BALRAM CHAINRAI v. KUSHNIR FAMILY (HOLDINGS) LTD AND OTHERS

HCA 1462/2014

[2019] HKCFI 2866

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1462 OF 2014

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J U D G M E N T

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1.  This hearing is on appeal by the 3^rd defendant against the decision of Master Eliza Chang dated 8 February 2019 in which she dismissed the 3^rd defendant’s summons dated 31 January 2018 in which the 3^rd defendant sought:

(1)  an order that the ex parte order of Master K Lo (dated 16 November 2015) giving leave to the plaintiff to serve the concurrent Writ of Summons out of the jurisdiction on, amongst others, the 3^rd defendant be set aside;

(2)  a declaration that in the circumstances of the case, the court had no jurisdiction over the 3^rd defendant in respect of the subject matter of the claim or the relief or remedy sought in this action; and

(3)  alternatively, an order that all further proceedings in this action be stayed on the ground of forum non conveniens.

A.  THE UNDERLYING DISPUTE

2.  The plaintiff is a Hong Kong businessman and the 3^rd defendant is an ethnic Hebrew resident in Israel.  They were business partners from the 1990s until mid-2007, during which time the 3^rd defendant introduced to the plaintiff business ventures in Israel that were transacted in the Hebrew language.

3.  In 2005 and 2006, upon the 3^rd defendant’s introduction, the plaintiff extended a loan (“the Loan”) of New Israeli Shekel (“NIS”) 29,500,000 to the 1^st defendant, a company owned and controlled by the 2^nd defendant, to finance the 1^st defendant’s purchase of 35% of the shares in Nechushtan Investment Company Limited, a company registered under the laws of Israel and then listed on the Tel Aviv Stock Exchange.  The Loan was paid in three tranches and was repayable on 20 June 2008 with an agreed sum for interest.  It was secured by a Share Pledge over the shares.  It has not been repaid.

4.  Although the plaintiff was registered as the sole lender, the 3^rd defendant in fact contributed half of the Loan.  In around mid-2007 the plaintiff and the 3^rd defendant fell into dispute over a different transaction and they ceased any direct communication between themselves from November 2007 onwards.  On 30 October 2007 the plaintiff purported to assign all the rights under the Loan and the Share Pledge to his brother-in- law, thereby disregarding the 3^rd defendant’s contribution to the Loan and his rights in respect of it.

5.  The 3^rd defendant commenced proceedings in Israel in December 2007 against the plaintiff in which he sought declarations and other relief related to his interests under the Loan (in fact they were originally brought against the brother-in-law and against the 1^st and 2^nd defendants as well, but the proceedings were struck out against those parties due to the lack of a cause of action).  The plaintiff counterclaimed against the 3^rd defendant in Israel for approximately NIS 32,000,000 arising from alleged breaches of fiduciary duty as a trustee of the plaintiff’s funds and investments regarding other joint ventures between them.

6.  In 2011 those proceedings were converted into an arbitration seated in Israel (“the Israeli Arbitration”).

7.  During the course of the Israeli Arbitration the Loan matured and, at the request of the 2^nd defendant, the plaintiff twice extended the term of the Loan without requiring further interest and without reference to the 3^rd defendant.  The second extension was apparently for an indefinite period.

8.  Nechushtan was wound up on 7 January 2013.

9.  The Israeli Arbitration gave rise to an award dated 31 October 2013 in which the 3^rd defendant’s claims were upheld and the counterclaims which had been brought by the plaintiff were dismissed.  It was held that the 3^rd defendant was entitled to receive from the plaintiff his share of the Loan, together with interest. 

10.  The plaintiff appealed against the award to the Israeli Courts but:

(1)  on 18 May 2014 the Tel Aviv-Jaffa District Court (sitting as a court of appeal) dismissed the plaintiff’s application for leave to appeal against the award and to set it aside;

(2)  on 13 July 2015 the Supreme Court dismissed the plaintiff’s application for leave to appeal against the decision of the Tel Aviv-Jaffa District Court;

(3)  on 26 August 2015 the Supreme Court dismissed the plaintiff’s application for a further hearing against its decision dated 13 July 2015;

(4)  on 20 September 2015 the Tel Aviv-Jaffa District Court made a decree approving the award.

11.  On 31 July 2014 the plaintiff issued the writ in the present proceedings.  The general endorsement of the claim is in the following terms:

“ The plaintiff claims against the 1^st, 2^nd, 3^rd and 4^th defendants for a total outstanding sum of Israeli New shekel NIS$29,500,000 (approximately Hong Kong dollar 66,670,000 based on an exchange rate of NIS$1=HK$2.26) plus interest thereon at a rate or rates and for a period or periods this court shall deem fit up to the date of judgement and thereafter at the judgement rate upon payment, in relation to or resulting from the loan agreement arranged by the 3^rd defendant and executed between the plaintiff and the 1^st defendant in between about June 2005 and about February 2006, with the 2^nd defendant as the guarantor for the respective loans, when during all material times the 4^th defendant was a core legal adviser to the plaintiff, for the 1^st, 2^nd, 3^rd and/or 4^th defendants’, and/or their agents’ or servants’, conduct amounting to breach of contract, negligence, breach of fiduciary duties, collusion or conspiracies to defraud the plaintiff, breach of professional codes of conduct and/or in the capacity as guarantor to the loans, as the case(s) may be, which in turn caused the loss and damage now suffered by the plaintiff.”

12.  The nature of the action has been expanded upon by the statement of claim, although that was not served until 11 February 2016. 

13.  Insofar as the 3^rd defendant is concerned, the Statement of Claim pleads an oral contract entered into between the plaintiff and the 3^rd defendant in or around 2004 under which the 3^rd defendant became the plaintiff’s investment adviser.  It is said that the 3^rd defendant owed “general duties under the law and also fiduciary duties to the plaintiff as the plaintiff’s adviser and lead investment partner”.  In relation to the Loan, it is alleged that it was procured by the 3^rd defendant, including by reference to assurances given by the 3^rd defendant, in breach of contract, negligently and in breach of fiduciary duty, as to the ability of the 1^st defendant to repay the Loan despite the fact that he knew or ought to have known that the Nachushtan companies were in trading and financial difficulties.   

14.  Insofar as the 2^nd defendant is concerned, the Statement of Claim alleges that he was the controlling head of the 1^st defendant and repeatedly gave assurances to the plaintiff as to the ability of the 1^st defendant to repay the Loan.  One of the purposes of him being introduced to the plaintiff was, it is alleged, so that he and the plaintiff could become business partners together with the 3^rd defendant, so that further fruitful investments could be made together.  It is alleged that the 2^nd defendant breached fiduciary duties owed to the plaintiff and was negligent in the respects pleaded at paragraph 35 of the Statement of Claim, which relate essentially to withholding information concerning the trading and financial difficulties of the Nachushtan companies, and failing to cause repayment of the Loan.

15.  It is unnecessary to address the case against the 4^th defendant, as the plaintiff has subsequently discontinued the proceedings against him.

B.  PROCEDURAL HISTORY OF THE ACTION

16.  The Writ, which was issued on 31 July 2014, was not served within its 12-month validity period, but, on 24 July 2015, was extended for 12 months.

17.  On 17 July 2015 the plaintiff made an ex parte application for leave to serve a concurrent Writ out of the jurisdiction.  That application was supported by the 1^st affidavit of Wong Ho Cheong Henry dated 16 July 2015.  The application, and the affidavit in support, was clearly defective in that the affidavit purported to rely upon Order 11, rule 1(1)(c) (“the Necessary or Proper Party Gateway”) of the Rules of the High Court (“RHC”), but failed to identify an anchor defendant (ie one that had already been served) and failed to identify any real issue to be tried by the Hong Kong court against that anchor defendant.  Therefore the application did not fall within the Necessary or Proper Party Gateway, and the affidavit failed to comply with the requirements of RHC Order 11, rule 4(1). As a result the master returned requisitions to the plaintiff.

18.  By an affirmation of the plaintiff dated 15 September 2015 the plaintiff purported to answer the requisitions made by the master.  He set out some background information, including that he and the 3^rd defendant became good friends whilst they were trading in New York in the 1990s and that over time the 3^rd defendant had proposed various investments to him which he would invest in if he was convinced.  He identified how the 3^rd defendant had persuaded him to invest in the Nachushtan Transaction, and he contended that he did so on the basis of information or advice he received from the 1^st, 2^nd and 3^rd defendants on the “well-being” of Nachushtan from time to time.  He says that he would not have invested had he known of the financial or trading difficulties of Nachushtan, and he entirely relied upon the 1^st, 2^nd and 3^rd defendants for their local knowledge, information and advice in this respect.  He contended that they all owed contractual and tortious duties to him and that he has a good cause of action against each of them which he had been advised he could reasonably ask the court to try.

