XCHRX MERCEDES-BENZ AG v. LEIDUCK, HERBERT HEINZ HORST AND ANOTHER

1994 No. A4089

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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H E A D N O T E

(I) The words "a person duly served" in Ord. 11 r. 1(1)(c) of the R.S.C. mean "a person who has been duly served". Accordingly, a defendant has to have been duly served with the writ before an application under Ord. 11 r. 1(1)(c) for leave to serve another defendant out of the jurisdiction is made.

(ii) The words "any judgment or arbitral award" in Ord. 11 r. 1(1)(m) mean "any judgment or arbitral award which has been obtained." Accordingly, the judgment or arbitral award has to have been obtained before an application under Ord. 11 r. 1(1)(m) for leave to serve a defendant out of the jurisdiction is made. In addition, the judgment must have finally and conclusively determined the rights of the parties to it.

(iii) Leave to serve a writ out of the jurisdiction will be set aside if the claim in the writ is discovered to be unsustainable soon after leave was granted.

(iv) If the conditions necessary for leave to serve a writ out of the jurisdiction had not existed when leave was granted, the grant of leave was not merely a failure to comply with the requirements of the R.S.C. Accordingly, Ord. 2 r. 1(2) could not prevent the service of the writ being set aside, nor could the unjustified grant of leave be waived under Ord. 2 r. 2(1).

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J U D G M E N T

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INTRODUCTION

1. The Plaintiff, Mercedes-Benz AG ("Mercedes"), is the well- known manufacturer of motor vehicles. On 30th April 1994, it commenced proceedings in Hong Kong against the Defendants. However, on 22nd August 1994, it discontinued the proceedings against the 2nd Defendant, Intercontinental Resources Company Ltd. ("IRCL"). The remaining Defendant, Mr. Leiduck, now disputes the jurisdiction of the court in Hong Kong to entertain the claim against him. In order to understand how the dispute as to jurisdiction arises, it is necessary for me to outline the nature of Mercedes' case against the Defendants and the history of these proceedings. Save where otherwise appears, all dates in this judgment refer to 1994.

MERCEDES' CASE AGAINST THE DEFENDANTS

2. Mr. Leiduck. Mercedes' case against Mr. Leiduck rests on two agreements, relating to motor cars and lorries respectively, with a company incorporated in Monaco and known as Intercontinental Resources S.A.M. ("IRSAM"). IRSAM was solely owned by Mr. Leiduck. It obtained US$20m. from Mercedes on the basis of an agreement with Mercedes that the sum would be used as an advance to finance the promotion of the sale of 10,000 motor cars by Mercedes to a customer in Russia for a price of US$870m. The agreement provided that if the sale did not go ahead by 31st December 1993, the sum of US$20m. would be returned to Mercedes by 31st January 1994 with interest. As security for the advance of the US$20m., IRSAM provided Mercedes with a promissory note for US$20m. plus interest. The promissory note was personally guaranteed by Mr. Leiduck by way of an "aval", which takes effect in English Law as if it were an indorsement. In the event, the sale did not materialise, and Mercedes allege that the US$20m. was misused by Mr. Leiduck, that it was not returned to Mercedes, and that the promissory note was dishonoured. Mercedes claim against Mr. Leiduck as the guarantor of the promissory note, though they give credit to Mr. Leiduck for US$5m. paid to Mercedes under a bank guarantee opened in Mercedes' favour at IRSAM's request.

3. Under the second agreement, IRSAM obtained US$1.5m. from Mercedes in connection with an agreement for the sale of 400 lorries by Mercedes to the Commonwealth of Independent States. IRSAM provided Mercedes with a promissory note for US$1.5m. plus interest. Mr. Leiduck guaranteed that promissory note by way of an "aval" as well. Mercedes allege that this promissory note was also dishonoured, and Mercedes again claim against Mr. Leiduck as the guarantor of the promissory note.

4. To complete the picture, Mr. Leiduck, who is a German national but with a Hong Kong identity card, is currently in jail in Monaco where he is being held in connection with these events. Prior to issuing proceedings in Hong Kong, Mercedes had commenced proceedings in Monaco for relief similar to that sought in Hong Kong. In those proceedings, Mercedes had obtained orders for attachment in Monaco of assets belonging to Mr. Leiduck and a Liechtenstein company which was wholly owned by him, Vernal Ets. ("Vernal").

5. IRCL. IRCL is a company incorporated in Hong Kong, and Mr. Leiduck is the owner of 99,998 of its 100,000 issued shares. The claim which Mercedes have discontinued against IRCL rested on yet another agreement. That was an agreement under which a bank in Luxembourg had lent US$6m. to IRCL and Vernal. Mercedes were at one time alleging that part of the US$20m. obtained by IRSAM in connection with the motor car agreement had been used by IRCL and Vernal to repay their loan to the bank. Mercedes claimed that the US$6m. paid to the bank on IRCL's behalf rendered IRCL a constructive trustee of the money.

