AMADEAUS INVESTMENT LTD v. DR LIN KAO KUN

HCA 2379/2015

[2018] HKCFI 2343

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2379 OF 2015

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DECISION

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The Application

1.  This is the hearing of the application dated 9 November 2017 by the Defendant for, inter alia that:-

(i)   Order of Master Chow made on 4 October 2016 for renewal of the writ of summons be set aside and service of the said writ on the Defendant be set aside;

(ii)   This action be dismissed.

Background

2.  It is not in dispute that on 14 October 2015, Plaintiff issued the writ and claimed from the Defendant repayment of loan of US$2.2 million under a loan agreement dated 16 January 2009. 

3.  According to the Plaintiff, the loan became repayable since 15 October 2009.  The writ was therefore issued the date before the claim became statute barred.

4.  No actual attempt to serve the writ was made by the Plaintiff prior to the expiry of the writ.

5.  On 27 September 2016, i.e. before the writ expired on 13 October 2016, Plaintiff made an ex parte application to extend the validity of the writ.

6.  On 4 October 2016, Master Chow made the order and extended validity of the writ.

Applicable legal principles

7.  It is established legal principle that extending the validity of a writ entails a 2-stage process:-

(i) At stage one, a Plaintiff mush show “matter which could, potentially at least, constitute good reason for extension”.

(ii) At stage two, the court weighs all relevant factors (including the “good reason” established at stage one and the relative hardships to the parties involved) so as to determine whether the writ should be extended as a matter of discretion.  See Pacific Electric Wire & Cable Co Ltd v Hu Hung Chiu [2011] 1HKLRD 1000

8.  The discretion to extend the validity of the writ therefore does not arise until the Plaintiff has established “good reason” for such extension.

9.  The burden rests on the Plaintiff to show “good reason’ to justify the ground for the extension.

10.  Further, there are 3 categories of situation:-

(1) Category 1 were cases in which a plaintiff applied for extension   of a writ within the period of its validity and before the expiry of the limitation period for the causes of action pleaded.

(2) Category 2 were cases in which a plaintiff applied for an extension before expiry of a writ’s validity but after expiry of the operative limitation period of the causes of action pleaded.

(3) Category 3 were cases in which a plaintiff applied for an extension after expiry of the writ and the operative limitation period.

Arguments

11.  In the present case, the application for extension of the writ was made after the claim was time-barred, the present case therefore falls within category 2.

12.  Mr Law, counsel for the Plaintiff quoted Reyes J. in Pacific Electric Wire where Reyes J. quoted the observation of Lord Brandon.  “It would be unlikely for there to be good reason for extension in category 2 case and even less likely for there to be so in category 3 cases”.

13.  He submitted that there is no good reason to justify the extension sought as the Plaintiff could easily have served the writ in accordance with Clause 9.2 of the loan agreement.

14.  Clause 9 reads as follows:

“9. Notice and Service of Proceedings

9.1 Any notice or other communication given or made under or in connection with the matters contemplated by this letter shall be in writing.

9.2 Any such notice or other communication shall be addressed as provided in Clause 9.3… All such notice or other communication from the Lender shall be deemed to have been duly given or made as follows:-

(a) if sent by personal delivery, upon delivery at the address of the relevant party;

(b) if sent by post, two business days after the date of posting;

(c) if sent by facsimile, when dispatched with confirmed electronic answerback.

(3) The addressee, address and facsimile number of each of the Lender and Borrower are:…”

15.  He stressed the Clause 9.2 serves as a contractual mechanism agreed by the parties for the service of proceedings and the service of writ pursuant to the clause would be treated as effective service irrespective of whether the Defendant did receive it.  He said further that the difficulty in effecting service of proceedings on the Defendant did not exist and further the fact that at time of service the Defendant no longer resided at the Shanghai address as stated in the loan agreement really did not matter and could not constitute “good reasons” for not effecting service of proceedings on the Defendant.

16.  In supporting the contention, Mr Law for the Defendant relied on the case of Kenneth Allison Ltd v A.E. Limehouse & Co [1992] 2 AC 105 which was later applied in the Hong Kong case of Axa China Region Insurance Co Ltd v Leong Fong Cheng (unreported) CACV113/2016, which says the court can give effect to an agreed mode of service between the contracting parties and that a contracting party is estopped by the contractual provision from disputing the validity of service.

