SINGAMAS MANAGEMENT SERVICES LTD v. AXIS INTERMODAL (UK) LTD t/a SEAAXIS

HCA 228/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 228 OF 2010

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BETWEEN

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J U D G M E N T

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1.  On 20 May 2010 the plaintiff obtained a default judgment against the defendant for :

(1)  the sum of US$1,214,500 or the Hong Kong dollar equivalent at the time of payment with interest thereon as set out in the judgment;

(2)  damages for breach of agreements to be assessed; and

(3)  costs to be taxed.

2.  By summons dated 13 January 2011 the defendant applied to set aside the judgment and the execution issued thereon on the ground that it is irregular in that, inter alia, the purported service of the writ of summons dated 11 February 2010 on the defendant was made without jurisdiction.   The defendant also asked for costs.

3.  By order made by Master de Souza on 4 April 2011 he ordered that the judgment be set aside on the ground that it is irregular in that, inter alia, the purported service of the writ of summons dated 11 February 2010 (“the writ”) on the defendant was made without jurisdiction.  He also ordered that service of the writ on the defendant be set aside.  The master also made an order for costs in the defendant’s favour against the plaintiff.

4.  By notice of appeal dated 18 April 2011 the plaintiff gave notice of its intention to appeal against the master’s order.

5.  This is the hearing of the plaintiff’s appeal from the master’s order.

6.  The plaintiff is a company incorporated in accordance with the laws of the British Virgin Islands with its registered office in the British Virgin Islands.

7.  The plaintiff carries on business in, inter alia, the design and manufacture of containers.

8.  The defendant is and was at all material times a company incorporated in accordance with the laws of the United Kingdom.  Its registered office is at 15 Fenlock Court, Lower Road, Long Hansborough, Oxfordshire in the United Kingdom.

9.  The defendant carries on the business of, inter alia, purchasing and leasing containers.

10.  The plaintiff’s claims against the defendant are for damages for breach of two contracts for the sale by the plaintiff to the defendant of containers.

11.  The first contract is purchase contract no. SMSL/AXIS 2008-003 (“Contract 003”) dated 17 August 2008 made between the plaintiff and the defendant whereby the plaintiff agreed to sell to the defendant 1000 units of 20-foot Dry Containers for the total price of US$2,435,000.  Contract 003 was signed by the parties.

12.  The second contract is a contract said to be evidenced by the conduct, the emails of the parties and a written container purchase contract no. SMSL/AXIS 2008-005 (“Contract 005”) whereby the plaintiff agreed to sell to the defendant 1000 units of 40 foot High Cube Dry Containers for the total price of US$6,395,000.  Contract 005 was not signed by the parties.

13.  The plaintiff claims that the defendant has been in breach of the two contracts as pleaded and particularized in the statement of claim.

14.  The defendant denies that it is liable to the plaintiff under either contract.

15.  As for Contract 003, the defendant’s case is that the contract was entered into by the defendant as agent for and on behalf of a disclosed principal ConRendit 13 GmbH & Co.KG.  The defendant also relies on an arbitration clause in the contract.

16.  As for Contract 005, the defendant’s case is that the contract was never concluded by the defendant for and on behalf of ConRendit 13 as terms had yet to be agreed and that the contract was not signed by the parties.

17.  The writ was served on the defendant by leaving a true copy of the same at Unit 1601, 16/F, Pilkem Commercial Centre, 8 Pilkem Street, Jordan, Kowloon, Hong Kong (“the Hong Kong address”) on 9 April 2010.

18.  As no notice of intention to defend was given by the defendant judgment in default was entered against the defendant as set out in paragraph 1 above. 

19.  The master held that the service was irregular and set aside the judgment and the service of the writ of summons.

20.  The issue in this appeal is whether the service was irregular.

21.  Part XI of the Companies Ordinance (Cap. 32) (“the Ordinance”) applies to all non-Hong Kong companies, that is to say, companies incorporated outside Hong Kong which “establish a place of business in Hong Kong” (section 332 of the Ordinance).

22.  The defendant has not applied to be registered under Part XI and has not delivered to the Registrar a specified form as required by section 333.

23.  On the defendant’s case it has not established a place of business in Hong Kong and hence is not required to register under Part XI.

