incorporated in Hong Kong, it has no place of business here and accordingly does not even qualify to be registered as a non‑Hong Kong company.  I consider that Part 15 to be some merely domestic rule of Hong Kong law and not a generally applicable rule of company law.  Therefore there is no valid reason why the default rule should apply in the present case particularly if one were to take into account the result will be grossly unfair to the defendants.

38. For all the above reasons, the appeal was allowed.