ETHIOPIAN AIRLINES v. JIETONG OVERSEAS TRADE CO LTD AND OTHERS

HCA 837/2022

[2023] HKCFI 1896

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 837 OF 2022

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D E C I S I O N

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1.  By a Notice of Appeal filed on 19 June 2023, the Plaintiff (“P”) lodged an appeal against the ex parte decision made by Master Phoebe Man on 6 June 2023 (“the Master’s Decision”), by which the Master has dismissed P’s ex parte application (“the Application”) for leave to serve the Concurrent Writ of Summons (“the Writ”) out of the jurisdiction on the 2^nd Defendant (“D2”) and the 3^rd Defendant (“D3”).

2.  Upon P’s request, I directed that this appeal be determined on paper without an oral hearing. I have considered the papers and the written submissions by P’s counsel, Mr Edward Alder.

3.  P is seeking leave to serve the Writ out of the jurisdiction by relying upon Order 11 rule 1(1)(c) (“Gateway (c)”).

The facts

4.  The following facts are taken from the Affidavit of Cho Bethia dated 26 April 2023 (“the Supporting Affidavit”), filed by P in support of the Application:

(1)  The 1^st Defendant (“D1”) is a company incorporated in Hong Kong with a registered office in Hong Kong.

(2)  D2 and D3 are companies with addresses in Mainland China.

(3)  On 22 July 2020, a fire erupted in the main deck cargo compartment of P’s Boeing B777-200F aircraft bearing registration ET-ARH (“the Aircraft”) during loading on the ground at Shanghai Pudong International Airport, China, resulting in constructive total loss to the Aircraft, significant cargo damage and consequential commercial losses to P (“the Incident”).

(4)  A final Aircraft Accident Investigation Report dated 30 December 2021 (“CAAC Report”) was prepared by the Civil Aviation Administration of China (“CAAC”). According to the CAAC Report:

(a)  D1 was the consignor and the named shipper of the shipment consigned under the Air Waybill
071-3769 6046 (“the AWB”) issued on behalf of P.

(b)  D2 (with principal place of business in Mainland China) was the freight forwarding company engaged by D1 to handle customs declaration and air transportation of the shipment to be consigned under the AWB.

(c)  D3 was the company responsible for packing the shipment to be consigned under the AWB.

(d)  D1 and D2 appear to be related.

(e)  There were 96 pieces of goods shipped under the AWB, within which were 83 cartons containing 498 sets of disinfection machines, 1 chlorine dioxide detector and 7 cartons of mixed packaging containing, inter alia, 100 bags of chlorine dioxide disinfection tablets.

(f)  The most likely cause of the fire was the spontaneous combustion of the chlorine dioxide disinfection tablets.

(g)  D1 had a duty to, inter alia, properly pack the cargo and check and ensure accurate declaration of the cargo.

(h)  D1 was aware of the nature of the cargo and should have declared the cargo as “dangerous goods”.

(i)  D3 packed part of the shipment.

(j)  The airport authorities carried out a very thorough assessment but have ruled out the involvement of third parties at the airport.

(5)  As a result of the Incident, P has suffered constructive total loss to the Aircraft amounting to at least USD 80 million, loss to cargo resulting in ongoing cargo claims settlements of over USD 500,000, together with consequential losses including storage fees of the Aircraft and cargo wreckage.

5.  In the Supporting Affidavit, the reasons in support of Hong Kong being the appropriate forum for the determination of P’s claim in this case are as follows:

(1)  D1 is the prima facie responsible for the Incident and liable to P. The jurisdiction of the Hong Kong Court over D1 is assured.

(2)  P wishes to proceed against all the Defendants (“Ds”) on one action, and to have one judgment against all Ds for the purpose of execution. Gateway (c) exists for this purpose.

(3)  There is no other suitable jurisdiction. P does not wish to sue in Ethiopia. Mainland Chinese Court does not generally exercise jurisdiction over parties out of the jurisdiction.

(4)  If Ds wish to seek contributions from one another, this can be done in Hong Kong.

(5)  There have not been any foreign proceedings in place.

(6)  P’s claim against D1, D2 and D3 arises out of the same Incident.

(7)  If liability is contested by Ds, the evidence in the case is likely to consist of simply (a) the CAAC report (which has already been published in English and Chinese), (b) business records concerning the shipment, (c) aircraft maintenance and other records in P’s possession of, records created in connection with the Incident, and (d) expert evidence. Regarding expert evidence, chemical sample testing has already been done, and the test results are contained in the CAAC Report. All the documents in this case are in English and/or Chinese. If necessary, P’s staff in Ethiopia can readily travel to Hong Kong to give evidence in English.

