A.J. LUCAS (HONG KONG) LTD v. DRILLTEC GUT GMBH GROSSBOHRUND UMWELTTECHNIK

HCCT36/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.36 OF 2005

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D E C I S I O N

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1. This is an application by the defendant (“DrillTec”) to set aside an ex parte order granted to the plaintiff (“Lucas HK”) by Master Lung dated 15 February 2005 permitting Lucas HK to serve a writ on DrillTec out of the jurisdiction in Germany.  For the reasons given below I accede to DrillTec’s summons to set aside the order.  However, no criticism can be made of the granting of the ex parte order because, as will be seen, there was a lack of full and frank disclosure at the time of the application to the Master.  Had there been full and frank disclosure the Master would have ordered an inter partes hearing.  Of that there can be no doubt.

Background

2. Lucas HK and DrillTec formed an oral joint venture in 2000 in connection with drilling works for cable crossings under the Ma Wan and Kap Shui Mun channels between the New Territories and Lantau Island.

3. The joint venture was terminated by a written agreement dated 8 June 2001.  This had become necessary because differences had arisen concerning the operation of the joint venture.  This “June agreement” was made between DrillTec on the one hand and Lucas HK and its parent company (the Lucas Group), a third company named “Lucas Drilling Ltd” and a Lucas Director, Mr Allan Campbell on the other hand.  It made a number of important specific provisions namely :

(a) The Preamble :

“The parties are of different opinions as regards the conclusion and handling of a joint venture project in Hong Kong commissioned by Skanska International Civil Engineering AB.

Lucas owes amounts from this project and the so-called Watermains Project to DrillTec.”

(b) Clause 1 :

“1.   All the verbal and written agreements on a joint venture for carrying out the order placed under the contract dated 08.09.2000 by and between Lucas and Skanska International Civil Engineering AB — the so-called CLP Project — are rescinded herewith.

       Thus the mutual rights and obligations under said joint venture — except the amounts owing to DrillTec by Lucas for the provision of staff, drilling plant, equipment and other services — no longer exist.”

(c) Clause 2 :

“2.   The parties reach the following separate agreement on the future hiring of staff, drilling plant and equipment.

            Appendix 1 - General Conditions of Hire

            Appendix 2 - Special Conditions, DrillTec 260 to Rig

            Appendix 3 - Special Conditions, DrillTec 400 to Rig

       Appendices 1, 2 and 3 constitute an integral part of this Agreement.”

(d) Clause 12 :

“12. The present Agreement shall be exclusively governed by German law.  In the event of any dispute whatsoever, Munich (Germany) shall be venue for both parties”

4. Thus, on its face, clause 1 provides that the only rights and obligations which survive the joint venture are specific obligations of Lucas to DrillTec.  I say “on its face” because the interpretation of this agreement, by virtue of clause 12, is a matter of German law.  It is worthy of note however that there are many references in the other clauses to this effect; clause 3 states “Lucas still owes amounts …”, clause 6 states “amounts … shall be paid by Lucas …” and “if Lucas defaults in payment …”, clause 7 states “Lucas undertakes to pay …” and ”clause 11 states “the … agreement is subject to the condition precedent that the amount … has been paid by Lucas …”.

5. Two weeks before this agreement, on 23 May 2001, the Lucas Group and DrillTec entered into two “Hiring Agreements” governing the provision of rigs and services which enabled the continuation of the works under a new regime.

6. All this spawned a number of actions in three different jurisdictions.  The last of these is the writ which is the subject matter of this application.  It is dated 29 December 2004.  In it, Lucas HK claims damages for negligence, namely that materials or services were supplied to them under the Hire Agreements in breach of a duty of care.  Damages for breach of contract are claimed in the alternative.  A number of matters should be noted, as follows.  Lucas HK was not a named party to the Hiring Agreements.  Their writ claims the services under those agreements were supplied negligently.  The breach of contract claimed is breach of the June agreement to which they were a party.  The June agreement in clause 2 states “the parties (which includes Lucas HK) reach the following separate agreement on the future hiring of staff, drilling plant and equipment”.  It then refers to the General and Special Conditions of the Hiring Agreements.  Finally, clauses 14.2 and 14.3 of the Hiring Agreements state :

“14.2 The place of jurisdiction for all disputes, including any dispute concerning the formation and validity of the contractual relationship, and particularly claims arising from bills of exchange or cheques, shall be Munchen, Germany for both Parties.

14.3 German law shall be solely applicable.”

Thus there are exclusive jurisdiction clauses in both the Hiring and the June agreements.