THE HISTORY OF THE PROCEEDINGS

6. On 29th April (the day before the writ was issued), Mercedes applied ex parte for interlocutory relief against both Defendants. Mercedes' solicitors were entirely candid as to the reasons for seeking relief in Hong Kong. Mercedes did not want Mr. Leiduck to dispose of his shares in IRCL so as to defeat any judgment which may be obtained against him in Monaco. Accordingly, their French lawyer had applied to the court in Monaco for a saisie conservatoire over the shares. However, the court in Monaco had declined to make such an order. That had been because the law of Monaco only permitted shares to be seized in the jurisdiction of the place where the company is registered. Since IRCL is incorporated in Hong Kong, it was in Hong Kong that Mercedes had to seek interlocutory relief relating to Mr. Leiduck's shares in IRCL.

7. However, the orders which Mercedes eventually sought in Hong Kong were not limited to orders freezing those shares and getting leave for service of the writ out of the jurisdiction. They included worldwide Mareva injunctions against both Defendants, and an order for the disclosure by both Defendants of their assets worldwide. Deputy Judge Wilson granted the relief sought, and the order he made, as well as the writ, were served on Mr. Leiduck in Monaco on 5th May. At a subsequent hearing on 9th May, the worldwide Mareva injunctions were continued, with variations, until further order, and Mr. Leiduck's time for disclosing his assets was extended. However, to the extent that Deputy Judge Wilson's order of 29th April applied to IRCL, it was set aside by consent on 17th May, and costs were awarded to IRCL on an indemnity basis.

8. Mr. Leiduck did not give notice of intention to defend. Accordingly, on 24th June, Mercedes entered judgment in default against Mr. Leiduck for about US$17.6m., being the sums due under the two promissory notes, less the US$5m. paid to Mercedes under the bank guarantee. In due course, a charging order was made over Mr. Leiduck's shares in IRCL.

9. Some weeks later, Mr. Leiduck decided to dispute the jurisdiction of the court to entertain Mercedes' claim against him. To do that, Ord. 12 r. 8(1) of the Rules of the Supreme Court required Mr. Leiduck to give notice of intention to defend the proceedings. Since judgment had already been obtained against him, Ord. 12 r. 6(1) required him to obtain the leave of the court before giving notice of intention to defend. Accordingly, a summons was filed under Ord. 12 r. 6(1) on 2nd August, the very day on which the charging order was made absolute.

10. On 8th September, Leong J. granted Mr. Leiduck leave to give notice of intention to defend. In due course, Mr. Leiduck gave notice of intention to defend, and by a summons filed on 17th September, Mr. Leiduck disputed the jurisdiction of the court to entertain Mercedes' claim against him. That is the summons now before me, and the orders which Mr. Leiduck seeks are:

(a) a declaration that the writ was not duly served on him, or (if it was) an order setting aside the service of the writ on him,

(b) an order that the order of 29th April giving leave for serving the writ on him out of the jurisdiction be set aside,

(c) a declaration that in the circumstances the court has no jurisdiction over him in respect of the subject matter of Mercedes' claim against him, and

(d) orders discharging the Mareva injunction and the order for disclosure of 29th April, the default judgment of 24th June and the charging order absolute of 2nd August.

Mr. Michael Thomas Q.C. for Mercedes did not seek to justify the Mareva injunction, to the extent that it related to assets of Mr. Leiduck other than his shares in IRCL, or the order for disclosure.

THE RELEVANCE OF THE DEFAULT JUDGMENT

11. Mr. Thomas argues that the primary focus of this application should be on the default judgment. Leave to serve the writ out of the jurisdiction had been served. In due course, the writ was duly served on Mr. Leiduck. He did not file notice of intention to defend. Leaving aside a minor problem with the affidavit of service of the writ, which Ord. 13 r. 7(1)(b) required to be filed before judgment in default could be entered, the judgment was a regular one. Ord. 13 r. 9 confers on the court a wide discretion to set aside a default judgment. Accordingly, even if the conditions necessary for leave to serve the writ out of the jurisdiction had not, in fact, existed when leave was given, the fact that a regular judgment had been entered meant that any error which there may have been in the grant of leave was only a minor factor to be considered in the overall exercise of the court's discretion. That was because the issue of service had merged with the judgment - provided, of course, that any irregularity in the affidavit of service of the writ could be treated by Ord. 2 r. 1(1) as not nullifying the judgment.

12. I accept that submission to this extent. There must come a time when a defendant can no longer justify the setting aside of a judgment on the basis of some error which there may have been in the grant of leave to serve the writ out of the jurisdiction. The desirability of the finality of litigation obviously prevents a judgment being challenged many years after the judgment has been entered simply on the footing of some defect in the service of the originating process. However, the question whether the default judgment should prevent Mr. Leiduck disputing the court's jurisdiction has, on the face of it, already been decided by Leong J. Ord. 12 r. 6(1) required Leong J. to determine whether the default judgment should prevent Mr. Leiduck from defending the action. Since Mr. Leiduck has at all times been concerned to defend the action only on the basis of the court's lack of jurisdiction, the issue which Leong J. had to decide was whether the default judgment should prevent Mr. Leiduck from disputing the court's jurisdiction. I have been told that Leong J. gave no reasons for granting Mr. Leiduck leave to give notice of intention to defend. However, the fact that he gave Mr. Leiduck leave almost certainly meant that he took the view that the default judgment should not prevent Mr. Leiduck from disputing the court's jurisdiction under Ord. 12 r. 8(1).

