RE SUNNI INTERNATIONAL LTD

HCCW 121/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 121 OF 2013

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D E C I S I O N

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Introduction

1.  This is an ex parte application for leave to serve a winding-up petition out of the jurisdiction on a foreign company. The application initially went before a master, but was adjourned to a judge in chambers since there is some uncertainty as to the legal basis for service out of the jurisdiction of a petition to wind up a foreign company.

Facts

2.  Sunni International Limited (“the company”) is a company incorporated in the British Virgin Islands (“BVI”).  It is not registered in Hong Kong under Part 11 of the old Companies Ordinance (Cap 32) or Part 16 of the new Companies Ordinance (Cap 622).

3.  By the amended petition herein dated 28 February 2014, the petitioner seeks an order to wind up the company as an unregistered company pursuant to s 327(3)(b) of the Companies Ordinance (Cap 32) (since renamed the Companies (Winding Up and Miscellaneous Provisions) Ordinance), on the ground that the company is unable to pay its debts.

4.  The petitioner is a judgment creditor of the company.  It is also a shareholder of the company.  It commenced an action, along with a few other shareholders in respect of their several debts, against the company in High Court Action No 2042 of 2011 in Hong Kong.  On 12 December 2012, final judgment was entered against the company in default of notice of intention to defend, in the sum of over HK$2.9 million in favour of the petitioner and in various sums totalling over HK$16.6 million in favour of the other plaintiffs.

5.  The petition states that the company is the corporate vehicle used by four families for their investment in business ventures.  These families, comprising of Hong Kong permanent residents, hold shares in the company through other companies, including the petitioner.

6.  The company used to hold a substantial number of shares in Imagi International Holdings Limited, a public company incorporated in Bermuda whose shares are listed on the Hong Kong stock exchange.  The shares owned by the company were registered in its name but ceased to be so in 2011 or 2012.  The petition asserts that if the shares are not being held by a nominee for the company but have been sold, then the proceeds of sale are still held within the jurisdiction.

7.  The company also has a 60% equity interest in PBE International Holdings Limited, a company incorporated in Hong Kong, as well as bank accounts in Hong Kong including an account held in HSBC.

8.  The sole director of the company since August 2008 is one Mr Francis Kao who holds a Hong Kong permanent resident identity card and ordinarily resides in Hong Kong.  On this basis it is said that the central management and control of the company is exercised from Hong Kong.

9.  On 10 January 2013, the petitioner’s lawyers in the BVI served on the registered agent of the company (who shares the same address as the registered office of the company) a sealed copy of the judgment and a demand to satisfy the judgment debt.  The company has failed to pay any part of the debt.

10.  On 3 May 2013, the petition herein was presented to the High Court of Hong Kong for the winding up of the company on the ground that it had failed to satisfy the judgment debt.

11.  In August 2013, the petitioner caused a notice of the petition to be published in the Hong Kong Government Gazette and in Chinese and English newspapers published and circulating in Hong Kong.  The petitioner also caused a sealed copy of the petition to be delivered to and left with an officer of the registered agent of the company.  In September 2013, the petitioner placed an advertisement of the petition in two BVI newspapers and caused a notice to be published in the BVI Gazette.

12.  In September 2013, a master of this court raised a requisition with the petitioner as to whether leave had been obtained to serve the petition out of the jurisdiction on the company.  By an affirmation filed in November 2013, the petitioner asked for leave to re-serve the petition on the company at its registered office out of the jurisdiction.

13.  Thereafter further requisitions were raised by the master with regard to the legal basis for obtaining leave to serve the petition out of the jurisdiction.  Eventually, in June 2014, the companies judge was consulted and directed that the matter be fixed for hearing before a judge in chambers.

14.  The Official Receiver, who has been served with the petition, has not taken part in these proceedings.

Jurisdiction

15.  The jurisdiction to wind up foreign companies is derived from s 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.  That section provides:

“(1) Subject to the provisions of this Part, any unregistered company may be wound up under this Ordinance, and all the provisions of this Ordinance with respect to winding up shall apply to an unregistered company, with the exceptions and additions mentioned in this section.

(2) No unregistered company shall be wound up voluntarily under this Ordinance.

(3) The circumstances in which an unregistered company may be wound up are as follows-

(a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the court is of opinion that it is just and equitable that the company should be wound up.