19.  That affirmation too was defective in that it did not identify an anchor defendant.  As a result the Master issued a second set of requisitions identifying that there must be a defendant who has already been served within, or out of, the jurisdiction.  The Master also required that all the documents pleaded should be exhibited.

20.  By a 2^nd affidavit dated 3 November 2015 Mr Wong purported to correct the errors in the application.  In that affidavit Mr Wong produced the documents which had been pleaded, and addressed the service of an anchor defendant by informing the court that a sealed copy of the Writ had been served on solicitors for the 2^nd defendant on 2 November 2015.  He therefore asserted that the plaintiff’s application fell within the ambit of RHC Order 11, rule 1(1)(c).

21.  On the basis of that 2^nd affidavit, on 16 November 2015 the Master gave leave to serve a concurrent writ of summons against the 1^st, 3^rd, and 4^th defendants out of the jurisdiction.

22.  On 11 February 2016 the 3^rd defendant took out an inter partes summons under RHC Order 3, rule 5 seeking an unless order against the plaintiff that unless he serve his statement of claim within seven days from the date of the order the plaintiff’s claim be dismissed.  On the same day, the statement of claim was served and the summons issued by the 3^rd defendant was “wholly withdrawn” by way of consent summons dated 18 February 2016.

23.  By summons dated 9 March 2016 the 3^rd defendant applied for an extension of time for service and filing of a defence and counterclaim and “to make such application as may be appropriate pursuant to Order 12, rule 8 of the Rules of High Court (Cap 4A)”.  In response to that summons, solicitors for the plaintiff wrote to solicitors for the 3^rd defendant and referred to the inter partes summons dated 11 February 2016 to compel the service of the statement of claim and a further consent summons dated 18 February 2016 to deal with the application for the unless order.  They contended that the 3^rd defendant had submitted to the jurisdiction and therefore objected to any reference to an extension of time to make applications under RHC Order 12, rule 8.  In response by letter of 14 March 2016 solicitors for the 3^rd defendant stated:

“ Your proposition that our client has submitted the jurisdiction is strenuously denied. Your attempt to forbid our client from relying on the court’s mechanism is totally misconceived. It is your client’s duty to file the statement of claim so that our client could know what yours is claiming and decide how to respond to such claims.”

24.  By order dated 15 March 2016 Master R Lai extended time for the 3^rd defendant to file and serve his defence and counterclaim and adjourned the 3^rd defendant’s application for time extension to take out applications under RHC Order 12, rule 8 sine die, with liberty to restore.

25.  There were then various further extensions of time granted and on 3 May 2016 the 3^rd defendant applied to strike out the plaintiff’s claim on the grounds that:

“ a. It is an abuse of process of the court, or res judicata, for the plaintiff to re-litigate the same issues and subject matter which has been adjudicated in an arbitration between the parties in Israeli [sic], and the ensued appeals to the Israeli courts; or

b.  It is scandalous, frivolous or vexatious; or

c.  It may prejudice, embarrass or delay the fair trial of the action.”

26.  By order dated 20 May 2016 the 3^rd defendant obtained leave to file and serve a defence and counterclaim within 28 days from the date of the disposal of the 3^rd defendant’s strike out application.

27.  On 4 January 2018 Lisa Wong J dismissed the 3^rd defendant’s strike out application in a detailed judgement that runs to some 27 pages.

28.  On 31 January 2018, which was within the 28 days allowed for service of the defence and counterclaim, the 3^rd defendant took out the summons which is the subject of this appeal.  The summons was not served with a supporting affidavit, as is required by RHC Order 12, rule 8(4), but the supporting affidavit was served on 12 March 2018.  At the hearing of the summons before the Master she dismissed the Summons essentially on the ground that by the steps that the 3^rd defendant had taken he had submitted to the jurisdiction of the court.

C.  THE ISSUES FOR RESOLUTION

29.  The issues for resolution in this appeal are multifaceted.  Some are substantive and some are procedural. 

30.  In summary the 3^rd defendant contends that:

(1)  the ex parte order should be set aside on a number of different grounds:

(a)  The plaintiff is unable to show a serious issue to be tried as against the 3^rd defendant.

(b)  The plaintiff cannot show a good arguable case against the 3^rd defendant that falls under the Necessary or Proper Party Gateway of RHC Order 11, rule 1(1)(c) because:

(i)  There is no good arguable case against the 2^nd defendant, who is the anchor defendant.

(ii)  There is ample material to draw a proper inference that the claim against the 2^nd defendant, who the plaintiff contends is the anchor defendant, is not a genuine bona fide claim and the 2^nd defendant has only been joined to the proceedings as a device in an attempt to bring the matter within the Necessary or Proper Party Gateway.

(c)  The plaintiff has failed to show that Hong Kong is clearly the most appropriate forum.

(d)  The plaintiff’s application for leave to serve out of the jurisdiction is tainted with material non-disclosure, should be set aside and should not be re-granted as a result.

(2)  All material events in these proceedings took place in Israel and, with the exception of the plaintiff, all persons involved are resident in Israel.  Hong Kong is plainly not the appropriate forum for determining the plaintiff’s claims.  The only connection to Hong Kong is the plaintiff’s presence in Hong Kong.

(3)  On a proper analysis of the facts, and applying the appropriate test having regard to the facts, there has been no submission to the jurisdiction by the 3^rd defendant.

(4)  Even if there has been a submission to the jurisdiction that submission is limited in nature and amounts only to an acceptance of jurisdiction and not acceptance of the exercise by the court of that jurisdiction.  Consequently it is appropriate now to stay these proceedings on the grounds of forum non conveniens.  This point was not dealt with by the Master at all.

31.  The plaintiff takes a root and branch rebuttal of the points made by the 3^rd defendant. He contends that:

(1)  There has been a complete submission to the jurisdiction such that it is now not open to the 3^rd defendant to contest jurisdiction.  That submission is a submission both to the existence of the jurisdiction and the exercise of it.

(2)  In any event, the application to set aside was made out of time, in that it was not made within 28 days of the service of the statement of claim, because that in the time in which the rules require the defence to be served.  There is no jurisdiction by which that time can be extended as RHC Order 12, rule 8 constitutes a complete statutory code which cannot be altered by any decision of the court.  Consequently the 3^rd defendant’s Acknowledgment of Service is deemed to be a submission to the jurisdiction.

(3)  The application should be dismissed as a result of the non- compliance with RHC Order 12, rule 8(4), and the failure to serve the supporting affidavit with the summons.

(4)  The plaintiff has demonstrated a serious issue to be tried both as against the 2^nd and the 3^rd defendants.

(5)  The Necessary or Proper Party Gateway is not the only gateway that was used.  The case falls not only under RHC Order 11, rule 1(1)(c), but also rules 1(1)(b) and 1(1)(f).  The plaintiff has demonstrated a good arguable case that it falls within one or more of those gateways.

(6)  The forum conveniens is Hong Kong, not Israel.  The 3^rd defendant has failed to show that Hong Kong is not the natural forum, and has not shown that Israel is clearly or distinctly more appropriate than this court for the trial of the action.  The plaintiff has distinct disadvantages in Israel because he is not an Israeli citizen and has previously been ruled against by that Israeli court on all relevant occasions.

(7)  There was no material non-disclosure.  If there was any non- disclosure, it has now been corrected, and the court should address the matter in the light of the evidence currently before it, which would inevitably lead to a re-grant of the leave to serve out.

D.  THE PROCEDURAL POINTS

32.  I address first the three procedural points raised by the parties, namely:

(1)  that the time for any application under RHC Order 12, rule 8 expired on 10 March 2016;

(2)  that the plaintiff is entitled to rely upon gateways other than the Necessary or Proper Party Gateway; and

(3)  that the application is defective due to non-service of an affidavit with the summons.

D.1  Time for making the application

33.  The plaintiff contends that RHC Order 12, rule 8 constitutes a single code and covers all applications howsoever based for any of the orders enumerated within it (citing Fuad VP (as he then was) in Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346 at 351C–G and Mason NPJ in Re Resource 1 (2000) 3 HKCFAR 187 at 211G and 213E–F and G–I). 

34.  He says that all time limits must be complied with, and there is no inherent jurisdiction within the court to allow for any extension.  If the correct application is not taken out within the time limit specified, then the Acknowledgement of Service is a complete submission to the jurisdiction as a result of RHC Order 12, rule 8(7).

35.  RHC Order 12, rule 8(2) states:

“ A defendant who wishes to argue that the court should not exercise its jurisdiction in the proceedings on one or more of the grounds specified in paragraph (2A) or on any other ground shall also give notice of intention to defend the proceedings and shall, within the time limited for service of a defence, applied to the court for …”

36.  RHC Order 12, rule 8(1) is in materially similar terms insofar as the time limits are concerned, and so the point is the same in respect of a challenge made under RHC Order 12, rule 8(1) as well.

