BANK OF CHINA (HONG KONG) LTD v. LINK REGENT INVESTMENT LTD AND OTHERS

CACV 305/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No. 305 of 2008

(On Appeal from HCA No. 465 of 2004)

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CACV 306/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No. 306 of 2008

(On Appeal from HCA No. 4517 of 2003)

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BETWEEN:

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CACV 307/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No. 307 of 2008

(On Appeal from HCA No.4518 of 2003)

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BETWEEN:

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JUDGMENT

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Hon. Yuen JA:

1.  There are three appeals (CACV 305, 306 & 307/2008) by Joanne Wong Lei Kwan (“the Appellant”) from orders given by Chu J on 4 September 2008 dispensing with service on her of the writs in three actions (HCA 465/2004, HCA 4517/2003 and HCA 4518/2003 respectively).

Background

2.  In each of the three actions, the plaintiff was the Bank of China (“the Bank”), the 1^st defendant was a Hong Kong-registered company in which the Appellant and her husband were officers or shareholders, the 2^nd defendant was her husband and the 3^rd defendant was the Appellant. 

3.  The claim in each of the three actions against the Appellant is as guarantor of a loan made by the Bank to the relevant company.  Letters of demand were sent to the Appellant in September and November 2003.  The claims now total nearly $18m inclusive of interest.

Service of writs

4.  The writs were issued on 12 December 2003 (HCA 4517 & 4518/2003) and 28 February 2004 (HCA 465/2004) respectively.  In each of the three actions, the writ was purportedly served  on the Appellant at the relevant company’s registered office and at the Hong Kong residential address given in the guarantees she signed. 

Default judgments

5.  In each of the three actions ,the Appellant failed to file a notice of intention to defend, and the Bank obtained default judgment in 2004.

Statutory demand

6.  In 2006, a statutory demand for the judgment debts was served on the Appellant by substituted service. 

Bankruptcy petition

7.  On 15 March 2007, a bankruptcy petition was presented and served on the Appellant also by substituted service.  On 6 June 2007 a Bankruptcy Order was made in her absence.

Annulment of Bankruptcy Order by Barma J

8.  On 8 October 2007 the Appellant made an application to annul the Bankruptcy Order.  On 14 March 2008 Barma J annulled the Bankruptcy Order and dismissed the Bankruptcy Petition for the following reasons. 

9.  First, a bankruptcy petition may only be presented if any of the conditions connecting the debtor to Hong Kong listed in s.4(1) Bankruptcy Ordinance Cap. 6 is satisfied (domicile, presence on date of presentation of petition, ordinary residence or carrying on business in the 3 years preceding the date of presentation of petition).  The Bank sought to argue that the Appellant had been  ordinarily resident in Hong Kong during the period of 3 years before the presentation of the petition.

10.  The learned judge found that the Appellant had left Hong Kong permanently in 2000 for Canada and (apart from 4 brief visits to Hong Kong in August - September 2004) had remained in Canada  until 2006 when she acquired citizenship.  She then moved to Shenzhen where she has lived since.  Between 2 June 2006 and 15 March 2007, she visited Hong Kong 14 times but mostly on day trips only.  On those facts the learned judge held that the Appellant had not been ordinarily resident in Hong Kong in the 3 years before 15 March 2007 when the petition was presented.

11.  The learned judge decided to exercise his discretion to grant the annulment order as he considered that the question of the jurisdiction of the court to make the bankruptcy order was involved, and he also declined to hold on the evidence before him that the Appellant must have been aware of the writs and default judgments against her.

12.  Secondly, the learned judge held that the Appellant had not been validly served with the writs, as the writs were valid only for service within the jurisdiction and she was not in Hong Kong.  The default judgments were thus susceptible to being set aside as of right, subject to the court’s residual discretion.  The learned judge considered that it was unlikely that the court would not set aside the judgments.  Although the default judgments had been entered 4 years ago in 2004, there was no evidence that the Appellant had been aware of the legal proceedings against her until September 2007 and she had to have the Bankruptcy Order annulled first before she could apply to set aside the judgments.  I should add that the Appellant had alleged that she had signed the guarantees under duress, a matter that the learned judge did not consider it necessary to consider.  

