BANK OF CHINA (HONG KONG) LTD. v. CHOW TAT WAH AND OTHERS

HCA 11324/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11324 OF 1999

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D E C I S I O N

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1. This is an application taken out by the plaintiff bank on 8 February 2000 under Order 88 rule 6 of the Rules of the High Court, for leave to enter judgment against the 1st defendant in that he had failed to give notice of intention to defend in respect of the writ of summons issued on 14 July 1999 and served on him on 11 November 1999. Default judgment had been entered by the plaintiff against the 2nd, 3rd and 4th defendants (who are the sisters of the 1st defendant) on 22 September 1999. It would appear that no summons under Order 88 rule 6 was taken out for this purpose. I am not, however, concerned with the other defendants in this application and I say no more about them.

2. By an order dated 15 December 2000, this application was adjourned by a Master to a bilingual judge in chambers. When the matter first came before me for argument on 3 May 2001, I adjourned the hearing to a date to be fixed and gave directions for the parties to file further evidence. The plaintiff has filed a total of nine affirmations in support of this application. The 1st defendant, who is acting throughout in person, has filed five affirmations in English and Chinese, the last of them on the day before the hearing without leave of the court. The plaintiff has not opposed the late affirmation, and, again without the opposition of the plaintiff, I have allowed the 1st defendant to produce four additional documents at the outset of the hearing, without the need of filing a further affirmation for this purpose.

3. On the affidavit evidence filed by both sides, the issues I would need to resolve in this application would appear to be as follows:

(1) whether the Hong Kong courts would have jurisdiction to hear this action;

(2) if so, whether the action should be stayed on the ground of forum non conveniens or under the jurisdiction clause being clause 26 in the Mortgage Loan Contract made in December 1996 between the four defendants as the borrower and mortgagor, the Shanghai branch of the plaintiff as the lender and mortgagee and the Shanghai Lucky Target Development Co. Ltd. as the vendor ("the Selling Institute"); and

(3) whether the plaintiff, which is the head office in Hong Kong, is the proper party to sue in that the Mortgage Loan Contract was entered into by its Shanghai branch.

4. It is the 1st defendant's contention that the courts of the People's Republic of China should have exclusive jurisdiction in this dispute in view of various statutory provisions in the PRC because the dispute relates to an immovable property in Shanghai, being the property mortgaged to the Shanghai branch under the Mortgage Loan Contract. The plaintiff disagrees that the dispute relates to immovable property as it is only seeking a money judgment in the mortgage action. The parties have adduced expert evidence on Chinese law regarding jurisdiction over the dispute to support their rival contentions. In the end, I do not find it necessary to go into much of the arguments advanced on the law to be applied in deciding the question of jurisdiction of the court, the construction of the jurisdiction clause, forum non conveniens, or deal with the evidence filed in respect of the 1st defendant's allegations of wrongdoing on the part of the Selling Institute and the Shanghai branch, in view of the query I raised with Mr Chan Chung, who appeared for the plaintiff, regarding service of the writ on the 1st defendant.

Service of the writ

5. Jurisdiction of the Hong Kong courts over the 1st defendant is founded on the proper service of the writ on him. It is important to ascertain first whether the service of the writ on the 1st defendant was regular and proper.

6. The 1st defendant is at all material times a naturalised American citizen. In the Mortgage Loan Contract, it was stated that he held a Hong Kong identity card and that the "correspondence address" of all four defendants was given as No. 27 to 29 Wellington Street, Yuen Yick Building 8th floor, Hong Kong. A copy of his identity card was attached to the contract and this was issued on 24 October 1989. It was provided in clause 25(8) that where there is change of the correspondence address, the mortgagor should immediately notify the mortgagee. On the basis of the above matters, and as there was no notification by the 1st defendant of change in the correspondence address, the writ was issued giving the address in Yuen Yick Building as the address of all four defendants.

