HELIOPOLIS CO. LTD. AND OTHERS v. EUROSCAN EXPRESS (H.K.) LTD. AND ANOTHER

1996, No.CL42

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST

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J U D G M E N T

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THE APPLICATION

1. By summons dated 27th June 1997 issued pursuant to RSC Order 12 rule 8, the 2nd Defendant herein seeks to set aside the ex parte Order made on 20th January 1997 by Mr Justice Yeung giving leave to issue and serve a concurrent writ upon the 2nd Defendant in Helsinki, Finland. The Plaintiffs' application before Mr Justice Yeung was made upon three bases, namely Order 11 rule 1(1)(c), (d)(ii) and (f).

THE FACTS : CIRCUMSTANCES SURROUNDING THE CLAIM

2. The material facts are in relatively short compass. In outline the case involves a loss of a cargo of ladies high-heel shoes which were shipped from Hong Kong to Moscow via Hamburg and Finland. The 1st Plaintiff is the Russian purchaser, the 2nd Plaintiff the Hong Kong seller and shipper of the goods, and the 3rd Plaintiff the Russian distributor set up to handle exports to Russia by the 2nd Plaintiff. The 1st Defendant is the Hong Kong company which issued a combined transport bill of lading dated Hong Kong 8th March 1995, which bill of lading expressly covered the entire transport, and the 2nd Defendant is a Russian company which issued an international waybill, dated Helsinki 8th May 1995, and which handled the road element of the carriage.

3. What actually happened was this. Carriage from Hong Kong to Hamburg was by sea on board the ship "Hoechst Express" whence the goods were on-carried by feeder vessel to the seaport of Kotka, Finland. From Kotka, the cargo was carried by road, which segment of the carriage was, as I have said, conducted by the 2nd Defendant and which took place between 8th to 10th May 1995. When the carrying truck arrived at the customs terminal in Khimki, some 40 kilometres outside Moscow, it was discovered that the container in which the goods had been stowed had been broken into and some of the goods stolen. A survey report commissioned indicates that the original container seal was intact at the time of collection at Kotka and it is accepted by both parties to this application that the goods were lost during the period of road carriage when the goods were in the custody of the 2nd Defendant.

SUPERVENING EVENTS IN HONG KONG

4. Whilst there is a tolerably clear picture of what happened on the ground in Russia leading to the loss in question, all has not been entirely straightforward in the Hong Kong proceedings, and I should, I think, advert to such matters at this stage because they have a fundamental impact upon the jurisdictional argument under Order 11 rule 1(1)(c). In a nutshell, two events occurred.

5. First, a difficulty arose with regard to service of the proceedings on the 1st Defendant. The affidavit of the Plaintiffs' solicitor leading the application, that of Mr Darton, sworn on 13th November 1997, contained the averment (at paragraph 11) that the writ "has been duly served on the 1st Defendant". Yet on 15th January 1997, his firm had had returned from the post office, under the chop bearing the legend "moved, redirection service not arranged by addressee", the envelope containing the writ, which envelope had been postmarked 21st December 1997 and had been addressed to the 1st Defendant at an address at the 17th Floor, Bangkok Bank Building, Bonham Strand West. This event was not brought to the attention of the learned judge who, as I have observed, made his ex parte Order on 20th January 1997.

6. Second, subsequent to the granting of the ex parte Order and the present application to set that Order aside, it became known that the 1st Defendant had been placed into creditors' voluntary liquidation. Apparently, this had taken place at some stage in 1996, and indeed the company appears to have moved from its office by 31st July 1996. Whilst some details are lacking, it is accepted, I think, by counsel for both parties that this event has occurred. Indeed there is in the evidence correspondence from the liquidators confirming this situation.

