THE HONG KONG HOUSING AUTHORITY v. HSIN YIEH ARCHITECTS & ASSOCIATES LTD AND OTHERS

HCCT 39/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 39 OF 2001

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REASONS   FOR   JUDGMENT

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I.  Introduction

1.  The issue is whether the Authority in an ongoing trial of an action can serve a summons, claiming the costs of that action, on AXA, which is resident in Germany, outside this Court's territorial jurisdiction.

II.  Background

2.  On 18 April 2001 B+B went into liquidation.  On 4 April 2003 the Authority obtained leave from Kwan J to start proceedings against B+B.

3.  The Authority says that B+B did not construct piling works at the Tin Chung estate in conformity with contract specifications.  The Authority sues B+B for damages running into the hundreds of millions of dollars.  The trial of the action started on 3 January 2005.  After examination of all factual witnesses, the trial was adjourned on 31 January 2005.  It will resume on 24 May 2005 for the Court to hear engineering expert evidence.

4.  Kwan J granted leave, because (among other reasons) B+B may have had insurance covering the Authority's claim.  I say "may have had" because AXA (the lead insurer under the relevant policy) has denied liability to B+B for any damages that might be awarded to the Authority.  Proceedings in the German Landgericht between B+B's parent and AXA to determine the extent of AXA's obligations under the policy have been stayed pending the outcome of the Hong Kong trial.

5.  Nevertheless, while reserving its position on liability under the policy, AXA have been funding B+B's defence.  Thus, while admitting a failure to meet the 1:300 settlement specification for Tin Chung Block 1, B+B has mounted a spirited defence under AXA's direction.  B+B has strenuously denied that its failure caused most of the loss alleged by the Authority.  B+B has also queried whether the Authority has mitigated loss.  B+B's defence has caused the Authority to incur significant legal costs.

6.  The Authority has become concerned that, if it should prevail in the action and if AXA should successfully disclaim liability under the policy, the legal costs incurred by the Authority will not be recoverable against B+B.  In such event, the Authority says that it would be unfair for AXA to have caused the Authority to run up substantial costs, without AXA being liable to reimburse the same. 

7.  The Authority has accordingly applied for leave to serve a summons on AXA in Germany.  The summons seeks to hold AXA liable for the Authority's costs, in the event of victory, pursuant to High Court Ordinance (Cap.4) (HCO) s.52A(1).

8.  A difficulty arises because HCO s.52A(2) provides that the Court cannot make costs awards against "a person who is not a party to the relevant proceedings".  On the face of the record, AXA is not a party to this action.  Typically, insurers exercising a right of subrogation are not regarded as parties to an action involving an insured.

9.  But the Authority points to HCO s.2.  That defines a party as including "every person served with notice of or attending any proceeding, although not named on the record".  The Authority says that, because AXA is funding B+B, AXA is a party to these proceedings, although not named on the record.  Further, the Authority says that AXA has had notice of both the action in general, and the summons to make AXA liable for the Authority's costs in particular.  The Authority therefore reasons that AXA falls within the s.2 definition of "party" and is amenable to a costs order under HCO s.52A.

10.  On the strength of the argument just outlined, at an ex parte hearing on 16 December 2004, the Authority invited me to declare that AXA was indeed a party to these proceedings.  I declined to do so.

11.  In the alternative, at the same hearing, the Authority applied for leave to serve its costs summons on AXA in Germany.  I granted such leave.  I also made an ex parte order joining AXA as a defendant to these proceedings under Order 15, Rule 6(2)(b).

12.  By Summons dated 19 January 2005 AXA challenged the leave for service outside the jurisdiction.  It also applied to set aside its joinder as a party.  By agreement between Mr. Pennicott (the Authority's counsel) and Mr. Chua Guan Hock SC (AXA's counsel), the hearing on 7 February 2005 focused on the application challenging leave, the dispute on joinder being left to another day.

13.  At the end of the hearing on 7 February 2005 I dismissed AXA's application to set aside leave.  I state my reasons for so doing below.

III.  Discussion

14.  Mr. Chua submits that leave to serve AXA in Germany should be set aside for a number of reasons.  His objections to the leave are as follows:-

(1)	There is no cause of action pleaded against AXA.  A cause of action must be asserted.
(2)	No substantive relief is sought against AXA.  Only ancillary relief is sought, in the sense that it is sought to make AXA liable for the costs of action if the Authority succeeds.
(3)	Leave was obtained on the basis that AXA is a "necessary or proper party" within Order 11, Rule 1(1)(c).  But AXA is not such.
(4)	No proper service was effected on AXA in Germany.  German law requires that the service of documents relating to foreign proceedings comply with the Hague Convention.
(5)	There has been delay in the service of the summons on AXA.