17.  It is said by Mr Law that so long as the Plaintiff effected service on the Defendant via the mode as provided for in Clause 9.2, that would be deemed effective service even though the proceedings was not brought to the attention or not received by the Defendant as service was effected in accordance with the contractual provision.  Ener-G Holdings Plc v Hormell [2013] 1 All ER (Comm) 1162.

18.  Mr Law submitted further that there is no admissible evidence that the Defendant does not reside at the Shanghai address as the only evidence in this regard comes from the affidavit of Mr Withington whereas he says:-

“In July this year,…… the Related Company (through HWB in Hong Kong and King & Wood Mallesons in Shanghai (‘KWM”) attempted to serve D at the Shanghai Address by hand. However, when the representative from KWM attended the Shanghai Address, he was informed that D was not at the Shanghai Address at the time of service.”

19.  He said the name of the representative who attended the Shanghai address was not identified, this hearsay evidence is inadmissible.  He relied on the case of Leung Kin Fook v Eastern Worldwide Co Ltd [1991] 1 HKC55.

20.  Mr Law further said that as the Defendant was director of several companies, including one listed company, his contact details could easily be located by a simple director index search.

21.  Mr Law further urged the Court to allow the application on the ground that the Plaintiff had failed the duty to make full and frank disclosure both on law and facts in an ex parte application.  East Asia Satellite Television Holding Ltd. V New Cotai LLC [2011]3 HKLRD 134 at 881, Tang CJHC (as he then was) and that they are guilty of material non-disclosure.

22.  He said although the Plaintiff did refer to Clause 9.3 of the loan agreement, the Court had not been referred to clause 9.2 of the loan agreement though the whole agreement was exhibited to the affirmation. No reference was made to clause 9.2 in the body of affidavit which amounted to material non-disclosure.  Standard Chartered Bank v Lai Arthur [1993] 1 HKC 375 at 388, Woo J (as he then was), Tiong King Sing v Sam Boon Peng Yee and another (unreported) HCMP1289/2011 para14(e) per Chung J.

23.  Moreover, Mr Law argues that the Plaintiff had informed the Court that they were unable to serve the arbitration proceedings on the Defendant, yet in fact, the Plaintiff’s solicitors in their capacity as Solicitors for the Plaintiff’s related company Yellow Horizon, did in their letter dated 25 November 2017 argued that they could rely on a similar clause (i.e. Clause 8.2) in a related contract to effect deemed service.  He said in the circumstances, the failure of the Plaintiff to expressly refer the Court to the Clause 9.2 of the loan agreement constituted material non-disclosure.

24.  Mr Law says the Plaintiff never disputed O41, r5(2), that whilst the evidence contains hearsay, the deponent would have to identify the source of information. He said the argument by the Plaintiff that the primary source of information is the “law firm” is flawed.

25.  It is said that it is not clear as to the identity of the person(s) from whom Mr Withington obtained the information.  He relied on the case of Leung Kin Fook where it was held by the Court of Appeal that the deponent should indicate the source of information with reasonable particularity. 

26.  Mr Law also submitted that the Plaintiff has disclosed no explanation as to why no attempt was made to serve the writ within the original period of validity and that the Plaintiff’s reliance on the attempts to serve the arbitration notice at the Shanghai address is inadmissible by reason that as the source of information is not identified and further, even if the same is admissible, the evidence merely says the Defendant was not at the Shanghai address at time of service.  There was nothing to say Shanghai address was not the Defendant’s address or the Defendant was not living there.

27.  Mr Law said that Plaintiff also relied on the attempt to serve the arbitration notice at the Shanghai address via registered post which again is inadmissible hearsay as the source of information is not identified at all and is of no sufficient particularity and further that is not service of the writ and the same is served on behalf of another company, not the Plaintiff.

28.  The Defendant further criticized the Plaintiff for not making earlier request to serve the writ via the mainland judicial authorities under O11, r5A, which according to the Plaintiff is the proper mode of service of proceedings on the Defendant.