(8)  P’s claim against D2 and D3 lies in negligence and/or breach of statutory duty. According to the expert opinion from P’s expert on Mainland Chinese law, if D2 and D3’s liabilities are governed by Mainland Chinese law, P has straightforward causes of action against D2 and D3 under the relevant statute in Mainland Chinese law. While D2 and D3 may seek to raise factual disputes, it is very unlikely that there would be dispute on any legal issue concerning Mainland Chinese law.

(9)  P intends to enforce the judgment obtained in the Hong Kong Court against D2 and D3 in the Mainland. For this purpose, P has in mind that the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region signed between the HKSAR Government and the Supreme People's Court on 18 January 2019 (“the REJ Arrangement”). Unlike the existing arrangement, the REJ Arrangement is not confined to judgments arising from jurisdiction clauses in contracts. The REJ Arrangement may well be in force by the time any judgment is handed down after trial in this action.

6.  By a letter to the Court dated 15 July 2023 (“D3’s Letter”), D3 expressed their view that this Court should have no jurisdiction over the P’s claim against D3 in this letter. The reasons given in support of the objection in the letter are as follows:

(1)  There is no contract between P and D3.

(2)  The Incident occurred in Shanghai.

(3)  D3 has not agreed that the dispute between P and D3 be tried in English. The dispute should be tried in Chinese.

(4)  The law governing the dispute between P and D3 should be Mainland Chinese law.

Master’s Decision

7.  On 6 June 2023, the Master’s Decision was made. The Master is of the view that the requirement that Hong Kong is the forum conveniens is not satisfied.

(1)  The Incident occurred in Shanghai, and thus the loss was incurred in the Mainland.

(2)  The CAAC Report was prepared by an authority in the Mainland.

(3)  According to the expert opinion on Mainland Chinese law obtained by P, the liabilities of D2 and D3 are governed by Mainland Chinese law, and the liabilities of D2 and D3 seem to be straightforward.

(4)  P has admitted that any enforcement against D2 and D3 would be likely to be carried out in the Mainland.

(5)  D3 has already indicated that it would challenge the jurisdiction of the Hong Kong Court.

The principles

8.  An appeal from a master’s decision to a judge in chambers is a de novo hearing. Subject to the restriction in Order 58 rule 1(5), the hearing before me is an actual rehearing as if the application came before me for the first time.[1]

9.  The principles concerning Gateway (c) have been authoritatively set out by the Court of Appeal in Haller AG and Another v Vestey International Group Ltd and Others[2]. In that case, G Lam JA said:

“24. Order 11 rule 1(1)(c) provides that with the leave of the court, a writ may be served out of the jurisdiction if in the action:

‘the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto.’

25. The effect of applying this head may mean that a foreign defendant with no connection to Hong Kong is made a party to legal proceedings here against his will simply because another defendant is being sued here. It has been said that the necessary or proper party head is “anomalous”, in that, in contrast to the other heads, it is not founded upon any territorial connection between the claim and Hong Kong as a jurisdiction: Altimo Holdings and Investment Ltd & ors v Kyrgyz Mobil Tel Ltd & ors [2012] 1 WLR 1804, §73 per Lord Collins. His Lordship has also recently stated in the Court of Final Appeal’s decision of Fong Chak Kwan v Ascentic Ltd & others [2022] HKCFA 12 (footnotes omitted):

‘105. The purpose of the gateways is to set out a list of the situations in which the legislator considers that there may be a sufficient link with Hong Kong to justify a defendant in another country or law district being sued in Hong Kong. In some cases the link may be tenuous. Four examples will suffice. First, the clearest example is Gateway C, which allows service abroad on a person who is a ‘necessary or proper party’ to proceedings in Hong Kong, but this head of jurisdiction is not founded upon any territorial connection between the claim, the subject matter of the relevant action and the jurisdiction of the court: Tyne Improvement Commissioners v Armement Anversois SA (The Brabo); Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd. As Sir Francis Piggott, the Chief Justice of Hong Kong, said more than 100 years ago, the necessary or proper party head ‘throws the net of jurisdiction over a wider area; and the principle of considering the nature of the cause of action which pervades the whole subject, appears here to be ignored’: Piggott, Foreign Judgments and Jurisdiction, vol. 3, p. 238 (1910). …’

26. It has therefore been emphasised that caution must always be exercised in extending jurisdiction over foreign defendants under the necessary or proper party head, and that the court should not grant leave under this head as a matter of course merely because not to do so would mean that more than one set of proceedings would be required: Tyne Improvement Commissioners v Armement Anversois SA (The Brabo) [1949] AC 326, 338-339; Golden Ocean Assurance Ltd v Martin (The Goldean Mariner) [1990] 2 Lloyd’s Rep 215, 222; Dicey, Morris and Collins on The Conflict of Laws (16^th ed. 2022), §11-122.