(4) An unregistered company shall, for the purposes of this Ordinance, be deemed to be unable to pay its debts-

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum then due equal to or exceeding the specified amount, has served on the company, by leaving at its principal place of business, or by delivering to any officer of the company, or by otherwise serving in such manner as the court may approve or direct, a demand under his hand requiring the company to pay the sum so due, and the company has for 3 weeks after the service of the demand neglected to pay the sum or to secure or compound for it to the satisfaction of the creditor;

(b) if any action or other proceeding has been instituted against any member for any debt or demand due, or claimed to be due, from the company, or from him in his character of member, and notice in writing of the institution of the action or proceeding having been served on the company by leaving the same at its principal place of business, or by delivering it to any officer of the company, or by otherwise serving the same in such manner as the court may approve or direct, the company has not within 10 days after service of the notice paid, secured or compounded for the debt or demand, or procured the action or proceeding to be stayed, or indemnified the defendant to his reasonable satisfaction against the action or proceeding, and against all costs, damages and expenses to be incurred by him by reason of the same;

(c) if execution or other process issued on a judgment, decree or order obtained in any court in favour of a creditor against the company, or any member thereof as such, or any person authorized to be sued as nominal defendant on behalf of the company, is returned unsatisfied;

(d) if it is otherwise proved to the satisfaction of the court that the company is unable to pay its debts.

…”

16.  The phrase “unregistered company” is defined in s 326(1) as follows:

“For the purposes of this Part, ‘unregistered company’ includes any partnership, whether limited or not, any association and any company with the following exceptions –

(a) a company registered under the Companies Ordinance 1865 (1 of 1865), or under the Companies Ordinance 1911 (58 of 1911), or under the pre-amended Ordinance, or under the Companies Ordinance (Cap 622);

(b) a partnership, association or company which consists of less than 8 members and is not formed or established outside Hong Kong;

(c) a partnership registered in Hong Kong under the Limited Partnerships Ordinance (Cap 37).”

17.  A foreign company is an unregistered company and may therefore be wound up by the court under s 327. There are other kinds of unregistered companies within the meaning of s 326 such as partnerships and associations.  They are not relevant for present purposes and I shall not deal with them in this judgment.

18.  Service of the petition on the company to be wound up is required by general principles of justice as the foundation of jurisdiction.  Where the foreign company is a “non-Hong Kong company”[1] and registered under s 333 of the previous Companies Ordinance (Cap 32) or s 777 of the Companies Ordinance (Cap 622), the petition may of course be served in Hong Kong on the specified person authorised to accept service of process on behalf of the company.[2]

19.  Where the foreign company has no place of business in Hong Kong and is not so registered, the petition cannot be served on the company at any address in Hong Kong.  Instead, the petition has to be served on the company outside the jurisdiction.

RHC Order 1 rule 2(2)

20.  RHC Order 11 contains provisions that govern service of documents out of the jurisdiction.  However, Mr Albert Yau, who appears for the petitioner, submits that the starting point is RHC Order 1 rule 2(2), by virtue of which Order 11 has no application to winding-up proceedings.

21.  Order 1 rule 2 relevantly provides as follows:

“(1) Subject to the following provisions of this rule, these rules shall have effect in relation to all proceedings in the High Court.

(2) These rules shall not have effect in relation to proceedings of the kinds specified in the first column of the following Table (being proceedings in respect of which rules may be made under the enactments specified in the second column of that Table)-

 

TABLE
	Proceedings		Enactments
1.	Bankruptcy proceedings.		Bankruptcy Ordinance (Cap 6), section 113.
2.	Proceeding relating to the winding-up of companies.		Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), section 296.
2A.	Proceedings relating to remedies for unfair prejudice to members’ interests.		Companies Ordinance (Cap 622), section 727.

…”

22.  It is correct that Order 1 rule 2(2) means that, by the terms of the Rules of the High Court themselves, those rules do not prima facie apply to winding up proceedings.  However, rule 210 of the Companies (Winding-up) Rules (Cap 32H) provides:

“In all proceedings in or before the court, or any Registrar or officer thereof, or over which the court has jurisdiction under the Ordinance and rules, where no other provision is made by the Ordinance or rules, the practice, procedure and regulations shall, unless the court otherwise in any special case directs, be in accordance with the rules and practice of the court.”