A.  1st objection: No cause of action

15.  Order 11, Rule 4(1) provides as follows:-

"An application for the grant of leave under rule 1(1) must be supported by an affidavit stating:-
(a)	the grounds on which the application is made;
(b)	that in the deponent's belief the plaintiff has a good cause of action;
(c)	in what place the defendant is, or probably may be found; and
(d)	where the application is made under rule 1(1)(c), the grounds for the deponent's belief that there is between the plaintiff and the person on whom a writ has been served a real issue which the plaintiff may reasonably ask the Court to try."

16.  Leave to serve on AXA was granted on the basis of Order 11, Rule 1(1)(c), namely, that the Authority's claim:-

"is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto".

17.  Mr. Chua says that the requirements in Rules 4(1)(b) and (d) are cumulative.  He asserts that a plaintiff must claim a cause of action against the person abroad on whom service is to be effected, even if (independently of any cause of action) that person is a necessary or proper party to the action.

18.  Mr. Chua notices that no cause of action is pleaded against AXA in the Re-Amended Writ in this action.  Therefore, (Mr. Chua says) no cause of action is being (or can be) asserted against AXA.  It follows (Mr. Chua concludes) that the requirement in Rule 4(1)(b) can never be met and service outside the jurisdiction cannot be justified.

19.  I disagree with Mr. Chua for 3 reasons.

A.1  1st Reason

20.  There is nothing in Rule 4(1) to suggest that sub-paragraphs (b) and (d) should be read cumulatively in relation to the foreign resident.

21.  Rule 4(1)(b) merely requires the plaintiff to swear that he has "a good cause of action".  It is sufficient for the purposes of Rule 4(1)(b) if a Plaintiff can show a good arguable cause of action against an existing defendant amenable to the Court's jurisdiction.  Rule 4(1) does not additionally require the plaintiff to show an arguable cause of action against the foreign person whom it is sought to join as a necessary or proper party.

22.  It might be thought that a plaintiff can manufacture a bogus claim against straw defendants within the jurisdiction, in order to join the real target, a foreign resident, not otherwise amenable to the Court's jurisdiction under any other head of Order 11 Rule 1(1) apart from Rule 1(1)(c).  But Rule 4(1) imposes 2 safeguards against such an abuse.

23.  The first safeguard is Rule 4(1)(b).  As discussed, Rule 4(1)(b) requires the plaintiff to swear a belief that he has a good cause of action.  If his claims against the straw defendants are bogus, the plaintiff can hardly do this.  His alleged claims against the bogus defendants could not be characterised as good arguable causes of action.

24.  The second safeguard is Rule 4(1)(d).  The combined effect of Rules 1(1)(c) and 4(1)(d) is to require the plaintiff to swear that there is a "real issue" which ought reasonably to be tried as part of the ongoing action against the already existing defendants.  Again, if the claims against the straw defendants are bogus, it is hard to see how a plaintiff can legitimately swear that there is a "real issue" necessitating the joinder of the foreign resident as a "necessary or proper" party.  There could be no genuine nexus between the bogus claims against the straw defendants and the claim sought to be brought against the person resident abroad.

25.  Given the above analysis, Mr. Chua's initial objection is untenable.  The Authority plainly has a good cause of action against B+B.  Indeed, B+B has admitted some liability in connection with Tin Chung Block 1 and the trial has essentially concentrated on the quantum of damages consequent upon such admission.  There is also no question that B+B is amenable to the Court's jurisdiction.  There is consequently no difficulty meeting the requirement imposed by Rule 4(1)(b). 

26.  The lack of a pleaded cause of action against AXA in the Re-Amended Writ cannot be an obstacle to the Authority obtaining leave.

A.2  2nd Reason

27.  I have so far assumed that, in assessing the validity of the leave granted, one looks at Order 11, Rules 1(1) and 4(1).  But recent case law suggests that one should instead be considering the effect of Order 11, Rules 9(4) and (5).