13. However, because I do not have the advantage of a reasoned judgment from Leong J., I suppose that it is just possible for Leong J. to have granted leave simply on the basis that Mr. Leiduck had arguable grounds for disputing the court's jurisdiction. I have, therefore, considered whether the default judgment and any subsequent delay should now prevent Mr. Leiduck from disputing the court's jurisdiction. I have decided that it should not. I do not overlook the absence of any affidavit explaining why he did not give notice of intention to defend, why he allowed the default judgment to be entered and why he did not instruct his current solicitors to act for him until 28th July. But the delay between the time when notice of intention to defend should have been given (namely 31st May, being 26 days after service of the writ on 5th May) and the date when leave to give notice of intention to defend was sought (namely 2nd August) was only 9 weeks, and during the whole of that time Mr. Leiduck was in custody in Monaco.

14. I am prepared to assume for present purposes that the default judgment was a regular one, in that any irregularity in the affidavit of service could be treated by Ord. 2 r. 1(1) as not nullifying the judgment. I take the point that there is a well-nigh inflexible rule that a regular default judgment will not be set aside unless there is an affidavit of merits showing that the defendant has a defence which is not merely arguable but has a real prospect of success: Evans v. Bartlam [1937] A.C. 473 as explained in The Saudi Eagle [1986] 2 Lloyd's Rep. 221 at p. 223. Mr. Leiduck has not filed an affidavit of merits. However, if a defendant wishes to defend an action, not on the merits, but on the basis of the court's lack of jurisdiction, it would be absurd to require the usual affidavit of merits. Instead, the court would merely have to be satisfied that the challenge to the court's jurisdiction had a real prospect of success. That question will inevitably be decided in the rest of this judgment.

THE NATURE OF THE CHALLENGE TO THE COURT'S JURISDICTION

15. The challenge to the court's jurisdiction is based on the contention that Ord. 11 did not, in the circumstances of the case, permit Deputy Judge Wilson to give Mercedes leave to serve the writ on Mr. Leiduck out of the jurisdiction. Two points are taken:

(1) Mercedes' claim against Mr. Leiduck did not fall within any of the four classes of cases set out in Ord. 11 r. 1(1) upon which Mercedes relied before Deputy Judge Wilson, namely the classes set out in rr. 1(1)(b), 1(1)(c), 1(1)(m) and 1(1)(p).

(2) Mercedes' claim was not a proper one for service out of the jurisdiction within the meaning of Ord. 11 r. 4(2), because Mercedes had not shown that Hong Kong was the appropriate forum for the proceedings.

Mr. Thomas agreed that in order to justify the grant of leave, Mercedes' claim had to have come within one of the four classes of cases set out in Ord. 11 r. 1, and Mercedes had to have shown that Hong Kong was the appropriate forum for the proceedings.

(i) Ord. 11 r. 1(1)(b)

16. Service of a writ out of the jurisdiction is permissible with the leave of the court if, in the action begun by the writ, "an injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of a failure to do or the doing of that thing)". There was no claim in the writ for an injunction against Mr. Leiduck. The only injunctions which Mercedes have sought against Mr. Leiduck are the worldwide Mareva injunction and the order for disclosure of his assets. At first blush, these are not injunctions of the kind to which r. 1(1)(b) relates. That is because in The Siskina [1979] A.C. 210, the House of Lords held that, to come within the rule which was the U.K. equivalent of r. 1(1)(b) at the time, the injunction sought in the action had to be part of the substantive relief to which the plaintiff's cause of action entitled it, and not merely an interlocutory injunction ancillary to that relief. To paraphrase Dicey and Morris, "The Conflict of Laws", 12th ed., p. 195 so as to put the principle into its Hong Kong context :

"The effect of this decision was that a plaintiff, who had a claim against a defendant who was not subject to the jurisdiction of the [courts of Hong Kong] (because the defendant was not present In [Hong Kong] and the underlying cause of action had no connection with [Hong Kong] and did not come within any of the heads of Order 11), could not restrain the defendant from removing his [Hong Kong] assets outside the jurisdiction. This was so even where it was only in [Hong Kong] that there were assets which might be available to satisfy a judgment granted in the country to whose jurisdiction the defendant was amenable, and where the consequence would be that the plaintiff would be left without any effective remedy."

17. However, in Channel Tunnel Group Ltd. v. Balfour Beatty Construction Ltd. [1993] A.C. 334, it was argued that The Siskina did not lie easily with the U.K. equivalent of section 21L of the Supreme Court Ordinance (Cap. 4) which provides:

"The High Court may by order (whether interlocutory or final) grant an injunction . . . . in all cases in which it appears to the High Court to be just or convenient to do so."

