XCHRX UNITED PHOSPHORUS LTD. v. CHINA MERCHANTS SHIPPING & ENTERPRISES CO. LTD.

HCCL81/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.81 OF 1997

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J U D G M E N T

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The Application

1. This is an application by the Defendant herein, by summons dated 28th September 1998, for an Order that the judgment entered against it on 18th September 1998 in default of notice of intention to defend be set aside.

The Procedural Background

2. The circumstances in which the judgment was entered are slightly unusual. Indeed, on the facts the impartial observer may wonder what, if anything, has been achieved by this exercise, save for the creation of yet another piece of collateral litigation.

3. The Writ in this action was issued on 16th May 1997 and indorsed, in its original form at least, with a claim for breach of contract contained in or evidenced by bills of lading, and for deceit and/or fraudulent misrepresentation. The Defendant duly acknowledged service, and gave notice of intention to defend on 27th May 1997, thereafter followed by service of Points of Claim on 31st July 1997.

4. On 13th September 1997 the Defendant issued a summons for an order that all further proceedings in the action be stayed, relying in this application upon the exclusive jurisdiction clause contained in the bills of lading, and also upon the ground of forum non conveniens. It is noteworthy, and indeed crucial to what has occurred in this case, that on the face of the summons in question this application was stated to be made pursuant to the provisions of Rules of the High Court Order 12 rule 8.

5. That summons for a stay of proceedings was heard by this Court on 20th July 1998, judgment being handed down on 31st August 1998. For the reasons given in that judgment, the Defendant's application was refused. The judgment speaks for itself, and is presently under appeal in Civil Appeal No.244 of 1998 pursuant to a Notice of Appeal dated 29th September 1998.

6. Which conveniently brings me to the manner in which the present default judgment came to be entered. What appears to have happened is that because the summons mounting the stay application stated on its face that it was being made pursuant to Order 12 rule 8, and since, upon the refusal of that application, no further notice of intention to defend had been filed by the Defendant (as is anticipated by Order 12 rule 8(6)), those acting for the Plaintiff were permitted by the Registry to enter the default judgment which is now the subject of the present application to set aside. This judgment was therefore entered in the face of the original acknowledgment of service and notice of intention to defend, and also in the face of the forthcoming appeal to the Court of Appeal against the judgment of this Court refusing the Defendant's application for a stay.

The Argument

7. Mr Sussex, appearing on behalf of the Defendant applicant, seeks to set the judgment aside under the twin heads of irregularity and merits. I take each element in turn.

(i) Irregularity

8. The point is short. Mr Sussex says that whatever anybody may have thought, the application to stay in substance was not an Order 12 rule 8 application. It was made under the Court's inherent jurisdiction, and accordingly the provisions of Order 12 rule 8(6) had and can have no application. It followed, therefore, that upon the dismissal of the Defendant's stay application, the Defendant's original notice of intention to defend remained effective and in place. Accordingly, the default judgment entered by the Plaintiff was irregular, and the Defendant is entitled to have it set aside ex debito justitiae, or, more accurately, the Defendant had "a confident expectation" that such a judgment would be set aside : per Hunter JA in Honour Finance Company Limited v. Chui Mei Mei [1989] 2 HKLR 146 (at 148I).

9. To the contrary, Mr Coleman on behalf of the Plaintiff respondent argued that this judgment as entered was and is a regular judgment. He submitted that the Defendant repeatedly had made it clear that it had made an application under Order 12 rule 8 wherein the relief which was sought disputed the jurisdiction of the Court in respect of this particular claim on one of the grounds specified in the rule. In this connection, during argument Mr Coleman particularly drew the Court's attention to sub-rule (1)(g) -- "a declaration that in the circumstances of the case the court has no jurisdiction over the defendant in respect of the subject matter of the claim or the relief or remedy sought in the action" -- and argued that because the Defendant served with the Writ in Hong Kong was the subject of a foreign jurisdiction clause, sub-rule (g) was properly and necessarily invoked.

10. With respect to Mr Coleman, I do not think that his argument is soundly based. Jurisdiction is not a divisible entity. The Court either has it, or it has not. In this case, in which the Defendant company is incorporated under the laws of Hong Kong, and has been served as of right in Hong Kong at its registered office pursuant to section 356 of the Companies Ordinance, Cap.32, there is no question of a challenge to the existence of the jurisdiction of the Hong Kong Court, given the territorial basis underpinning such jurisdiction. To the contrary, what is open for challenge is whether the Court should choose to exercise such undoubted jurisdiction in the circumstances of the particular case. This latter issue, in my view, sounds not to the provisions of Order 12 rule 8 (howsoever such summons to stay may have been formally labelled) but to the inherent jurisdiction of the Court.

