XCHRX GERALD LEON MURDOCK v. DRESSER-RAND SERVICES SARL

HCA 573/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 573 OF 2001

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D E C I S I O N

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Introduction

1. This is an appeal by the Plaintiff against the order of the Master that the proceedings herein have not been duly served upon the Defendant. The Plaintiff alleges that he was employed by the Defendant, a company incorporated in Switzerland, with a place of business in Hong Kong; and the Defendant is part of the Dresser-Rand group of companies, incorporated in the USA. He further alleges that his employment was terminated by the Defendant on 31 December 2000. On 18 December 2000, he filed a claim with the Labour Tribunal against the Defendant for damages for breach of employment contract. The addresses of the Defendant as stated by him on the claim form are (1) an office address at Central Plaza, and (2) the office address of the Defendant's solicitors in Cheung Kong Centre.

2. On 16 January 2001, the Plaintiff and a Ms Jong, purportedly representing the Defendant, appeared before a Presiding Officer of the Labour Tribunal. Ms Jong is an employee of Dresser-Rand SEA (Private) Limited, a member of the Dresser-Rand group of companies, but not an officer or servant of the Defendant. The Presiding Officer rightly took the view that Ms Jong had no right of audience before the Tribunal but also very properly took note of her objections to the Plaintiff's claim. Ms Jong's objection was that the Labour Tribunal has no jurisdiction over the matter in dispute. At the conclusion of that hearing, the Presiding Officer transferred the entire claim to the Court of First Instance.

3. Upon transfer to the Court of First Instance, the Master gave the usual direction for filing and serving a formal statement of claim and defence. The Plaintiff filed his statement of claim on 9 April 2001. No defence was filed. On 2 May 2001 the Defendant applied under Order 12 rule 8 to have the jurisdictional question determined and successfully obtained an order from the Master dismissing the Plaintiff's action with costs on the ground that the proceedings have not been duly served upon the Defendant.

Whether RHC Order 12 rule 8 applicable to proceedings transferred to the Court of First Instance from the Labour Tribunal

4. A preliminary point taken by Mr Coleman for the Plaintiff is that the proceedings were commenced in the Labour Tribunal. As a result, the original service of process which brought the Defendant before the Tribunal was effected by the Tribunal and not the Plaintiff. Hence, he argues that this is not a case concerning service of a writ by a plaintiff and the application under RHC Order 12 rule 8 is misconceived.

5. When proceedings are transferred from the Tribunal to the Court of First Instance, Order 79 requires that the matter be set down before a Master who shall make directions for the further conduct of the proceedings. Upon the transfer, the rules and practices of the Court of First Instance must apply to the proceedings in the like manner as they would apply to proceedings commenced in the Court of First Instance, to the extent they are applicable and subject to such modification as are necessary. So far as disputes as to jurisdiction are concerned, Order 12 rule 8, which prescribes a comprehensive procedure for determining such dispute, must be applicable to the transferred proceedings.

6. For the purpose of the transferred proceedings, the claim form which brought the Defendant before the Tribunal may be treated as the writ and the defence filed as acknowledgement of service by the Defendant. Whether the claim form was served by the Tribunal and not the Plaintiff, does not in my view make any difference. Subject to the above modification, Order 12 rule 8 applies to the dispute on jurisdiction in respect of the present proceedings.

Whether challenge to jurisdiction should be by way of appeal against the order to transfer

7. Mr Coleman argues that in declining jurisdiction and transferring the claim to the Court of First Instance, the Labour Tribunal obviously considered it had jurisdiction over the claim but in the exercise of its jurisdiction, decided to decline jurisdiction under section 10 of the Labour Tribunal Ordinance. He argues that section 10 deals with "declining" jurisdiction, on the opinion that the claim "should not" be heard and determined by the Tribunal which is not the same as an order that there was no jurisdiction and that the claim could not be heard and determined by the Tribunal because of lack of jurisdiction. He said that service had properly been effected on the Defendant and if the Defendant thought no valid service had been effected, it should have asked the Tribunal for a ruling to that effect. He submits that the Tribunal has heard the parties and if the Defendant is dissatisfied with the order of transfer, it should apply to the Court of First Instance for leave to appeal under section 32 on the ground that it is either erroneous in point of law or outside the jurisdiction of the Labour Tribunal.

