MAJOR VANTAGE LTD v. JUSTIN ONOFRIETTI AND ANOTHER

HCA 647/2023

[2024] HKCFI 1612

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 647 OF 2023

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BETWEEN

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DECISION

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1.  This is an appeal of D1 against the decision of Master Grace Chow dated 16 January 2024 (“the Decision”) in which the master partially allowed the joint application of D1 and D2 by summons dated 11 September 2023 (“the Summons”) to set aside the order of Master Phoebe Man dated 8 May 2023 granting the application of P for leave to issue a concurrent Writ of Summons and serve on both Ds out of jurisdiction (“the Concurrent Writ Order”). Master Grace Chow ordered that the Concurrent Writ Order be set aside as against D2 only in light of P’s abandonment of the claim against D2.

2.  D1 contends that P has failed to show a good arguable case that its pleaded claim falls within one of the jurisdictional gateways under Order 11, r.1, Rules of the High Court and its claim is liable to be struck out for want of any serious issues to be tried. D1 further says that P has failed to discharge the burden to demonstrate that Hong Kong is not only the appropriate forum to try the case but that this is “clearly so”. Lastly, D1 contends that there was material non-disclosure in P’s ex parte application for the Concurrent Writ Order and hence it should be set aside.

3.  P had been all along legally represented until less than 2 weeks before the hearing. No application for leave to be represented by its director was made and no representative of P appeared at the hearing. Mr Hughes, together with Mr Arthur (Solicitor Advocate), for D1, agrees that this court should proceed to determine the merit of this appeal despite the absence of P.

4.  It is trite that this appeal is a hearing de novo. This court should consider the Summons afresh and is entitled to adopt the reasons given by the master where appropriate.

P’s pleaded case and evidence placed adduced for the ex parte application

5.  The pleaded case of P can be summarised as follows.

6.  P is a company incorporated in Hong Kong and Mr Jerry Lee Harvey (“Mr Harvey”) is P’s sole shareholder and director. Mr Harvey set up P to hold a motor yacht.

7.  D1 is a resident in the United States and is employed as a yacht sale and purchase broker by Denison Yachting LLC (“Denison”), a yacht broker. D1 is the beneficial owner of D2, a company incorporated in the United States.

8.  In 2022, Mr Harvey became interested in a yacht located in Barcelona. He knew D1 from previous dealings and was aware that D1 was in Spain at that time. He, hence, decided D1 to inspect the yacht (“the Yacht”) for him and D1 agreed.

9.  Eventually, P decided to purchase the Yacht at the price of US$800,000 and Denison should be the broker in this transaction.

10.  D1 then made a representation to P that the Yacht required repair and the repair costs would be US$406,000 (“the Representation”). D1 suggested that the repair costs be paid to Oceans Air Yachting LLC (“Oceans Air”) instead of Denison. Oceans Air is a company in Florida and would carry out the repair works.

11.  P arranged a transfer of fund in the sum of US$406,000 (“the Fund”) held by Reed Smith Richards Butler (“RSRB HK”) in Hong Kong on its behalf to Oceans Air on 23 March 2022 and D1 confirmed receipt of the Fund on the same day by his email.

12.  P subsequently found out the Representation was false and D1 and/or Oceans Air unlawfully and without authorisation used the Fund as seed funding to set up D2.

13.  P pleads fraudulent misrepresentations and gives, among other matters, the following two matters as particulars.

14.  First, it is pleaded that the Fund was spirited away and has never been returned to P or used to make repairs to the Yacht.

15.  Secondly, it is pleaded that D1 knew that the Representation was false and never had any intention that the Fund would be used for repair works for the Yacht.

16.  The ex parte application was supported by an affidavit of Jason Marc Toms dated 27 April 2023, which exhibited thereto a copy of the sworn affidavit of Mr Harvey.

17.  For the Summons, both D1 and Mr Harvey have filed their affidavits.

18.  In gist, D1’s version of events is that from 2011 to 2022, D1 was a sub-contractor rather than an employee of Denison and there was a consultancy agreement between Denison and Oceans Air whereby Denison agreed to remunerate Oceans Air by way of commission for successful sales procured by D1. D1 used Oceans Air to conduct his yacht brokerage business with Denison and to source independently potential yachts for sale through Denison.

19.  D1 further alleges that Mr Harvey entered into an oral agreement with Oceans Air and him (“the Oral Consultancy Agreement”) whereby D1 and Oceans Air agreed to provide consultancy services to Mr Harvey and P. The Oral Consultancy Agreement was terminated in 2022.

20.  The Yacht was the only yacht successfully purchased by P through the consultancy service provided by Oceans Air and D1 pursuant to the Oral Consultancy Agreement. Before this transaction, D1 had inspected over 15 yachts and P owed D1 and Oceans Air a considerable amount of out-of-pocket expenses and time costs.