13.  There was no appeal from the annulment order which was given on Friday 14 March 2008. 

Injunctions

14.  Of course Barma J’s holding in HCB 2837/2007 that the default judgments were susceptible to being set aside did not mean that those judgments were automatically set aside.  The Appellant still had to make the relevant application to court in HCA 4517 & 4518/2003 and 465/2004 to set aside those judgments for having been irregularly obtained.

15.  Before that was done however, on Tuesday 18 March 2008, the Bank applied (ex parte on notice) for an interlocutory injunction against the Appellant in each of the actions restraining her from taking custody of the assets which had been placed in the Official Receiver’s control as  a result of the Bankruptcy Order, viz. cash of more than $1.6m and the contents of a safe deposit box.  The injunction orders were granted by A. Cheung J.  The cash and contents were placed under the control of the Appellant’s solicitors pending further court order.

Appellant’s solicitors’ refusal to accept service

16.  Thereafter there was correspondence between the parties’ solicitors, throughout which the Appellant’s solicitors consistently refused to accept service on her behalf.

Application to set aside default judgments, renew writ and dispense with service

17.  On 8 April 2008 the Bank issued a summons in each action for orders:

(1)     to set aside the default judgment,       

(2)     to extend the validity of the writ (usually referred to as “renewing” the writ),

(3)     to dispense with service of the writ

and for directions for the conduct of the action. 

18.  It should be noted that it was the Bank itself who applied to set aside the default judgments.  In other words, it had conceded that the judgments were irregular because the writs had not been served.  This is confirmed in the 2^nd affirmation of Lam Chiu Man for the Bank in which he accepts that “it is clear from the Annulment Judgment that the Default Judgments cannot stand and are liable to be set aside” (para. 4(d)(i)). 

19.  The Appellant did not file an affirmation prior to the hearing before Master Hui on 28 April 2008 but asked for an adjournment which was refused.

Master Hui’s orders

20.  Master Hui gave the orders set out in paragraphs 17(1) - (3) above and gave directions for the further conduct of the actions.

Appellant’s appeal and evidence

21.  The Appellant appealed the master’s orders – other than the order setting aside the default judgments – in Notices of Appeal filed on 6 May 2008.  In each appeal she sought an order that the Bank’s application to renew the writ be dismissed and that the “consequential orders made be set aside”.  Her affirmation made on 23 June 2008 made it clear that she was seeking to set aside the writs presumably under Order 12 r.8 RHC, as she said (para. 17):

“ ... I have ceased to reside in Hong Kong since about June 2000.  The writs were allegedly served tome without an Order for service out which could not be construed as effective service”.  (Emphasis added).

She also said (para. 18):

“As a general rule, the Plaintiff needs to show good reason for extension of writ for its undue delay.  The Plaintiff took its chance in not applying for substituted service nor service out ...”.  (Emphasis added).

22.  The Appellant also alleged (among other things) that:

(1)     undue influence had been exercised on her to sign the guarantees and she had not been advised to consult lawyers independently before she signed them;

(2)     she had no knowledge of the companies’ affairs;

(3)     she was not within the jurisdiction when the writs were served;

(4)     she had defences to the actions in laches and limitation (although the limitation point was apparently later confined to the interest element only); and

(5)     the Bank was guilty of material non-disclosure when it obtained the injunctions from A Cheung J.

Chu J’s judgment  

23.  The matter went before Chu J on appeal from the Master’s orders (except for his orders setting aside the default judgments set out at paragraph 17(1) above).

- Writs could not be renewed

24.  The learned judge held first, that the Master’s order (set out at paragraph 17(2) above) for renewing the writ should be set aside as a writ may only be extended for a maximum period of 12 months from the date of issue.  Since the writs were issued in 2003 and 2004 and had not been renewed in the interim, the Master had no power to renew the writs for 12 months from the date of his orders which was made on 28 April 2008.  I should add for completeness that in reaching this decision the learned judge declined to follow Deputy Judge Carlson’s approach in Bank of China (Hong Kong) Ltd v Chen Jianren HCA2844/2001, 18 December 2007, unrep. 

25.  The Bank has not cross-appealed against the learned judge’s decision on these orders, so I shall say no more about this issue.

