YUASA TRADING CO. (H.K.) LTD. AND ANOTHER v. SELINA SHIPPING S.A.

1989, CL-8

IN THE SUPREME COURT OF HONG KONG

HONG KONG

COMMERCIAL LIST

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J U D G M E N T

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1. The Defendants are seeking 5 separate orders under their summons. The 1st is declaration that the writ has not been served upon them. The 2nd is a declaration that the court has no jurisdiction over the Defendants. The 3rd is a stay of the proceedings pending a submission of the dispute to Arbitration. The 4th is a stay on the grounds of Forum non conveniens and the 5th is setting aside of the Mareva injunction granted by Sears J. on 24th April, 1989.

2. The 5th order is now redundant. The Mareva injunction has already been set aside. The 4th order is no longer being pursued for reasons it is not necessary for me now to go into.

3. The 1st three orders being sought are the live issues I have to deal with. It is convenient for me to consider the first 2 matters together. The reason for this is that the result of both applications are dependant upon the answer to the question as to whether the Plaintiff is able to demonstrate that the Defendants are or have carried on business in Hong Kong.

4. Mr. Clifford Smith for the Defendants submitted that the Plaintiffs have not been able to show this.

5. He argued that the test to be applied in a case such as the present one was the test referred to by Barker J.A. in the Artemis 1983 HKLR 364 at p.368:

"I deal first with the question as to whether service on Artemis was properly made within the jurisdiction. The answer to this depends upon whether Artemis could properly be said to be carrying on business within the colony at the date of such service. The relevant principles in this connection are to be found in Okura & Co., Limited v. Forsbacka Jernverks Aktiebolag [1914] 1 KB 715, wherein Buckley, L.J. said, at page 718:

'The question in this case is whether the defendants, who are a foreign corporation, can be served with a writ in this country. The answer to that question depends on whether the defendants can be found 'here' for the purpose of being served. In one sense, of course, the corporation cannot be 'here'. The question really is whether this corporation can be said to be 'here' by a person who represents it in a sense relevant to the question which we have to decide. The point is, do the facts show that this corporation is carrying on its business in this country? In determining that question, three matters have to be considered. First, the acts relied on as shewing that the corporation is carrying on business in this country must have continued for a sufficiently substantial period of time... Next, it is essential that these acts should have been done at some fixed place of business ... The third essential, and one which it is always more difficult to satisfy, is that the corporation must be 'here' by a person who carries on business for the corporation in this country. It is not enough to shew that the corporation has an agent here; he must be an agent who does the corporation's business for the corporation in this country. This involves the still more difficult question, what is meant exactly by the expression 'doing business'? ... In the Saccharin Corporation Case, the agent obtained orders in England for the defendants' goods, and that in some instance he entered into contracts in the defendant's name at his office in London for the sale of their goods without submitting the orders to the defendants for their approval. Fletcher Moulton, L.J. in the course of his judgment said: 'He' (the agent) 'carries on business at a fixed place in London as sole agent for the defendants in the United Kingdom, though it is true that he is also agent for another firm. He has power to enter into contracts of sale for the defendants; he has their goods at his premises or at public wharves under his control, and he can and does fulfill contracts made by him for the defendants by delivery of these goods.' On these facts the court held that the defendants were carrying on business here by their agent."

The underlining is mine. I add one further matter, and that is that in each case the question as to whether a foregin corporation is carrying on business 'here' is a question of fact. (See The World Harmony [1965] 1 Lloyd's Rep 744, per Hewson, J. at page 251.)"

6. Mr. Fok who was representing the Plaintiffs did not accept this. He argued that the present case was readily distinguishable from the Artemis. Here the Plaintiffs were not seeking to serve the Defendants through their agents Eternity Shipping Agencies Ltd. It was their case that they had served the Defendants themselves at their place of business in Hong Kong.

7. I am satisfied that Mr. Fok is correct in this contention. The question then which has to be asked is whether the Plaintiffs can show that the Defendants were carrying on the business in Hong Kong.

8. Mr. Fok placed heavy reliance upon the judgment of Ackner L.J. in South India Shipping v Export Import Bank 1985 2 All ER 219. At p. 222 he said:

"Do the plaintiffs have a plate of business in Great Britain within the meaning of s.406?