8. I am unable to agree with Mr Coleman's interpretation of the word "decline". Section 10(1) of the Labour Tribunal Ordinance provides:

"The tribunal may, at any stage of proceedings, if it is of the opinion that for any reason the claim should not be heard and determined by it, decline jurisdiction."

A tribunal may decline jurisdiction for any reason so long as it is of the opinion that the claim should not be heard and determined by it. In other words, lack of jurisdiction is not the only reason that a tribunal may decline jurisdiction. According to the Oxford Dictionary, "decline" means to say "no" to something. It does not necessarily convey the meaning that a person must have something before he can decline it. In my view, the words "decline jurisdiction" in section 10 simply means to refuse to assume jurisdiction. A tribunal may have jurisdiction, but refuse to assume it, or it may have no jurisdiction and therefore refuse to assume something which it has not. A tribunal may decline jurisdiction in many circumstances in which it obviously has jurisdiction but nevertheless decides not to assume it. For example, if it considers that by reason of the complexity of the claim, whether in terms of legal or factual issues, it would be to the parties' best interest that they should be legally represented. It may decline jurisdiction where there is a counterclaim over which it has no jurisdiction but there are common issues between the claim and counterclaim so that it is undesirable that the issues should be determined by two different courts. A tribunal may also decline jurisdiction if it has doubts whether it has jurisdiction. Thus it may, without coming to a concluded view, exercise its discretion to decline jurisdiction and transfer the claim to another court which has undoubted jurisdiction upon the transfer.

9. In the present case, the Presiding Officer's reason for declining jurisdiction and ordering transfer to the Court of First Instance is for a combination of the above reasons. He held at page 39M-39T:

"... having considered the relevant evidence, I find that there is a doubt as to whether Hong Kong courts would have jurisdiction on the matter; it is a matter that should be properly argued in the higher court. I have further doubt as to whether Hong Kong Law is the proper law to be applied in lieu of any other law, like the US law.

Defendant wants to argue that employment was between the claimant and Dresser-Rand Company in Texas and Texas law should apply. Thirdly defendant does not have any right person in Hong Kong to be the right representative to act in the Labour Tribunal, should Labour Tribunal really have jurisdiction on the matter, which I don't believe is the case. Letting the claim stay at the Labour Tribunal would deprive the defendant of any proper representation to argue the matter fully, which matter involves nearly $5 million. Defendant should be allowed to have proper legal representation to overcome this representative problem. And they are minded to engage lawyers to argue the matter properly in the higher court."

10. For the above reasons, I cannot agree with Mr Coleman that the Presiding Officer has decided that the Tribunal has jurisdiction but nevertheless declined it. In fact, the Presiding Officer has expressed doubts whether Hong Kong court, not only the Labour Tribunal, has jurisdiction. I also disagree with Mr Coleman that the Defendant should nevertheless seek a ruling on the jurisdictional point from the Tribunal first. It is precisely because the Tribunal had a doubt whether it has jurisdiction and thought it best for the matter to be fully argued in another venue which would allow legal representation.

11. As for Mr Coleman's suggestion that the Defendant should appeal against the transfer order, I think it is devoid of logic or merit. If the Defendant's case is that no court in Hong Kong has jurisdiction over the claim, how could it be open to the Defendant to argue on appeal that the Tribunal had jurisdiction but erred in declining it? Furthermore, the Tribunal has unfettered discretion to decline jurisdiction and unfettered discretion to order a transfer. The test for the Tribunal is a subjective one. So long as the Tribunal is of the opinion that for any reason the claim should not be heard and determined by it, it may decline jurisdiction. On appeal, even if the Court of First Instance finds that the Tribunal did have jurisdiction, it is unlikely that the Court of First Instance would interfere with the Tribunal in the exercise of its discretion. Whether the Tribunal has or has no jurisdiction, in my view, the proper course to challenge the jurisdiction is to take the Order 12 rule 8 route upon the transfer, as what the Defendant has done. I disagree with Mr Coleman that by not appealing against the order of transfer,the Defendant is taken to have waived its right to dispute jurisdiction.