23.  The “rules” referred to in rule 210 means the Companies (Winding-up) Rules and the “court” referred to is the Court of First Instance: see rule 2.  It is clear from rule 210 that the Companies (Winding-up) Rules are not intended to be a complete code: Murray-Jones v Guardforce Ltd [1982] HKC 31, 38C.  The effect of rule 210 is that unless there is some other specific provision in the Companies Ordinance or the Companies (Winding-up) Rules, or unless the court otherwise directs, the Rules of the High Court apply to winding up proceedings.

Rule 25 of Companies (Winding-up) Rules

24.  Is there then any provision in the Companies Ordinance or the Companies (Winding-up) Rules that is relevant in the present context?  The rule that deals specifically with service of petition is rule 25 of the Companies (Winding-up) Rules, which provides:

“Every petition shall, unless presented by the company, be served upon the company at the registered office, if any, of the company, and if there is no registered office, then at the principal or last known principal place of business of the company, if any such can be found, by leaving a copy with any member, officer, or servant of the company there, or in case no such member, officer, or servant can be found there, then by leaving a copy at such registered office or principal place of business, or by serving it on such member, officer, or servant of the company as the court may direct; and where the company is being wound up voluntarily, the petition shall also be served upon the liquidator (if any), appointed for the purpose of winding up the affairs of the company.”

25.  However, it has been held, correctly if I may respectfully say so, that the “registered office” and “principal place of business” referred to in that rule mean the registered office and principal place of business in Hong Kong.  The rule is not intended to require or enable a petition to be served out of the jurisdiction at a place outside Hong Kong.  Thus, in Re Tea Trading Co K and C Popoff Brothers[1933] Ch 647, 651, Maugham J, referring to the English equivalent of rule 25, held that:

“On the other hand, the Companies (Winding Up) Rules 1929, and in particular, r.28, seem to provide a method of serving a petition which will be effective as a compliance with the rules, and, so far as I can see, that is the best if not the only way of dealing with an unregistered company which has been dissolved or has otherwise ceased to exist. That rule provides [His Lordship read it and continue:] In my opinion it is reasonably clear that “registered office” there means “registered office within the jurisdiction” and that “last known principal place of business” refers to the last known principal place of business of the company within the jurisdiction.”

26.  The case is cited in Buckley on the Companies Acts (14^th ed, 1981), vol 2, p 1665, as authority on the equivalent rule in England.  Similarly, in Re Giant Wizard Corporation (HCCW 1196/2004; 22 December 2005), in the context of a winding-up petition under s 327 of the Companies Ordinance (Cap 32), Deputy Judge Mayo held, at §29, that:

“Winding-up Rule 25 does not assist the petitioner as there is nothing in the rule to make it applicable to service out of jurisdiction.”

27.  Thus, where an unregistered company has or had a principal place of business in Hong Kong, even if it has not supplied the requisite particulars for registration under Part 16 of the Companies Ordinance (Cap 622), a petition to wind it up may be served on it at that place of business even after it has ceased business or been dissolved in its place of incorporation: Re Tea Trading Co K and C Popoff Brothers(supra); Re Naamlooze Vennootschap Handelmaatschappij Wokar [1946] Ch 98.

28.  But rule 25 does not assist if the unregistered company has never had a registered office or place of business in Hong Kong. In such a case, there being no relevant provision in the winding-up rules or the Ordinance, one falls back on to the general rules of the High Court.  It follows that what has been excluded for winding-up proceedings by RHC Order 1 rule 2(2) is made applicable by rule 210 of the Companies (Winding-up) Rules. The result seems to me to be that Order 11 is prima facie applicable to service of winding-up petitions outside the jurisdiction.

29.  The same result obtains with respect to orders made in winding-up proceedings.  Thus, as there is no provision in the winding-up rules on the service of orders made in winding-up proceedings, it has been held that Order 11 rule 9(4) applies to the service of an order for private examination under s 221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance: Joint and Several Liquidators of B+B Construction Co Ltd (in liquidation) v Weinmann (HCCW 114/2001; 8 June 2004), §§88-91, per Kwan J (as she then was).

RHC Order 11

30.  I turn therefore to the provisions of RHC Order 11.  Order 11 rule 1(1) is the sub-rule that sets out the numerous “gateways” for service of a writ of summons out of jurisdiction. It provides that service of a writ out of the jurisdiction is permissible with the leave of the court if the action begun by the writ satisfies any one of the conditions in paragraphs (a) to (p).