There is no decision which bears directly on what is required in order to establish that a foreign company has a place of business within the meaning of s.406. The judge's attention was therefore invited to a number of cases which were essentially concerned with the old RSC 1883 Ord 9, r 8, which required that service of a writ on a corporation should be effected on its 'head office'. The rule contained no such expressions as 'reside' or 'carry' on business. Those expressions were used as convenient tests, to ascertain whether the corporation had a sufficient 'presence' within the jurisdiction, since 'generally' courts exercised jurisdiction only over persons who are within the territory limits of their jurisdiction..... Apart from statute 'court has no power to exercise jurisdiction over anyone beyond its limits': see Re Busfield, Whaley v Busfield (1886) 32 Ch D 123 131 per Cotton L.J., quoted by Lord Scarnan in his speech in Bethlehem Steel Corp v Universal Gas and Oil Co Inc (1978) Times 3 August, a decision of the House of Lords. In many of those cases the vital issue was whether the corporation was itself carrying on business within the jurisdiction through a duly appointed agent, or whether the business in question was the agent's own business, the foreign company merely being one of its customers. These cases are for the most part conveniently summarised in Theodohos [1977] 2 Lloyd's Rep 428. Brandon J., having referred to those authorities, said (at 431) that, unless a foreign company is carrying on business at a place within the jurisdiction, it cannot be served with process within the jurisdiction. He did not seek in any way to define what he understood 'carrying on business' entailed.

There is, however, one decision, to which neither Brandon J's nor Leggatt J's, attention was drawn, which did give consideration to the extent of the business which has to be carried on to establish a sufficient presence within the jurisdiction: A/S Dampskib 'Hercules' v Grand Trunk Pacific Rly Co [1912] 1 KB 222, a decision of this court. The fats are not without interest. The defendants were a company incorporated by a statute of the Dominion of Canada for the purpose of constructing and working a railway in that country, and their office was in Montreal. However, four of the directors were resident in this country and formed the London committed which, under powers conferred by the company's byelaws, dealt with the issue of loan capital to be used for the construction of the railway. The headnote shows that the whole of the loan capital, amounting to many millions, was raised by the London committee and remitted by them to Canada. The London committee, which had a secretary and staff, met at an office in the City of London, the office of the Grand Trunk Railway Co of Canada, which was a limited company registered in the United Kingdom under the Companies Acts, and was wholly distinct from the defendant company. The name of the defendant company was, however, written on the door, but they paid no rent for the use of the offices and no business other than the financial business of raising the loan capital was transacted by the London Committee. The Court of Appeal held that the defendants were carrying on their business at the office used by the London Committee and could therefore be properly served there with the writ. Vaughan Williams L.J. said (at 227):

'Undoubtedly the defendants have officers here who act on their behalf at a fixed residence and who circulate advertisements of the defendants in thir name; but it is contended that we ought to hold that they are not carrying on the business of the company, because the business carried on here is not that of running or managing the railway, but of raising money by means of the issue of bonds and debentures, which money is to be used by the company in Canada. In my judgment, it is impossible to drawn any such distinction. I think that in doing what it did, the London board was carrying on the business of the company, and that it makes no difference that they pay no rent for the office in which they carry it on. The office is the office of the company; the business is advertised in every way as being carried on at the office.'

Buckley L.J. in expressing his concurrence, said (at 227-228):

'We have only to see whether the corporation is 'here'; if it is, it can be served. there are authorities as to the circumstances in which a foreign corporation can and cannot be said to be 'here'; the best test is to ascertain whether the business is carried on here and at a defined place. In the present case the company has a paramount, and also a subsidiary, object: its paramount object is to make and run a railway in Canada, to do which a great many things must first happened: it has a subsidiary object, namely, the raising of money to carry out its paramount object...The raising of this loan capital is part of the company's business, and it is done here by a London committee constituted of the directors resident in England.'

If this case had been drawn to Leggatt J's attention I have no doubt that he would not have accepted the submission that the thrust of authorities was to the effect that the plaintiff had to establish that the foreign company, the defendant, was carrying on a substantial part of the business of the company within jurisdiction, and that activities which might be described as incidental to such business could not establish a presence within the jurisdiction.