RELEVANT PRINCIPLES

7. I pause to remind myself of the general principles to be applied in an Order 11 debate. These are of course usefully summarised within the Annual Practice 1997 in the extensive commentary upon Order 11, and also receive extensive annotation in Dicey & Morris, The Conflict of Laws, 12th Ed. at p.321 et.seq. The leading authority on the appropriate approach towards such applications for leave to serve out is, of course, that of Seaconsar Ltd. v. Bank Markazi [1994] 1 AC 438. As a result of the speech of Lord Goff in that case, it is now accepted that all such applications for leave to serve out under Order 11 involve a three-stage evaluation. As Lord Goff put it (op.cit. at 456H) :

"Accordingly, a judge faced with a question of leave to serve proceedings out of the jurisdiction under Order 11 will in practice have to consider both (1) whether jurisdiction has been sufficiently established, on the criterion of the good arguable case laid down in Korner's case, under one of the paragraphs of rule 1(1), and (2) whether there is a serious issue to be tried, so as to enable him to exercise his discretion to grant leave, before he goes on to consider the exercise of that discretion, with particular reference to the issue of forum conveniens."

8. At bottom, however, the ultimate issue for consideration, in the words of Order 11 rule 4(2), is whether it appears to the Court that the case is "a proper one" for service out of the jurisdiction.

THE PRINCIPLES APPLIED

9. Mr Kerr, who appeared for the 2nd Defendant, submitted that the ex parte Order granted by Mr Justice Yeung must, in the circumstances, be set aside; to the contrary, Mr Ng for the Plaintiffs contended that the Order made was valid and should stand. I examine now the arguments under the accepted heads of jurisdiction, merits and forum conveniens.

A. Jurisdiction

(I) Order 11 rule 1(1)(c) :

"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;"

10. Mr Kerr's attack did not focus upon the "necessary or proper" element of the sub-rule, as to the interpretation of which see the discussion in CL257 of 1996, a decision of the Commercial Court dated 27th October 1997 in the case of Inchcape J.D.H. Limited v. Baltrans Exhibition & Removal Limited and Air China Corporation, which case was drawn to the attention of Counsel. In this context, however, Mr Kerr made two main points :-

(a) The issue of service

11. In the circumstances of this case, there had not, he submitted, been compliance with the requirement of due service upon the 1st Defendant, the existing Defendant. Ergo, absent compliance therewith, the Plaintiffs are out of Court. In my view, this argument has force. As the learned editors of Dicey point out (op.cit. at p.325) :

"The necessity for the existing defendant to have been duly served with the writ is a requirement for the exercise of jurisdiction under sub-rule (c)."

12. For his part, Mr Ng accepted that if the requirement as to service has not been met, then, effectively, that is that, at least for the purposes of the application of rule 1(1)(c). Indeed at one stage in the argument, in responding to a point made by Mr Kerr in another context, namely that it was open to the Plaintiffs to enter default judgment against the 1st Defendant, Mr Ng went so far as to submit that in fact there had been no service; on mature reflection however, his final submission on the second day of this application was that service had been good, notwithstanding the return by the post office of the letter containing the writ. In this connection, he placed reliance upon the judgment of Keith, J. in Guangdong International Trust & Investment Corporation Hong Kong (Holdings) Ltd v. Yuet Wah (Hong Kong) Wah Fat Ltd & Another [1997] HKLRD 489. However, I do not think that this decision assists him and it is, in any event, clearly distinguishable on the facts; as Mr Kerr pointed out, in that case there had been no return of post. Nor do I entertain the notion that there has been good service in this case. To the contrary, there patently has not. The reductio of Mr Ng's argument in this regard seems to me to be that the mere act of posting of a letter addressed to the registered office of a company is sufficient, notwithstanding the return of that letter. In this connection, I am unable to see how the deeming provisions regarding service by post can assist when, as here, the letter is returned by the post office. Mr Kerr has drawn my attention also to the commentary in the White Book at Marginal Note 10/1/4 which read, in part, as follows :

"On the other hand, if the letter, although properly addressed, pre-paid and posted to the proper address of the person to be served, is returned through the Post Officer undelivered to the addressee, it will be treated as not having been duly served."