31.  Rule 1(2) makes provisions as to when leave is not required for service of a writ out of the jurisdiction.  This sub-rule reads:

“(2) Service of a writ out of the jurisdiction is permissible without the leave of the Court provided that each claim made by the writ is-

 (b) a claim which by virtue of any written law the Court of First Instance has power to hear and determine notwithstanding that the person against whom the claim is made is not within the jurisdiction of the Court or that the wrongful act, neglect or default giving rise to the claim did not take place within its jurisdiction.”

32.  Order 11 rule 9(1) makes rule 1 applicable to originating summonses, motions and petitions by providing as follows:

“(1) Subject to Order 73, rule 7,[3] rule 1 of this Order shall apply to the service out of the jurisdiction of an originating summons, notice of motion or petition as it applies to service of a writ.”

33.  Order 11 rule 9(4) deals with documents other than the originating process, as follows:

“(4) Subject to Order 73, rule 7, service out of the jurisdiction of any summons, notice or order issued, given or made in any proceedings is permissible with the leave of the Court, but leave shall not be required for such service in any proceedings in which the writ, originating summons, motion or petition may by these rules or under any written law be served out of the jurisdiction without leave.”

34.  Since an application to wind up a company is made by petition, by virtue of rule 9(1), rule 1 applies to the service out of the jurisdiction of a winding-up petition.

RHC Order 11 rule 1(2)(b)

35.  Mr Yau argues that, if Order 11 rule 1 applies at all to winding-up petitions, the applicable part of rule 1 is sub-rule (2)(b). His bald submission is that s 327 is a “written law” by virtue of which the court has power to hear and determine the claim notwithstanding that the person against whom the claim is made, namely, the foreign company sought to be wound up, is not within the jurisdiction of the court.  It follows, he says, that by virtue of Order 11 rule 1(2)(b) a winding-up petition may be served out of the jurisdiction on a foreign company without the leave of the court.

36.  I am unable to accept this submission, which seems to me to be contrary to the authorities on the kind of enactment that falls within Order 11 rule 1(2)(b).

37.  In In re Harrods (Buenos Aires) Ltd [1992] Ch 72[4], the petitioner, who was a minority shareholder in a company incorporated in England, complained of unfairly prejudicial conduct of the affairs of the company by the majority shareholder, who was a Swiss company, and sought an order that the majority shareholder purchase its shares in the company.  At first instance Harman J held that the petition could be served on the majority shareholder in Switzerland without the leave of the court on the ground, inter alia, that Order 11 rule 1(2)(b) so permitted.  The Court of Appeal unanimously reversed him on this point.  Dillon LJ stated (at pp 115E-116E):

“[RSC Order 11 rule 1(2)(b)] was first introduced in, for practical purposes, its present form, by paragraph 5 of the Rules of the Supreme Court (No. 2) Order 1963 (S.I. 1963 No. 1989 L. 16). It seems plain that the reason for its introduction was the enactment of the Civil Aviation (Eurocontrol) Act 1962. …

It appears, however, that rule 1(2)(b) may have been intended to have a wider scope than only applying where its actual wording has been used in a statute …

But in my judgment to be within Ord. 11, r. 1(2)(b) an enactment must, if it does not use the precise wording in the rule, at least indicate on its face that it is expressly contemplating proceedings against persons who are not within the jurisdiction of the court or where the wrongful act, neglect or default giving rise to the claim did not take place within the jurisdiction.  It is not enough, in my judgment, that the enactment, like the Companies Act 1985,gives a remedy in general cases - against ‘other members of the company’ - without any express contemplation of a foreign element.  Indeed if the judge’s reasoning on this point were right it would seem that any proceedings to claim an injunction could be brought, without leave under Order 11, against a person who is not within the jurisdiction of the court and could proceed to trial without any such leave because under an enactment, section 37 of the Supreme Court Act 1981, the High Court has power by order (whether interlocutory or final) to grant an injunction in all cases in which it appears to the court to be just and convenient to do so.”

Stocker and Bingham LJJ both agreed with Dillon LJ on the construction of Order 11 rule 1(2)(b): see pp 118H-119A and 123D.

38.  In Hong Kong, Barnett J arrived at a similar conclusion in Re S (A minor) (Wardship: Jurisdiction) [1992] 2 HKLR 39 at 42, though it appears that In re Harrods (Buenos Aires) Ltd was not cited to him. The case concerned an originating summons seeking relief under the wardship jurisdiction of the court conferred by s 26 of the Supreme Court Ordinance (Cap 4) and the Guardianship of Minors Ordinance (Cap 13), which the plaintiff purported to serve on her husband in the Philippines without the leave of the court.