29.  Mr Law says clearly the Plaintiff has failed to serve the writ promptly. Battersby v Anglo American Oil Co Ltd [1945] KB 23.  He said the Plaintiff has chosen only to instruct I - On Asia Ltd in September 2016, i.e. 1 month before the expiry of the writ. 

30.  He referred this Court to the case of Sealegend Holdings Ltd v China TaiPing Insurance (HK) Co Ltd [2013] 4 HKLRD 508 where the Court refused to extend a writ when the Plaintiff provided no explanation as to why no steps were taken to serve the writ until 4 days before its expiry nor was there any suggestion of any mistake, inadvertence or unexpected mishap which caused some impediment.  In that case the court concluded that the only reasonable inference in those circumstances was the result of a deliberate choice and no reason, let alone good reason, had been given.

31.  Mr Lee, counsel for the Plaintiff on the other hand submitted that the Defendant was introduced to the Plaintiff by a Mr Chan Chi Kin, a Taiwanese who died in year 2014 and that after the issue of the writ, the Plaintiff was unable to ascertain the whereabouts of the Defendant.

32.  Defendant’s address as stated in the loan agreement is an address in Shanghai.

33.  He submitted that according to affidavits of Plaintiff’s solicitors Mr Withington, filed on 27 September 2016 and 22 February 2017, in July 2016, in arbitration proceedings between the Defendant and Yellow Horizon, a company related to the Plaintiff, two attempts were made to serve the Defendant with arbitration documents at the Shanghai Address.

34.  The first attempt was made by King & Wood Mallesons in Shanghai (“KWM”), instructed by Plaintiff’s present solicitors, then representing Yellow Horizon, to serve Defendant the same by hand at the Shanghai Address.  However, when a KWM representative attended the address, he was informed that the Defendant was not at the address at that time.

35.  This was followed by the second attempt when the Plaintiff’s present solicitors, representing Yellow Horizon, tried to serve documents at the Shanghai Address by registered post. They were returned.

36.  Further, Mr Withington says the Hong Kong International Arbitration Centre was unable to serve documents of the arbitration proceedings on the Defendant at the Shanghai Address by courier.

37.  In reply to the comments by the Defendant on the admissibility of the hearsay evidence in the affidavit of Withington, Mr Lee submitted that it is unnecessary for the deponent of an interlocutory affidavit to identify as the source of his information or belief as original source of information which will be admissible at trial.  If the deponent has learnt of facts with an intermediate source which there is good reason to believe will, itself, have had access to primary sources of information, there is no good reason for precluding the party relying on the affidavit from relying upon that intermediate source as a ground for seeking interlocutory relief.  Deutsche Ruckversicherung AG v Walbrook Insurance Co Ltd [1995] 1 WLR 1017 per Philips J at 1025 D-G.

38.  Here, it is submitted that the primary source of the information comes from the law firm assisting the Plaintiff’s solicitors and the Plaintiff’s solicitors themselves there is no good reason for not being allowed to rely on the information.

39.  It is said that the case of Walbrook has been considered and followed in the Hong Kong cases of Secretary for Justice v Chan Yin Bing [1999] 1HKC269 and Peconic Industrial Development Co Ltd v Chio Ho-cheong [2000] HKCFI 656.

40.  In September 2016, the Plaintiff instructed I-On Asia Limited to locate the Defendant and was advised by I-On Asia that:-

(i)   the Shanghai Address was occupied by a female who did not know the Defendant;

(ii) the Defendant was likely residing in Shenzhen; and

(iii) the Defendant was a director of various Hong Kong      companies.

41.  On 27 September 2016, the Plaintiff made its application for renewal as well as an application for leave to serve out of jurisdiction.

42.  Mr Lee said on 11 November 2016, with the aid of I-On Asia, the Plaintiff was able to track down the Defendant at a meeting in Hong Kong and effect personal service of the extended writ on him.

43.  Mr Lee submitted further that it is unreasonable for the defence to say just because the Plaintiff could know from director index searches that the Defendant holds directorships in companies, including a listed company in Hong Kong and further that the dates of meeting of such listed company could be ascertained from public announcements, that the Plaintiff should have no difficulty in effecting service of the writ on the Defendant.  He explained that in all the searches results, one can only note the name of the Defendant, his redacted passport number and the list of companies in which he holds position.  The only physical address given by the Defendant is the Shanghai address where attempts to serve the arbitration proceedings failed. 