24.  Service of process is permitted on a non-Hong Kong company by leaving it at or sending by post to “any place of business established by the company in Hong Kong” even though the company has not registered under Part XI (section 338(2) of the Ordinance, Ho Tai Kwan v Global Innovative Systems Inc [2008] 1 HKLRD 399).

25.  The question to consider is whether the defendant has established a place of business in Hong Kong at the Hong Kong address for the purposes of the service under section 338(2) of the Ordinance.

26.  It is not disputed that the burden of proving that the defendant has established a place of business in Hong Kong lies on the plaintiff (Elsinct (Asia-Pacific) Ltd v Commercial Bank of Korea Ltd [1994] 3 HKC 365).

27.  Section 341 defines “place of business” as including “a share transfer or share registration office but does not include an office specified in the Twenty-fourth Schedule”.

28.  The Twenty-fourth Schedule contains an exclusion in the definition of place of business 

“ A local representative office established or maintained with the approval of the Monetary Authority under section 46 of the Banking Ordinance (Cap 155) by a bank as defined in section 46(9) of that Ordinance.”

29.  That exclusion is not applicable here.

30.  There was also another exclusion in the definition of “place of business” in section 341 before it was amended by The Companies (Amendment) Ordinance 2004 which came into effect on 14 December 2007.  That exclusion was that a place of business “does not include a place not used by the company to transact any business which creates legal obligations”. Such exclusion was removed by the said amendment to section 341.

31.  I agree with the observations of Deputy District Judge Raymond Tsui when he said in Huang Ping, Owen v Burswood Ltd and another DCCJ 5239 of 2008, 9 September 2009 at paragraph 30 of his judgment that as the wide exclusion in the old version of section 341 has now been replaced by a narrower exclusion this must mean that the legislature intends that “place of business” should bear a wide meaning.

32.  It has been held that a broad common sense approach should be applied to the interpretation of “place of business” (Elsinct (Asia-Pacific) Ltd).  It seems to me that is still the proper approach.

33.  It is important to bear in mind that “any place of business established by the company in Hong Kong” is not the same as any place where the company carries on business in Hong Kong.

34.  In Lord Advocate v Huron and Erie Loan and Savings Co [1911] S.C. 612 (1^st Div) the Lord President said at page 616

“ ……‘carrying on business’ is one thing and ‘establishing a place of business’ another. If what the Legislature meant was that these requirements were to be imposed upon all foreign companies who carried on business with the United Kingdom, it would have been perfectly easy to say so. Therefore I am driven to the conclusion that when the Legislature selected the phrase ‘establishes a place of business’ it meant something other than ‘carrying on business…………………………………………………………… I therefore, in my judgment, merely look at the expression as it is used. That expression seems to me clearly to point to this, that the Company must have what I call a local habitation of its own’. ”

35.  In Lord Advocate it was held on the facts that the companies did carry on business in the United Kingdom but did not establish a place of business in the United Kingdom.

36.  It seems to me that a foreign company that carries on business in Hong Kong through an agent does not merely thereby establish a place of business in Hong Kong.  It does not have a local habitation of its own.

37.  Each case, of course, depends on its own facts.

38.  The plaintiff’s case is that the defendant has established a place of business in Hong Kong at the Hong Kong address.  The defendant’s case is that the Hong Kong address is the address of the defendant’s Holding Company in Hong Kong and is not the address of the defendant.

39.  The defendant Axis Intermodal (UK) Limited is a subsidiary of Axis Intermodal Limited (“the Holding Company”).  The Holding Company was prior to 13 February 2009 known as Axis Intermodal Plc which was formerly registered as a public company.

40.  The Holding Company is the holding company of the Group which includes the defendant.  The Holding Company and the defendant are separate legal entities.

41.  The defendant’s registered office is in the United Kingdom. 

42.  The defendant is not and has never been registered under Part XI of the Companies Ordinance.  It does not have any business registration certificate for Hong Kong.

43.  On the contrary, the Holding Company has been registered under Part XI of the Companies Ordinance.  It also has a business registration certificate for Hong Kong which sets out the Hong Kong address as the business address of the Holding Company in Hong Kong.