In the words of Lord Browne-Wilkinson at p. 341B-D, the submission was

"that the decision . . . in [The Siskina] . . . would preclude the grant of any injunction under [the equivalent of section 21L] . . . , even if such injunction were otherwise appropriate. If correct, that submission would have the effect of severely curtailing the powers of the English courts to act in aid . . . of foreign courts. Given the international character of much contemporary litigation and the need to promote mutual assistance between the courts of the various jurisdictions which such litigation straddles, it would be a serious matter if the English courts were unable to grant interlocutory relief in cases where the substantial trial and the ultimate decision of the case might ultimately take place in a court outside England."

Indeed, after reviewing the speech of Lord Diplock in The Siskina, Lord Browne-Wilkinson came to the view that The Siskina did not prevent the court from granting interlocutory relief based on a cause of action recognised by English law where the interlocutory relief was ancillary to a final order sought in a foreign court. That was the argument advanced by counsel then appearing for Mercedes to Deputy Judge Wilson.

18. However, what Deputy Judge Wilson was not told was that if such interlocutory relief was to be granted, The Siskina required the defendant to have been duly served with the proceedings, either personally if the defendant was within the jurisdiction, or pursuant to leave granted under Ord. 11 if he was out of the jurisdiction. The one class of case set out in Ord. 11 r. 1(1) which The Siskina prevented a plaintiff from relying upon for this purpose was the equivalent of r. 1(1)(b). That Lord Browne-Wilkinson was exempting the equivalent of r. 1(1)(b) from the classes of cases set out in Ord. 11 r. 1(1) which The Siskina prevented a plaintiff from relying upon for this purpose is plain from his acceptance that The Siskina imposed at least one limit on the general power conferred by the equivalent of section 21L, namely "that the court must have personal jurisdiction over the defendants in the sense that they can be duly served either personally or under Ord. 11 (other than [the equivalent of r. 1(1)(b)])" (my emphasis): p. 342A. Both Lord Keith of Kinkel and Lord Goff of Chieveley agreed with the views expressed by Lord Browne-Wilkinson.

19. To be fair, Mr. Thomas did not seek to argue otherwise. Neither he nor junior counsel, Mr. Anderson Chow, appeared before Deputy Judge Wilson, and no criticism can be attached to them for failing to draw this vital point to Deputy Judge Wilson's attention. Mr. Thomas is merely content to remind me that doubt has been expressed about the correctness of The Siskina. However, since there is no material distinction between the relevant statutory provisions in the U.K. (section 37(1) of the Supreme Court Act 1981 and what was then Ord. 11 r. 1(1)(i)) and those in Hong Kong (section 21L of the Supreme Court Ordinance and Ord. 11 r. 1(1)(b)), the courts in Hong Kong are bound by The Siskina because in these circumstances the decisions of the House of Lords are binding on the courts of Hong Kong: De Lasala v. De Lasala [1979] H.K.L.R. 214. Having said that, though, Mr. Thomas reserved the right to argue elsewhere that The Siskina was wrongly decided.

20. For these reasons, I conclude that service of the writ on Mr. Leiduck out of the jurisdiction was not permissible under Ord. 11 r. 1(1)(b).

(ii) Ord. 11 r. 1(1)(c)

21. Service of the writ out of the jurisdiction is permissible with the leave of the court if, in the action begun by the writ, "the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto." Mercedes' case is that this claim fell within r. 1(1)(c) because IRCL was duly served within the jurisdiction, and Mr. Leiduck was a necessary or proper party to the claim against IRCL.

22. Mercedes face two formidable obstacles to success on this argument. The first is this. Mercedes did not want to serve the writ on IRCL before obtaining (a) leave to serve the writ on Mr. Leiduck out of the jurisdiction and (b) the Mareva injunction against him. After all, there was some evidence that Mr. Leiduck had already agreed to transfer his shares in IRCL to a fellow director of IRCL, who was its Chief Executive, though the document putting that agreement into effect had not been executed. If IRCL had to be served with the writ in advance of the application for leave to serve Mr. Leiduck out of the jurisdiction, and if the proposed transferee got wind of that application, the shares might have been transferred to the proposed transferee before the Mareva injunction against Mr. Leiduck had been obtained. Since Deputy Judge Wilson was given an express undertaking that service of the writ on Mr. Leiduck would not be effected until IRCL had been served, Mr. Thomas argues that Deputy Judge Wilson must be taken to have made a conditional order for leave to serve the writ on Mr. Leiduck out of the jurisdiction, subject to prior service of the writ on IRCL.