28.  Order 11, Rule 9 provides as follows:-

"	(1)	Subject to Order 73, rule 7 [relating to the Arbitration Ordinance (Cap.341)], rule 1 of this Order shall apply to the service out of the jurisdiction of an originating summons, notice of motion or petition as it applies to service of a writ.
	(4)	Subject to Order 73, rule 7, service out of the jurisdiction of any summons, notice or order issued, given or made in any proceedings is permissible with the leave of the Court, but leave shall not be required for such service in any proceedings in which the writ, originating summons, motion or petition may by these Rules or under any Act be served out of the jurisdiction without leave.
	(5)	Rule 4(1), (2) and (3) shall, so far as applicable, apply in relation to an application for the grant of leave under this rule as they apply in relation to an application for the grant of leave under rule 1."

29.  In "The IKARIAN REEFER" (No.2) [2001] 1 All ER 37 (CA) Prudential was unable to recover all the costs of its successful defence against the shipowner National's action.  Prudential sought to make National's sole shareholder, Comninos (a non-party to the action brought by National against Prudential), personally liable for Prudential's costs pursuant to Supreme Court Act 1981 (SCA) s.51.  Prudential served a summons to that effect on Comninos in Greece without obtaining leave from the English court.  Comninos challenged the English court's jurisdiction.

30.  The English Court of Appeal held that it was important to distinguish between the situation where (as in the Authority's case) an action was pending and the situation where no action was before the court.  In the former case, applying the English Order 11, Rules 9(4) and (5) (similar to the corresponding Hong Kong rules), the Court thought a summons in the ongoing action could be served on a person resident outside the jurisdiction without reference to Order 11, Rule 1. 

31.  The Court stated that it was here following Lord Donaldson MR in Mansour v. Mansour [1989] 1 FLR 418. 

32.  More specifically, Waller LJ (with whom Simon Brown and Tuckey LJJ agreed) held (at 46d-g):-

"As will now be apparent, it seems to me that the English court does have jurisdiction to decide in relation to a non-party resident outside the jurisdiction whether they should be liable for costs under s.51 of the 1981 Act.  It seems to me that it must be open to a party to serve a notice on someone outside the jurisdiction which in effect says:

'... we have issued a summons in the action and we are going to contend you have had such a connection with proceedings within the jurisdiction [...] and we are going to seek an order for costs against you on that basis.'

It furthermore seems to me that procedurally the appropriate course under the old rules was to issue a summons in the action.  That summons [...] would also be served on Mr. Comninos outside the jurisdiction.  It would not on any view be material to look at Ord.11, r.1.  Order 11, r.9(4) would apply and as it seems to me leave to serve that summons out of the jurisdiction should have been obtained.  In this assumed situation under the old rules, I do not myself see that an originating summons effectively commencing fresh proceedings would have been the appropriate course and thus Ord.11, r.9(1) would not be material [....]"

33.  The Court of Appeal felt, however, that Prudential ought to have obtained for service of its cost summons on Comninos in Greece.  Such requirement was clear from Rules 9(4) and (5). 

34.  Waller LJ further pointed out (at 47e-f):-

"In my view the words 'so far as applicable' [in Rule 9(5)] do not render it unnecessary to swear an affidavit as contended by Mr. Hildyard [QC] [Prudential's counsel].  Those words allow good sense to dictate the content of the affidavit.  As it seems to me they provide a requirement to make it clear in the affidavit what the grounds are for the application; that in the deponent's belief the applicant for the order has a good claim to have costs paid by the non-party; and the place where the person to be served with the summons can be found.  In other words the affidavit, in much the same was as one relating to r.1(1), makes out the basis on which the party is being sued for costs and the basis on which it is contended that it is right that the English court should take jurisdiction."

35.  If one applies "IKARIAN REEFER" here, then Rule 9(4) was applicable.  The Authority was right to initiate its claim for costs against AXA by a summons within the existing action, rather than by starting fresh proceedings by Originating Summons.  Rule 9(1) was not apposite and Rule 1(1) (to which Rule 9(1) refers) was not material. 

36.  Insofar as it applied for leave, the Authority complied with the requirements of Rule 9(5) by swearing an affidavit as to the basis of its claim against AXA, as to its belief in the strength of its case, and as to the place where AXA is likely to be found.

37.  Provided that it is satisfied that "the case is a proper one for service out of the jurisdiction" (see Rule 4(2) which Rule 9(5) brings into play "so far as applicable"), the Court should then grant leave.