7. The process server of the plaintiff's solicitors attempted to effect personal service of the writ on the 1st defendant. He had visited the address in Yuen Yick Building, the only address of the defendants in Hong Kong known to the plaintiff, on 20 July 1999 and 1 September 1999 and found the premises closed. On 4 October 1999, he visited the premises and made enquiries of the 1st defendant with a female working there and was told that he was not in the office. An appointment letter was left in the premises. When he visited the premises on 8 October 1999, he again found the premises closed.

8. The plaintiff's solicitors then applied for an order for substituted service. In an affidavit of the process server filed on 28 October 1999 in support of that application, he stated that he believed that "to the best knowledge of the plaintiff, the 1st defendant is within the jurisdiction and is believed to be so."

9. On 2 November 1999, a Master made an order for substituted service of the writ on the 1st defendant and ordered that it was to be served by prepaid ordinary post to the last known address of the 1st defendant at Yuen Yick Building and by advertising a notice of these proceedings in a Chinese newspaper in Hong Kong. That order was complied with by the plaintiff's solicitors on 11 November 1999 and the process server affirmed on 30 November 1999 that the writ served by post had not been returned by the Post Office.

10. Was the 1st defendant within the jurisdiction at the time the writ was served on him? It is clearly established that if service is to be effected under Order 10 rule 1(2), i.e. by sending a copy of the writ by registered post at the defendant's usual or last known address or by inserting through the letter box, the defendant must be "within the jurisdiction" in that he has to be physically within the jurisdiction at the time of service (Chu Kam Lun v. Yap Lisa Susanto [1999] 3 HKC 378 at 382; Yongheng Nevada International Co. Ltd. v. Chan Mau Tak [2000] 2 HKC 584 at 587). The application for substituted service was made in this instance on the basis that the 1st defendant was known and believed to be within the jurisdiction. If it is established that the 1st defendant was not physically present in Hong Kong contrary to the sworn evidence in support of the application and when service was effected pursuant to the order, the order for substituted service was irregular and the service pursuant to that order was irregular.

11. In the last affirmation of the 1st defendant, he has produced his US passport showing that he arrived in Hong Kong on 6 July 1999 and departed on 8 July 1999. The next relevant entry in Hong Kong was 23 December 1999 and he left on 27 December 1999. In view of this evidence, the plaintiff does not dispute that the 1st defendant was not within the jurisdiction at the material time in October and November 1999 and that the service of the writ on the 1st defendant was irregular. That being the case, the plaintiff would have to seek leave of the court under Order 11 rule 1(1) to serve the writ on the 1st defendant out of the jurisdiction.

12. Mr Chan seeks to rely on Order 2 rule 1 which gives the court the power to cure irregularities consisting of failure to comply with the Rules of the High Court. In answer to my question which of the grounds in Order 11 rule 1(1) the plaintiff would have relied on, Mr Chan informed me that the only ground the plaintiff could have relied on is Order 11 rule 1(1)(a), i.e. that "relief is sought against a person ... ordinarily resident within the jurisdiction".

The discretion to correct irregularities

13. I was referred by Mr Chan to paragraph 2/1/2 of the Hong Kong Civil Procedure 2002, Vol. 1 containing the statement that "defective service of proceedings, however gross the defect, and even a total failure to serve, where the existence of the proceedings is nevertheless known to the defendant, is an irregularity which can be cured by the court by the exercise of the discretion under O.2, r. 1." The case of Golden Ocean Assurance Ltd and World Mariner Shipping SA v. Martin, The Goldean Mariner [1990] 2 Lloyd's Rep. 215 was cited in the commentary in support of that statement. The facts in that case were very different. The plaintiff there had commenced proceedings against 46 defendants in 26 different jurisdictions. All 46 defendants appeared in the title to the writ and beneath the title appeared the individual name and address of each of the defendants to be served. Unfortunately, due to the error of the process server, each of the writs was served on the wrong defendant. Thus the writ addressed to the 9th defendant was served on the 16th defendant and the writ addressed to the 16th defendant was served on the 18th defendant. However, it was not in dispute that the existence of the proceedings did come to the notice of those defendants who had applied to set aside the service of the writ for irregularity, as they had all got a copy of the writ, they were not in any way misled as to the plaintiff's intention to sue them, and they had reacted promptly by putting the matter in the hands of their solicitors who took the point on defective service of the writ. In those circumstances, the English Court of Appeal, by a majority, held that the discretion to cure irregularity under Order 2 rule 1 should be exercised in the plaintiff's favour.