39.  S 26 of the Guardianship of Minors Ordinance provided:

“The jurisdiction conferred on any court by this Ordinance shall be exercisable notwithstanding that any party to the proceedings is not domiciled in Hong Kong.”

40.  S 26 of the Supreme Court Ordinance provided:

“(1) Subject to the provisions of this section, no infant shall be made a ward of court except by virtue of an order to that effect made by the High Court.

…

 (3) The High Court may, either upon an application in that behalf or without such an application, order that any infant who is for the time being a ward of court shall cease to be a ward of court.”

41.  Rejecting the argument that the plaintiff’s claim fell within Order 11 rule 1(2)(b), Barnett J said:

“I am satisfied that the correct interpretation of Order 11, rule 1(2)(b) requires legislation that specifically provides for the court to deal with a claim although the defendant is not jurisdiction of the court. There appears to be no such provision in Hong Kong’s legislation in relation to the court’s wardship jurisdiction. Accordingly, I find that leave is required to serve an originating summons out of the jurisdiction when the relief sought by that summons is in the court’s wardship jurisdiction.”

42.  This approach has been adopted in Re Giant Wizard Corporation (supra) at §§25-31, where Deputy Judge Mayo stated that

“It is evident from the judgment of Bernett J in Re S (A minor) that in interpreting Order 11 rule 1(2)(b) the legislation being relied upon to obviate the requirement of obtaining leave must be specific.”

He then held that leave was necessary for the service out of the jurisdiction of a winding-up petition on a shareholder of the company to be wound up, having said at §28:

“In the present case, I do not think that it is clear that the exemption could be extended to the 5^th respondent which is only a party to the petition and not the subject matter of the winding-up order sought.”

43.  The last few words in the passage quoted above might suggest the judge took a different view in relation to service on the subject company itself.  I do not think, however, that the learned judge there intended to decide that Order 11 rule 1(2)(b) rendered it unnecessary to obtain leave to serve a winding-up petition out of the jurisdiction on the company to be wound up itself.  The question was not before him or relevant to his decision.

44.  There is nothing in s 327 which specifically obviates the requirement of obtaining leave. There is nothing in s 327 which specifically deals with the question of service of the petition out of the jurisdiction (unlike, for example, rule 109 of the Matrimonial Causes Rules (Cap 179A)) or expressly deals with foreign companies.

45.  It is true that in an appropriate case, s 327 empowers the court to wind up a company even though it is a foreign company without any presence within the jurisdiction.  But it has to be borne in mind that s 327 was enacted to provide for the winding up of unregistered companies generally, not specifically foreign companies.[5] It was only settled by decisions of the courts, years after the equivalent provision was first enacted in England in the Companies Act 1862, that it applied to foreign companies: Re Commercial Bank of India (1868) LR 6 Eq 517; Re Matheson Bros Ltd (1884) 27 Ch D 225.  The statute on its terms applies not only to companies incorporated overseas but to “any partnership, whether limited or not, any association and any company” with specified exceptions.  Unregistered companies are not necessarily foreign entities.

46.  Apart from s 327, the winding-up jurisdiction of the court is conferred by s 176 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, which provides:

“The Court of First Instance shall have jurisdiction to wind up any company.”

This power however applies only to a “company” as defined in s 2, namely, a company formed and registered under the Companies Ordinance (Cap 622) or an existing company (as defined).

47.  The main thrust of s 327 is to confer a winding-up jurisdiction on the court notwithstanding that the entity against which the order is sought is not a “company” as so defined, provided it falls within the definition of “unregistered company”, which includes certain partnerships, associations and companies.  The section is, in my view, not specific legislation allowing the court to wind up a company “notwithstanding that the [company] is not within the jurisdiction”.

48.  It seems to me a statutory provision that enables the court to wind up a wide assortment of entities, the description of which has been held to include foreign companies, is not a sufficiently specific enactment that qualifies as the kind of written law that removes the requirement of leave for service out of the jurisdiction by virtue of Order 11 rule 1(2)(b). 