23. I accept that submission so far as it goes. The difficulty which the submission does not begin to address, however, is whether Deputy Judge Wilson had the power to make the conditional order which he did. I have no doubt that he had no such power. IRCL had to have been "duly served" within the jurisdiction before the application for leave to serve Mr. Leiduck out of the jurisdiction was made. As Dicey and Morris, op. cit., point out at p. 325, that follows from the wording of Ord. 11 r. 4(1)(d), which assumes that the writ "has been served" on the defendant within the jurisdiction by the time the application under r. 1(1)(c) is made. It does not appear from Mercedes' solicitors' attendance note of the hearing on 29th April that Deputy Judge Wilson's attention was drawn to r. 4(1)(d). Since the writ had not been served on IRCL before the application for leave to serve Mr. Leiduck out of the jurisdiction was made, service of the writ on Mr. Leiduck out of the jurisdiction was not permissible under Ord. 11 r. 1(1)(c).

24. However, the matter does not end there. Para. 11/4/10 of The Supreme Court Practice 1995, Vol. 1, p. 100, includes the following passage:

". . . in accordance with general principles of practice, the order [for leave to serve the writ out of the jurisdiction], having been obtained by the plaintiff ex parte, can be set aside on application by the Defendant after service .... The application is decided on the affidavit evidence of the parties, and the issue is whether, on the whole of the evidence, the plaintiff shows a good arguable case within one of the sub- paragraphs of r. 1(1) .... If the allegations on which the order was made turn out to be unfounded it will be set aside."

In this case, the allegations on which the order was made did turn out to be unfounded. IRCL had, within 10 days of the order, filed evidence establishing that the US$6m. lent to IRCL and Vernal had not been repaid to the bank at all. That, no doubt, was why Mercedes discontinued the claim against IRCL.

25. Mr. Thomas' bold contention in response to that is that Mercedes' claim against IRCL was honestly and reasonably believed, at the time of the application to Deputy Judge Wilson, to be a valid and plausible one. The subsequent discovery that the claim could not be proceeded with could not retrospectively invalidate the leave to serve the writ out of the jurisdiction to the extent that leave was granted pursuant to r. 1(1)(c). He relied on what Hoffman J. (as he then was) said in ISC Technologies Ltd. v. Guerin [1992] 2 Lloyd's Rep. 430 at p. 434:

"The question [on an application under Ord. 12 r. 8(1)(c) to discharge an order giving leave to serve a writ out of the jurisdiction] is . . . whether that order was rightly made at the time it was made. Of course the Court can receive evidence which was not before the [Court when the order was made] and subsequent events may throw light upon what should have been relevant considerations at the time. But I do not think that leave which was rightly given should be discharged simply because circumstances have changed. That would mean that different answers could be given depending upon how long it took before the application came on to be heard."

26. In my judgment, these observations do not assist Mercedes at all. This is not a case in which Mr. Leiduck is seeking to have the leave set aside because circumstances have changed since leave was granted. What caused Mercedes to discontinue their claim against IRCL - namely, the fact the US$6m. lent to IRCL and Vernal had not been repaid to the bank - was just as much the case at the date of discontinuance as it had been on 29th April. Adopting the language of Hoffman J., subsequent events (namely, the discovery that the loan had not been repaid) threw a wholly different light on one of the issues which Deputy Judge Wilson had had to consider - namely, whether there was, to use the words of Ord. 11 r. 4(1)(d), "a real issue"

between Mercedes and IRCL which Mercedes could "reasonably ask the Court to try". For this reason also, service of the writ on Mr. Leiduck out of the jurisdiction had not been permissible under Ord. 11 r. 1(1)(c).

(iii) Ord. 11 r. 1(1)(m)

27. Service of the writ out of the jurisdiction is permissible with the leave of the court if, in the action begun by the writ, "the claim is brought to enforce any judgment or arbitral award". There has, as yet, been no judgment or arbitral award against Mr. Leiduck in Monaco, which is the jurisdiction in which Mercedes intend to obtain final judgment against him. However, Mr. Thomas contends that that should not debar Mercedes from relying on r. 1(1)(m), because the action in Hong Kong was brought with a view to enforcing the judgment in Monaco once it had been obtained.

28. Mr. Thomas's argument went like this. Rule 1(1)(m) should be construed to give effect to the beneficial change in the law intended to plug the loophole referred to in para. 11/1/25 of The Supreme Court Practice 1995, Vol. 1, p. 92, namely, to permit service of process upon a defendant outside Hong Kong who has assets within Hong Kong required to satisfy an overseas judgment but who is not otherwise amenable to the jurisdiction of the courts of Hong Kong. If r. 1(1)(m) is not construed in the way contended for by Mr. Thomas, Mercedes suffer a serious injustice because neither the court in Monaco nor the courts in Hong Kong will be able to restrain the dissipation of Mr. Leiduck's assets in Hong Kong. Mr. Thomas says that r. 1(1)(m) should therefore be construed in a way to avoid that injustice, and that can be done by construing the words "judgment or arbitral award" as applying to a judgment or arbitral award which the plaintiff hopes to obtain in the proceedings which it has commenced overseas. The fact that the claim may be a shadowy one, or that this construction of r. 1(1)(m) affords an opportunity for an unscrupulous plaintiff to raise a specious claim in a foreign court simply to found jurisdiction to serve a defendant in Hong Kong, presents no problem, says Mr. Thomas: in such cases, leave to serve out of the jurisdiction will be refused, under Ord. 11 r. 4(2), on the ground that the case is not a proper one for service out of the jurisdiction.