12. Mr Coleman argues that when the Defendant filed a defence in the Labour Tribunal, it has submitted to jurisdiction. He also refers to the various correspondence from the Defendant's solicitors which show that at the time of filing its defence, the Defendant had received legal advice. Be that as it may, at the hearing on 16 January 2001,the Defendant raised objection as to the issue of jurisdiction. When the Defendant filed a defence in the Labour Tribunal and protested as to the jurisdiction, it cannot be taken to have submitted to jurisdiction.

13. Though the Defendant was not properly represented at that hearing, the question of jurisdiction had been brought to the knowledge of the Presiding Officer. The Defendant is a foreign company. Even in the technical absence of the Defendant, the Presiding Officer was under a duty to investigate under section 20(3) as to whether the Tribunal had jurisdiction to hear the matter. After hearing the Plaintiff and Ms Jong, probably more as a witness than as the Defendant's representative, the Presiding Officer entertained doubts as to whether the Tribunal had jurisdiction over the matter. It was proper for the Presiding Officer to transfer the proceedings to the Court of First Instance for the issue to be fully and properly argued.

14. Thus, if a tribunal has ruled in favour of jurisdiction and intends to proceed with hearing the matter, the appropriate way to challenge the jurisdictional question would be to appeal against that decision. If a tribunal has ruled in favour of jurisdiction, but nevertheless declines jurisdiction and makes an order for transfer, or if a tribunal, as in the present case, is in doubt as to whether it has jurisdiction and hence orders a transfer, then Order 12 rule 8 route should be taken to determine the dispute in jurisdiction.

Jurisdiction

15. Mr Beresford argues that there is a presumption that unless a contrary indication appears, an enactment is taken not to apply to foreigners and foreign matters outside the territory for which the legislature intends to legislate. The corollary presumption is that an enactment applies to foreigners and foreign matters within its territory. Hence, he submits that before it can be determined whether or not the Labour Tribunal Ordinance applies to the Defendant, it must first be determined whether or not the Defendant was present within the territory of Hong Kong.

16. On the other hand, Mr Coleman submits that an action in the Labour Tribunal is commenced by the filing of a claim with the Registrar: section 11 of the Labour Tribunal Ordinance. The Registrar is under a statutory duty to fix a place and date for hearing of the claim and cause a copy of the claim to be served on the defendant: section 13(1). Section 13(2) provides for the modes of service. Thus, unlike action in the Court of First Instance, service of the claim and notice of hearing is to be effected by the Registrar and not the claimant. The Labour Tribunal is a specialist tribunal with exclusive jurisdiction over employment claims and section 13 of the Labour Tribunal Ordinance specifically provides for service of claims. Hence, Mr Coleman submits, in respect of actions commenced in the Labour Tribunal, the question whether service is valid and effective falls to be determined in accordance with section 13.

17. I think counsel are addressing their minds to different aspects of jurisdiction. "Jurisdiction" connotes the limits which are imposed upon the court's power to hear and determine issues between persons seeking to avail themselves of its process by reference (1) to the subject matter of the issue or (2) to the persons between whom the issue is joined or (3) to the kind of relief sought, or to any combination of these factors. Thus, Mr Beresford is talking about jurisdiction over the person while Mr Coleman is referring to jurisdiction over the subject matter.