49.  This leads me to the conclusion that Order 11 rule 1(1) applies. 

Problem in applying Order 11 rule 1(1) to winding-up petition

50.  As noticed in a number of recent cases, however, the grounds for granting leave for service of a writ outside the jurisdiction under paragraphs (a) to (p) of Order 11 rule 1(1) are not apt to cover a winding-up petition.  Where, for example, a creditor seeks to wind up a company based on an unpaid contractual debt, the petition cannot properly be described as a “claim … brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract” (rule 1(1)(d)): see Re Up Energy Group Ltd (unreported, HCCW185/2013, 25 Oct 2013).  Likewise, a petition based on an unpaid judgment debt cannot properly be characterised as a “claim … brought to enforce any judgment or arbitral award” (rule 1(1)(m)): see Re Grand China Logistics Holding (Group) Co Ltd (HCCW 130/2013; 19 August 2013)at §3.  This has led Harris J to observe in Re Up Energy Group Ltd at §5:

“I would note in passing that it is unclear how, if at all, Order 11 applies to a petition to wind up an unregistered company, which does not have a place of business in Hong Kong and cannot be served pursuant to section 338 of the Companies Ordinance, but this is not a matter that it is necessary for me to determine in the present case.”

51.  The problem has also been noted in Graeme Johnston,The Conflict of Laws in Hong Kong (2^nd ed, 2012), where the learned author stated at §8-061:

“It is further suggested that the ordinary requirements of O.11 must, however, be regarded as subject to the following points: …

First, it is suggested, the requirements of O.11 r.1(1) ought to be read as implicitly inapplicable in this context.  They are plainly not drafted with winding-up proceedings in mind, and it would be absurd to apply them in this context, in which the existence and exercise of jurisdiction are governed by very different principles from those applicable in the in personam context.  English law expressly recognises this by making provision in the Insolvency Rules for the disapplication of the English equivalent of O.11 r.1(1).  In Hong Kong, the same can and should, it is suggested, be implied in the overall scheme, even though this goes against the literal meaning of RHC O.11 r.9(1).”

52.  In In re Paramount Airways Ltd [1993] Ch 223 at 241E, Sir Donald Nicholls VC (as he then was) discussed the relationship between Order 11 of the Rules of the Supreme Court and rule 12.12 of the (UK) Insolvency Rules[6] in the following terms:

“Hambros Jersey contended that the jurisdiction conferred by this rule can only properly be exercised by analogy to R.S.C., Ord. 11, so that leave should not be granted unless the case falls within one of the paragraphs of Ord. 11, r.1(1). This is not a tenable interpretation of rule 12.12 of the Rules of 1986, given the clear language of paragraph (1) of the rule and given also that by their nature proceedings under the Insolvency Act 1986 cannot be expected to be addressed by Ord. 11, r.1.” (emphasis added)

53.  A winding-up petition seeks to initiate a statutory process of bringing the operations of the company to a close and results in a class remedy in the form of the distribution of the assets of a company for the benefit of its creditors generally.  The incongruity in trying to apply the various paragraphs in Order 11 rule 1(1) to a winding-up petition is hardly surprising given that the gateways in rule 1(1) are primarily intended for claims in personam whereas s 327 provides the court with a power to make a winding-up order and nothing else.  No personal claims can be made in such a petition: Re Victorius Run Ltd [2010] 3 HKLRD 473 §§16-25 per Barma J (as he then was). 

54.  I should mention that in Re Gottinghen Trading Ltd [2012] 3 HKLRD 453 at §32, Harris J referred to Order 11 rule 1(1)(a) and (c) as possible bases for service of a winding-up petition out of the jurisdiction.  However, his lordship was alluding to the special case of a contributory’s petition where a shareholder respondent is ordinarily resident or domiciled in the jurisdiction, with the subject foreign company being a necessary or proper party.  This does not detract from the problem that exists generally, especially in the case of creditors’ petitions.

The position prior to 1988

55.  The problem referred to above did not exist before the amendment of Order 11 rule 9 in Hong Kong in the 1980s.  Before that amendment, rule 9(1)-(4) provided:

“(1) Subject to paragraph (2) and to Order 73, rule 7, service out of the jurisdiction of an originating summons is permissible with the leave of the Court.

(2) Where the proceedings begun by an originating summons might have been begun by writ, service out of the jurisdiction of the originating summons is permissible as aforesaid if, but only if, service of the notice of the writ out of the jurisdiction would be permissible had the proceedings been begun by writ.