14. More to the point is the case of Leal v. Dunlop Bio-Processes International Ltd. [1984] 1 WLR 874 which counsel did not refer to but is cited in the earlier part of the commentary in paragraph 2/1/2 of the Hong Kong Civil Procedure. It was held by the English Court of Appeal in that case that on the true construction of Order 2 rule 1, the wording would be wide enough to give the court jurisdiction by giving retroactive leave for a writ to be served out of the jurisdiction where a plaintiff had purported to serve a writ out of jurisdiction without leave. The members of the court were unanimous in stating that this discretion should be exercised with great caution in this kind of situation:

"The mistake which required correction was serious. ... the procedure for which Order 11 provides is an exceptional enlargement of our courts' jurisdiction: see, e.g. Tyne Improvement Commissioners v. Armement Anversois S.A. (The Brabo) [1949] AC 326, 338, per Lord Porter. The court's restraining hand is an important restriction on the misuse of the procedure, and rule 4(2) underlines its importance. ... Purporting to by-pass the restriction, even by accident, was what Dunn LJ in Bernstein v. Jackson [1982] 1 WLR 1082, 1089, called 'such a fundamental defect in the proceedings that the judge should not have exercised his discretion to make an order under ... Ord. 2, r. 1.''' (per Stephenson LJ, at 882A to C)

"Nevertheless I hope and expect that it will only be in the exceptional case that the court will validate after the event the purported service in a foreign country without leave of process issued by an English court." (per May LJ, at 882G)

"... I would specifically express my agreement with May LJ's view that only in the exceptional case should the court, in the exercise of the discretion which we have held to exist, validate, after the event, the purported service in a foreign country without leave of process issued by an English court. In most cases breaches of the requirements of Ord. 6, r. 7 or, or Ord. 11, r. 1, relating to the leave of the court, are not in my opinion likely to be breaches which can be lightly disregarded." (per Slade LJ, at 885E)

15. Leal v. Dunlop Bio-Processes Ltd. was applied by the English Court of Appeal in Camera Care Ltd. v. Victor Hasselblad Aktiebolag [1986] 1 F.T.L.R. 348 and Sir Roger Ormrod had this to say at 353:

"...service of process out of the jurisdiction is an unusual assertion by this court of an extra-territorial jurisdiction which could have international repercussions, and so is carefully controlled by the Rules of Court. It is consequently very important to ensure compliance with the rules. So, irregularities should be cured only in exceptional cases."

16. However, in two subsequent decisions of the English Court of Appeal, some of the judges have expressed a different view and stated that the criterion of "exceptional case" to cure an irregularity where service out of jurisdiction under Order 11 rule 1 is concerned is far too stringent and that the test of "good cause" or "good reason" would be the appropriate criterion to justify retroactive validation (The Goldean Mariner, supra. at 225 to 226, per Sir John Megaw; Kuwait Oil Tanker Co. SAK v. Al Bader [1997] 1 WLR 1410 at 1418 to 1419, per Staughton LJ, with whose judgment the other members of the court agreed).

17. However that may be, I do not doubt that the discretion to cure irregularity should be exercised with caution where service out of the jurisdiction is concerned and any prejudice that might have been caused to the defendant is a material consideration.