37.  The plaintiff says that under RHC Order 18, rule 2 a defence has to be served within 28 days after the statement of claim is served.  Therefore, he says, that because the statement of claim was served on 11 February 2016 any application to challenge the jurisdiction of the court had to be served on or before 10 March 2016 (being within 28 days of the service of the statement of claim).

38.  The plaintiff contends that an extension of time for service of the defence does not operate so as to extend time for a challenge to the jurisdiction because the court has no inherent power to extend time for a challenge to the jurisdiction under RHC Order 12 rule 8.  Hence, he says the application to set aside service out, and the application for a stay, has been made out of time.

39.  I do not agree with the plaintiff’s analysis.  In my view the rules are worded to limit the time for making the application to the time granted for service of a defence.  If that time is legitimately extended under the rules, then there is an automatic extension of time for making an application to set aside service.  This is not contrary to the proposition that RHC Order 12, rule 8 is a complete code and leaves no inherent jurisdiction to extend time (which is a different point, and which I address further below), but is simply an integral part of what that complete code states.  The code itself anticipates that time may be extended by virtue of an extension of time being granted for the service of the defence.

40.  It is not legitimate to read the words of RHC Order 12, rule 8 as incorporating the requirements of Order 18, rule 2 for the service of the defence to be 28 days from the statement of claim, in the way that the plaintiff does.  Indeed, time for service of the statement of claim could itself be extended, thereby extending the date from which the plaintiff’s 28-day period could run. So even on the plaintiff’s own construction, time can be automatically extended under RHC Order 12, rule 8.  It is illogical to allow for an extension by reference to the time for service of the statement of claim, but not to allow for one by reference to the defence.  That is particularly so when RHC Order 12, rule 8 expressly does not limit time by reference to a specific period of time (as it used to), but rather limits time by reference to a particular event (namely service of the defence).  Therefore, in my view it is anticipating that the time for making an application will vary according to the time which is allowed for the service of the defence.

41.  I note that the notes to Hong Kong Civil Procedure make a similar point at Note 12/8/3, by reference to RHC Order 3 and Lawson v Midland Travellers Ltd [1993] 1 WLR 735.  Mr Barlow SC, on behalf of the plaintiff, suggested that Hong Kong Civil Procedure was wrong in this context, but I disagree.  In Lawson v Midland Travellers Ltd the English Court of Appeal unanimously held that an application for an extension of time for service of the defence automatically carried with it an extension for time to apply to set aside the jurisdiction.  Lord Bingham MR was slightly uneasy about the conclusion because of the possibility of such an application allowing limitation periods to expire, but ultimately he agreed with the analysis of Stuart-Smith and Simon Brown LJJ, which reached the conclusion that I have referred to.  In my view that is the correct position under Hong Kong law as well.

42.  A similar argument was also addressed by the Court of Final Appeal in Re Resource 1 (2000) 3 HKCFAR 187 at 202-203.  The Court held that the power to extend time in respect of RHC Order 12 rule 8(7) was conferred in very wide terms.  It went on:

“ Its purpose is to ensure that the legal consequences which ordinarily flow from non-compliance with time limits fixed by the rules do not apply in cases where an extension is appropriate. And in the context of an extension of time, there is no reason to differentiate between a deemed submission to the jurisdiction and other legal consequences. ”

43.  In my view that passage supports the conclusion that I have reached.

44.  For completeness I note that this point was also discussed in Texan Management Ltd v Pacific Electric Wire & Cable Co Ltd [2009] UKPC 46 at [81] – [86]. The court there referred to other decisions in England which decided the same point differently to Lawson v Midland Travellers Ltd, but doubted their correctness.  In Texan Management, the issue was addressed under the BVI civil procedure, and I have not made any attempt to correlate those rules to the rules in Hong Kong for this purpose, so have not relied upon that case as authority for this proposition.

45.  In light of the above, the time-bar point taken by the plaintiff is misplaced.  The application to set aside service was taken within the time provided by the rules.

46.  I address the question of whether RHC Order 12, rule 8 excludes the inherent jurisdiction to stay a case on the basis of forum non conveniens at the appropriate section below.

D.2  The gateway

47.  As to the gateway, I do not accept that the plaintiff is entitled now to argue that the case is properly brought under any gateway other than RHC Order 11, rule 1(1)(c).  It is trite that an applicant for leave to serve out of the jurisdiction must choose which of the gateways he applies under.  The gateways are generally to be read disjunctively and the application must make it clear which gateway is relied upon.  He is not permitted subsequently to take a different course, and rely upon a different gateway at a later stage.  That this is the law of Hong Kong has been confirmed by the Court of Final Appeal in Kayden Ltd v Securities and Futures Commission (2010) 13 HKCFAR 696 at 715, [35] – [39], quoting Slade LJ in Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, 436 as follows:

“ … if the draftsman of a pleading intended to be served out of the jurisdiction under Ord. 11, r. 1(1)(f) (or indeed under any other sub-paragraph) can be reasonably understood as presenting a particular head of claim on one specific legal basis only, the plaintiff cannot thereafter, for the purpose of justifying his application under Ord. 11 r. 1(1)(f), be permitted to contend that that head of claim can also be justified on another legal basis (unless, perhaps, the alternative basis has been specifically referred to in his affidavit evidence, which it was not in the present case). With this possible exception, if he specifically states in his pleading the legal result of what he has pleaded, he is in our judgment limited to what he has pleaded, for the purpose of an Order 11 application. To permit him to take a different course would be to encourage circumvention of the Order 11 procedure, which is designed to ensure that both the court is fully and clearly apprised as to the nature of the legal claim with which it is invited to deal on the ex parte application, and the defendant is likewise apprised as to the nature of the claim which he has to meet, if and when he seeks to discharge an order for service out of the jurisdiction.”

48.  In this case it is clear that the only gateway relied upon was the Necessary or Proper Party Gateway:

(1)  In Mr Wong’s 1^st affidavit at paragraph 11(a) he expressly identified that:

“ The plaintiff seeks leave to serve the writ out of the jurisdiction pursuant to Order 11, rule 1 on the basis that:

a)  The person sought to be served is a proper party to the action pursuant to Order 11, rule 1(1)(c).”

(2)  No other gateways were identified in Mr Wong’s 1^st affidavit.

(3)  The affirmation of the plaintiff himself stated at paragraph 5(a) is that:

“ My application for concurrent writs for service out of the jurisdiction is made pursuant to paragraph 1(1)(c) under code 11.1 [sic].”

(4)  The second set of requisitions issued by the Master clearly demonstrate that the court understood, perfectly reasonably in my view, that the application was made under RHC Order 11, rule 1(1)(c).

(5)  The 2^nd affidavit of Mr Wong confirmed that position by identifying, at paragraph 9 under a heading of “Order 11 r. 1(1)(c)” that an anchor defendant had been served within the jurisdiction, and at paragraph 10 that:

“ Given that the writ has now been served on the 2^nd defendant, the plaintiff’s application filed on 22 September 2015 fall within the ambit of Order 11 rule 1(1)(c) of the Rules of High Court, Cap 4A.”

49.  It is not sufficient simply to point to passages within the writ of summons and other areas of the affidavit which could, had they been relied upon for this purpose, have created an alternative route for service out of the jurisdiction through a different gateway.  It is not for the court on an ex parte application to seek to formulate the case which it is being presented with.  The obligation rests on the plaintiff to identify precisely and clearly which of the provisions of RHC Order 11, rule 1 are being relied upon for the purposes of service out.  In this case the application was made expressly under only the Necessary or Proper Party Gateway.

50.  In the circumstances it is not open to the plaintiff now to rely upon any other gateway.

D.3  Failure to serve the supporting affidavit

51.  As to the failure to serve the supporting affidavit with the summons, I accept the submission of Mr Burns SC appearing for the 3^rd defendant, that this is an irregularity which can be, and should be, corrected under RHC Order 2, rule 1.  Hence I do not find in favour of the plaintiff on this point.

52.  Again, for completeness I note that this point was also taken in the Texan Management case referred to above.  The Privy Council rejected it between paragraphs 78 and 80.  The reasoning in that case, albeit by reference to the BVI procedural rules, is equally applicable to the Hong Kong rules.

E.  SUBMISSION TO THE JURISDICTION

53.  Logically the next issue to deal with is whether there has been a submission to the jurisdiction.  If there has, as rightly accepted by Mr Burns SC, then the 3^rd defendant’s application to set aside the service out falls away, although his application to stay on the grounds of forum non conveniens does not.

54.  The Master was of the view that the 3^rd defendant had submitted to the jurisdiction by reference to two events:

(1)  the application for an unless order for service of the statement of claim, and the following consent summons once the statement of claim had been served; and

(2)  the strike out application.