29. The beguiling nature of this argument almost led me into the heresy of accepting it. The argument wholly ignores the vast body of jurisprudence which prevents a foreign judgment being recognised or enforced in Hong Kong, unless it is a judgment finally and conclusively determining the rights of the parties to it. The construction of r. 1(1)(m) which Mr. Thomas urges on me would have the effect of providing for the premature recognition and enforcement in Hong Kong of overseas judgments. It does not appear from Mercedes' solicitors' attendance note of the hearing on 29th April that Deputy Judge Wilson's attention was drawn to this fact.

30. Mr. Thomas had a second string in his bow. A number of orders have been made in Monaco, Belgium and Switzerland. Mr. Thomas accepted that, save for one of those orders, none of them can be enforced in Hong Kong because they relate solely to assets of Mr. Leiduck and companies in which he has an interest outside Hong Kong. The one order on which Mr. Thomas relied, however, was an order for payment made by the court in Switzerland. Mr. Thomas himself conceded, in his helpful skeleton argument, that this order was made on an interlocutory application, and I therefore doubt (notwithstanding the obiter dictum of Lord Donaldson MR in Mansour v Mansour[1989] 1 F L R 418 at p.421 A) whether this was an order to which r. 1(1)(m) applies. There has been no evidence before me as to whether in Swiss law this order for payment is final and binding on Mr. Leiduck. But in any event the order for payment was not made until 26th May. Since it was not capable of enforcement in Hong Kong on 29th April because it did not then exist, it could not have justified the invocation of r. 1(1)(m) on that date.

31. For these reasons, service of the writ on Mr. Leiduck out of the jurisdiction was not permissible under r. 1(1)(m).

(iv) Ord. 11 r. 1(1)(p)

32. Service of the writ out of the jurisdiction is permissible with the leave of the court if, in the action begun by writ, "the claim is brought for money had and received or for an account or other relief against the defendant as constructive trustee, and the defendant's alleged liability arises out of acts committed, whether by him or otherwise, within the jurisdiction." The writ which was served on Mr. Leiduck included a claim for money had and received. That claim has since been abandoned, but since it was abandoned only because Mercedes entered judgment in default against Mr. Leiduck for the sums due under the promissory notes, the subsequent abandonment of the claim does not prevent Mercedes now seeking to justify obtaining leave under r. 1(1)(p) by reference to this claim.

33. The acts of Mr. Leiduck in Hong Kong which are alleged to have given rise to this liability are his instigation or approval in Hong Kong of, or his connivance in Hong Kong in, the use of the US$20m. to repay the loan of US$6m. There was no direct evidence before Deputy Judge Wilson that that was what he had done. Mercedes invited Deputy Judge Wilson to infer that merely from the fact that Mr. Leiduck was a director and the controller of IRCL, and from the fact that he held a Hong Kong identity card, which suggested that he was a regular visitor to Hong Kong. In my view, none of these facts, even if taken cumulatively, justify the inference that the instigation, approval or connivance occurred in Hong Kong. In any event, of course, we now know that the US$20m. was not used to repay the loan. Mr. Leiduck could not therefore have done what he was alleged to have done. It follows that, for the reasons I have given when dealing with r. 1(1)(c), service of the writ on Mr. Leiduck out of the jurisdiction had not been-permissible under r. 1(1)(p).

(v) Ord. 11 r. 4(2)

34. Ord. 11 r. 4(2) provides that leave to serve the writ out of the jurisdiction will not be granted "unless it shall be made sufficiently clear to the Court that the case is a proper one for service out of the jurisdiction under [Ord. 11]." The effect of The Spiliada [1987] A.C. 460 is that a plaintiff has to show that the court in Hong Kong is the forum with which the action has the most real and substantial connection. I accept that Mr. Leiduck has some connection with Hong Kong, but that does not begin to mean that Hong Kong is the forum with which the action has the most real and substantial connection. The summary I have given of Mercedes' case against Mr. Leiduck shows that the action has no connection with Hong Kong at all.

35. However, Mr. Thomas developed an ingenious argument, which he told me was Mr. Chow's brain-child, if I were to find that leave to serve the writ out of the jurisdiction could have been justified under r. 1(1)(m). The argument went like this. In considering where the action had the most real and substantial connection, the court should have regard to the grounds upon which leave is sought to serve the writ out of the jurisdiction, and to the purpose for which the proceedings are brought in Hong Kong. The purpose for which the proceedings are being brought against Mr. Leiduck in Hong Kong is to ensure that Mr. Leiduck's assets in Hong Kong, i.e. his shares in IRCL, will be available to satisfy the judgment overseas when it is obtained. Accordingly, to the extent that leave to serve the writ out of the jurisdiction was sought under r. 1(1)(m), Hong Kong was the most appropriate forum in which to enforce the judgment which Mercedes hoped to obtain shortly in Monaco.