13. That Marginal Note quoted Denning, L.J. in the case of R. v. London County Quarter Sessions Appeals Committee, ex p. Rossi [1956] 1 QB 682 at 694, where the learned Lord Justice (as he then was) said as follows :

"To sum up, when service of process is allowed by registered post, without more being said on the matter, then if the letter is not returned, it is assumed to have been delivered in the ordinary course of post and any judgment or order by default obtained on the faith of that assumption is perfectly regular. It will not as a rule be set aside except on payment of costs and showing of merits : see T. O. Supplies (London) Ltd. v. Jerry Creighton Ltd. But if the letter is returned undelivered and nevertheless, notwithstanding its return, a judgment or order by default should afterwards be obtained, it is irregular and will be set aside ex debito justitiae." (emphasis added)

14. It seems to me, with respect, that that is the end of the point notwithstanding Mr Ng's valiant efforts to convince me that since the 1st Defendant's registered office changed only in March 1997, the act of posting to the existing registered address itself was sufficient to constitute good service. Absent the return of the relevant letter, that argument may have had some force. Accordingly, I hold that there has not been good service, and if this be the case it must follow, as Counsel properly accepts, that the basis of the application under rule 1(1)(c) cannot be sustained.

(b) "A real issue to be tried"

15. This second head of objection encompassed a number of sub-points. Mr Kerr says that Mr Darton's affidavit leading the application is patently in error, and that accordingly there has been non-compliance with the requirements of Order 11 rule 4(1)(d) :

"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."

16. The affidavit indeed is incorrect. And in his further affidavit, filed late in the case, Mr Darton properly and frankly accepts his error which was, he says, caused by his misreading of the rule. This raises further interesting issues. Put rhetorically, is it open for Mr Darton now to repair this error, as he has chosen to do by means of a corrective affidavit?; and, if so, on the facts as they exist, wherein the 1st Defendant is in creditors' voluntary liquidation and there has been no acknowledgement of service, can Mr Darton further submit, as he has (at paragraph 6 of his third affidavit) that :

"In addition to stating the plaintiffs' position (and my belief) concerning service, the purpose of this affidavit is to swear that I do verily believe that there was at the time of making the application under Order 11 (my first affidavit), and still is, a real issue which the plaintiffs may reasonably ask the court to try between the plaintiffs and the 1st defendant. I respectfully submit that there is, despite the fact that the 1st defendant is now in voluntary liquidation. ... I would respectfully submit that despite the fact that the 1st defendant is now in voluntary liquidation and the court may very well not be asked to actually try the issue, the issue per se does not disappear and such issue is one which the plaintiffs may reasonably ask the court to try. I must accept that this issue is what the judge referred to as a 'conceptual issue' during the hearing."

17. Given my finding upon the issue of service, which in itself is decisive within the context of rule 1(1)(c), this point is of less immediate relevance, although perhaps of interest to practitioners. Leaving aside the willingness or otherwise of the Court to permit the correction of an obvious error (which for my part I certainly encourage), at bottom this does not seem to me to be merely a technical problem. It is quite clear from the history of the development of the "necessary or proper party" rule that Order 11 rule 4(1)(d) has been put there for a specific purpose, namely to preclude the use of sub-rule 1(1)(c) as a sort of jurisdictional Trojan Horse, so to speak; this requirement under sub-rule 4(1)(d) is part of the protective ring fence of principle put in place by the legislature when providing for the assertion of jurisdiction under what American jurisprudence terms "a long arm statute". Two points arise. In my view the phrase "may reasonably ask the Court to try" involves, at the time the affidavit is sworn, a realistic and reasonable expectation of a trial, although I recognise that supervening events (as with much in life) may serve to alter the accuracy of that perception. In addition, it seems to be that Mr Kerr must be correct when he submitted that, on the facts, the writ has now expired without service on the 1st Defendant, and that accordingly there can now be no question of there remaining a real issue which the Plaintiffs may reasonably ask the Court to try in terms of the 1st Defendant ( at least in the context of these proceedings. So that there is a strong argument that the initial error is no longer in fact susceptible to correction, even if such were to be permitted. So my view is that, on this ground also, the application based upon sub-rule 1(1)(c) must fail. A further gloss (and an interesting reflection) on the somewhat odd fact situation which has arisen is that had Mr Darton not misread the rule, and had the affidavit been correctly expressed but (unknown to him) was incorrect in fact, there is no reason in my view why the "real issue to be tried" point could not have been available to be taken against the Plaintiffs at the return date.