55.  The plaintiff relies upon more than those two matters, and sets out various conduct which he says amounts to the 3^rd defendant invoking the court’s jurisdiction independently of the application to set aside service out.  Hence he contends that the 3^rd defendant has submitted to the jurisdiction.

56.  There is no dispute as to the law, and both parties have told me that it is adequately set out in ABN Amro Bank NV v Fortgang [2008] 2 HKLRD 349 at 353 – 355, quoting Global Multimedia International Ltd v ARA Media Services & Others [2007] 1 All ER (Comm) 1160 at [26] and [27]:

“ 27. The test to be applied in determining whether any particular conduct amounts to a submission to the jurisdiction was considered by Colman J in Spargos Mining NL v Atlantic Capital Corp reported only in (1995) Times, 11 December, but quoted in full by Patten J in SMAY Investments Ltd v Sachdev [2003] EWHC 474 (Ch) at [41], [2003] 1 WLR 1973 at [41]. I reproduce the whole of the quote as set out in that para [41] from the judgment of Patten J:

‘In approaching the question of submission, I have in mind the following authorities. In Astro Exito Navagacion SA v WT Hsu, otherwise known, more pronounceably, as The Messiniaki Tolmi [1984] 1 Lloyds Reports 266, Goff LJ said at p 270, ‘Now a person voluntarily submits to the jurisdiction of the court if he voluntarily recognises, or has voluntarily recognised, that the court has jurisdiction to hear and determine the claim which is the subject matter of the relevant proceedings. In particular, he makes a voluntary submission to the jurisdiction if he takes a step in the proceedings which in all the circumstances amounts to a recognition of the court’s jurisdiction in respect of the claim which is the subject matter of those proceedings. The effect of a party’s submission to the jurisdiction is that he is precluded thereafter from objecting to the court exercising its jurisdiction in respect of such claim. Whether any particular matter, for example an application to the court, amounts to a voluntary submission to the jurisdiction must depend upon the circumstances of the particular case.’ In [Sage v Double A Hydraulics Ltd [1992] The Times, 2 April 1992, TLR 165], Farquharson LJ said (and this is a report of the judgment which is not reported in oratio recta): ‘A useful test was whether a disinterested bystander with knowledge of the case would have regarded the acts of the defendant, or his solicitors, as inconsistent with the making and maintaining of his challenge’. In arriving at the view to be imputed to the disinterested bystander, it seems to me that one has to bear in mind that there will be an effective waiver, or a submission to the jurisdiction, only where the step relied upon as a waiver, or a submission to the jurisdiction, cannot be explained, except on the assumption that the party in question accepts that the court should be given jurisdiction. If the step relied upon, although consistent with the acceptance of jurisdiction, is a step which can be explained also because it was necessary or useful for some purpose other than acceptance of the jurisdiction, there will, on the authorities, be no submission … If the well- informed bystander had been left in doubt because what the defendants had done was equivocal, in the sense that it was explicable on other grounds in addition to agreement to accept the jurisdiction of the court, then the conclusion must be, on the authorities, that there would have been no submission to the jurisdiction. The representation derived from the conduct of the party said to have submitted must be capable of only one meaning.

28.  Thus the test to be applied is an objective one and what must be determined is whether the only possible explanation for the conduct relied on is an intention on the part of the defendant to have the case tried in England. …”

57.  The 3^rd defendant contends that it could not be said that the only possible explanation for his conduct was an intention on his part to have the case tried in Hong Kong.  At worst his conduct was equivocal in that respect.

58.  I shall address the two aspects of conduct addressed by the Master as those matters are the most obvious candidates for a submission and waiver.  The other conduct relied upon by the plaintiff does not, in my view amount to a submission to the jurisdiction.

E.1  Application for service of the Statement of Claim

59.  The 3^rd defendant says that the application requiring the plaintiff to file and serve a statement of claim would not be seen by a bystander as an act of submission to the jurisdiction.  The summons is explicable as being necessary or useful to ascertain the basis of the plaintiff’s claim against the 3^rd defendant, and as against the 2^nd defendant (as the anchor defendant) so that the 3^rd defendant might make an assessment of whether or not it was appropriate to be tried in Hong Kong.

60.  In this context he relies upon Ives & Barker v Willans [1894] 2 Ch 478 at 484, where, in the context of a stay for arbitration, the court said:

“ He had received a writ and the writ shewed him that there was a claim for breach of contract. That he knew what the contract was I do not doubt, but he did not know from the writ what the particular breaches were in respect of which the Plaintiffs were suing him, and, until he did know that, at all events, how was he to form an opinion as to whether it would be desirable to apply for an order or not? He had not the materials before him to enable him to exercise his judgment in the matter, and it appears to me, therefore, that we should be doing an injustice to a defendant if we said that he must apply under the section for an order to refer before he knows what the plaintiff is suing him for. Quite apart from the case not being within the words, therefore, it is not within the spirit or the sense of the Act. Before a man can make up his mind as to which of the alternatives he will take, he ought to know what the alternatives are, and ought to be in a position to exercise some kind of judgment in the matter, and if we were to hold that the Defendant ought to have applied before, we should be saying that he should make his application in ignorance of material facts.”

61.  Although that case deals with a somewhat different regime, namely that of a stay to arbitration under the Arbitration Act 1889, in my view the sentiments which are expressed remain apt to the question of a submission to the jurisdiction for the purposes of RHC Order 12, rule 8.

62.  It seems to me that if a defendant is unable to ascertain the nature of the claim which is made against him he should be entitled to ask for further details of that claim, if necessary using the procedures of court available for that purpose, before he is put to his election as to whether to submit to the jurisdiction or not.  Asking for service of the statement of claim in the context of the generally endorsed writ that was served in this case, particularly having regard to what the 3^rd defendant describes as the dubious nature of the claim against him even having seen the statement of claim, does not, in my view inevitably result in a submission to the jurisdiction.

63.  A proper understanding of the claim being brought is relevant to various aspects of the test under RHC Order 11, rule 1(1).  For example:

(1)  it is relevant to which gateway might be applicable.  As set out above, the only gateway which had been relied upon was the Necessary or Proper Party Gateway, and in order to make any assessment as to whether there was a good arguable case that the claim against the 3^rd defendant fell within that gateway in my view it was highly material to understand both the claim against the 3^rd defendant and as against the 2^nd defendant (the anchor defendant).  In my view the generally endorsed writ which was served was inadequate to give any proper understanding for that purpose.

(2)  A proper understanding of the way in which the claim is brought is important in order to assess whether there is a serious issue to be tried as between the plaintiff and the 3^rd defendant.  That is particularly so upon the facts of this case given that the real issues between the plaintiff and the 3^rd defendant appear to have been previously resolved by way of the Israeli Arbitration.  From the general endorsement it was clear that the plaintiff was seeking a judgment in the full amount of the Loan that had been made.  However, other than broad allegations of breach of contract, breach of fiduciary duty and negligence, there was no identification of the way in which that claim would be articulated or the extent to which it may or may not be affected by the prior resolution of the Israeli Arbitration.

(3)  It would be important to ascertain the nature of the allegations in order to determine whether Hong Kong was the appropriate forum.

64.  For these reasons, in my view the application to force service of the statement of claim was equally consistent with an attempt properly to understand the claim so that a decision could be made about whether to seek to set aside service out of the jurisdiction as it was with an acceptance of the jurisdiction of Hong Kong Court.  Consequently, on the facts of this case, I do not believe that the application for an unless order, or the consequential consent summons once the statement of claim was served are sufficient to demonstrate an acceptance of the jurisdiction of the Hong Kong Courts.

65.  I recognise that in this respect I am differing from the view taken by the Master.  This is a hearing de novo and is not incumbent upon me to identify errors that she has made in order to justify a different view. However in my view the Master has fallen into error in paragraph 46 of her judgment where she held that:

“ The 3^rd Defendant must consistently avoid waving his challenges by invoking the jurisdiction that he challenges, i.e. by taking a step that is not part of his Order 12 r 8 challenges.”

66.  The first part of that sentence is correct, but what she has said after the letters “i.e.” is not a correct description of the appropriate test.  The mere fact of taking a step that is not part of an RHC Order 12, rule 8 challenge does not of itself necessarily amount to a submission to the jurisdiction.  I have set out in detail the test earlier in this judgment.  It is clear that it is possible to take a step that is not part of an RHC Order 12, rule 8 challenge without submitting to the jurisdiction.  In my view, for the reasons that I have articulated, forcing service of the statement of claim in the light of the difficulties of ascertaining the nature of the claim being brought by way of the general endorsement on the writ is a legitimate step which is not consistent only with a submission to the jurisdiction.

67.  I am also conscious that the service of the application to force the plaintiff to serve a statement of claim was not accompanied by any reservation of rights as to jurisdiction, other than a previous application for an extension of time to serve the defence and to make applications under RHC Order 12, rule 8.  That is a factor which I bear in mind because in my view the most sensible thing to have done would be to have required service but at the same time reserved all rights as to jurisdiction.