21.  D1 contends that the Fund was transferred from the account of RSRB HK to Oceans Air to settle such outstanding out-of-pocket expenses and time costs incurred since 2011. D1 expressly denies that the Fund was agreed to be exclusively used for repair works for the Yacht.

22.  Nevertheless, D1 paid the repair costs in the sum of approximately US$221,645 out of the Fund as a favour to Mr Harvey in view of their long working relationship.

23.  To sum up, D1’s case is that the Fund was transferred to Oceans Air in satisfaction of the outstanding consultancy fees under the Oral Consultancy Agreement and the repair costs of the Yacht.

24.  Lastly, D1 points out that there is a previous legal action commenced by Mr Harvey under HCA143/2023 (“the Previous Action”). From the Indorsement of Claim, it can be seen that Mr Harvey has made a personal claim against D1, D2, P, Denison and Oceans Air for the recovery of the Fund based on the same facts.

25.  The writ issued in the Previous Action was sent to D2 under cover of a letter of P’s former solicitors dated 22 February 2023 and was marked “Not for service out of the jurisdiction”.

26.  Mr Harvey accepts the existence of the Previous Action and he confirms that he has not sought leave to serve the writ out of the jurisdiction and the Previous Action has never been pursued.

Relevant legal principles

27.  In Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454, Cheung JA at §29 set out the following requirements for leave for service out under O.11 r.1, RHC:

(1) There is a good arguable case that the pleaded claims fall within one of the gateways under O.11 r.1;

(2) There is a serious issue to be tried on the merits of the case;

(3) Hong Kong is the appropriate forum under the principle governing forum conveniens for the trial of the action.

28.  In Kayden Ltd v SFC (2010) 13 HKCFAR 696, Ribeiro PJ explained the conventional strict approach towards applications for leave to issue a writ for service out in the following terms at §§36-38:

“The need for a strict approach is dictated by at least three related considerations. First, it is grounded on recognition of the need for special care given the extraordinary nature of the long-arm jurisdiction asserted under Order 11. As Lord Mustill pointed out, it involves seeking to compel a foreign defendant to submit to adjudication by the court or suffer judgment and execution in default.

Secondly, as indicated in the passage from Parker v Schuller cited above, the court acts on the faith of the plaintiff’s representations made to it ex parte when granting leave for service of process abroad. Given the extraordinary nature of the jurisdiction which the court would thereby be asserting, it insists on special care on the plaintiff’s part and full disclosure of the basis upon which that jurisdiction is invoked.

Thirdly, as Neill LJ pointed out in Excess Insurance Co Ltd v Astra SA Insurance and Reinsurance Co:

... it is not only the court which must be apprised of the cause of action alleged. The defendant must know the basis of the claim which he has to meet so that, if so advised, he can challenge the order which asserts the court's jurisdiction over him.”

29.  The threshold test of “good arguable case” requires “something better than a mere prima facie case” and the threshold is high: Chen Hongqing v Persons Whose Name are Set out in the Second Column of the Schedule to the Re-Amended Writ of Summons [2019] HKCFI 2121 per Keith Yeung J at §63(b).

30.  Whilst there should be no trial on affirmations, a provisional or tentative conclusion on the evidence has to be reached. The court “must necessarily reach a provisional or tentative conclusion that the plaintiff is probably right, before allowing service outside the jurisdiction to stand”: Chen Hongqing, ibid, at §63(d).

Discussion

31.  Now I turn to the grounds advanced by D1 to set aside the Concurrent Writ Order.

32.  First, Mr Hughes submits that P has failed to show a good arguable case that its claims fall within one of the jurisdictional gateways. He attacks P’s pleaded case of fraud vehemently and submits that it is contradicted by D1’s contemporaneous evidence and P’s own imaginative account.

33.  Mr Hughes refers to this court Choy Bing Wing v Chief Executive of HKSAR [2006] 1 HKLRD 666 in which Johnson Lam J (as he then was) highlighted that a fraud case can only be pleaded with proper evidence in support. Mr Hughes further draws my attention to the Court of Appeal’s decision in Chinachem Charitable Foundation Ltd v Chan Wai Tong Christopher & Ors. [2022] HKCA 1907. The requirement for pleading a fraud case or making a serious allegation is very clear indeed.

34.  Mr Hughes rightly points out that whilst the pleaded case of P is that D1 converted the Fund for a purpose other than the repair of the Yacht, i.e., setting up a business of D2, P’s evidence simply does not support this factual allegation.

35.  Indeed, P accepted before the master that there is no evidence that D2 has ever received any portion of the Fund. The claim against D2 was abandoned by P as a result.