44.  There can be no doubt that the Holding Company has established a place of business in Hong Kong at the Hong Kong address.  Its former address in Hong Kong was 21/F, ICBC Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong (“the former Hong Kong address”).

45.  In support of the plaintiff’s case that the defendant has established a place of business in Hong Kong Mr Ng, for the plaintiff, relied on :

(1)  the website referred to in the evidence;

(2)  the name card of Lily Li;

(3)  the past conduct of the parties through Lily Li;

(4)  the contracts made between the parties.

46.  The website relied on by the plaintiff is exhibit “CKL-5” to the affirmation of Chan Kwok Leung (“Chan”).  The first page of the website was missing from that exhibit but was later exhibited as “LLC-4” to the 3^rd affirmation of Lee Lai Cheung (“Lee”), for the defendant.

47.  The website is www.sea-axis.com.  The name Sea Axis is prominently displayed.  The first page (at page 431 of the Bundle) explains that Sea Axis is the specialist container division of the Axis Intermodal Group.  It is clear that the name Sea Axis is promoted and marketed in the website as being the specialist container division of the entire Group.  There is no dispute that the defendant was trading in the name of Sea Axis.  However, it is clear that Sea Axis was also being promoted as the brand name of the Group as is shown in the website.

48.  Under ‘Contacts’ on the website (at page 162 of the Bundle), Sea Axis is described as a division of Axis Intermodal Ltd, i.e. the Holding Company.  Sea Axis is also described as a division of the defendant Axis Intermodal (UK) Ltd where the contact information of the individuals to contact are set out.

49.  The evidence shows that Sea Axis was also a brand name for the marine container leasing business conducted by the Group and was a division of the Axis Intermodal Group (paragraph 6 of the 3^rd affirmation of Lee).

50.  It seems to me that apart from the undisputed fact that the defendant has been trading as Sea Axis, Sea Axis was also the brand name which was promoted and marketed by the Holding Company.

51.  It seems to me, as was submitted by Mr Bartlett, for the defendant, that the website was not solely the defendant’s website but was the website of the Group to promote and market the Sea Axis brand and to give the worldwide contact information for the promotion of the Sea Axis business.

52.  The website on its own does not, in my view, support the plaintiff’s case that the defendant has established a place of business in Hong Kong.

53.  In the affirmation of service of Hung Wai Fong in support of its application for judgment in default the plaintiff relied on the website as confirmation that the defendant has established a place of business in Hong Kong.  However, the acknowledgment of service was made not by the defendant but by the Holding Company.  This is clear from exhibit “HWF-2” to the said affirmation of Hung Wai Fong which shows the stamped chop of the Holding Company on the back sheet of the writ.  It was the Holding Company that acknowledged service of the writ.  There was no acknowledgement of service by the defendant.

54.  The evidence also shows that the plaintiff’s solicitors led the defendant and its solicitors to believe that they would serve the writ on the defendant out of the jurisdiction and in the United Kingdom after obtaining an order for leave under Order 11 RHC. 

55.  By letter dated 29 January 2010 from Manches LLP (“Manches”), the defendant’s solicitors in the United Kingdom, addressed to the plaintiff’s solicitors Hampton Winter & Glynn (“HWG”), Manches informed HWG that the plaintiff had instructed Wilkinson & Grist (“W & G”) in Hong Kong to act on its behalf.  Manches also informed HWG that they had instructions to accept service on behalf of the defendant until W & G were in touch with HWG.

56.  By letter dated 12 February 2010 HWG informed W & G of the institution of these proceedings against the defendant and asked for confirmation whether W & G had instructions to accept service on behalf of the defendant.  HWG went on to state that

“ If we fail to receive your written confirmation by 19^th February 2010, we shall proceed to apply for service out of the jurisdiction under Order 11 accordingly.”

57.  By letter dated 19 February 2010, W & G replied to HWG informing them that they did not have instructions to accept service.

58.  Despite leading the defendant and its solicitors to believe that the plaintiff would be applying for leave to serve the writ out of the jurisdiction under Order 11, the plaintiff failed to do so.  Instead, the plaintiff purported to serve the writ on the defendant at the Hong Kong address and obtained judgment in default.