68.  I also note that it may have been possible to issue an application for service of the statement of claim other than on an “unless” basis.  On one view the addition of the “unless” provision within the application may take the application too far.  As noted by the Master in paragraphs 47 and 48 of her decision by requiring an “unless” provision the plaintiff was asking the court to strike out the claim if the statement of claim was not provided. For reasons which I will set out in the context of the strike out application that was actually made, I do not think that a strike out application in itself is necessarily a submission to the jurisdiction. 

69.  However, the lack of any reservation of rights and the invocation of the “unless” powers of the court have the effect of moving the application that the 3^rd defendant made closer to being a submission to the jurisdiction than would have been the case if a clear reservation of rights had been made, or an “unless” provision not been sought.  Inevitably these matters are highly factually dependent, and whilst I have taken into account both points, I remain of the view that when objectively assessed overall in the context of the case as a whole, the conduct of the 3^rd defendant in this respect was equivocal as to acceptance of the jurisdiction of the court, and hence did not amount to a submission.

E.2  The strike out application

70.  As set out in paragraph 25 above, the grounds for the strike out application were:

“ a.  It is an abuse of process of the court, or res judicata, for the plaintiff to re-litigate the same issues and subject matter which has been adjudicated in an arbitration between the parties in Israeli [sic], and the ensued appeals to the Israeli courts; or

      b.  It is scandalous, frivolous or vexatious; or

      c.  It may prejudice, embarrass or delay the fair trial of the action.”

71.  The issues raised in the strike out summons are shortly summarised in the decision of L Wong J at [25] – [27]:

“ 25. [The 3^rd defendant’s] ground for striking out as stated in his summons was based on an abuse of process arising from the re-litigation of the ‘same issues and subject matter’ in the Israeli Arbitration, which would be understood as a reference to the doctrine of res judicata in the narrower sense.

26.  However, it is clear that the issues raised by [the plaintiff] against [the 3^rd defendant] in this action were not litigated or adjudicated in the Israeli Arbitration. [The 3^rd defendant] expressly conceded as much in paragraph 9 of his 2^nd affirmation dated 31 August 2016.

27.  The submissions before me on behalf of [the 3^rd defendant] were grounded primarily on the doctrine of res judicata in the wider sense, i.e. that [the plaintiff’s] claims against [the 3^rd defendant] in this action could and should have been raised in the earlier proceedings between the parties in Israel.”

72.  It is therefore clear, and indeed made further clear through the reasoning of L Wong J which I shall not set out, that the strike out application required an analysis of the allegations which were brought in the Israeli Arbitration, an analysis of those that were brought in these proceedings, and assessment based on the evidence available to the court as to whether the allegations in these proceedings could or should have been brought in the Israeli Arbitration.  It was not a strike out based upon only alleged defects within the four corners of the writ or statement of claim, but it required some assessment (even if only for the purposes of determining whether the action was subject to res judicata in the wider sense) of the underlying matters in dispute, both in these proceedings and the Israeli Arbitration.

73.  Mr Burns has referred me to Hong Kong Civil Procedure 2019 to suggest that as a matter of principle an application to strike out proceedings is not a submission to the court.  He said that one could not look to Hong Kong Civil Procedure 2020 for this purpose because it relied upon the Master’s decision in this case for the alternative proposition.  He also referred me to the decision of Lord Denning MR in Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd’s Rep 357 at 361 where Lord Denning stated:

“ On those authorities, it seems to me that in order to deprive a defendant of his recourse to arbitration a ‘step in the proceedings’ must be one which impliedly affirms the correctness of the proceedings and the willingness of the defendant to go along with a determination by the Courts of law instead of arbitration.

Applying this principle, the defendants here were presented with a writ indorsed with a statement of claim which was very defective.  They applied, quite properly, to strike it out.  That was not an affirmation of the correctness of the proceedings.  Quite the contrary. It was a disaffirmation of them.  It was not a ‘step in the proceedings’ such as to debar the defendants from applying for a stay.”

74.  The general endorsement on the writ in that case was commented upon by Lord Denning at page 360:

“ That indorsement was very defective. There were several contracts of reinsurance in 1967. It does not specify which is the contract that is sued upon. It claims damages at large without giving the slightest indication of the nature of the breach or of the way in which the damages arise.”

75.  I accept that, as a matter of principle, an application to strike out a writ or a statement of claim may not amount to a submission to the jurisdiction.  But, it seems to me that the question is factually dependent. If, as in the case of Eagle Star, the application is made simply on the basis of defects apparent within the document itself then I can understand why such an application would not be consistent only with an affirmation of the jurisdiction of the court.  The court is not being asked to look in any sense at the merits of the case or the underlying matters.  All that it is asked to do is to make an assessment, based entirely upon the document which has been served, as to whether that is one which can properly, on its own terms, be the foundation of an action in Hong Kong.  Thus, if an application is made to strike out a statement of claim for disclosing no reasonable cause of action it seems to me that it may well be that such an application would not amount to a submission to the jurisdiction court.  The applicant simply would be contending that, irrespective of whether jurisdiction exists over him, or should be exercised over him, the foundation of the claim, namely the document sought to be struck out, when looked at in isolation did not disclose any basis upon which the Hong Kong court could or should proceed.

76.  That position can, and should, be contrasted with an application to strike out a claim where the basis of the strike out requires the court to look at and consider the underlying issues.  The very fact that the applicant is asking the court to make some assessment of the matters in dispute demonstrates, on an objective basis, that the applicant accepts that the court has a jurisdiction to do so.  Hence, it seems to me that a strike out application in which the applicant deploys the underlying facts for any purpose is most likely to amount to a submission to the jurisdiction.  It does not make any difference to this proposition that the purpose for which the court is being asked to make an assessment of the underlying facts and matters is so as to decide whether they are abusive or not.  The mere fact that the applicant has asked the court to make that assessment unequivocally demonstrates that the applicant accepts the court’s jurisdiction to do so.

77.  I have looked at Graeme Johnson and Paul Harris SC, The Conflict of Laws in Hong Kong (3^rd edition) at paragraph 3.023, and the cases referred to therein, and do not think that they indicate that any different conclusion should be made.  In Winnitex Investment Co Ltd v Oxford Products (International) Ltd [2005] HKEC 44, DCCJ 3690/2004, 20 December 2004, HH Judge Marlene Ng (as she then was) concluded that an application to strike out was a submission to the court.  But when one considers the facts of that case it is clear that the application to strike out required the court to make an assessment of the underlying facts in dispute.  It was not a case in which the strike out was made simply on the basis of the writ or statement of claim alone.  As the authors of the book have recognised, the decision of Deputy District Judge Tsui in Huang Ping Owen v Burswood Ltd [2009] HKEC 1581, DCCJ 5239/2008, unreported, 9 September 2009 may well have been wrongly decided, but is in any event not binding upon me and I do not consider that it adds to my analysis of the proper position in law.

78.  In this case, the 3^rd defendant clearly asked the court to make an assessment of whether the matters raised in the action either had been, or could and should have been, raised in the Israeli Arbitration.  In order to do that, as is made clear by the decision of L Wong J, it was necessary for the court to consider affidavit evidence identifying the issues in the Israeli Arbitration, the underlying issues being raised in these proceedings and the time when the plaintiff became aware of the matters which he says gave rise to his knowledge such that he was able to bring these proceedings.  Based upon that the court was then asked to make an assessment of whether the matters raised in these proceedings could and/or should have been brought in the Israeli Arbitration. 

79.  Inevitably, therefore, the 3^rd defendant has “deployed” the underlying facts and matters in an attempt to persuade the court that it should not proceed and should strike out the claim.  In my view it can only have done that by accepting that the court has a jurisdiction to consider those matters, and hence objectively speaking it has submitted to the jurisdiction.

80.  The 3^rd defendant contends that his application to strike out was made subject to a reservation of rights.  In this context he relies upon three matters:

(1)  his application dated 9 March 2016 for an extension of time to make such applications as may be appropriate pursuant to RHC Order 12, rule 8.

(2)  His letter dated 14 March 2016 in which he denied that he had submitted to the jurisdiction by virtue of his application to force the service of the statement of claim.

(3)  His letter dated 17 May 2016 in which it is stated:

“ In respect of our client’s position as to whether an application is to be taken out under Order 12 Rule 8 of the Rules of the High Court, you should be well aware that the Court has already ordered on 15 March 2016 that our application for a time extension to make such application has been adjourned sine die with liberty to restore.

Given that our client has taken out a striking out application against yours, we would reserve our client’s right to make such application under Order 12 rule 8 if our striking out application is dismissed by the Court.”