(3) Where any proceedings are authorized by these rules or (apart from these rules) by or under any written law to be begun by motion or petition, service out of the jurisdiction of the originating notice of motion or of the petition is permissible with the leave of the Court.

(4) Subject to Order 73, rule 7, service out of the jurisdiction of any summons, notice or order issued, given or made in any proceedings is permissible with the leave of the Court.”

56.  When the rule was in that form, petitions to wind up foreign companies could be served outside the jurisdiction with leave given under rule 9(3) which dealt specifically with petitions and motions.  In Dicey & Morris on The Conflict of Laws (10^th ed, 1980), p 732 at footnote 54, it was stated, in the context of winding-up proceedings, that “petitions and orders may be served outside England under R.S.C., Ord. 11, r. 9(3) and (4)”.  This suggests that petitions to wind up foreign companies used to be served out of the jurisdiction with leave granted by the court under Order 11 rule 9(3).[7]  The discretion for giving leave under rule 9(3) appears to have been at large and not limited to the gateways under rule 1(1). 

57.  By the Rules of the Supreme Court (Amendment) Rules 1984, however, rule 9(1) was amended to its present form while rule 9(2) and (3) were deleted.  The perhaps unintended result in Hong Kong was that, although rule 1(1) was clearly inapt for insolvency proceedings, it became applicable to service out of the jurisdiction of, inter alia, all petitions, including winding-up petitions.

The position in England and Wales

58.  The amendments in Hong Kong were modelled on the same amendments made to the Rules of the Supreme Court of England and Wales[8] (which became effective on 1 January 1987).  However, the problem described above did not occur there because the Insolvency Rules (made under the Insolvency Act 1986) were also enacted, and came into effect on 29 December 1986.  Rule 12.12 of the Insolvency Rules, as it was first enacted, provided:

“(1) Order 11 of the Rules of the Supreme Court, and the corresponding County Court Rules, do not apply in insolvency proceedings.

(2) A bankruptcy petition may, with the leave of the court, be served outside England and Wales in such manner as the court may direct.

(3) Where for the purposes of insolvency proceedings any process or order of the court, or other document, is required to be served on a person who is not in England and Wales, the court may order service to be effected within such time, on such person, at such place and in such manner as it thinks fit, and may also require such proof of service as it thinks fit.

(4) An application under this Rule shall be supported by an affidavit stating-

(a) the grounds on which the application is made, and

(b) in what place or country the person to be served is, or probably may be found.”

59.  By rule 12.12(1), Order 11 was expressly stated to be inapplicable to insolvency proceedings.  By rule 12.12(3), the English court had a very wide discretion to grant leave for service out of the jurisdiction, more extensive than equivalent provisions in RSC Order 11 and without being limited by the gateways in RSC Order 11 rule 1(1): In re Busytoday Ltd [1992] 1 WLR 683, 690; In re Paramount Airways Ltd (supra) at 241D; Re Howard Holdings Inc [1996] BCC 549, 553E.  There was therefore, in England and Wales, a seamless transition from Order 11 rule 9(3) of the Rules of the Supreme Court to rule 12.12 of the Insolvency Rules.[9]

60.  Unfortunately, in Hong Kong, Order 11 rule 9 was amended following similar amendments in England, but no equivalent of rule 12.12 of the Insolvency Rules was enacted in the Companies (Winding-up) Rules or elsewhere. 

The proper approach

61.  It is highly unsatisfactory that leave to serve a winding-up petition outside the jurisdiction should be required under a rule when none of the paragraphs under that rule is apt to apply to such a petition. In this state of affairs, there is in my view much to be said for Mr Johnston’s suggestion in The Conflict of Laws in Hong Kong (2^nd ed, 2012) at §8-061 that the rules be amended.

62.  Faced with the existing rules, however, I have considered the following possible solutions to this conundrum.  First, straining the language of one or more of the paragraphs in Order 11 rule 1(1) to fit them to a winding-up petition.  I consider this course entirely unattractive. The established principle is that for leave to be granted, a case must fall within the spirit as well as the letter of the Order: Mercedes-Benz AG v Leiduck [1996] AC 284.  The language of rule 1(1) is plainly inapt for winding-up.  There is a limit to how much it can be strained or stretched within the bounds of intellectual honesty.  Harris J has already rejected rule 1(1)(d) and (m) as possible bases (see §50 above).  One author has called it “absurd” to apply the paragraphs in rule 1(1) to a winding-up petition (see §51 above).