36. This argument was not part of Mr. Thomas' initial submissions. It was not in his skeleton submissions at all. He developed it only after he had completed his submissions, and when I asked him if he wanted to address me on the issue of the appropriate forum. The argument was only properly formulated in the supplemental skeleton submissions handed to me by Mr. Chow the following morning. Mr. William Stone for Mr. Leiduck did not, I think, have sufficient time to analyse the argument himself, and the stance which he adopted was that he did not wish to make any submissions on the issue.

37. That is not a satisfactory basis upon which I should decide an important and far-reaching argument such as this. I therefore decline to do so, and I leave the question to be decided on another occasion. After all, my decision on the issue cannot affect the outcome of this application, in view of my finding that service of the writ on Mr. Leiduck out of the jurisdiction was not permissible under r. 1(1)(m).

NON-COMPLIANCE WITH THE RULES

38. A failure to comply with the requirements of the Rules of the Supreme Court does not nullify the proceedings or any step in the proceedings. Non-compliance is merely an irregularity (Ord. 2 r. 1(1)), and the court is vested with a wide discretion to determine what the effect of any irregularity should be (Ord. 2 r. 1(2)). Accordingly, Mr. Thomas submits that even if service of the writ on Mr. Leiduck out of the jurisdiction was not permissible under any of the grounds upon which Mercedes relied before Deputy Judge Wilson, the grant of leave to serve the writ on him out of the jurisdiction was merely an irregularity, and that irregularity should not result in the setting aside of the leave granted by Deputy Judge Wilson.

39. I do not think that the grant of leave to serve the writ out of the jurisdiction was merely an irregularity. In Leal v. Dunlop Bio-Processes International Ltd. [1984] 1 WLR 874, the plaintiff had, amongst other things, served the writ out of the jurisdiction without obtaining the leave of the court pursuant to Ord. 11 r. 1. The Court of Appeal unanimously held that the failure to obtain the leave of the court under Ord. 11 r. I was merely a failure to comply with the requirements of the Rules. In my view, however, there is the world of a difference between a failure to apply for leave (which can quite properly be described as a failure to comply with the requirements of the Rules) and a plaintiff's failure to bring itself within the qualifying conditions required by the Rules for invoking the court's power to permit the service of originating process out of the jurisdiction. The flaw in the argument is that a plaintiff cannot claim to be in a better position than it would have been in if all the relevant facts and legal argument had been before the court when leave was obtained.

40. However, I have also considered whether, on the assumption that the grant of leave out of the jurisdiction was merely an irregularity, that irregularity should result in the setting aide of the leave. On this issue, Mr. Stone is surely correct when he asserts that the irregularity in the grant of leave should result in the setting aside of the leave. To paraphrase what Slade L.J. said in Leal at p. 885 C-D to put it into the context of this case:

"When seeking the indulgence of the court under Ord. 2 r. 1 . . . a plaintiff cannot, in my opinion, expect the court to exercise its discretion [to permit what it could not have done under Ord. 11 r. 1]. If he cannot properly enter through the front door of [Ord. 11 r. 1], he should not be allowed to enter through the back door of Ord. 2 r. 1."

In my view, there is no answer to that argument.

WAIVER

41. Ord. 2 r. 2(1) provides that an application to set aside an order for irregularity will not be allowed, unless the application is made (a) within a reasonable time, and (b) before the party making the application has taken any fresh step after becoming aware of the irregularity. Mr. Thomas submits that even if service of the writ on Mr. Leiduck out of the jurisdiction was not permissible under any of the grounds relied upon before Deputy Judge Wilson, Mr. Leiduck's application to set aside the leave should be dismissed on two grounds:

(I) It was not made until 2nd August, which was almost three months after 5th May when Mr. Leiduck became aware of the grant of leave, and was not therefore made within a reasonable time.

(ii) It was made after Mr. Leiduck had taken a fresh step in the proceedings after 5th May, namely, the application by his solicitor, Mr. Graham Miles of Haldanes, on 9th May for an extension of time to comply with that part of Deputy Judge Wilson's order which required him to disclose his assets.

42. The proximity in the Rules of Ord. 2 r. 2 to Ord. 2 r. 1 leads me to conclude that the reference to "irregularity" in Ord. 2 r. 2(1) relates to "a failure to comply with the requirements of these rules" in Ord. 2 r. 1(1). Since I do not regard a plaintiff's failure to bring itself within the qualifying conditions of Ord. 11 r. 1 as a mere failure to comply with the requirements of the Rules, it follows that I do not regard Ord. 2 r. 2 as having even been engaged.