18. The Labour Tribunal Ordinance is probably one of the few pieces of legislation which gives the Hong Kong court jurisdiction over certain foreign matters or subject matters not within the territory. Paragraph 1(a) of the Schedule to the Labour Tribunal Ordinance gives the tribunal jurisdiction to determine a claim for a sum of money which arises from the breach of a term of a contract of employment whether for performance in Hong Kong or under a contract to which the Contracts for Employment Outside Hong Kong Ordinance (Cap 78) applies. Thus the Labour Tribunal has jurisdiction over certain contracts of employment for performance out of Hong Kong. But that is beside the point as the issue now is not about where the contract was performed, but whether the Labour Tribunal has jurisdiction over the person of the Defendant.

19. On the issue of jurisdiction over persons, I can have no dispute with Mr Beresford's submission that the jurisdiction of the Hong Kong courts over persons is territorial. In Mercedes-Benz AG v Leiduck [1995] 1 HKC 448 at 457H, Litton JA held:

"The general rule of law is that the jurisdiction of the Hong Kong courts over persons is territorial: see the statement of principle in The Siskina, supra, at 254F. The exceptions to this general rule are to be found in O 11 of the Rules of the Supreme Court. The sub-paras under r 1(1) provide a complete code."

The Plaintiff is not relying on any of the exceptions in Order 11 rule 1, but on the service of the claim form on the last known place of business of the Defendant by the Tribunal. This requires a determination whether the Defendant was present within the territory of Hong Kong when served with the claim form.

20. Thus, where a defendant is a foreigner or a foreign corporation, the question of jurisdiction requires determination of two issues, firstly, whether the Tribunal has jurisdiction over the subject matter in dispute and secondly, whether it has jurisdiction over the person of the Defendant. Service of the claim form in accordance with section 13(2) of the Labour Tribunal Ordinance gives the tribunal jurisdiction over the subject matter in dispute, even if it relates to performance of a contract outside Hong Kong. But that does not necessarily give the tribunal jurisdiction over the person of the defendant who is not physically within the jurisdiction or who does not maintain a presence in the jurisdiction. If the defendant happens to be within the jurisdiction or has a presence in the jurisdiction, then that mode of service would give the tribunal jurisdiction over both the subject matter in dispute and the person of the defendant.

Service under section 13(2) of the Labour Tribunal Ordinance

21. Section 13(2) of the Labour Tribunal Ordinance provides as follows:

"Service of a copy of the claim and of a notice of hearing -

(a) shall be carried out by such person as may be appointed by the registrar for this purpose; and

(b) shall be effected -

(i) by delivering them personally to the defendant;

(ii) by leaving them with some person for him at his last known place of residence or at his place of business;

(iia) by sending them by post addressed to him at his last known place of residence or at his place of business; or

(iii) in such other manner as may be directed by the registrar."

22. Claims filed in the Labour Tribunal are served by post on the defendant's address as provided by the claimant. The Plaintiff provided two addresses of the Defendant to the Labour Tribunal: the Defendant's Central Plaza address and its solicitors' address in Cheung Kong Centre. The Defendant's solicitors have no instruction to accept service. Hence, service on the Cheung Kong address, even if effective, is invalid in law.

23. As for the service on the Central Plaza address, the issue is whether that was the Defendant's last known place of business. The phrase "place of business" is not defined under the Labour Tribunal Ordinance. It must be given the ordinary common sense meaning, i.e. a place where a person carries on any form of trade, commerce, craftsmanship, profession, calling or other activity for the purpose of gain. There is no dispute that the Defendant once operated from the Central Plaza address. It has a Business Registration Certificate. Thus, the Central Plaza address was undoubtedly the Defendant's place of business last known to the Plaintiff. The Defendant claims to have vacated the Central Plaza address. That in my view is immaterial as there is no dispute that the claim has been physically delivered to the Defendant, whether by re-direction from the Central Plaza address or by its solicitors. The crucial fact is that the claim has been served on its last known place of business in accordance with section 13(2) of the Labour Tribunal Ordinance and the Defendant has notice of it. That service was effective to give the Tribunal jurisdiction over the subject matter in dispute.