63.  Secondly, I have not been able to find any authority to suggest that where leave is required, there is any inherent jurisdiction to grant leave to serve out other than under the paragraphs of Order 11 rule 1(1).  On the contrary, there is authority that Order 11 forms an entire code such that any gaps in it cannot be filled by the court’s inherent powers: Union Bank of Finland v Lelakis [1997] 1 WLR 590, 593H.  Nor, in my view, can the problem be solved by exercising the court’s inherent jurisdiction – if there be any – to dispense with service.  As held by the Court of Appeal in Bank of China (Hong Kong) Ltd v Regal Link Investment Ltd [2009] 3 HKLRD 203 at §38, any power to dispense with service should not be used to circumvent the requirement for leave for service out of the jurisdiction.

64.  Nor can substituted service be the answer.  The Court of Appeal has held that allowing substituted service of a writ in Hong Kong on a foreign defendant has the same effect of granting leave to serve out of the jurisdiction. Such an order should therefore be refused unless it is demonstrated that the case falls clearly within one of the sub-paragraphs of Order 11 rule 1(1): Tillemont Shipping Corp SA v Taitexma Enterprise Corp [1993] 2 HKC 129, 132H-133B.[10]

65.  In my opinion, the preferable, though far from ideal, route is to rely on the wording of rule 210 of the Companies (Winding-up) Rules itself.  The rule incorporates the Rules of the High Court for the purposes of winding-up proceedings, but this is subject, inter alia, to the clause “unless the court otherwise in any special case directs”.  While these words may not be wide enough to permit the court to re-write the rules[11], they in my view empower the court, faced with a petition to wind up an unregistered company which is a foreign company without a registered office or principal place of business in Hong Kong, to direct that the rules and procedure applicable shall be in accordance with RHC Order 11 with the exception that the words “if in the action begun by the writ …” in rule 1(1) together with all the paragraphs following those words under that sub-rule shall be treated as inapplicable.  In other words, rule 1(1) as so adapted for the purpose of winding-up proceedings would provide:

“Provided that the writ is not a writ to which paragraph (2) of this rule applies, service of a writ out of the jurisdiction is permissible with the leave of the Court.”

66.  Where this approach is taken, the adapted rule 1(1), as applied to petitions by rule 9(1), means that:

(1) leave of the court is required for the service out of the jurisdiction of a winding-up petition on a foreign company to be wound up; and

(2) the decision whether to grant leave is in the discretion of the court, which is to be exercised generally without requiring the petitioner to show that the petition falls within any of the paragraphs in Order 11 rule 1(1).

67.  It is well established that the court’s jurisdiction to wind up a foreign company will not be exercised unless there is a sufficient connection between the company and Hong Kong.  In particular, three core requirements have to be satisfied which are, in the words of the Court of Appeal in Re Yung Kee Holdings Ltd [2014] 2 HKLRD 313 at §38, as follows:

“(1) there must be a sufficient connection with Hong Kong, but this does not necessarily have to consist in the presence of assets within the jurisdiction;

(2) there must be a reasonable possibility that the winding-up order would benefit those applying for it; and

(3) one or more persons interested in the distribution of the company’s assets must be persons over whom the court is able to exercise jurisdiction.”

68.  In my opinion, leave to serve a petition out of the jurisdiction should not be given unless the applicant demonstrates a good arguable case that these conditions are met in the particular case.  The applicant must also demonstrate there is a serious issue to be tried on the merits, for example, as to the existence of the debt on which the petition is founded. The grant of leave, on an ex parte application as is usually the case, will not, of course, preclude the company or any other proper party from contesting jurisdiction subsequently.  Such a threshold requirement at the leave stage is, in my view, appropriate in order to ensure that there are prima facie grounds for invoking what has been called an “exorbitant”[12] jurisdiction under s 327 before the petitioner is permitted to serve the process on the company out of the jurisdiction.

Conclusion in the present case

69.  On the basis of the facts set out above and the matters mentioned by Mr Yau at the hearing, I am satisfied that there may well be a good arguable case that the three core requirements can be met in this case.  However, as is accepted by Mr Yau, the evidence does not cover all the requirements.  I shall therefore simply adjourn the petitioner’s application for it to be revised as appropriate and then re-submitted to the master to be dealt with in the light of my judgment.  The costs of the hearing before me shall be costs of the application to be dealt with by the master.