27. One of the principles reflecting the especial care needed in applying this head is the requirement that there is a real issue to be tried between the plaintiff and the anchor defendant. The principle was stated under the old rule[3] in Ellinger v Guinness, Mahon & Co [1939] 4 All ER 16, 22F, where Morton J said:

‘I do not think it is part of the function of the court, in considering whether an action is ‘properly brought’ against a party within the jurisdiction, to arrive at a conclusion as to whether the plaintiff will or will not succeed against that party. It is enough if the court is satisfied that there is a real issue between the plaintiff and that party which the plaintiff may reasonably ask the court to try.’

28. The principle has since been expressly incorporated into Order 11 rule 4(1)(d), which, albeit framed as an evidential requirement, is in substance declaratory of the existing law (see Altimo Holdings at §65). It provides that an application for leave to serve out must be supported by an affidavit stating:

‘where the application is made under rule 1(1)(c), the grounds for the deponent’s belief that there is between the plaintiff and the person on whom a writ has been served a real issue which the plaintiff may reasonably ask the Court to try.’

29. This requirement is plainly intended to prevent a spurious claim against the anchor defendant being used as a device for bringing in a foreign defendant. In several cases in Hong Kong, Stone J memorably referred to the need to guard against the necessary or proper party head being “creatively utilised” to rely on an existing defendant as a “jurisdictional Trojan Horse”: Inchcape JDH Ltd v Baltrans Exhibition & Removal Ltd & another [1997] HKLRD 1278, 1282B-C; Heliopolis Co Ltd & others v Euroscan Express (HK) Ltd & another (HCCL 42/1996, 18 December 1997); Dallah Albaraka (Ireland) Ltd v Symphony Gems NV & others [2005] 3 HKLRD 703, §23.

30. Based on the rules, so far as the gateway is concerned, to obtain leave to serve out on the necessary or proper party head, the plaintiff has to show a good arguable case that:

(1) the claim against the anchor defendant involves a real issue between the plaintiff and that the defendant;

(2) it is a real issue which the plaintiff may reasonably ask the court to try;

(3) the foreign defendant is a necessary or proper party to the claim against the anchor defendant.

31. The fact that the anchor defendant is sued only for the purpose of bringing in the foreign defendant is not fatal to the application for leave to serve the foreign defendant out of the jurisdiction, but merely a factor in the exercise of the discretion, provided there is a viable claim against the anchor defendant: Altimo Holdings, §§76-79. Thus, for example, where the anchor defendant was insolvent and unlikely to be able to meet any judgment against it, but was nevertheless sued for the predominant purpose of enabling a foreign defendant to be brought in, the requirement was satisfied: Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd & others [1983] 1 Ch 258 at p 268B-C per Lawton LJ, and p 279 per May LJ, per contra pp 285-286 per Dillon LJ. This is however separate from the question whether there is a real issue with the anchor defendant that the plaintiff may reasonably ask the court to try: Erste Group Bank AG, London Branch v JSC ‘VMZ Red October’ & others [2015] 1 CLC 706, §§41-43.

32. It should also be borne in mind that Order 11 rule 4(2) provides:

‘No such leave shall be granted unless it shall be made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction under this Order.’

33. Apart from forum conveniens factors, this rule also applies to the question whether the case falls within both the letter of the rule and its true spirit, a requirement recently reiterated by Lord Collins of Mapesbury NPJ in Fong Chak Kwan as follows (footnotes omitted):

‘117. It is well established that, in deciding whether a case falls within one of the heads of jurisdiction, the court must consider the substance of the matter and not merely whether the case technically falls within the letter of the head of jurisdiction in question: the case must be clearly within both the letter of the rule and the spirit of the head: Johnson v Taylor Bros & Co Ltd; Rosler v Hilbery; GAF Corp v Amchem Products Inc; Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc. The authorities show, contrary to a recent dictum by the English Court of Appeal in a case in which the authorities do not seem to have been cited, that this principle applies to the question whether the claim falls within the spirit of a gateway, and not simply to the exercise of the discretion. Nor does it apply exclusively to the construction of the heads of jurisdiction, although it has sometimes been used in this sense, for example by Lord Mustill in Mercedes-Benz v Leiduck, when discussing whether a Mareva injunction was within the injunction gateway. The wider, and principled, view is demonstrated by Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc, in which the English Court of Appeal said that ‘it would certainly contravene the spirit, and also we think the letter, of the rule if jurisdiction were assumed on the strength of some relatively minor or insignificant act having been committed here, perhaps fortuitously.’ ”