7. The earlier litigation was as follows.

(i) In February 2002 DrillTec commenced proceedings in Australia against Mr Allan Campbell as personal guarantor under the June agreement.  Lucas HK made a “second cross claim” in this action.  For all intents and purpose this claim was in identical terms to the Hong Kong writ.  The New South Wales Supreme Court stayed the claim on the basis that they should be heard in Germany because of the June agreements exclusive jurisdiction clause. 

(ii) In October 2001 DrillTec commenced proceedings against Lucas HK for payments due under the June agreement in the Munich District Court.  Lucas lost at first instance and on appeal.  A further appeal to the Federal Court is pending.  Lucas HK’s primary contention which has been unsuccessful twice so far, is that as the exclusive jurisdiction clause is invalid against one of the four parties to the June agreement, namely the individual party Mr Allan Campbell, it is therefore rendered invalid against all other parties which as a result renders the entire agreement invalid.

(iii) On 28 December 2004 Lucas HK commenced proceedings, which in substance are the same as the Hong Kong writ, in the Deggendorf District Court in Germany.  The particulars are the same, the relief and damages claimed are virtually the same.  One week after the commencement of this claim Mr Anthony Francis Hill, a partner of Lucas HK’s solicitors in Hong Kong, swore his first affidavit in support of the application to be granted leave to serve the Hong Kong writ out of the jurisdiction ex parte.  Six weeks later the ex parte order was granted.  Mr Hill had sworn a second affidavit a week before the order was granted, namely on 27 January 2005.

8. The affidavits do not refer to the June agreement, the Australian proceedings, any of the German proceedings or the exclusive jurisdiction clauses in either the June or the Hiring agreements.

9. In the summons before this court DrillTec applies to set aside the order for service out of the jurisdiction on four grounds.  I find that each of those grounds has been made out.  I say at the outset however that I am acutely conscious of the fact that the forum conveniens for this action is Hong Kong.  The contract was made in Hong Kong, many (but not all) of the witnesses are English speaking and based in Hong Kong, most of the thousands of documents are in English.  If the only issue was “forum conveniens”, the practical solution would be to litigate in Hong Kong.  However, I am constrained from taking that course because of the cumulative effect of the plethora of good grounds not to do so advanced by DrillTec.  I will now deal with each of them briefly.

(A)    Material non-disclosure

10. The principles are not in dispute.  Materiality is decided by the court not the deponent.  In this case the non-disclosure is not disputed.  However, Lucas HK submits it was not material and if it was Mr Hill has filed affidavits explaining and apologising for the omissions.  In short, Mr Hill’s explanation was that as Lucas HK’s claim was in tort the June agreement and the other proceedings were irrelevant.  There was no intention to mislead the court.  He therefore plainly knew about the omitted facts and he chose not to disclose them on grounds of relevance.  This court accepts the apology but it is difficult to understand the thinking.

11. It is difficult to understand how even the possible existence of an exclusive jurisdiction clause could be regarded as immaterial.  Here there were two, in both the June agreement and the Hiring Agreements.

12. It is difficult to understand how the existence of three other claims on the same subject matter, all of which had gone against Lucas HK on the grounds of, inter alia, the validity and effect of the exclusive jurisdiction clause, could be regarded as immaterial.  It is simply not possible to argue that the Master would have granted the ex parte order even if he had known about these matters.

13. The disclosure was neither full nor frank.  The explanation also falls short of being satisfactory.  The Hong Kong writ is not in tort only.  It claims breach of contract as well.  The contract to which Lucas HK is a party is the June agreement.  That agreement, by clear implication, refers to the Hiring Agreements (clause 2).  Both have exclusive jurisdiction clauses.  In reality the particulars of negligence pleaded amount to no more than breaches of the implied terms pleaded in the contract.  Breach of contract is also pleaded in the prayer for relief.

14. This is plainly not one of those “very rare” cases where a court could exercise its discretion to overlook a material non-disclosure.

(B)    Exclusive jurisdiction clauses

15. This and the next two grounds are those which DrillTec would have been relying on to oppose the granting of leave to serve out of the jurisdiction had there been full disclosure and had the Master ordered an inter partes hearing instead.

16. The validity of the clause in the June agreement is still a matter of dispute in the German proceedings.  In due course Lucas HK may have an opportunity of arguing to the German Federal Court that both lower courts made a wrong decision.  What is not in dispute is that the applicable law when interpreting the clause is German law.  On any view, there will be a preliminary argument about the validity of the clause.  That the German courts are better suited to resolving that preliminary point is stating the obvious.