38.  Mr. Chua submits that, despite the words "so far as applicable" in Rule 9(5), it is still necessary to swear belief in a "good cause of action" against the person to be served.  In the passage just quoted, Waller LJ refers to Rule 9(5) merely requiring a deponent to swear a belief that he has "a good claim".  But (Mr. Chua cautions) one should not read Waller LJ like a statute.  By the expression "good claim," Waller LJ could not (Mr. Chua says) have overridden the need to swear belief in a "good cause of action" as required by Rule 4(1)(b).  Mr. Chua insists that there can be no cause of action against AXA here.

39.  I disagree with Mr. Chua.

40.  The sort of claim which the Court of Appeal was concerned with in "IKARIAN REEFER" was one which arises in the course of an ongoing action.  The Court had in mind the situation where a person X takes (or has taken) such steps in relation to an ongoing action that render it appropriate for the Court to consider a claim by an existing party W for relief against X within the current action.

41.  In that context, it would be odd if Order 11 should be treated as inflexibly requiring that W show a "cause of action" against X in all cases.  Bluntly put, W's claim may not be based on any cause of action.  An example (expressly mentioned in "IKARIAN REEFER" at 44h) is where X acts in contempt of proceedings.  W may seek relief against X's continuing contempt.  But W's claim cannot be classified as a conventional "cause of action".  It is instead an ancillary claim, arising out of X's conduct in relation to ongoing proceedings.

42.  In my view, the words "so far as applicable" were deliberately inserted in Rule 9(5) to cater for a wide variety of possible "claims", not just complaints which might readily be characterised as "causes of action".  The phrase "so far as applicable" caters for the possibility of a myriad types of ancillary matters, arising in an ongoing action in connection with persons resident abroad, which may have to be addressed by the Court in the course of the ongoing action.

43.  Mr. Chua then submits that "IKARIAN REEFER" may be an unreliable precedent for Hong Kong, because SCA s.51 is not identical to HCO s.52A.  HCO s.52A specifies that costs cannot be ordered against a non-party.  SCA s.51 does not have a similar express limitation and in Aiden Shipping Co. Ltd. v. Interbulk [1986] 1 AC 965 the House of Lords held that SCA s.51 empowered the Court to impose costs orders on non-parties. 

44.  Mr. Chua argues that, even if one accepts the reading of Rule 9(5) and its modification of Rule 4(1) suggested in IKARIAN REEFER, it would still be necessary for the Authority to show a good arguable claim under HCO s.52A against AXA.  Since AXA is a non-party, Mr. Chua says that cannot be done.

45.  Again I disagree.

46.  First, I have ordered AXA to be joined as party.  It is true that Mr. Chua disputes that AXA should have been so joined and the validity of the joinder will be debated at some later date.  But, as Mr. Chua himself observed, the test for joining a foreign resident as a "necessary or proper party" under Rule 1(1)(c) is more stringent than that imposed by Order 15, Rule 6(2)(b). 

47.  If AXA is a proper or necessary party within Order 11 Rule 1(1)(c) (see below), it is hard to see on what ground joinder under Order 15, Rule 6(2)(b) can be set aside.  If the joinder order stands, then far from seeking costs against a non-party, the Authority would be making its claim against a party.

48.  Second, it is important to appreciate the substance (as opposed to the mere form) of the present situation.  In all but name, AXA is a party to the litigation and has been for some time.  It is not denied by AXA (and B+B has itself confirmed) that B+B's defence is being conducted and funded by AXA.  B+B being insolvent, AXA is presumably conducting B+B's defence wholly or partly for the protection of AXA's commercial interests, should the Landgericht eventually hold it liable under the policy for some or all of the Authority's claimed damages.

49.  Consequently, whatever the niceties of Order 11, Rule 1(1)(c) and Order 15, Rule 6(2)(b), I do not think that the Court can ignore reality and treat AXA in the exceptional circumstances of this case as truly a non-party.

A.3  3rd Reason

50.  The Authority may have a "good cause of action" in the conventional sense against AXA.  It is far from self-evident that the Authority has (and can have) no arguable cause of action as Mr. Chua asserts.

51.  Mr. Pennicott says that the Authority has a "cause of action" on one or other of two bases.

52.  First, insofar as the policy binds AXA to indemnify B+B against the costs of defending the action, the Authority (if successful) may be able to claim the benefit of such indemnity.