59.  As the evidence shows, nothing further was heard on the matter by the defendant or W & G until the defendant received a letter from the plaintiff’s solicitors in the United Kingdom dated 27 November 2010 which was addressed to the defendant at its address in the United Kingdom.  The letter enclosed a sealed copy of the judgment in default and demanded settlement of the sums due under the judgment.

60.  The plaintiff also relies on the name card of Lily Li (also known as Li Li).  The name card is exhibited as “TSLD-1” to the 2^nd affidavit of Dorothy Tso Sau Lan (“Tso”) where Lily Li is said to be Vice President Asia in the line above Sea Axis.  Sea Axis is also prominently displayed on the side of the name card.  The address given in the card is the former Hong Kong address.  It was submitted that this name card shows that Lily Li was the Vice President Asia of the defendant which was trading as Sea Axis and that the former Hong Kong address was the defendant’s address in Hong Kong.

61.  Tso states at paragraph 4 of her 2^nd affidavit that Lily Li has always held herself out as the Vice President Asia of the defendant and she relied on the said name card as confirmation thereof.  This is denied by Lily Li who in her 2^nd affirmation confirms that she has never been the Vice President Asia of the defendant or an employee of the defendant.     She also states that she has never represented herself or held herself out as the Vice President Asia of the defendant contrary to what Tso said.  

62.  On her evidence, Lily Li has never met or spoken to or sent emails to Tso.  This is not denied by Tso.  

63.  It seems to me that no weight should be attached to the evidence of Tso that Lily Li had represented herself or held herself out as the Vice President Asia of the defendant.  Tso has no personal knowledge of this and, if it is based on hearsay, she does not state the source of the information she relied on.

64.  Lily Li also said that although she could not recall the name card exhibited as “TSLD-1”, it was most likely the first version of her name card for the Holding Company and that from May 2008 she used the name card exhibited as “LL-1” to her 2^nd affirmation.  The name card exhibited as “LL-1” shows Lily Li as the Vice President Asia of the Holding Company in its former name Axis Intermodal Plc with the address given as the former Hong Kong address.

65.  In my view the name card exhibited by the plaintiff as “TSLD 1” does not confirm that Lily Li held herself out or represented herself as the Vice President Asia of the defendant at the former Hong Kong address.  The evidence filed on behalf of the defendant shows that the former Hong Kong address was not the defendant’s address but was the address of the Holding Company.

66.  The plaintiff also relies on the course of conduct between the parties.  It was submitted that the defendant was represented by Lily Li at all times and that she worked at the Hong Kong address for the business of the defendant.  It was also submitted that the negotiations on the terms of the contracts were all conducted in Hong Kong and that there were meetings of the parties at the defendant’s Hong Kong office.

67.  The evidence shows that the Holding Company acted as the agent for the defendant in the business dealings with the plaintiff.  Lily Li was the main person who assisted in the emails and phone calls with the plaintiff.  Lily Li was not the Vice President Asia of the defendant but was the Vice President Asia of the defendant (paragraph 8 of the 2^nd affidavit of Nicholas Handran Smith (“Smith”), paragraph 2 of the 1^st affirmation of Lily Li).

68.  Lily Li did send emails and had telephone discussions with the plaintiff’s representatives.  However, Lily Li did not have any authority to make decisions for the defendant (paragraph 11 of the 2^nd affidavit of Smith, paragraph 2 of the 1^st affirmation of Lily Li). 

69.  There is no evidence to show that Lily Li was authorized to make decisions for the defendant or to enter into any of the contracts with the plaintiff.  The emails produced in evidence do not show this.

70.  It is not disputed that on 5 November 2009 the plaintiff’s representatives had a meeting at the Hong Kong address with Mr Clive Francis of the defendant and with Lily Li.  This was a visit to discuss the outstanding payments under Contract 003 and Contract 005.

71.  Chan also mentioned that he and his colleagues have attended the Hong Kong address on a number of occasions (paragraph 15 of the affirmation of Chan).

72.  The fact that there were meetings and discussions at the Hong Kong address does not mean that the Hong Kong address was a place of business established by the defendant.  The Hong Kong address was the address of the Holding Company as shown in the business registration certificate of the Holding Company.