26.  Pausing here, the position is that the writs have lapsed for service and could no longer be served on the Appellant. 

- Service of writs dispensed with

27.  Chu J however gave an order dispensing with service of the writs on the Appellant, exercising the inherent jurisdiction of the court (para. 33).  Briefly the learned judge gave the following reasons for exercising the court’s discretion in this way:

(1)     it was not the Bank’s fault that the writs had not been served - the Bank  had acted reasonably in (purportedly) effecting service of the writs on the registered offices and the addresses given by the Appellant in the guarantees, and she had not informed the Bank that she was leaving Hong Kong;

(2)     the Bank’s claims (or at least the claims for the principal) are not time-barred, so that the Bank could issue fresh writs against the Appellant anyway;

(3)     the Appellant had notice of the writs;

(4)     the Appellant would suffer no prejudice if service of the writs was dispensed with -

-        memory failures would occur whatever the proceedings taken against her,

-        her defence of laches would remain,

-        if there was additional interest, the court could disallow part of the interest if appropriate,

-        there would be a saving in time and costs to maintain the three actions,

-        it would be open to the Bank to apply for fresh injunctions before or after the issue of new writs and “the termination of the three actions against the [Appellant] does not mean that she definitely will not be subject to mareva injunctions”.    

28.  In respect of the argument that since the writs could not be renewed, the court should not dispense with service of them, the learned judge simply said she did not agree with it.  The learned judge gave an order in each action dispensing with service of the writ, dismissed the appeal and ordered that the Appellant pay 75% of the Bank’s costs of the appeal.

Discussion

29.  The learned judge’s orders were of course made in the exercise of her discretion and it is well-established that an appellate court will not lightly interfere with the exercise of discretion unless it is satisfied that the judge has erred in law or in principle, or if she has taken into account some matter which she should not have taken into account, or has left out of account some matter which she should have taken into account, or if the decision was so plainly wrong that it must have been reached by a faulty assessment of the weights of the different factors which have to be taken into account (cf  Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, applied in Lakhan v Wu Wing Tat [1987] 3 HKC 54).

30.  However with great respect to the learned judge, I do not agree that the orders for dispensing with service of the writs can stand.  First, it is clear that the fact that since 2007 the Appellant has had notice of the proceedings is neither here nor there (Deng Minghui v Chau Shuk Ling [2007] 1 HKLRD 905).

31.  More importantly it seems that the learned judge lost sight of one essential point – that the Appellant was not amenable to the jurisdiction of the Hong Kong court unless there was leave to serve out under O.11 r.1 RHC, and a relevant case Leal v Dunlop Bio-processes International Ltd [1984] 1 WLR 874 was not drawn to her attention. 

Appellant out of jurisdiction

32.  It is now common ground that the Appellant has resided out of the jurisdiction since 2000 (see affirmation of Sit Sai Hung Billy for the Bank, para. 19) and Counsel for the Bank accepts that the Appellant is outside the jurisdiction.  There was no evidence that the Appellant happened to be within the jurisdiction on the day Chu J made the order dispensing with service. 

33.  The rules of court are clear that to make a person outside the jurisdiction amenable to the court of Hong Kong, leave to issue a writ for service out is required under Order 6 r.7 RHC, and leave to serve that writ out is required under Order 11 r.1 RHC.  That had not been done, the Bank says simply because it did not know the Appellant had emigrated.  However the fact remains that the writ in each of the actions, quite apart from being lapsed for service, is not valid for service out and no application has been made for leave to serve out.   

34.  Could these requirements under Order 6 r.7 and Order 11 r.1 have been circumvented by an argument that the failure was only an irregularity which could be cured under Order 2 r.1 RHC, and then for actual service out to be dispensed with by an order made under the inherent jurisdiction of the court?  In my view we must first consider the judgment of the English Court of Appeal in Leal, a case which the learned judge did not have the opportunity to consider.

Leal v Dunlop

35.  In Leal which was discussed and followed in Dixon v Grand Hyatt Hong Kong Co Ltd [1994] 2 HKC 489, 499-500, the plaintiff was an employee of a Jersey company.  He sustained personal injuries in the course of his employment.  One week before the time-bar, he issued a writ without first obtaining leave under O.6 r.7 RSC, and a day before the writ expired for service, he served it on the employer in Jersey without first obtaining leave under O.11 r.1 RSC.  It would be noted that the writ was served (albeit irregularly) within 12 months of its issue.  I should also add that the employer through its insurers had been aware of the proposed litigation for some time.