53.  Mr. Chua submits that there would be a problem of privity as the policy is only a contract between B+B and AXA.  But, at this stage, I cannot rule out the possibility of the Authority being itself able to exercise, pursuant to (say) the Third Parties (Rights Against Insurers) Ordinance (Cap.273) or other law, any right to an indemnity which B+B might have against AXA under the policy.  I believe the matter to be arguable.

54.  Second, insofar as AXA as no liability to B+B arising out of the policy, Phillips LJ in TGA Chapman Ltd. v. Christopher [1998] 1 WLR 12 (CA) (at 20F) has suggested that, where certain conditions are met, a third party (such as an insurer) might be made directly liable to a plaintiff for legal costs incurred against a defendant.

55.  Those conditions are as follows:-

(1)	The third party determined that the claim should be fought.
(2)	The third party funded the defence of the claim.
(3)	The third party had the conduct of the litigation.
(4)	The third party fought the claim exclusively to defend its own interests.
(5)	The defence failed in its entirety.

56.  Meeting those conditions (Mr. Pennicott contends) may give rise to a right of indemnity against AXA at law or in equity, independently of the terms of any policy.

57.  On the Authority's affidavit evidence in support of its leave application, some or all of Phillips LJ's conditions are met.  I therefore cannot say at this point that the Authority's claim is bad and without reasonable prospect of success.

B.  2nd objection: No substantial relief sought

58.  Citing "The SISKINA" [1979] AC 210 (HL) and Mercedes Benz v. Leiduck [1996] 1 AC 284 (PC), Mr. Chua argues that leave cannot be granted under Order 11, Rule 1(1) where a plaintiff only seeks ancillary relief against the person sought to be served.

59.  This objection is effectively the opposite side of the coin to the 1st objection.  The assertion that no substantial relief is being sought against AXA is effectively the same thing as saying that no cause of action is being asserted against AXA.

60.  Thus, given the reasoning in (for instance) Sections III.A.2 and III.A.3 above, there is likewise no substance to Mr. Chua's objection. 

61.  Where Order 11 Rules 9(4) and (5) are applicable, it is enough if the Authority can show a good arguable claim for relief as against AXA.  Nothing is said in Rules 9(4) or (5) about such claim having to be for "substantive" as opposed to merely "ancillary" relief.  Consideration of Order 11, Rule 1(1) is not relevant on this question.

62.  Additionally, if the Authority's putative rights of indemnity (in the event of victory) are a "cause of action" against AXA, the relief sought could be characterised as "substantive".

63.  There is also a point which corresponds to the reasoning in Section III.A.1 above and addresses Mr. Chua's recourse to "SISKINA" and Mercedes Benz.

64.  "SISKINA" and Mercedes Benz involved applications to obtain ancillary relief (Mareva injunctions) against persons abroad where no good cause of action could be asserted in the domestic forum against such persons or against any other person.  Both cases were "2-party situations".  Party 1 claims ancillary relief against Party 2, but is unable to mount any justiciable claim for final relief against Party 2 (or any other party) in the domestic forum.  In both "SISKINA" and Mercedes Benz, it was held that Order 11 could not be used to advance a merely ancillary claim.

65.  Contrast the "3-party situation" which is the present case. 

66.  The Authority (Party 1) has a good cause of action against B+B (Party 2) which is justiciable in Hong Kong.  Ancillary to its claim against B+B, the Authority seeks relief against AXA (Party 3) in consequence of AXA's conduct in relation to the existing action. 

67.  The relief sought against AXA may indeed be "ancillary".  But it is ancillary to a valid cause of action within the domestic forum.  It is not a bare claim for ancillary relief that we have seen advanced in the 2-party situations which arose in "SISKINA" and Mercedes Benz.

68.  Mr. Chua accepted that the following dictum of Lord Mustill in Channel Tunnel Group Ltd. v. Balfour Beatty Construction Ltd. [1993] AC 334 (at 362C-D) was an accurate statement of the "SISKINA" doctrine:-

"For present purposes it is sufficient to say that the doctrine of The Siskina, put at its highest, is that the right to an interlocutory injunction cannot exist in isolation, but is always incidental to and dependent on the enforcement of a substantive right, which usually although not invariably takes the form of a cause of action.  If the underlying right itself is not subject to the jurisdiction of the English Court, then that Court should never exercise its power under s.37(1) by way of interim relief."

69.  Apply Lord Mustill's dictum here.  The right being asserted by the Authority against AXA is ancillary, in the sense of being "incidental to" and "dependent on" the enforcement of the Authority's substantive rights against B+B.  Therefore, the "SISKINA" doctrine (as pithily summarised by Lord Mustill) can be no barrier to the Authority's claim against AXA.