18. My firm conclusion, therefore, is that the Plaintiffs are, perhaps a shade unfortunately, out of Court under sub-rule (c), and I now move briefly to deal with the other two sub-heads of jurisdiction relied upon.

(II) Order 11 rule 1(1)(d)(ii) :

"[a contract which] was made by or through an agent trading or residing within the jurisdiction on behalf of a principal trading or residing out of the jurisdiction;"

19. Under this head, Mr Ng argued that the close relationship between the 1st and 2nd Defendants, in particular the cross-shareholdings with the 2nd Defendant effectively holding all of the 1st Defendant's share capital, led ineluctably to the conclusion that the 1st Defendant was at all times acting as agent of the 2nd Defendant, and that therefore the relevant contract of carriage fell within the words of the sub-rule. Mr Ng's point is perhaps best summarised in his confident assertion that :

"The reality must be that a subsidiary company is bringing business to its parent company, and thus the subsidiary is acting as the parent's agent."

20. The point has been ingeniously and enthusiastically argued, and has involved, in addition to the reference to the extensive cross-shareholding, a variety of factors ranging from a change in the terminology and tone of the correspondence between the parties to peculiarities arising in the terminology on the face of the waybill for the road portion of the trip, which waybill, as I have earlier observed, was issued in Helsinki on 8th May 1995.

21. To the contrary, the 2nd Defendant submitted that the 1st Defendant was but a sub-contractor of the 2nd Defendant, notwithstanding the undoubted cross-shareholding; Mr Kerr pointed out that, on its face, the combined transport bill of lading issued in Hong Kong made no reference whatever to the agency relationship now alleged which, in any event, had been but faintly alluded to in the evidence and on the pleadings.

22. The point is a novel one. At the end of the day, however, I am against the Plaintiffs. I do not consider that the jurisdictional case has been (or indeed, can be) made to the requisite standard simply by, in effect, moving to lift the corporate veil and seeking to infer agency from the cross-ownership therein disclosed. The separate corporate identity of the 1st and 2nd Defendants was doubtless established for perfectly good commercial reasons. On the face of the documentation upon which the Plaintiffs rely in this action, the 1st Defendant contracted in its own right, and indeed is being pursued as such; moreover, absent the 1st Defendant as a separate Defendant, then would have been no scope for the "necessary or proper" party argument. Whilst I appreciate that the problem with which the Plaintiffs are now faced (assuming, of course, extant valid process) is that any judgment will almost certainly turn out to be empty, such considerations are not to the point when considering the imposition of jurisdiction. I reject the Plaintiffs' arguments under this head.

(III) Order 11 rule 1(1)(f) :

"the claim is founded on a tort and the damage was sustained or resulted from an act committed within the jurisdiction;"

23. This was but faintly argued by Mr Ng, if indeed it was really argued at all. However it was referred to in the affidavits and I think, in fairness, that I should deal with the point. Which, as I understand it, is that damage has been suffered in Hong Kong because, had the goods not been stolen, the 2nd Plaintiff would have received the value of those goods into its Hong Kong account, the 2nd Plaintiff being the owner of the goods at the relevant time, and also being a Hong Kong company incorporated and carrying on business here.