44.  It is said that the Plaintiff should not be expected to check weekly the public announcement of the listed company and further that as the public announcement was only issued 10 days before the meeting. Further, even if the date of such meetings are known, there is no evidence, not even from the defence that the Defendant did in fact attended any of the meetings within the 12 months validity period of the writ.

45.  The Plaintiff also disputed the Defendant’s allegation that the Plaintiff had adopted a “calculated litigation strategy” to delay the service of proceedings on the Defendant.

46.  He said only 3 weeks after the grant of the ex parte order, Plaintiff had effected personal service of the writ on the Defendant.

47.  In response to the allegation that the Plaintiff had failed in his duty to make full and frank disclosure when applying for the ex parte order by not referring the Court directly to Clause 9.2 of the loan agreement, Mr Lee says firstly that clause is not a contractual service agreement clause and further, reference to Clause 9.3 was made by the Plaintiff in the application and as the whole clause was no more than the one page, it is expected that the Court should have read the whole clause including Clause 9.2.

48.  Mr Lee says that clause refers to “any notice or other communication” and “matter contemplated by this letter” as defined in Clause 9.1.  It cannot be said that they are intended to include originating process for claims arising out of the loan agreement.

49.  Mr Lee contended that Clause 9.2 does not provide an agreed mode of service of process in terms contemplated by RHC Order10 rule 3(1) (b) and that there was no ad hoc consensual service of the type considered in Kenneth Allison Ltd v A.E. Limehouse & Co case. 

50.  As to the AXA China Region Insurance Co Ltd case referred to by the Defendant, he submitted that the case was not a contractual service case but was concerned with substituted service of a notice of appeal in extant proceedings.

51.  It is also said by Mr Lee that the clause in the case of Ener-G Holdings plc was clearly a contractual service agreement applicable to service of writ.

52.  Mr Lee further argued that even if Clause 9.2 was a contractual service agreement applicable to service of writ in Mainland China, which it is not, the clause would be inconsistent with Agreement for Mutual Service of Judicial Documents in Civil and Commercial Proceedings between Mainland and Hong Kong Courts and RHC Order 11 rule 5A.  He said should the Plaintiff serve the writ on the Defendant simply by leaving the writ documents at the Shanghai address, the Defendant would challenge such service out of jurisdiction as being without leave and in contravention of the Arrangement and RHC Order 11 rule 5A(1).

53.  Mr Lee says in the event that the Court finds there is material non-disclosure, the same is not deliberate but innocent and the ex parte order should not be set aside on that basis.  Brink’s Mat Ltd v Elcombe [1988] 1WLR 1350.

54.  The Plaintiff says had they thought valid service on the Defendant could be effected by simply leaving the writ at Shanghai address, they would not have to apply for leave to serve outside jurisdiction or for extension of the validity of the Writ.

55.  Mr Lee further says the balance of convenience favours the Plaintiff.  The Plaintiff will be left with no recourse should the ex parte order was set aside and action dismissed.  In this case, the writ was personally served on the Defendant few weeks after the grant of the ex parte order and the original expiry of the writ.

56.  He asks this Court to dismiss the application of the Defendant with costs to the plaintiff.

Discussion

57.  The Law is settled that in entertaining the ex parte application, the first step is to ascertain if there is “good reason” shown by the Plaintiff.

58.  It is a fact that the Plaintiff did not attempt to serve the writ on the Defendant prior to the application.

59.  Explanation was given by the Plaintiff via the affidavits of Mr Withington.

60.  This Court agrees with Mr Lee for the Plaintiff that the explanation of the Plaintiff in relying on evidence concerning the failed attempts to serve the arbitration documents on the Defendant at the Shanghai address by hand delivery and by registered mail is admissible for this purpose and that O41 r5(2) does not operate to exclude such evidence.

61.  It is noted that the Plaintiff’s solicitors in this case was in fact solicitors for Plaintiff’s related company, Yellow Horizon in the arbitration proceedings and that KWM in Shanghai was assisting Plaintiff’s solicitors to effect hand delivery of the arbitration documents on the Defendant in Shanghai.