43. However, since this argument was not canvassed before me, I have considered whether, but for that argument, Mr. Leiduck's application to set aside the leave should be dismissed on either of the two grounds advanced by Mr. Thomas. I do not think that it should. Bearing in mind that Mr. Leiduck was in custody in Monaco, I do not think that it can be said that his application to set aside the leave was not made within a reasonable time. Moreover, I reject the suggestion that Mr. Miles on 9th May took a fresh step in the proceedings on Mr. Leiduck's behalf after he or Mr. Leiduck had become aware of the irregularity. I say that for two reasons:

(1) Although it is Mr. Leiduck who is seeking to set aside the leave for irregularity, it is Mercedes who are asserting that Mr. Leiduck or Mr. Miles had become aware of the irregularity by 9th May. Assuming that Mr. Leiduck had by 9th May read, absorbed and understood the documents which had been served on him on 5th May, I do not think that I can assume that he had been advised that, on the facts of which he was then aware, it may have been possible for a challenge to be mounted to the jurisdiction of the court. Indeed, the best evidence before me is that Mr. Miles has never even spoken to Mr. Leiduck. It may be that between 5th May and 9th May, Mr. Leiduck had instructed Mr. Rupert Skrine of Denton Hall to act for him and IRCL, but I declined to assume that, in the short time before 9th May, Mr. Skrine had advised Mr. Leiduck that, on the facts set out in the documents served on Mr. Leiduck, it may have been possible for a challenge to be mounted to the jurisdiction of the court. As for the knowledge of Mr. Miles on 9th May, the evidence before me is that he was aware of the issue of whether the court had jurisdiction over Mr. Leiduck, but that is a long way from asserting that he had formed the view that, on the facts set out in the documents served on Mr. Leiduck, it may have been possible for a challenge to be mounted to the jurisdiction of the court. I am therefore not satisfied that Mr. Leiduck or Mr. Miles had become aware of the irregularity by 9th May.

(2) I do not think that the application which Mr. Miles made on 9th May amounted to the taking of a fresh step in the action. In Rein v. Stein (1892) 66 L.T. 469, Cave J. said at p. 471:

". . . in order to establish a waiver, you must show that the party alleged to have waived [the irregularity] has taken some step which is only necessary or only useful if the [irregularity] has actually been waived, or if the objection has never been entertained at all."

44. I reject the suggestion that the application made by Mr. Miles shows that he and Mr. Leiduck were recognising the validity of the grant of leave. Since the order which included the grant of leave also included an order requiring Mr. Leiduck to disclose his assets within 7 days, Mr. Miles wanted to ensure that Mr. Leiduck had sufficient time to comply with that part of the order to avoid Mr. Leiduck being in contempt of court. Taking steps to enable Mr. Leiduck to comply with an order which required him to disclose his assets, and which informed him that a neglect to obey that order may result in him being liable to imprisonment for contempt of court, cannot fairly be treated as an acceptance that the court has jurisdiction over him. To take, by way of analogy, what was said in one of the cases on the meaning of the words "taking any . . . steps in the proceedings" in section 4 of the Arbitration Act 1950,

"the statute contemplates some positive act by way of offence on the part of the defendant rather than merely parrying a blow by the plaintiff, particularly where the attack consists in asking for an interlocutory injunction": Graham J. in Roussel-Uclaf v. G.D. Searle & Co. Ltd. [1978] R.P.C. 747 at p. 756.

CONCLUSION

45. Since I have found that Mr. Leiduck's challenge to the jurisdiction of the court has succeeded, I have not addressed the arguments which have been canvassed as to whether, on the footing that the challenge to the jurisdiction of the court had failed, the Mareva injunction, the default judgment and the charging order should be set aside. The successful challenge to the jurisdiction of the court means that they must all be set aside, and I propose to make orders in terms of paras. 2-6 inclusive of Mr. Leiduck's summons filed on 17th September. I shall hear the parties on the costs of the summons, on Mr. Leiduck's appeal relating to the order for costs made by Master O'Donnell on 17th August when he granted a stay of execution of the default judgment pending the determination of the dispute as to the jurisdiction of the court, and on any application which either of the parties wishes to make as a consequence of this judgment. I give leave for this judgment, though delivered in chambers, to be reported, so that my views on the issues of law which the case raises can be brought to the attention of the legal profession.

46. Before completing this judgment, though, there is one final matter I want to mention. The judge who heard Mercedes' application on 29th April was a deputy judge. He normally sits in the District Court. He probably had not had much experience of applications under Ord. 11, and I do not suppose that he had had much occasion to address difficult questions relating to the conflict of laws. Face as he was by junior counsel experienced in commercial law, instructed by a firm of solicitors with an international client base and reputation, acting on behalf of a company known the world over, and invited to read an affidavit which, with exhibits, ran to 81 pages and a closely-argued skeleton argument over 6 pages long, no one could blame the judge if he felt pressure on himself to give Mercedes the relief they sought. The profession must realise, I think, that in situations of that kind the judge may be tempted to take things on trust. The practical realities of the situation impose a special obligation on solicitors and counsel to do what they can to justify the trust which the judge on ex parte applications of this kind will inevitably place in them. In those circumstances, it was unfortunate that there were some things which, with the advantage of hindsight, it might have been better for the judge to have been told. However, it is right to record that Mr. Stone disavowed any suggestion of bad faith on the part of Mercedes' advisers. In my view, Mr. Stone was right to do that.