24. Again, the point is not without interest, and indeed is potentially complex notwithstanding Mr Kerr's somewhat scathing observation that the locus of the relevant accounting procedures has little relevance, and that, if this were to be the case, the stringency of the safeguards within Order 11 would quickly cease to have any real effect. No authority on point was cited, although I am far from sure that the passing references made by Mr Kerr to various dicta in the Metall and Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc. and Another [1991] Q.B. and in The Eras Eil Actions [1992] 1 Lloyds' Law Reports p.570, in fact served his purpose. Per contra, it seemed to me that there were therein passages which were positively unhelpful to him. I note also that in Dicey, op.cit. at p.341, which passage was not alluded to in argument, reference is made to Canadian and Australian cases where similar wording has been held to apply to consequential pecuniary damage sustained in the forum flowing from physical injury caused outside the forum.

25. Be that as it may. I do not dismiss the point in specie, nor do I necessarily agree that in general terms it amounts to the absurd non-runner as Mr Kerr has submitted. I merely decide, in the circumstances of this case and in the context of an argument in which the point was but barely touched, and in regard to which the evidence was markedly undeveloped, that this ground has not been made out in this case. Perhaps there may be other cases where the question may be more fully considered.

B. Merits and forum conveniens

26. Since I am against the Plaintiffs under the primary head of jurisdiction, there is, I think, little need to go on to consider the twin heads of merits and forum conveniens in the type of detail which may be appropriate in other cases of this type. Suffice to say that the main attack by the 2nd Defendant was upon the issue of jurisdiction and Mr Kerr conceded, I think, that jurisdiction apart, there were clearly serious issues to be tried on the merits.

27. As to forum conveniens, Mr Kerr's submission was that Hong Kong evidently was not the forum conveniens. This, he said, is a claim involving misdelivery or theft which took place in Russia. The relevant contract of carriage under which the 2nd Defendant carried the goods is a Finnish contract incorporating both Finnish law and the terms of an international convention to which Finland is a party. In a nutshell, Mr Kerr submitted the Plaintiffs could not begin to demonstrate that Hong Kong was clearly the most appropriate forum in a case with two Russian Plaintiffs, one Hong Kong Plaintiff and a Finnish Defendant concerning a dispute over a contract of carriage governed by Finnish law and incorporating an international convention to which Hong Kong was not privy.

28. I am bound to agree. And in the circumstances of this case, I am therefore against the Plaintiffs on the issue of forum conveniens also. The particular circumstances, I think, permit a relatively easy evaluation under this head, and for the present, at least, the Court is spared the evaluation which would have arisen had I found for the Plaintiffs on the basis that the 2nd Defendant was a necessary or proper party. In that circumstance, the balancing process referred to by Lord Goff in Seaconsar Ltd. v. Bank Markazi would perhaps have been rendered a little more problematic.

PROCEDURAL OBJECTIONS

29. Substantive argument apart, I note, finally, two procedural points taken by Mr Ng, and I mention them at this stage only to formally reject them.

30. The first of these points was that the affidavit in support of the summons to set aside was not served with the summons, as required by the terms of Order 12 rule 8(4). Mr Ng, I think, was taking this point on instructions; he was, he said, "merely stating the position", and did not elaborate further. I am disinclined to accord the point further consideration.

31. Second, Mr Ng sought initially to argue, as I understand it, that the 14 day time extension earlier granted by the Court to file and serve the Defence did not encompass the ability, within that extension period, to issue and serve an Order 12 rule 8 summons. However, after having the case of Lawson v. Midland Travellers, [1993] 1 All ER 989 (CA), (digested at White Book MN 12/7-8/4) drawn to his attention, Mr Ng informed the Court at the outset of the hearing on the second day that, in light of Lawson, op.cit., he could not, and did not seek to, take the point further.

CONCLUSION

32. The result of the foregoing is that the Order of Mr Justice Yeung dated 20th January 1997, the concurrent writ of summons and the service thereof must be set aside, and I so order. In the circumstances, the 2nd Defendant must have the costs of the action, including the costs of this application, to be taxed if not agreed.