81.  In my view none of those matters adequately reserve the 3^rd defendant’s right to challenge the jurisdiction of the court in the light of the strike out application.  The application for an extension of time is not a reservation of rights.  All it does is preserve an ability to make an application under RHC Order 12, rule 8 to the extent that there is no subsequent submission to the jurisdiction.  If there is a subsequent submission to the jurisdiction the extended time available becomes irrelevant.  The letter dated 14 March 2016 is also irrelevant in this context.  All it does is deny that the application to force service of the statement of claim was itself a submission to the jurisdiction.  It has no relevance to the subsequent strike out application.

82.  The letter of 17 May 2016 does not assist either.  First it was issued four days after the strike out application was issued and hence cannot be construed as affecting the submission to the jurisdiction which the prior strike out application constituted. 

83.  Secondly in my view it is not possible to reserve a right which does not exist.  If an act is an unequivocal submission to the jurisdiction then a reservation of rights to apply to set aside service out does not alter that position.  The act retains its character irrespective of any reservation that may surround it.

84.  Of course, a reservation may be relevant in the overall balancing and weighing exercise when making an assessment as to whether the act was, of itself, a submission to the jurisdiction.  It would be relevant, for example, when the act was capable of constituting a submission or not, depending upon how it was interpreted.  In such a case a reservation of rights would make it clear that the party who had reserved the right was well aware that he was required ultimately to make an election, but that he was not making the election by reference to the act.  In those circumstances a reservation of rights would not only be sensible, but would also likely demonstrate that the act did not in fact constitute a submission to the jurisdiction.

85.  But that is very different to the situation in this case.  In this case by asking the court to consider the underlying matters in dispute the 3^rd defendant has confirmed that he accepts the court as having jurisdiction to do so.  Effectively he has made his election by taking out the strike out summons.  It is not possible for him to have taken out that summons and, at the same time, reserve a right to challenge jurisdiction.  Once the summons was taken out the right to challenge jurisdiction was lost.

F.  THE SET ASIDE APPLICATION

86.  In the light of my conclusions on the submission to the jurisdiction strictly it is not necessary for me to consider the application to set aside leave to serve out.  However, in case I am wrong on the submission to the jurisdiction and given that the points have been fully argued before me, I shall deal with the set aside application, albeit perhaps slightly more briefly than I would have done had it been central to my decision.

F.1  The principles

87.  The correct approach to whether permission should be given to serve a defendant out of the jurisdiction has been summarised by Lord Collins in Nilon Ltd v Royal Westminster Investments SA [2015] BCC 521 at [13] and Gloster LJ in Erste Group Bank AG v VMZ Red October [2015] 1 CLC 706 at [25] as follows:

“ (i) the claimant must satisfy the court that in relation to the foreign defendant there is a serious issue to be tried on the merits;

     (ii) the claimant must satisfy the court that there is a good arguable case that the claim falls within one or more classes of case in which permission to serve out may be given, which in this context connotes that one side has ‘much the better of the argument’ than the other on that point;

     (iii) the claimant must satisfy the court that in all the circumstances, [Hong Kong] is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.”

88.  The principles applicable to the first of those questions are not difficult and do not give rise to anything other than an assessment (similar to that which would arise on a summary judgment application) of the merits of the case against the 3^rd defendant.

89.  In relation to the second of those questions, the principles were discussed in Nilon Ltd v Royal Westminster Investments SA.  That case concerned the proper approach to the Civil Practice Rules in the BVI in relation to a necessary or proper party.  The BVI Rules were materially identical to those in the United Kingdom, but different to the RHC in Hong Kong, particularly in relation to the Necessary or Proper Party Gateway. The real difference between those jurisdictions and Hong Kong is that the BVI and UK wording expressly required that there was a “real issue” between the claimant and the anchor defendant, whereas that wording is absent from the Hong Kong RHC Order 11, rule 1(1)(c).  However, that difference is addressed in Hong Kong through RHC Order 11, rule 4(1)(d), which expressly requires that any application made under RHC Order 11, rule 1(1)(c) is to be supported by an affidavit stating the deponent’s grounds for belief that there is, between the plaintiff and the person on whom a writ has been served (ie the anchor defendant), a real issue which the plaintiff may reasonably ask the court to try.  As a result, I do not believe that the wording difference between the RHC and the CPR of the BVI or UK makes any difference to the approach which should be taken to the Necessary or Proper Party Gateway.  The proper approach is as set out in Nilon Ltd.

90.  Lord Collins confirmed at [15] the principles applicable to the Necessary or Proper Party Gateway:

“ (1) The necessary or proper party head of jurisdiction was anomalous, in that, by contrast with the other heads, it was not founded upon any territorial connection between the claim, the subject matter of the relevant action and the jurisdiction of the English courts.

(2) Caution must always be exercised in bringing foreign defendants within the jurisdiction under that head, and in particular it should never become the practice to bring in foreign defendants as a matter of course, on the ground that the only alternative requires more than one suit in more than one different jurisdiction.

(3) The fact that the defendant within the jurisdiction (D1 or the ‘anchor defendant’) is sued only for the purpose of bringing in the party outside the jurisdiction (D2) is not fatal to the application for permission to serve D2 out of the jurisdiction, but it is a factor in the exercise of the discretion.

(4) The action is not properly brought against Dl if it is bound to fail.

(5) If a question of law arises on the application which goes to the existence of jurisdiction, the court will normally decide it, rather than treating it as a question of whether there is a good arguable case.

(6) The question of the merits of the claim is relevant to the question of whether the claim against D1 is ‘bound to fail’ and to the question whether there is a ‘serious issue to be tried’ in relation to the claim against D2; and there is no practical difference between the two tests, and they in turn are the same as the test for summary judgment.

(7) In considering the merits of the claim, whether the claim against D1 is bound to fail on a question of law should be decided on the application for permission to serve D2 (or to discharge the order), but it would not normally be appropriate to decide a controversial question of law in a developing area, particularly because it is desirable that the facts should be found so that any further development of the law should be on the basis of actual and not hypothetical facts.

(8) The question whether D2 is a proper party is answered by asking:

‘supposing both parties had been within the jurisdiction would they both have been proper parties to the action?’

91.  Thus determining whether there is a good arguable case that the plaintiff has brought his claim within the Necessary or Proper Party Gateway (ie the 2^nd question identified in paragraph 85 above) involves a two-stage enquiry, which must be undertaken having regard to the principles set out by Lord Collins:

(1)  establishing that genuine proceedings are properly commenced within the jurisdiction and served on an anchor defendant (either in or outside Hong Kong). 

(2)  determining whether the proposed defendant is a “necessary” or “proper” party thereto.

92.  When assessing the last of the questions identified in paragraph 85 above, normal forum non conveniens principles will apply. Without setting those principles out in detail, the burden under RHC Order 11 is on the plaintiff in this context (but on the defendant in the context of an application for a stay under RHC Order 12, rule 8), and ultimately the question comes down to which forum has the most real and substantial connection to the action having regard to the issues which may be required to be canvassed at trial.  The court should conduct a balancing exercise, but not simply one of listing out, and adding up, the various factors each way.  The court will, for example, take account of matters such as the international nature of business, location of witnesses, the governing law, language issues, where torts (if relevant) were committed.  There are many and varied factors and I do not attempt to list them all out here.

F.2  Application

(a)  Serious issue to be tried

93.  The 3^rd defendant does not really make any submissions in relation to his proposition that the plaintiff has not established a serious issue to be tried against him other than making a bare assertion to that effect.  The background to the case against the 3^rd defendant is set out in the 1^st affirmation of the plaintiff, which was before the Master when she gave leave to serve out of the jurisdiction.  He identifies in paragraph 4 of that affirmation that the 3^rd defendant would often introduce him to investments, and that the plaintiff would issue the 3^rd defendant with his power of attorney to complete transaction because all documents were usually in Hebrew, which he could not understand.  He set out the nature of the transaction involving Nachushtan, and stated that the deal was negotiated, and signed, by the 3^rd defendant on his behalf.  He also confirmed that he relied upon the 3^rd defendant to advise him as to the risks associated with the transaction.  He confirmed his belief that the 3^rd defendant knew of the trading difficulties of Nachushtan, but did not inform the plaintiff of them.  Had the plaintiff been informed he confirmed that he would not have lent the money.  He confirmed in paragraph 5 that he had been advised that there were real issues between himself and the 1^st, 2^nd, 3^rd and 4^th defendants that he could reasonably ask the court to try.

94.  In the circumstances, I am prepared to accept that the plaintiff has satisfied the 1^st hurdle, and has established that there is a serious issue to be tried as between him and the 3^rd defendant.

(b)  Good arguable case on the gateway

95.  In this regard the 3^rd defendant really makes two points:

(1)  The plaintiff has not established that there is a serious issue to be tried as against the 2^nd defendant;

(2)  The claim against the 2^nd defendant is not brought bona fide.