24. The next issue is whether that service was also effective to give the Tribunal jurisdiction over the person of the Defendant. This in turn depends on whether the Defendant had a presence in Hong Kong at the time of the service of the claim form. At common law, this would require proof that the Defendant either owns or leases its own business premises in Hong Kong, or conducts its business through a resident agent who has authority to contract and bind the defendant. On the facts of the present case, such evidence is wanting. The address of the Defendant is a serviced office without a lease and it has no resident agent in Hong Kong. While the service under section 13 of the Labour Tribunal Ordinance was effective to give jurisdiction to the Tribunal over the subject matter in dispute it was not effective to give the Tribunal jurisdiction over the person of the Defendant.

Service under Part XI of the Companies Ordinance

25. A less onerous mode of service is provided by section 338 of Part XI of the Companies Ordinance (Cap 32), which applies to companies incorporated outside Hong Kong. Service in accordance with that section gives the court jurisdiction over a foreign corporation. Section 338 provides that a process shall be sufficiently served if addressed to any local resident whose name has been delivered to the Registrar of Companies to accept service on behalf of the company or where an overseas company makes default in delivering to the Registrar of Companies the name and address of that person, a document may be served on the company by leaving it at or sending it by post to any place of business established by the company or at which it has had a place of business within the previous three years in Hong Kong. Thus, if service on a foreign corporation pursuant to section 13 of the Labour Tribunal Ordinance also meets the requirement under section 338 of the Companies Ordinance, that service shall be effective to give the Tribunal jurisdiction over both the subject matter and the person of the Defendant.

26. Under this mode of service, the jurisdictional requirement would be met if a defendant has a place of business in Hong Kong. However, "place of business" for the purpose of Part XI has a special meaning as defined in section 341 as follows:

"includes a share transfer or share registration office and any place used for the manufacture or warehousing of any goods, but does not include a place not used by the company to transact any business which creates legal obligations."

The meaning of this phrase has been considered by Patrick Chan J, as he then was, in Elsinct (Asia-Pacific) Ltd v Commercial Bank of Korea Ltd [1994] 3 HKC 365. He held at 373:

"In deciding whether a foreign company's office in Hong Kong can be regarded as a place of business within s 341, I think a broad common sense approach should be adopted. If one is to examine each and every of its activities, it would mean that almost all such offices would fall within the section. For the running of an office inevitably involves transactions such as renting premises, employing staff or acquiring stationery. All these would create legal obligations. For the purpose of s 341, I think it is necessary to consider the office's main activities here in the light of the company's paramount and subsidiary objects and see whether such activities create legal obligations. If they do not, the office is excluded from s 341."

He then went on to hold the defendant's representative office, which was set up for the purpose of promotion or public relations, did not in themselves create any legal obligations between the potential customers in Hong Kong and the defendant. Hence, he held that the representative office was not caught within the meaning of section 341. Mr Coleman, who successfully challenged the court's jurisdiction in that case, would now have to argue on the same principle that the facts of the present case would justify a contrary conclusion.

27. The Defendant is a corporation incorporated with limited liability under the laws of the Canton of Geneva, Switzerland. It has not been registered under Part XI of the Companies Ordinance. It is a member of the Dresser-Rand group of company. It provides liaison and representative services to the Dresser-Rand group of companies. It has made use of accommodation addresses in Hong Kong, including the Central Plaza address. Currently, it is maintaining an address at the Cosmopolitan Business & Convention Centre in Russell Street. This is a serviced office without a lease. Employees of the Defendant use this office when they are in Hong Kong to collect mail and to communicate via email, postal services and phone. There is a general secretarial service there to answer telephones, take messages and type an occasional letter. The Defendant says that no transactional business is conducted from this office.