62.  As for the arbitration documents sent to the Defendant via registered mail, the same was actually sent by the Plaintiff’s solicitors here, though then as solicitors for Yellow Horizon and returned. 

63.  Based on the above information, it is reasonable for the Plaintiff solicitors to suspect that the writ could not be validly served on the Defendant at the Shanghai address even through the Mainland judicial authorities.

64.  The Court also does not accept the submission by the Defendant that from the interpretation of wordings in Clause 9, Clause 9.2 of the loan agreement is a contractual service agreement clause and that the same provides an agreed mode of service of originating process as contemplated or consistent with Order 11 rules 5A and arrangement for mutual service of judicial documents in China and criminal and proceedings between the Mainland and Hong Kong Courts.  This Court accepts submission of Mr Lee of the Plaintiff in this regard.

65.  Since Clause 9.2 is not a contractual agreement clause, the fact that the Plaintiff has failed to refer the Court to such clause does not amount to material non-disclosure.

66.  In this case, the Plaintiff has made an application for leave to serve outside Hong Kong and the ex parte application for extension of writ 3 weeks before the expiry of the writ and has within 1 month after the expiry of the writ served the writ personally. This does not support the “intentional delay litigation strategy”.

67.  It is a fact, irrespective of whether the Defendant was actually evading service of documents on him at the Shanghai address, it is not disputed that that documents sent to the Shanghai address by mail was returned and Defendant was not found at the address.  Further, visitor to the premises was informed by occupant of the premises that she did not know the Defendant.

68.  Hence, on the evidence before this Court, including the failed attempts and the investigation results by I-On Asia, it appears that even if the Plaintiff had made the attempts to service the writ within the validity period at the Shanghai address, these attempts would likely be unsuccessful.

69.  Whilst the Plaintiff is expected to promptly serve the writ on the Defendant.  It is also not to be expected of the Plaintiff to serve the writ on the Defendant by regularly checking the public announcement of listed companies of which the Defendant was a director or other possible avenues to note the date and place of such board meetings and to attempt to serve on the Defendant on each of these occasions without knowing if the Defendant is going to attend these meetings.

70.  This Court does not find the fact that Plaintiff had not attempted to serve the writ on the Defendant before expiry, in the circumstances of this case, a deliberate choice.

71.  There is perceived great difficulty in locating the Defendant and serving the writ on him, following the applicable rules for service of writs.

72.  It is true that despite the explanation given, it would be better practice for Plaintiff’s solicitors, to have make earlier application for leave to serve the writ outside Hong Kong and also in fact attempted service of the writ on the Defendant irrespective.

73.  Nevertheless, this Court, considering all the circumstance of this case, still find “good reason” shown by the Plaintiff.

74.  Now, come to the second stage of the process of determining whether the Court should exercise its discretion to extend a Writ.

75.  Firstly, this is a Category 2 case.

76.  The writ was issued the date before the claim against the Defendant became time barred. Had the writ not been extended, the Defendant need not defend the present claim and the Plaintiff would have lost his right to any recourse.

77.  Secondly, the Plaintiff had effected personal service of the writ on the Defendant within one month after the expiry of the original 12 months validity period of the Writ.

78.  Thirdly, this is the first application for extension of the validity of the writ.  As said, whilst it is not known reasons for the failed attempts to serve the Defendant the arbitration notice at the Shanghai address, it is a fact that the Defendant did not explain why the occupant of the Shanghai address says she did not know the Defendant or why the arbitration papers sent to the Shanghai address addressed to him were returned through the post.  The contention that the Defendant did not live at the Shanghai address appears true.

79.  Considering all circumstances aforesaid including those considered by this Court on the ‘good reason’ issue and balancing hardship to the parties, this Court finds it appropriate for Master Chow to exercise its discretion to extend the Writ.

80.  The application of the Defendant is therefore dismissed.

81.  As costs normally follow the event, this Court now makes an Order nisi that the Defendant shall pay Plaintiff costs of the application, the same to be summarily assessed.

82.  Plaintiff shall lodge with Court and serve the Statement of Costs on the Defendant within 14 days from the date hereof and Defendant shall make comments including list of objections thereto within 14 days thereafter.

83.  Unless otherwise directed, summary assessment will be dealt with on paper.