36.  However, in my view, all the criticisms about P’s pleaded case against D1 do not start to blur the clear picture that its claim in the tort of fraudulent misrepresentations does fall within one of the jurisdictional gateways.

37.  The fraud case of P against D1 is simple and has been clearly pleaded. P was deceived into paying the Fund to Oceans Air by the Representation of D1 that the Fund would be used for the repair works to be carried out for the Yacht. The fact that the Fund was paid from the bank account of RSRB HK into the bank account of Oceans Air on the instruction of D1 is not disputed.

38.  The tort (fraud, theft, conversion) has been properly pleaded. The cause of action as against D1 is completed when P has acted on the Representation to its detriment and has suffered loss and damage. How the Fund was subsequently dissipated by Oceans Air or how D1 and/or Oceans Air further wrongfully dealt with the Fund is not material.

39.  P’s claim, thus, is found on a tort and the damage was sustained in Hong Kong (the Fund was transferred out from the account of RSRB HK) within the jurisdiction. O.11 r.1(1)(f) is engaged.

40.  I am satisfied that P has made out, to say the least, a good arguable case that its claim falls within O.11 r.1(1).

Serious issues to be tried

41.  Mr Hughes does not address separately on the requirement of serious issues to be tried. He merely stresses that P has failed to demonstrate a serious issue to be tried in that the Fund could not have been used as seed capital for D2, as conceded by P.

42.  I do not think P’s abandonment of the claim against D2 would necessarily lead to the dismissal of its claim against D1. As explained above, it suffices to prove that D1 had made false representations to P and P relied on it and transferred the Fund to Oceans Air to the detriment of P.

43.  Mr Hughes fairly refers to the 3^rd Affidavit of Mr Harvey in which he set out the purported conversation between D1 and him 3 days after P transferred the Fund to Oceans Air. Allegedly, D1 told Mr Harvey that he had lost US$700,000 in a scam in Singapore and US$400,000 of such a sum originated from the Fund. D1 refused to give any further information about the scam and thereafter he has avoided Mr Harvey’s phone calls and ignored Mr Harvey’s text messages.

44.  D1 denies the existence of this conversation. Mr Hughes makes powerful submissions to make the conversation appear to be suspicious. I am not unable to form any preliminary view on whether the conversation took place or not.

45.  I have taken all this into account and considered all the evidence on the whole without embarking on a trial on the affidavits, there are of course serious issues to be tried. I come to the conclusion that the real purpose of the Fund and whether or not and how D1 has misappropriated the Fund should be investigated at trial.

Forum non Conveniens

46.  On this issue, Mr Hughes submits:

(1) P asserts that “the tort of conversion and/or theft (ie actually taking the money) undeniably occurred in the United States and so I am advised and accept that Hong Kong does not qualify as an available jurisdiction by reason of it being “the place of the tort” in respect of the conversion/theft claims”;

(2) P also accepts “that the (fraudulent) misrepresentation was made by the 1^st Defendant when he was in the United States”;

(3) Both D1 and Mr Harvey - the sole shareholder, director and controlling mind of P – are residents in Florida;

(4) The place of residency of P is Florida (Yahori Ltd v Panagiotis Petropoulos [2016] HKCFI 983, §§41 & 58-60): the residency of a company is determined not by its place of incorporation, but by where its central management lies;

(5) All of the parties and potential witnesses are residents in Florida, as is Denison. The negotiations with respect to the purchase took place in the United States, and the Yacht was located in Spain. P was incorporated solely to be used as a payment vehicle for the purchase of the Yacht. Further, Mr Harvey is seeking treatment for cancer (which in itself has caused P to miss numerous filing deadlines in these proceedings), calling into question his ability to travel to Hong Kong to give evidence; and

(6) P chose to commence this action in this jurisdiction in order to gain an advantage in light of Hong Kong’s “loser pays” costs regime.

47.  In his affidavits, Mr Harvey points out that the disputes concern D1 and him only and Denison was not privy to the transfer to the Fund. He contends that P is incorporated in Hong Kong and it was deprived of the Fund in Hong Kong because of the fraudulent misrepresentations acted upon by P in Hong Kong.

48.  Mr Harvey agrees that he prefers to have his claim against D1 determined in Hong Kong so that he stands a better chance to recover his own costs from D1. He says that according to his understanding of the law in Florida, each party usually bears its own costs regardless of the outcome of the litigation. D1 does not disagree with this.

49.  I bear in mind that the burden is on P to demonstrate that Hong Kong is not only the appropriate forum to try the case but that this is clearly so. The “appropriate” or “natural” forum is one “with which the action had the most real and substantial connection”. This includes not only factors affecting convenience and expense (such as availability of witness), but also other factors such as the law governing the relevant transaction and the place where the parties respectively reside and carried on business: see Dynasty Line, supra, at §§57-58 per Cheung JA.