28. The business of the Defendant is to provide liaison and representative services to the Dresser-Rand group of companies. It rented an office in Central Plaza and also rented accommodation for the Plaintiff in Tregunter. Mr Coleman argues that as the Defendant's name suggests, it is a service company which carries on business by provision of services. It is registered under the Business Registration Ordinance and was issued a Business Registration Certificate. It filed profits tax returns and Employer's Return of Remuneration and Pensions in respect of the Plaintiff. It rented accommodation for the Plaintiff and described itself as the employer of the Plaintiff. It maintains a bank account. Mr Coleman submits that the Defendant's paramount activities are as a service company, renting office space, renting residential accommodation for staff, paying employees and facilitating the necessary liaison between various group entities. Hence, he submits that in the light of these paramount and subsidiary objects, the activities of the Defendant create legal obligations and the Central Plaza address was its place of business.

29. I do not think the fact that the Defendant has a Business Registration Certificate and files profits tax returns conclusive as to whether it has a place of business in Hong Kong within the meaning of section 341 of the Companies Ordinance. It is true that under section 5 of the Business Registration Ordinance (Cap 310) only persons carrying on a business need to make application under that Ordinance for registration of that business. The word "business" for the purpose of that Ordinance, as defined by section 2, means "any form of trade, commerce, craftsmanship, profession, calling or other activity carried on for the purpose of gain and also means a club". It is used in the wide sense covering any form of commercial activity. It is materially different from the definition of "place of business" under section 341 of the Companies Ordinance (see above), which has an inclusive and an exclusive limb. The inclusive limb is wide enough to cover business in the wide sense, but the exclusive limb narrows that meaning to mean business creating legal obligations within the meaning as given to that definition by Elsinct (Asia-Pacific) Ltd v Commercial Bank of Korea Ltd. As for profits tax, it shall be charged on every person carrying on a trade, profession or business in Hong Kong. Similarly, the word "business", is given an inclusive meaning in section 2 of the Inland Revenue Ordinance. It is therefore used in the wide sense and has no bearing on business which creates legal obligations within the meaning of section 341 of the Companies Ordinance.

30. Likewise, the fact that the Defendant filed employer's return for the Plaintiff is not conclusive as to the question whether the Defendant transacts any business which creates legal obligations. Running of an office, inevitably involves employing staff and renting accommodation. These create legal obligations but not the type of legal obligations under section 341. For the same reason, the fact that the Defendant described itself as the Plaintiff's employer in the tenancy agreement in respect of the apartment rented for the Plaintiff is neither here nor there.

31. The real test is to examine the company's paramount and subsidiary objects and see whether the activities carried on create legal obligations in relation to those paramount and subsidiary objects. The Defendant is a service company. Its object is to provide liaison and representative service to the group. Its business is not to provide service generally to the world at large, but only to the Dresser-Rand group. It is just like a secretarial department of a company; but instead of being an integral part of a company serving itself, it is an independent entity serving other independent companies forming the group. Whatever legal obligations it creates while serving the group are towards the group only. It does not provide service outside the group. In my view, in that context, the Defendant does not transact business which creates legal obligations within the meaning of section 341.

32. Apart from the business referred to above, the Plaintiff is unable to offer any evidence of any transactional business carried on by the Defendant at its office in Central Plaza. Accordingly, I find the Defendant's address in Central Plaza was not its place of business in Hong Kong within the meaning of section 341 of the Companies Ordinance. Hence, service at that address did not meet the requirement under section 338 of the Companies Ordinance.

Conclusion

33. I am hence driven to the conclusion that the Defendant did not have a presence in Hong Kong. The service of the claim form at the Defendant's last known place of business at the Central Plaza address was invalid and ineffective to give the Tribunal jurisdiction over the person of the Defendant. Therefore, the proceedings have not been duly served upon the Defendant. In the circumstances, the Court has no jurisdiction over the Defendant in respect of the subject matter of the claim or the relief or remedy sought. Accordingly, I uphold the decision of the Master made on 3 September 2001 and dismiss the appeal with costs against the Plaintiff.