70.  For the foregoing analysis of "SISKINA" and Mercedes Benz, I have followed Aikens J's reasoning in C Inc. Plc v. L [2001] 2 Lloyds Rep 459.

71.  In C Inc. Plc, a default judgment was obtained against Mrs. L for monies due on shares allotted in her name.  When the claimant sought enforcement against Mrs. L, she claimed to have no assets.  What is more, she claimed that the shares held by her in the claimant company were so held as agent for Mr. L, a Guernsey resident, who was not a party to the claimant's action.  The claimant applied for leave to serve proceedings for a freezing order (equivalent to a Mareva injunction) against Mr. L in Guernsey.  The freezing order was to cover Mr. L's assets in England and elsewhere, pending enforcement of the claimant's judgment against such assets in satisfaction of its default judgment.

72.  Aikens J stated:-

"	75.	[....] The crucial question is whether the Court can go one stage further.  Does it have the power to grant a freezing order against the assets of C when: (i) A has a substantive right against B (e.g. in the form of a judgment); (ii) the assets of C are not, even arguably, beneficially owned by B.  The answer, to my mind, depends on how one interprets the phrases 'ancillary' and 'incidental to and dependent upon' used by Lords Browne-Wilkinson and Mustill in the Channel Tunnel case.  In the Cardile case [Cardile v. LED Builders Pty Ltd. [1999] HCA 18] the High Court of Australia has, effectively, given those phrases a broad interpretation.  But, critically, the High Court of Australia held that the right to a freezing order against C is dependent upon A having a right against B and that right itself giving rise to a right that B can exercise against C and its assets.  Therefore the freezing order sought by A against C is 'incidental to' A's substantive right against B and it is also 'dependent upon' that right.
	76.	In this case the claimant has a substantive right against Mrs. L; it has the default judgment.  Because of that right, indeed because of the antecedent liability of Mrs. L to the claimant, Mrs. L has (arguably) a right of an indemnity from Mr. L.  That can either be enforced by her, or if she will not do so, by a receiver appointed by the Court.  That receiver would have the right to claim against Mrs. L and to satisfy any judgment out of the assets.
	77.	I have concluded that, upon analysis, the English Court can and should adopt the same approach as the Australian High Court.  Therefore the Court does have the legal power to grant a freezing order against Mr. L.  Such an order is 'incidental to' the substantive right tha the claimant has against Mrs. L.  The order is also 'dependent upon' the substantive right the claimant has against Mrs. L."

73.  If for the words "freezing order" in Aikens J's judgment just quoted one reads in the words "costs order", the passage comes close to describing the situation here.

74.  I do not think (contrary to Mr. Chua's suggestion) that it is a material distinction that there was a default judgment against Mrs. L, but there has been no judgment yet here.  Provided that the Authority has a good arguable case for claiming costs against AXA, I do not see why the Authority should wait until it obtains judgment against B+B before seeking leave to serve on AXA. 

75.  Indeed, it would seem preferable for AXA to know of the Authority's potential claim at an early date, rather than to be faced with a bill for the Authority's costs without warning at the end of the litigation between the Authority and B+B.

76.  It follows from all the above that the 2nd objection fails.

C.  3rd objection: Not a necessary or proper party

77.  Mr. Chua submits that there are no common questions of fact or law between the Authority's claim against B+B and that against AXA.  It follows (Mr. Chua concludes) that AXA is not a "necessary or proper party" within Order 11, Rule 1(1)(c).

78.  It follows from Section III.A.2 of this Judgment that it is not material to consider Order 11 Rule 1, much less Rule 1(1)(c).  The reasoning in Section III.A.2 is thus sufficient to dispose of Mr. Chua's objection.  It does not matter whether the criterion in Rule 1(1)(c) has or has not been met here.

79.  Nonetheless, to the extent that Rule 1(1)(c) is relevant, I believe that its requirement has been met.

80.  First, it seems to me expedient that AXA should be joined as a party at the earliest opportunity, if only to ensure that it is bound by any findings made at trial against B+B. More pertinently, such joinder would simply formalise the de facto position highlighted above, whereby AXA is already a party to the litigation in all but name.