10.  Hong Kong Civil Procedure 2023, Volume 1, §11/1/284:

“……Additional defendant a “necessary or proper” party thereto —The terms are alternative. “Necessary or proper” may simply be the corollary of “ancillary” in that so long as some ancillary relief is to be validly sought against that person that person is ipso facto a necessary or proper party ……”

11.  Hong Kong Civil Procedure 2023, Volume 1, §11/1/288:

“…… Strictly speaking, the court is to carry out a single forum conveniens analysis of the multi-defendant case …… There is no presumption in favour of granting leave in a case falling within r.1(1)(c). However, as the forum may already be a given, the questions that remain are: (1) is the foreign defendant or third party a necessary or proper party; and/or (2) is it right to bring it here as a party in terms of trying the action against it here …… The question is whether it is right to permit the additional claim to proceed here in terms of forum non conveniens but bearing in mind that by definition the existing proceedings in Hong Kong on related or overlapping issues will be a strong factor in the forum non conveniens determination …… Indeed, by virtue of the ability to serve the overseas defendants under gateway (c), Hong Kong may be the only possible forum for a convenient trial of all the claims against all the defendants …… Where there are several Hong Kong defendants and several foreign defendants, the court critically assesses the forum non conveniens factors as against each defendant separately and may allow service on some to stand and discharge service on others, depending on precisely what needs to be tried as against each defendant ……”

Discussion

12.  With great respect to the Master, I am of the view that the Application should be allowed.

13.  D1 is the anchor defendant. Being a company incorporated in Hong Kong and having a registered office in Hong Kong, P may sue D1 in Hong Kong as of right. P’s case against D1 is that the AWB is a contract between P and D1. By failing to comply with certain terms and conditions of the AWB (identified in the Supporting Affidavit), D1 is liable to P in respect of the loss and damage suffered by P in the Incident. I am of the view that there is a real issue between P and D1, which P may reasonably ask the Hong Kong Court to try.

14.  According to P’s case, all Ds should be held responsible for the Incident, and their respective roles in the Incident are closely connected with each other. Ds may be jointly and/or severally liable to P. That being the case, it would be desirable to try P’s claim against all Ds in one action. In the circumstances, I am satisfied that for the purpose of Gateway (c), D2 and D3 are necessary or proper parties to the claim against D1.

15.  Turning to forum, based upon the evidence now available, I am satisfied that P has shown that Hong Kong is clearly the appropriate forum.

(1)  As said in the above, P is entitled to sue D1 in Hong Kong as or right. D2 and D3 are necessary or proper parties to the claim against D1. Pursuant to Gateway (c), it would be possible for P to sue all Ds in the Hong Kong Court.

(2)  According to the expert evidence on Mainland Chinese law adduced by P, a plaintiff is not allowed to pursue a contractual claim against one defendant and a tortious claim against the other two defendants in a single lawsuit. Thus, it would not be possible for P to sue all Ds in the Mainland Court.

(3)  That the CAAC Report is prepared by an authority in the Mainland is neither here nor there. In my view, this is not a relevant factor in considering forum conveniens.

(4)  While the alleged wrongful conducts of D2 and D3 may be governed by Mainland Chinese law, the expert evidence on Mainland Chinese law adduced by P shows that those wrongful acts would be actionable wrongs under Mainland Chinese law, and the legal issues under Mainland Chinese law are straightforward. It is unlikely that there would be any substantial arguments on Mainland Chinese law.

(5)  If this case is tried in Hong Kong, no doubt the Hong Kong Court would need to consider some expert evidence on Mainland Chinese law. However, for the reason set out in the aforesaid subparagraph, the evidence on Mainland Chinese law to be considered by the Hong Kong Court would not be voluminous or complicated.

(6)  In respect of enforcing the judgment obtained in Hong Kong against D2 and D3 in the Mainland, P has said that it would rely upon the REJ Arrangement. Although the REJ Arrangement is not yet in place, since this is an arrangement which has been officially announced in early 2019, there is a reasonable basis upon which P may have a legitimate expectation that the REJ Arrangement would already be in place when P obtaining judgment in this action.

(7)  There is no substance in the challenges raised in D3’s Letter. As said in the above, under Gateway (c), it is permissible for P to sue all Ds in this action. Regarding the language issue, both Chinese and English are the official languages in Hong Kong. Any party may conduct litigation in Hong Kong by using Chinese and/or English as of right. Further, the Hong Kong Court often reads and examines documents in Chinese or in English without translation.

16.  I would allow the appeal.

Disposition

17.  I allow P’s appeal and set aside the Master’s Decision. I allow the Application and grant leave to P to serve the Writ out of the jurisdiction on D2 and D3. Since both this appeal and the application before the Master are ex parte applications, I order that costs of the appeal and costs of the application before the Master be reserved.

18.  Lastly, it remains for me to thank Mr Alder for the assistance rendered to the Court.