50.  I opine that there are sufficient connecting factors pointing to the fact that Hong Kong is clearly the appropriate forum. P acted in reliance of the fraudulent misrepresentations and made the transfer of the Fund thereby suffering loss and damage in Hong Kong. P is a local company having assets in Hong Kong. There is no evidence that its central management lies elsewhere. Hong Kong law is the lex loci delicti and the tort was completed and damage was sustained in Hong Kong where P is based.

51.  Whilst I appreciate that for D1, there would be inconvenience and extra costs incurred if P’s claim is to be tried in Hong Kong. His apprehension that he would be arrested by the Hong Kong police once he enters the territory is perfectly understandable. Yet, P, being the purported victim, is able to convince me that, in the interest of justice, Hong Kong is clearly the appropriate or natural forum to try the case.

Material non-disclosure

52.  It is trite that in an ex parte application, the applicant has to discharge an onerous duty to make full and frank disclosure to the court of all material facts. Materiality is to be decided by the court and not by the assessment of the applicant or his legal advisors: Altrans Fast Cargo Limited (As Assignee of Lifestyle Logistics Limited) and Anor. v Liu Yugang and Ors. [2023] HKCFI 1579 per Wilson Chan J at §44.

53.  Where material non-disclosure has been found, it is generally the case that the order for service out will be set aside and costs will follow the event: Yahori Ltd, supra, at §67.

54.  Mr Hughes, in his skeleton submissions, points out that P deliberately withheld from the court four matters in the ex parte application and hence the Concurrent Writ Order should be set aside by reason of material non-disclosure.

55.  First, Mr Hughes submits that P ought to have disclosed the Previous Action and given the court an update of the same and an explanation as to why the present action had to be commenced in addition to the Previous Action.

56.  Mr Harvey explains in his 2^nd Affidavit that the Previous Action was wrongly started with him personally being the plaintiff. He was subsequently advised that the proper plaintiff should be his company having been deceived into making the transfer of the Fund and hence the company instituted the present proceedings to recover the Fund from Ds.

57.  Mr Hughes says nothing about Mr Harvey’s explanation. He is unable to convince me why P’s omission to mention the Previous Action amounts to a material non-disclosure. The writ therein has never been served and Ds have not been engaged in the Previous Action at all. The plaintiff there is different too.

58.  In the circumstances, I opine that the fact that Mr Harvey had previously started a personal action to sue Ds has no bearing on the application for service out in the present proceedings. There is no issue of duplicity and the present action cannot be possibly dismissed as an abuse of process. I do not accept that there was a material non-disclosure.

59.  The other three matters which Mr Hughes says are the subject matter of material non-disclosure include the long-standing relationship and consulting agreement between Mr Harvey and D1 between 2011 and 2022, the outstanding fees and out-of-pocket expenses owed by Mr Harvey to D1 from work done over the 11-year period and the fact that D1 had made payment of US$221,645 for works done on the Yacht.

60.  I see no substance in this complaint. First, the Oral Consultancy Agreement is, to the knowledge of D1, denied by Mr Harvey and P. There is no suggestion that the alleged existence of the Oral Consultancy Agreement had been made known to P prior to the ex parte application and so P should have disclosed the same to the master despite its denial of its existence. The email sent to Mr Harvey dated 25 January 2013 could not possibly be indicative of the existence of the Oral Consultancy Agreement.

61.  By the same token, the alleged outstanding fees could not have been disclosed to the master when P had not been alerted to this allegation. It is remarkable that there is not a shred of evidence of D1’s demands for payment for such outstanding fees over 11 years.

62.  Similarly, P could not have disclosed the alleged payment of US$221,645 allegedly made by D1 for repair works on the Yacht. All D1 now could produce as proof of the said payment is a table giving a breakdown of such repair costs. If such costs had been incurred, a number of commercial documents should have come into existence and should have been disclosed to P much earlier on. Mr Harvey says it was a fabrication and D1 had never sent him the table or asked for payment. D1 says nothing in rebuttal.

63.  More pertinently, there is no evidence that Mr Harvey had any knowledge of the alleged payments when P made the ex parte application.

64.  In the premises, I come to the conclusion that there was no material non-disclosure at all.

Conclusion and order

65.  In light of the foregoing analysis and for the reasons given, I am driven to the conclusion that P made out a proper case of service out and the Concurrent Writ Order as against D1 was rightly made. The Decision cannot be faulted and is entirely correct in my view. This appeal falls to be dismissed.

66.  On the issue of costs, I do not see how P has responded to this appeal. P even has not indicated its position and given any prior notice of its non-attendance at the hearing. There is no evidence that P has incurred any costs. On a nisi basis, I make an order that there be no order as to costs.

67.  Lastly, I thank Mr Hughes and Mr Arthur for their assistance in this matter.