81.  Second, there may well be some issue among all the parties as to whether (say) the fourth of Phillips LJ's conditions listed above is met in connection with the Authority's summons against AXA.  The Authority, B+B's liquidators and AXA are likely to differ on the extent to which in relation to some or all aspects of the conduct of the defence, AXA can be said to be acting "exclusively" for the protection of its interest.

82.  The extent to which AXA is or is not so acting might have a bearing on the Authority's recovery from AXA.  Such issue would be a question arising from the day-to-day conduct of the action which it would be just and convenient to determine at some stage within the ongoing proceedings.  To that extent, at least, AXA may be said to be a proper party to the action.

83.  Third, joinder in this case as a “necessary or proper party” strikes me as the corollary of the relief sought against AXA being “ancillary” to the Authority’s claim against B+B.  One can ask rhetorically in what forum, if not as part of these proceedings, could the Authority’s claim for costs be heard at all?  As the English Court of Appeal has pointed out, the appropriate procedure for bringing the Authority’s claim against AXA is not an originating summons initiating fresh proceedings, but a summons within the ongoing action.  It is thus appropriate for all questions on the incidence of costs in the action to be disposed as part of the current proceedings.

D.  4th objection: No proper service under German law

84.  AXA was not served in Germany in accordance with the Hague Convention.  There is no dispute that, under German procedural law, service of foreign pleadings and other documents should be effected in accordance with the Hague Convention to be valid.  But does this mean that leave should be set aside as Mr. Chua contends?

85.  In private international law, procedural matters are governed by the lex fori.  Service is pre-eminently a procedural matter.  It follows that whether there has been proper service pursuant to leave under Order 11, is to be determined by Hong Kong law as the lex fori.

86.  That does not mean that foreign law is wholly irrelevant.  For example, Order 11, Rule 5(2) stipulates that an order of the Hong Kong Court for the effecting of service in a foreign state shall not be treated as authorising the doing of anything which is contrary to the law of that foreign state.  See, for example, "The SKY ONE" [1988] 1 Lloyds Rep 238, where service following the English Rules was set aside, because such amounted to a breach of Swiss penal law.

87.  Here service on AXA was in accordance with Hong Kong procedural law. 

88.  There is a faint suggestion in AXA's affidavit evidence that the service was illegal under German Criminal Offences Act (StGB) §132.  But the suggestion is not compelling.  It appears that the criminality or otherwise of service in Germany otherwise than by the Hague Convention has been the occasion of discussion among legal scholars.  But the commentators have not reached any settled opinion.  Such academic speculation is far removed from the circumstances envisaged by Rule 5(2).

89.  On the evidence, I am bound as a matter of Hong Kong law to regard the service effected on AXA as valid.  This would be regardless of German law requiring valid service to comply with the Hague Convention.  Mr. Chua's fourth objection cannot be a basis for setting aside leave.

90.  I note that, in practical terms, Mr. Chua's Hague Convention point is of little import.  The Authority has already applied to the registrar here to effect service pursuant to the Hague Convention.  If there has initially been defective service under German law, that will shortly be cured by the renewed service.

E.  5th objection: No expedition on the Authority's part

91.  Mr. Chua suggests that as a matter of discretion leave should be set aside because of the delay between Kwan J's grant of leave and actual service of the Authority's summons on AXA.

92.  On this matter, Mr. Chua's submissions have not been consistent.  On the one hand, when advancing other objections, Mr. Chua has suggested that the Authority has acted prematurely.  The Authority (he says) should wait until such time (if at all) when it obtains a favourable judgment against B+B.  On the other hand, Mr. Chua contends that leave should now be set aside because the Authority has not acted promptly enough.

93.  I have dealt above with the suggestion that the Authority has acted too soon. 

94.  As far as acting too late is concerned, while I accept that the Authority could have served the summons earlier, it does not seem that AXA has suffered material prejudice from the delay. 

95.  AXA has for some time been aware of the proceedings.  It has been actively involved in B+B's preparations and has been directing B+B's conduct of the trial.  There was also correspondence prior to the issue of the Authority's cost summons, whereby the Authority made clear its position on AXA's liability for costs.

96.  Taking all matters into account, I do not believe that it would be right to exercise a discretion to set aside the leave granted.  Mr. Chua's 5th objection thus fails.

IV.  Conclusion

97.  For the foregoing reasons, I dismissed AXA's application to set aside leave to serve outside the jurisdiction.

98.  After hearing counsel on costs, I ordered that AXA should pay the Authority's costs of the hearing on 7 February 2005, such costs to be taxed if not agreed, in any event.