36.  The employer took out a summons under O.12 r.8 RSC to set aside service and to dismiss the action.  The plaintiff took out a cross-summons to renew the writ under O.6 r.8 (2) RSC and for leave to serve out under O.11 r.1 RSC. 

37.  Neill J set aside service and dismissed the cross-summons for renewal of the writ and leave to serve out.   The Court of Appeal upheld that decision.  It first held that the court had power to cure the failure to obtain leave under O.11 r.1 RSC so as to make good the service of the writ out – unlike the present case, the writ had in fact been served within the 12-month period.  However it would not exercise its discretion to do so except in exceptional circumstances.  Stephenson LJ said (p.882A-B):

“ ... the procedure for which Order 11 provides is an exceptional enlargement of our courts’ jurisdiction ... the court’s restraining hand is an important restriction on the misuse of the procedure ...”.  

May LJ said (p.882G):

“ ... I hope and expect that it will only be in the exceptional case that the court will validate after the event the purported service in a foreign country without leave of process issued by an English court”.  

Slade LJ said (p.885E-F):

“Finally, and more generally, I would specifically express my agreement with May LJ’s view that only in the exceptional case should the court, in the exercise of the discretion which we have held to exist, validate, after the event, the purported service in a foreign country without leave of process issued by an English court.  In most cases breaches of the requirements of Ord.6, r.7, or Ord.11, r.1, relating to leave of the court, are not in my opinion likely to be breaches which can be lightly disregarded”.  (Emphasis added).

38.  If that was the approach where the writ had actually been served (albeit irregularly) within the validity period of a writ, then it must apply with greater force to a situation where the writ has expired for service.  If leave to serve out would not be given retroactively, service should not be dispensed with in an attempt to circumvent the provisions of O.6 r.8 RHC and O.11 r.1 (1) RHC.  As Slade LJ said in Leal, if a party “cannot properly enter through the front door of O.6 r.8 [to renew a writ] , he should not be allowed to enter through the back door of O.2 r.1" (p.885D).  Similarly in the present case, if the Bank cannot properly enter through the front door of O.6 r.8, it should not be allowed to enter through the back door of dispensing with service of the expired writ.    

No submission to jurisdiction

39.  Counsel for the Bank sought to argue that the Appellant has submitted to the jurisdiction of the court in that she had instructed counsel to apply to annul the Bankruptcy Order and later to attend the hearing for the injunction.

40.  In my view, the Appellant did not submit to Hong Kong jurisdiction when she applied to annul the Bankruptcy Order on the ground that the court had no jurisdiction over her under s.4 (1) Bankruptcy Ordinance by reason of her foreign residency.

41.  As for the injunction hearing, it matters not whether it was ex parte on notice or inter partes.  I respectfully agree with Reyes J’s analysis in Hwoo Huang Linda v Fu Being San and others [2002] HKCU 428, HCA 4888/2001, unrep. 10 April 2002 that (para. 26):

“(3)    A party does not submit to the jurisdiction if he merely acts to preserve the status quo pending the mounting and resolution of an application to challenge forum.    

(4)    A party does not submit to the jurisdiction if he merely takes defensive action in interlocutory injunction proceedings brought by the other side”.   

42.  In the circumstances it seems to me that the orders for dispensing with service have to be set aside.  The Bank will have to serve the Appellant out of the jurisdiction and to take such protective measures as it may be advised before or after such service is effected.

Hon Hartmann JA:

43.  I agree.

Hon. Yuen JA:

Order

44.  Accordingly the order of Chu J in each action dispensing with service of the writ is set aside and for the avoidance of doubt it is ordered that service of the writ in each action is set aside.  The parties having agreed that costs of the appeal should follow the event, there will be a costs order in each appeal that the Respondent is to pay the Appellant’s costs of the appeal and before the judge.  The Notices of Appeal did not refer to the costs before the master, nor were there submissions on those costs and so it would not be proper for this court to deal with them.