18. In the present case, unlike The Goldean Mariner, the 1st defendant was not aware of the proceedings when the writ was served pursuant to the order for substituted service. I accept that the plaintiff's solicitors had proceeded to effect service on the Hong Kong address on the basis of the correspondence address provided by the defendants in the Mortgage Loan Contract and that no notification was given by the 1st defendant of any change of address. However, the process server had paid several visits to that office address on three occasions in July, September and October 1999 and found that the premises were closed on each occasion. According to the 1st defendant, he was in negotiation with various officers of the Shanghai branch either directly or through his attorney in Shanghai in 1998, 1999 and 2000. The plaintiff has not disputed in its affirmations that there was contact with the 1st defendant although it is denied that there was any agreement reached as regards the surrender of the mortgaged property. However, no enquiries were apparently made by the plaintiff's solicitors with the officers of the Shanghai branch regarding the means of contact with the 1st defendant for the purpose of effecting service of the writ on him.

19. More importantly, I am not satisfied that the plaintiff has established that the 1st defendant is "ordinarily resident within the jurisdiction", that being the only ground the plaintiff is able to rely on to seek leave to serve the writ out of jurisdiction, as indicated by Mr Chan.

20. I was referred to the decision of the House of Lords in Levene v. Commissioner of Inland Revenue [1928] AC 217 for elucidation on the phrase "ordinarily resident". I bear in mind that a person may reside in more than one place and that the phrase is contrasted with special or occasional or casual residence. It is apparent from the 1st defendant's passport that there is no regular pattern of his coming to Hong Kong and he did not stay for any considerable period when he was here. He claims to be "ordinarily resident" in South Pasedena, California, where his family resides. Although he holds a Hong Kong identity card, he left Hong Kong in December 1974 when he immigrated to the United States, taking up a job and a residence in Los Angeles. He became a naturalised American citizen in July 1980 and set up a company trading in chemical products in Houston, Texas in April 1981. He had only suspended the business of this company in 1999. He produced a bundle of his tax returns in the United States for various years from 1983 to 1999, his property tax statement in the United States for 2000, letters from various banks in the United States regarding his credit standing and his driving licence in that country. Apart from having an interest in a company in Hong Kong known as Amtex Chemical & Products Ltd. ("Amtex"), he has also set up businesses in Guangzhou and Taipei.

21. Amtex was established in Hong Kong in October 1985. Its business was to act as a trading agent for the plastic products of the 1st defendant's company in Houston. The day to day operations were managed by the staff in Hong Kong and the 1st defendant had visited two or three times a year, staying in hotels during his visits. The registered office of Amtex was and is the address in Yuen Yick Building. In 1992, the 1st defendant resigned as a director of Amtex and he was re-appointed in 1995.

22. The plaintiff has made much of the fact that in the annual returns of Amtex filed with the Companies Registry, whilst the 1st defendant's address from 1985 to 1992 was stated to be an address in the United States, from 1995 onwards up to the last available return in August 1999, his address was stated to be the address in Yuen Yick Building. The 1st defendant explained that the address was given as his business address and the annual returns were submitted by the accountants of the company.

23. I do not propose to give the details of certain property transactions of the 1st defendant in Hong Kong in 1993 and 1994 for which he has given an explanation.

24. I have no reason to doubt the evidence adduced by the 1st defendant in this respect. I am not satisfied that the plaintiff has established that the 1st defendant has been ordinarily resident in Hong Kong so that leave may be granted for the writ to be served out of jurisdiction. That being my conclusion, it is not necessary for me to consider the question if there is another forum that is distinctly more appropriate for the trial of this action.

25. For the above reasons, I decline to exercise my discretion to cure the irregularity in the service of the writ.

Orders

26. I dismiss the plaintiff's application to enter judgment against the 1st defendant under Order 88 rule 6. I set aside the service of the writ against the 1st defendant due to irregularity. I make an order nisi that the 1st defendant is to have the costs of this application and of the proceedings, to be taxed if not agreed.