17. I also agree with DrillTec that this exclusive jurisdiction clause is not confined to contractual disputes.  Clause 12 clearly states “any dispute whatsoever”.  The agreement became necessary because of “differences of opinion” regarding “the handling of the joint venture”.  It does not say “any disputes arising out of the contract”.  It does not say “any possible damage claims of the Lucas companies against DrillTec based on the CLP project shall not be affected hereby”.  It is worthy of note that Lucas’s director Mr Allan Campbell expressed the following view in his affidavit dated October 2002 that :

“The provision that the Settlement Agreement would be subject to German law and the place of the jurisdiction would be Munich was included in all drafts of the agreement after 30 May 2001.  I was content to agree as I believed it is essential that any issue arising under the Settlement Agreement affecting either myself or the Lucas companies should all be dealt with together.  It was my understanding of the clause as contained in the Settlement Agreement that it would require any disputes affecting myself or the Lucas companies to be determined in one place, i.e. Germany.  I would not have countenanced or agreed to a position that would allow any dispute with myself or any of the Lucas companies to be agitated in different jurisdictions as has now occurred. …”

18. In my judgment, where such a clause is clear on a plain reading it would be bold indeed to say that it nonetheless permitted litigation in contract in one jurisdiction but litigation in tort in another.  Several authorities have been referred to me which say that the effect of a clause cannot be avoided by “framing an action in tort” and the bringing it in a preferred jurisdiction (in particular Lord Dennings’ judgment in The Sindh [1975] 1 LL at 373 :

“According to that law, the exclusive jurisdiction clause requires this dispute to be determined by the Commercial Tribunal of Marseille or the Commercial Tribunal of Paris.  The plaintiffs cannot avoid that clause by bringing an action in England and framing it in tort.” (emphasis added)

19. It is not necessary for me to make any finding as to the validity of the exclusive jurisdiction clause.  I do however attach weight to its apparent clarity, to the fact that it has been adjudicated on in courts in Australia and Germany and that it has been the subject of opposing expert opinion from German lawyers.  Mr Bertrand Prell for Lucas HK and Mr Christian Stempfle for DrillTec have produced five affidavits between them on the matter.  It is not possible to reject the former’s opinion but I deem it appropriate to say in this judgment that I prefer the latter’s.

20. To conclude on this issue, to override the exclusive jurisdiction clause there is a greater burden on the plaintiff than merely to show that Hong Kong is the more convenient jurisdiction.  Plainly both parties were well aware of the location of the works and the language of the documentation at the time they made their agreement.  Other factors naturally must have come into play at the negotiating time.  Factors such as the undesirability of inconsistent findings in international litigation and the undesirability of parallel actions in different countries and also, of course, cost factors.

(C)   Lis alibi pendens

21. As already referred, Lucas HK commenced proceedings in December 2004 in Germany.  It is submitted by Lucas HK that the primary reason for so doing was to avoid a time bar in Germany.  Also, it is submitted that there is no direct equivalent of the common law tort of negligence in Germany.  Thus, it is argued, the grounds for litigating in Hong Kong are reinforced.  Lucas HK have undertaken to withdraw the German proceedings if they are allowed to sue DrillTec in Hong Kong.

22. Because of this undertaking this issue has become the least important of DrillTec’s grounds of opposition.  It remains, however, a factor in DrillTec’s favour.  It would have been logical and prudent for Lucas HK to commence proceedings in Germany not solely because time, in German law, was running against them but also because they realized that their arguments in favour of litigating in Hong Kong plainly faced an uphill struggle.  I consider Lucas HK to have been motivated as much by pragmatism as by an awareness of the German statutes of limitation.

23. Moreover, the absence of an exact equivalent of “negligence” in German law is a non point.  Firstly, it is not necessary for the two causes of action to be identical for lis alibi pendens to arise.  Secondly, the particulars alleged are effectively the same; it matters not what the cause action is called.

(D)   Good arguable case?

24. A plaintiff seeking service out of the jurisdiction must show it has a good arguable case, in this case in tort.  Consideration of this particular issue is not, of itself, determinative of DrillTec’s opposition.  It is nonetheless a contributory consideration in its favour.  Showing that Lucas HK has an arguable case is not enough.  It must be a good arguable case.

25. It is plain that the differences between the parties centre around the June agreement, a contractual document.  It is not for me to decide but it seems a good arguable case to say that clause 1 of that written contract brought to an end all Lucas HK’s claims against DrillTec except in certain specified regards.

26. One looks at the June agreement in vain to find any specific reference to the survival of a potential claim in negligence or breach of care with Lucas HK as a plaintiff.

27. For all the above reasons I make an order in terms of paragraphs 1 to 4 and 6 of the defendant’s summons dated 17 June 2005 save that the words “on an indemnity basis” are deleted from paragraph 6.  The costs order is made on a nisi basis.