73.  As the Holding Company was the defendant’s agent in the business dealings with the plaintiff it is not surprising that meetings were held at the Holding Company’s offices at the Hong Kong address.

74.  Reliance was also placed by the plaintiff on clause 13 of the Contract 003 which provides that the contract is signed in Hong Kong and shall be governed by and construed and interpreted in accordance with the laws of Hong Kong. 

75.  The fact, however, is that all the contracts between the parties including Contract 003 were signed by the defendant not in Hong Kong but in the United Kingdom.  This is not disputed.

76.  Clause 14 of Contract 003 clearly provided that the contract should only become effective on the date the contract was signed.  The earlier contracts contained the same provision.  There was no binding contract made in Hong Kong as clearly it was not effective until it was signed.   These were only signed on behalf of the defendant in the United Kingdom.

77.  None of the contracts between the parties was ever signed by Lily Li.  As I have said, there is no evidence to show that Lily Li had the authority to enter into any of the contracts on behalf of the defendant.

78.  The fact that the contract was to be governed in accordance with the laws of Hong Kong does not assist the plaintiff in showing that the defendant has established a place of business in Hong Kong.

79.  The evidence shows that the defendant has not signed or entered into any contract in Hong Kong, paid or received payment for any equipment or services in Hong Kong, rented any premises or entered into any employment contract with any person residing in Hong Kong.

80.  It is also clear on the evidence that the plaintiff did not address letters, invoices or correspondence to the defendant at the Hong Kong address.  All correspondence from the plaintiff to the defendant had been addressed to the defendant at its United Kingdom address.  There is no evidence that any correspondence or invoice was addressed to the defendant at the Hong Kong address.

81.  The plaintiff knew that documents including invoices addressed to the defendant at its United Kingdom address were to be forwarded to the defendant in the United Kingdom (paragraph 14 of the 2^nd affidavit of Smith, paragraph 2 of the 1^st affirmation of Lily Li, paragraph 8 of the 3^rd affirmation of Lee).  This is not disputed.  

82.  The plaintiff also relies on an email sent by Lily Li on 17 July 2009 advising the plaintiff and others of a change of address from the former Hong Kong address to the Hong Kong address.  This is exhibit “CKL-4” to the affirmation of Chan.  It seems to me, however, that this does not assist the plaintiff.  The email states that “the office of Axis in Hong Kong would be moved to following location…………” and the name of the Holding Company is given.  The fact that it was sent by Lily Li and that Sea Axis is inserted under her name does not assist the plaintiff.  It was clearly, in my view, a notification of change of address of the Holding Company.

83.  The tenancy agreement dated 29 June 2009 (exhibited as part of exhibit “NHS-2” to the 2^nd affidavit of Smith) in respect of the tenancy of the Hong Kong address was a tenancy taken out by the Holding Company and not by the defendant.  This shows clearly that the Hong Kong address was the Hong Kong office of the Holding Company.

84.  The tenancy agreement was signed by Lily Li for and on behalf of the Holding Company as she was the Vice President Asia of the Holding Company and she was employed by the Holding Company.  She was never employed by the defendant.  The employment contract exhibited as part of exhibit “NHS-2” shows clearly that Lily Li was employed by the Holding Company at its Hong Kong Branch and not by the defendant.

85.  It was also submitted by Mr Ng that under the employment contract (clause 6.1) Lily Li was also required to devote her time and her duties to the Holding Company and to any Group company which included the defendant.  That may be so, but this does not mean that she was employed by the defendant.  There is nothing unusual in an employee of a holding company being required to devote time to the business of a subsidiary in the group.

86.  Clause 2 of the employment contract makes it plain that Lily Li was employed by the Holding Company in the capacity of Vice President Asia.  It is clear that Lily Li was employed by the Holding Company and not by the defendant.

87.  The plaintiff has failed to discharge its burden of showing that the defendant has established a place of business in Hong Kong at the Hong Kong address.

88.  In my view the master rightly set aside the judgment and the purported service of the writ of summons on the ground that it is irregular.

89.  I dismiss the appeal.

90.  I also make an order nisi that the plaintiff do pay the defendant its costs of the appeal such costs to be taxed if not agreed.