96.  Insofar as the serious issue to be tried is concerned, the starting point is the general endorsement in the writ.  In the writ (quoted in paragraph 11 above) it is clear that the 2^nd defendant is sued only in his capacity as the guarantor of the Loan.  In that capacity there is said to be breach of contract, negligence, breach of fiduciary duty, collusion or conspiracy to defraud, and breach of professional codes of conduct.  No further particulars are given and it does not at all explain how, as a guarantor of the Loan, the 2^nd defendant either owed any relevant duties or was in breach of them.  The only obvious basis for a claim against the 2^nd defendant would be a claim under the alleged guarantee, or possibly for breach of that alleged guarantee by not paying when called on.

97.  In the affirmation of the plaintiff which explained the factual background, the only relevant references to the 2^nd defendant were:

(1)  At paragraph 4(f) that he was the head of the family (which held the shares in 1^st defendant) and was a controller of the 1^st defendant.

(2)  At paragraph 4(p), without further introduction, that “From the information and/or advice I received from the 1^st, 2^nd and 3^rd defendants on the well being of Nachshtan from time to time, there was no sign of trading or financial difficulty ….” 

(3)  At paragraph 4(t) that “Had I been warned of the trading and/or financial difficulties of Nachushtan and/or its subsidiaries by the 1^st, 2^nd and/or 3^rd defendants at the appropriate times, I would not have invested in the Nachushtan Transaction, let alone extending the repayment of loan by the 1^st defendant in about June 2008 and would have requested the 1^st, 2^nd and 3^rd defendants to sell the shares purchased from Ordal Ltd. and/or taken other steps to recover/secure the loan to the 1^st defendant.  I relied totally on their local knowledge information and advice.”

(4)  At paragraph 4(u) that “At all material times before the liquidation of the Nachushtan group of companies, as no or no sufficient information regarding the true state of the companies was made known to me by the 1^st, 2^nd and/or 3^rd defendants, I did not have the opportunity to take any or any appropriate step to secure or recover the investments in the Nachushtan Transaction when I possibly still could, at least to minimise the loss.”

(5)  At paragraph 5 he then affirmed the advice given to him that 2^nd defendant owed him contractual and tortious duties and that he had a good cause of action against, amongst others the 2^nd defendant which he could reasonably ask the Hong Kong court to try.

98.  Despite having been required by the requisitions of the Master to produce all relevant documents, neither the plaintiff, nor Mr Wong in his 2^nd affidavit, produced a copy of the alleged guarantee agreement.  From the loan agreements that are contained in the bundle there is no reference to the guarantee given by the 2^nd defendant.

99.  In the light of these affirmations, in my view the plaintiff has failed to show that there is a serious issue to be tried as between him and the 2^nd defendant.

100.  The very least that would be required would be either some description of the circumstances in which the alleged guarantee was provided, if it was provided orally, or the production of a copy of the written guarantee agreement.  But there is neither.  There is no allegation contained in either the writ or the affirmations that the guarantee was oral and Mr Wong in his 1^st affidavit refers to the “business contracts signed among the plaintiff, the 1^st, 2^nd and/or 3^rd defendants”.  That would appear to be a reference to contracts including the alleged guarantee but no such document has been produced.  The plaintiff was under an obligation to demonstrate a serious issue to be tried, and in my view mere assertion of a guarantee in such circumstances is not sufficient.

101.  The statement of claim which was served on 11 February 2016 does not improve the plaintiff’s position:

(1)  Paragraph 1(3) asserts that the 2^nd defendant repeatedly provided assurances on the “ability of the 1^st defendant”.  Even assuming that refers to an ability to repay, this does not amount to a guarantee, which is the basis on which the 2^nd defendant was sued in the writ.

(2)  A similar point is made in paragraphs 5, 28, and 33, but again those paragraphs do not set out any details of any guarantee given by the 2^nd defendant.

(3)  At paragraph 35 there is a bare assertion of breach of contract, negligence, breach of fiduciary duty and breach of professional code of conduct by the 2^nd defendant.  Again, no details are given as to the nature of the contract of guarantee (or how it was formed) or the basis on which the duties alleged were owed to the plaintiff.  In the context of the wider duties, it must be recognised that the 2^nd defendant was a counterparty under the alleged guarantee, and was the controller of the counterparty under the loan agreements.  It is not at all clear how it is alleged by the plaintiff that such a counterparty owed duties of care, and fiduciary duties to the plaintiff in the consummation, or execution, of the very transactions to which he was a counterparty.

(4)  Paragraph 35 goes on to particularise the breaches alleged.  None of the particulars take the matter any further, and in reality they are not particulars, but merely bare assertions.

102.  In all of the circumstances, I am satisfied that the plaintiff has not shown a serious issue to be tried in relation to the 2^nd defendant.  Therefore it becomes impossible for the plaintiff to bring the 3^rd defendant into the Necessary or Proper Party Gateway when the anchor defendant is the 2^nd defendant.

103.  In my view the further procedural history of the matter confirms that the claim against the 2^nd defendant is not brought on a bona fide basis.  I recognise that this is not necessarily fatal to the application (See point (3) as set out in paragraph 88 above), but it is certainly something that falls into the discretionary mix when assessing, amongst other things, whether the plaintiff has demonstrated a serious issue to be tried as between him and the 2^nd defendant.

104.  Whilst not accepting all of the points made by the 3^rd defendant in this context, I have accepted the following as relevant:

(1)  The fact that having been required by the Master on 5 October 2015 to have an anchor defendant, the 2^nd defendant was very quickly served within the jurisdiction in circumstances where leave had originally been sought to serve him out of the jurisdiction and he has no apparent relationship with Hong Kong.  In this respect it is relevant to note that there is clearly a relationship between the 2^nd defendant and the plaintiff because the history of the Loan suggests the existence of one.

(2)  There is no immediately obvious connection between the claim against the 2^nd defendant as guarantor and the claims against the 3^rd defendant for breach of a duty as advisor or fiduciary.  As a result there would be no apparent reason to wait before suing the 2^nd defendant.  He could have been sued in his alleged capacity as guarantor when the 1^st defendant defaulted on the Loan back in 2008.  However, rather than doing that, apparently the Loan has been extended indefinitely, at the request of the 2^nd defendant. 

(3)  The action against the 1^st and 2^nd defendants has not progressed at all, despite the 2^nd defendant having been served in 2015.  One would have expected some action to have been taken either by the plaintiff or by the 2^nd defendant (consistent with the underlying objective, defendants are now under an obligation to be proactive in the resolution of disputes rather than letting “sleeping dogs lie”).  The fact that it has not is consistent with a proposition that the case against the 2^nd defendant is merely a ruse in an attempt to bring the action into Hong Kong.

(c)  Failure to show that Hong Kong is clearly the appropriate forum

105.  In this context the 3^rd defendant contends that the natural forum for resolution of any dispute between the plaintiff and the 2^nd defendant is Israel and not Hong Kong.  It follows, he says, that as a result Israel is also the natural forum for the resolution of any dispute between the plaintiff and the 3^rd defendant.

106.  Various factors are relied upon.  In summary:

(1)  Both the 2^nd defendant and the 3^rd defendant are Israeli citizens and both reside in Israel.  The 3^rd defendant has no connection to Hong Kong, nor any investments or assets in Hong Kong against which Judgment could be enforced.

(2)  The 2^nd and 3^rd defendants are likely to give evidence in Hebrew.

(3)  The only connection with Hong Kong is that the plaintiff resides here.  But he too has, or had, substantial investments and numerous business ventures in Israel.

(4)  Most, if not all, relevant witnesses are located in Israel.

(5)  Most, if not all, documents are in Hebrew and are located in Israel.  The Loan related to an Israeli Company, and was made in Israel, from an Israeli bank.

107.  As against that, the plaintiff relies upon:

(1)  the plaintiff lives in Hong Kong and has no current connections to Israel;

(2)  the plaintiff sues in both contract and in tort;

(3)  the contract was negotiated and concluded mainly in Hong Kong, and therefore it is impliedly governed by Hong Kong law. This proposition is in fact not correct.  The contracts relied upon are the three loan agreements pursuant to which the Loan was made, and according to the plaintiff’s own case those were negotiated on his behalf by the 3^rd defendant.  All that the evidence says is that the contracts were “negotiated, concluded and all concluded mainly when [the plaintiff] was physically in Hong Kong”.  That is a very different proposition and does not support the suggestion that the contract was negotiated and concluded mainly in Hong Kong; and

(4)  the claims are based upon breaches by the 3^rd defendant of fiduciary duty or negligence that were partly committed in Hong Kong, and partly outside of Hong Kong.  The plaintiff’s loss was incurred in Hong Kong.