Accordingly, with this approach in mind, the judge sought to construe s 406 and concluded as follows:

'The mere circumstances that a company has an office here is not of its own sufficient to make requisite fulfilment of or compliance with the requirements of Pt X of the 1948 Act. In the light of that consideration, a place of business is, for the purposes of s 406, not complied with by the occupation of particular premises for purposes connected with business carried on elsewhere by the corporation in question. Rather it is a place at which business constituting, at any rate, part of the ordinary business of the comapny is carried on. Applying that test I do not consider that what is done at the office at Fenchurch Street complies with that test so as to bring the defendants within the provisions of Pt X of the Companies Act.'

Counsel for the defendants was obliged to concede that his clients were certainly carrying on a business activity at their office within the City. They had not only entered into a lease, thereby creating contractual obligations vis-a-vis their landlord, but they employed staff and most probably in the course of their promotional and research activities entered into other contractual obligations. The main object of the provisions of Pt X of the 1948 Act was to protect the foreign company's British creditors by obtaining for them ab initio the means of serving process in this country, free from, the inconvenience of seeking out the foreign company in its country of incorporation. The main object of the legislation is to take away any difficulty in the service of a writ on foreign corporations carrying on business in this country, and in effect to place a foreign corporation for this purpose on the same footing as an English company, and liable to the service of a writ under a similar form of procedure: see Employers' Liability Assurance Corp Ltd. v. Sedgwick Collins & Co Ltd [1927] AC 95 at 108, 115, [19261 All ER Rep 388 at 395, 399 per Lord Summer and Lord Parmoor, commenting on similar provisions of the Companies Act 1908. Parliament has placed no express qualification or limitation on the words 'a place of business' and there seem no good reason why we should imply one. There may inevitably be the odd case where if the words are left unqualified there could still be a dispute whether the activities of the foreign company within the jurisdiction did amount to the carrying on of part of its business. However, if, as counsel for the defendants submitted, the foreign company does not establish a place of business within Great Britain unless the activity within the jurisdiction constitutes a substantial part of and is not incidental to the main objects of the foreign company, this inevitably involves a large area of uncertainty facing not only the plaintiff who wishes to sue the foreign company, but also the foreign company which wishes to know whether or not it is affected by Pt X of the 1948 Act.

In my judgment the facts in this appeal are clear. The defendant bank are an export-import bank, not a high street bank. They have both premises and staff within the jurisdiction. They conduct, external relations with other banks and financial institutions. They carry out preliminary work in relation to granting or obtaining loans. They seek to give publicity to the foreign bank and encourage trade between Korea and the United Kingdom, and they consult with other banks and financial institutions on the usual operating matters. They have therefore established a place of business within Great Britain and it matters not that they do not conclude within the jurisdiction any bank transactions or have banking dealings with the general public as opposed to other banks or financial institutions."

9. I think that the relevant facts can be summarised as follows:

1 The Defendant is a Panamanian Co.

2. Mr. Lye Che Fu, a Hong Kong resident, is the President of the Company. Other members of his family are also Directors and are resident here.

3. A search at the Panamanian Companies' registry shows that the Defendant's address given as care of Eternity Shipping Agencies Ltd. 1606 Wing On Centre, Connaught Road, Hong Kong.

4. The vessel which is the subject of the cargo claim in question was owned by the Defendant and was managed by Paciatland Shipping Incorporated which is recorded as being principal shareholder in the Defendant Company. This was pursuant to a Management Agreement dated 27th November 1979. They were authorised to enter into contracts of affreightment on the Defendant's behalf according to affidavit evidence filed by the Defendants. Also according to this evidence, which has not been controverted, Paciatland does not have a place of business in Hong Kong.

5. Exhibited to the papers were copies of 24 Charter parties relating to the said vessel and it is clear from these that the substantial majority were entered into in Japan.

6. Paciatland appointed Eternity Agents of the ship by an Agency Agreement dated 2nd October 1981. This Agreement did not confer authority on Eternity to conclude contracts of affreightment.

7. Mr. Lyu Che Fu and members of his family own at least 80% of the Defendant, Paciatland and Eternity.

8. The Defendant entered into a 1st preferred mortgage with the Hong Kong & Shanghai Banking Corporation dated 9th September 1986. This was secured on the "Selina". Under the Deed Wayfoong Shipping Services Ltd. advanced movies to Sagacity Ltd., another Lyu family company, to part finance the purchase of the "Selina". This was followed by a 2nd preferred mortgage on the "Selina" dated 26th July 1988. There was also a Loan Agreement. The documents were executed in Hong Kong. One of the more important terms for our purposes embodied in the documents was a requirement that the Defendant should have its accounts audited in Hong Kong.