11. That this is clearly the case was expressly recognised by Goff LJ (as he then was) in The "Messiniaki Tolmi" [1984] 1 Ll LR 266 at 270 :-

" In our judgment, the application by the appellant for a stay of proceedings was not an application under O.12, r.8(1). Only where a party, on one of the grounds specified in that rule, seeks relief in which he disputes the jurisdiction of the Court can his application fall within the rule. Here there was no question of the appellant disputing the jurisdiction of the Court. Indeed, as he had been served personally with the writ in this country, it is difficult to see on what ground he could possibly dispute the Court's jurisdiction. His application was for a stay of proceedings which, indisputably, had been properly commenced against him. The effect of a stay, if granted, would not have been to set aside the proceedings; it would have been simply to stop the respondents from pursuing the action any further at that time. Moreover, it would have been open to the respondents to apply thereafter to have the stay lifted, and if such an application was granted they could continue to proceed with the action." (emphasis added)

12. In The "Messiniaki Tolmi" the defendant had applied for an extension of time within which to lodge a further acknowledgment of service on the (mistaken) assumption that the application for a stay had been an application under Order 12 rule 8(1), an assumption which was incorrect, as Goff LJ pointed out. In the same way, in the instant case, the fact that the stay application was purportedly made under those statutory provisions cannot, and does not, alter the reality; prima facie, the jurisdiction of the Court over this Defendant is indisputable, and all that the Defendant was doing was to ask that the Court exercise its discretion and send the case off to the Guangzhou Maritime Court (in which the Defendant has instituted proceedings against Hunan Leader and Hunan Yatong in relation to the issue of the two bills of lading alleged to be fraudulent), an invitation which in the exercise of its discretion the Court ultimately declined. So that absent a successful appeal against its decision, these proceedings will continue in the Hong Kong Commercial Court on the basis of the amended Writ and Points of Claim (wherein there is now deleted any claim for breach of contract).

13. I do not therefore accept Mr Coleman's suggestion that this judgment is regular and that the Defendant's argument based on The "Messiniaki Tolmi" is incorrect. To the contrary. I think that it is precisely on point. The Order 12 rule 8 statutory regime was not designed for the situation wherein the applicant merely asks the Court not to exercise its undoubted jurisdiction. These rules of court were put in place to alleviate the type of practical problem which continually arose as the result of the previous somewhat unsatisfactory dichotomy between the unconditional and the conditional appearance, the latter having been replaced by the present (and considerably more certain) procedural regime of Order 12 rule 8 for making objection to the primary jurisdiction of the Court without falling prey to the assertion that in the course of making such objection there had been a submission to the jurisdiction.

14. I agree, therefore, with Mr Sussex's case that this judgment was irregularly entered, and on that basis alone I am minded to set it aside.

15. As a postscript I note that shortly after argument had taken place in this case, my attention was drawn to the recent English Court of Appeal case of Sithole v. Thor Chemical Holdings Limited & Another, a decision of the English Court of Appeal of 3rd February 1999 (reported in The Times of 15th February 1999), in what was a case factually similar to the present wherein a defendant appealing against the refusal of his application to stay had had judgment in default entered against him. In Sithole, however, the Court of Appeal appeared to proceed on the basis of the applicability of Order 12 rule 8(6), thereby requiring a further protective acknowledgment of service, which decision seemed on its face to run counter to the argument which has found favour with this Court. However, the full transcript of the presently unreported judgment (which was sent to the parties herein for their observations) revealed that the primary point at issue in the present application was not taken in Sithole, given that the Court was there working upon the assumption that the application for a stay of the English proceedings was properly brought under Order 12 rule 8; in fact, from the transcript the regularity of the judgment in Sithole was the subject of a concession by Counsel. Further, as Mr Sussex has pointed out in a further short written submission, The "Messiniaki Tolmi", op.cit., was not cited to the English Court, although binding upon it, and as such Sithole ought to be considered per incuriam, and thus incorrectly decided.

16. Suffice to say that in the circumstances of the present case I decline to follow Sithole, which of course is not binding on this Court, albeit in principle decisions of the English Court of Appeal are of course highly persuasive.

(ii) Merits

17. Although I find that this judgment ought to be set aside as irregular, in case I be wrong on the point I move briefly to consider Mr Sussex's second head of argument to the effect that in any event, and assuming the judgment to be regular, the Defendant in this case has a good defence on the merits, and that accordingly the judgment should be set aside in accordance with well-known principles : see, for example, Premier Fashion Wears Limited & Another v. Lee Hing Chung & Another [1994] 1 HKLR 377 (CA).

18. Mr Sussex's approach to the merits was to submit that in light of the Plaintiff's case as presently pleaded, the Plaintiff will not be able to establish the torts of deceit or negligent misrepresentation (the original claim in contract having been deleted), and that so far as the allegation of conspiracy to injure the Plaintiff was concerned, such a claim was not foreshadowed in the endorsement on the Writ, whilst the plea in the Points of Claim was lacking in particularity, and in any event the facts as disclosed would not support such a case. In short, therefore, whilst Mr Sussex did not go so far as to suggest that a viable case could not be pleaded, he submitted that such plainly had not yet happened, and that on the case as presently set out the Defendant had not merely a defence on the merits but a positive probability of success.

19. In the circumstances I do not consider it appropriate to become involved in speculation as to the true analytical case which may or may not emerge on the basis of the affidavit evidence now before the Court. What in my view is clear, however, is that in terms of the argument raised I am entirely satisfied that the Defendant indeed has demonstrated "merits to which the Court should pay heed", merits which carry "a reasonable prospect of success", and that therefore the appropriate benchmark has been attained to set aside this judgment on a merits basis also.

Order

20. It follows from the foregoing that the judgment entered against the Defendant on 18th September 1998 is to be set aside, and I so order.

21. As to the costs of and occasioned by this application, in the particular circumstances I decline to venture a costs order nisi, and absent agreement thereon, I will hear the parties as to costs on a date to be fixed.

22. I thank Counsel for their assistance.