108.  I am satisfied that Hong Kong is not clearly the natural forum. The Loan transaction, and all of the underlying companies are all based in Israel and it is fairly clear from the evidence that the entire foundation of the relationship between the plaintiff and the 3^rd defendant involved transactions concerning Israel.  Indeed as the plaintiff himself states in paragraph 4(d) of his 1^st affirmation “I would provide the investment funds for [the 3^rd defendant] to complete the transactions, usually with my power of attorney to him to sign the necessary documents on my behalf, as usually all documents were in a foreign language, e.g. Hebrew, which was beyond my comprehension.”

109.  Whilst it may be that the plaintiff was physically present in Hong Kong during the times when the contract was negotiated, and even advice may have been given to him by the 3^rd defendant whilst the plaintiff was in Hong Kong, that does not make Hong Kong clearly the natural forum.  I have little doubt that Israel is clearly the natural forum for the resolution of this dispute.

F.3  Material non-disclosure

110.  The 3^rd defendant contends that the application for service out is tainted by material non-disclosure because:

(1)  it failed to disclose the Israeli Arbitration and the attempted appeals;

(2)  it failed to disclose that all the Nechushtan documents are in Hebrew;

(3)  Mr Wong’s 1^st affidavit was vague, and was not full and frank; and

(4)  it failed to disclose the breakdown of the relationship in 2007.

111.  As against these propositions the plaintiff suggests that there was no material non-disclosure, and in any event the allegations are to be considered against all the materials now before the court and there is nothing which will demonstrate an oversight of detail that would bar the more or less inevitable re-grant of service out.

112.  In my view the only matter which would justify setting aside service out is the failure to disclose the Israeli Arbitration.  It seems to me that the existence of the arbitration, and its result, are highly relevant to the question of whether Hong Kong is or is not the proper forum for the resolution of this dispute.  The only possible reference to the Israeli Arbitration is in paragraph 5 of Mr Wong’s 1^st affidavit where he says “Since the issue of the writ of summons herein, the plaintiff, both personally or through Israeli lawyers engaged by him, had attempted alternative means of resolution and the use of legal proceedings in Tel Aviv to try resolving his differences with the 1^st, 2^nd, 3^rd and/or 4^th defendants and therefore had instructed my firm not to proceed with these proceedings pending the outcome of the alternative means of resolution or of the legal proceedings in Tel Aviv.”  In my view that is a woefully inadequate disclosure of the nature and effect of the Israeli Arbitration and the ensuing court proceedings.  I am satisfied that it was a material non-disclosure.

113.  Given the importance of that point, and the relevance of the Israeli Arbitration to the proposition that Hong Kong is clearly the most natural forum for the resolution of the dispute, and in the light of the other serious doubts which have been raised and dealt with above, in my view it would be appropriate to set aside service out of the jurisdiction for this reason as well, and it would not be appropriate to make a re-grant of service out.

114.  However, the submission to the jurisdiction by the 3^rd defendant overrides these points.  The fact that I would have set aside service absent a submission is of no assistance to the 3^rd defendant.

G.  THE STAY APPLICATION

115.  The 3^rd defendant maintains his application for a stay on the basis of forum non conveniens even in the event that I was to find that he had submitted to the jurisdiction.  The basis for that position is set out in IMS SA & Others v Capital Oil and Gas Industries Ltd [2016] EWHC 1956 (Comm) per Popplewell J at [27] and [28]:

“ 27. However this is not an application for the same or substantially the same belief as the first jurisdiction challenge. It is well known that in the context of challenges to jurisdiction, reference to the court’s jurisdiction can be a shorthand for two different concepts: one is the court’s jurisdiction to try the claim on its merits; the other is the court’s exercise of its jurisdiction to try the claim (see, for example Hoddinott v Persimmon Homes (Wessex) Ltd [2007] EWCA Civ 1203; [2008] 1 WLR 806 at [28]). Leaving aside cases covered by the Lugano Convention and recast Brussels 1 Regulation, service of process is the foundation of the court’s jurisdiction to entertain a claim in personam, and accordingly the court has such jurisdiction only where the defendant is served, in England or abroad, in the circumstances authorised by, and in the manner prescribed by, statute or statutory order (typically the Civil Procedure Rules): see Dicey Morris and Collins, The Conflict of Laws 15th Ed (2012). Rule 29. Where there has been no such service, the court does not have jurisdiction. Where such jurisdiction has been established by service of process, the court may nevertheless decline to exercise its jurisdiction, for example on grounds of forum non conveniens or lis alibi pendens.

28.  The two types of challenge are logically and juridically separate and distinct. Moreover they typically involve different forms of relief.  Where there has been no valid service necessary to found in personam jurisdiction, the court will set aside service and set aside the claim form.  On the other hand where the challenge is to the exercise of jurisdiction on grounds of forum non conveniens, the appropriate relief is usually a stay of proceedings, which is capable of being lifted, if appropriate, in the light of subsequent events.”

116.  A similar point is made in The Conflict of Laws in Hong Kong (3^rd edition) at paragraph 3.009:

“ A party may be precluded from objecting to the Hong Kong court’s jurisdiction by an agreement or conduct deemed to amount to a voluntary submission to that jurisdiction. The submission may be partial (preventing the submitting party from challenging the existence of jurisdiction, whilst not barring a challenge to its exercise) or complete (precluding the questioning of both the existence and exercise of jurisdiction);”

117.  Given the nature of the submission to the jurisdiction that I have found occurred, I cannot see that the submission to the jurisdiction is anything other than a submission both to the jurisdiction itself and the exercise by the court of that jurisdiction.  Mr Burns contends that the reservations of rights that he has referred to, and in particular those set out in paragraph 78 above, have the effect of rendering the submission only a partial submission and not a complete submission to the exercise of the jurisdiction as well.  For the reasons that I have identified in paragraphs 79 – 83 above I do not agree.  In my view the submission is a complete submission and includes a submission to the exercise of the jurisdiction as well.

118.  In those circumstances, irrespective of what might otherwise be the merits of an application to stay made under the RHC Order 12, rule 8, I do not believe that it is open to me to grant a stay under the rules.

119.  The final question is whether there remains any inherent jurisdiction to grant a stay that might be exercised irrespective of the fact that an application does not fall within the provisions of RHC Order 12, rule 8(2).  Mr Barlow suggests that there is no such inherent jurisdiction (because RHC Order 12, rule 8(2) constitutes a complete code) but Mr Burns relies upon the inherent jurisdiction.

120.  This question was raised in the Privy Council sitting on appeal from the BVI in Texan Management Ltd v Pacific Electric Wire & Cable Co Ltd [2009] UKPC 46.  That case concerned the BVI Civil Procedure Rules, but the principles discussed are equally applicable to the RHC in Hong Kong given the wording of RHC Order 12, rules 8(2) and (2A) (which was introduced in Hong Kong in 2008 after the civil justice reforms), which now provides expressly for challenges to the exercise of the jurisdiction (ie a stay on the grounds of forum non conveniens).

121.  Having analysed the position under the EC CPR (Eastern Caribbean Civil Practice Rules) between paragraphs 58 and 76 the court in Texan Management summarised the position as follows:

“ To summarise, the overall position is this: (1) if at the time the proceedings are first served, there are circumstances which would justify a stay, the application should be made promptly under EC CPR r.9.7 / English CPR Part 11; (2) any failure to comply strictly with time-limits may be dealt with by an extension of the time-limits, and any formal defect in the application may be cured by the court; (3) if circumstances arise subsequently which would justify an application for a stay, the application would be made under the inherent jurisdiction or EC CPR r.26.2(q) / English CPR r.3.1(2)(f).”

122.  Hence, there remains an inherent jurisdiction to stay proceedings on the grounds of forum non conveniens, but it would normally only be exercised if circumstances arise subsequent to the time when RHC Order 12, rule 8(2) would otherwise allow an application under that rule.  To reach any different conclusion would be to allow the inherent jurisdiction to circumvent the express requirements of the rules and that would be inappropriate.

123.  In the context of this case it seems to me that the relevant time to make the assessment is the time of the submission to the jurisdiction. By submitting to the jurisdiction the 3^rd defendant has effectively debarred himself from successfully applying under RHC Order 12 rule 8.  Therefore he is only entitled to apply under the inherent jurisdiction in the event that something has occurred since the date of his submission to the jurisdiction which would itself justify a stay. 

124.  Nothing of that sort has happened in this case and therefore it is not appropriate to exercise the inherent jurisdiction of the court.

H.  CONCLUSIONS

125.  In all the circumstances:

(1)  I dismiss the 3^rd defendant’s appeal against the decision of the Master.

(2)  I decline to set aside service of the writ of summons out of the jurisdiction.

(3)  I dismiss the application for a stay on the grounds of forum non conveniens.

I.  COSTS

126.  I order on a nisi basis that the 3^rd defendant is to pay the costs of the plaintiff to be taxed if not agreed on a standard basis. 

127.  If the parties wish to vary this order they should make written submissions within 7 days of handing down of this judgment. The other party will then have 7 days to reply and I shall make a final decision on costs based upon those submissions.