10. The 1st question which arises from these facts is the extent to which I am entitled to consider the activities of the Lye family and all their respective companies globally. Mr. Fok submitted that it was only realistic that I should do so. Members of the Lye family were clearly the alter ego of the Defendant and they were undoubtedly resident in Hong Kong.

11. I do not think that this contention is correct. I am satisfied that the Evpo Agnic 1988 1 WLR, 1090 is good authority for the proposition that you cannot pierce the corporate veil.

12. Once this question has been answered all that remain on the jurisdiction point is to determine whether the Plaintiffs have discharged the burden of establishing that the Defendant itself has carried on business in Hong Kong. I have given anxious consideration to the mortgage transactions I have referred to and the requirement for keeping audited accounts but I do not consider that all of the facts I nave referred to could bring the Defendant within the test for carrying on business in Hong Kong as outlined by Ackner L.J.

13. The result of this is that I should grant the first 2 orders prayed for by the Defendants.

14. I will now consider the Arbitration point. Mr. Fok referred me to the 3rd affidavit sworn by his instructing solicitor, Mr. Simon Jones. In this affidavit he refers to the fact the Defendants have applied to the courts in Tokyo for a Declaratory judgment against the Underwriters that they are not liable for the loss of the cargo which is the subject matter of the action. Mr. Fok submitted that the Defendants had clearly evinced an intention no longer to be bound by the terms of the Arbitration Clause. He called in aid a passage appearing at p. 458 of the "Law and Practice of Commercial Arbitration in England" by Sir Michael Mustill and Steward Boyd Butterworths 1982:

"Abandonment. Finally, it is necessary to mention the suggestion that an arbitration agreement can be terminated by abandonment on the part of the claimant. We suggest that a distinction must be drawn betwen abandonment of the claim and abandonment of the agreement to arbitrate. 'I do not any longer wish to pursue my claim against the respondent' is not the same as 'I refuse to perform my obligation to submit the claim to arbitration': The claimant can of course effectively give up his right to recover what he originally claimed: and such an abandonment may be inferred from conduct as well as words. It does not, however, dispose of the contract to arbitrate. The respondent is entitled to have the matter formalised by an award; such an award cannot be made if the agreement is terminated; and the right to the award, and to the maintenace of the arbitration agreement until the award is made, is a right which cannot be taken away by any unilateral act on the part of the claimant. Nor can the respondent be deprived of his right to pursue a cross-claim in the arbitration. It may, however, be the case that the conduct of the claimant which evinces an intention to give up the claim, also evinces a willingness to give up the agreement to arbitrate; and the respondent may by his conduct accept this as an offer to terminate the arbitration agreement, so far as it concerns the particular claim which has brought into existence the individual agreement to refer. Such a course of events will not, however, operate as a termination of the continuous agreement to refer future disputes."

15. In my view what the Plaintiffs have to show is that the Arbitration has become inoperative. I do not think that this has been established. It is often the case that parties who have entered into Arbitration Agreement resort to the courts. They are clearly entitled to do so. When they do it cannot be argued that they have thereby evinced an intention not to be bound by the terms, of the Arbitration.

16. The final point raised by Mr. Fok was that the Defendants had taken a step in the proceedings when they had given notice to the Plaintiffs for the production of a document and had required the Plaintiffs to give further information relating to one of their affidavits.

17. I do not consider that either of these matters could be described as a step in the proceedings. A step in proceedings has been defined by Lindley L.J. at p. 484 of Ives & Barker v Williams 1894 2 Ch 478:

"The authorities shew that a step in the proceedings means something in the nature of an application to the Court, and not mere talk between solicitors or solicitors' clerks, nor the writing of letters, but the taking of some step, such as taking out a summons or something of that kind, which is, in the technical sense, a step in the proceedings."

18. Even if I am wrong in this I am satisfied that a stay should not be withheld on this ground. Both of the matters complained of occurred after the Defendants had issued the present application. They were also not inconsistent with the application.

19. The result of this is that I would have been prepared to grant a stay even if I had not ordered that the Defendant has not been served with the proceedings.

20. I will hear the parties on costs.