HALLER AG AND ANOTHER v. VESTEY INTERNATIONAL GROUP LTD AND ANOTHER

CAMP 85/2022 & CACV 454/2022

(Heard together)

[2022] HKCA 1743

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 85 OF 2022

(ON AN INTENDED APPEAL FROM HCA NO 2988 OF 2018)

________________________

________________________

CACV 454/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 454 OF 2022

(ON APPEAL FROM HCA NO 2988 OF 2018)

________________________

________________________

(Heard together)

________________________

J U D G M E N T

________________________

Hon G Lam JA (giving the Judgment of the Court):

Introduction

1.  The plaintiffs commenced the action below against three defendants.  The 2^nd defendant is a Mainland company.  Leave was granted for service of the writ on it out of the jurisdiction on the “necessary or proper party” ground.  The 2^nd defendant applied to have the service on it set aside, alternatively for a stay of the action against it in favour of arbitration or on the ground of forum non conveniens.  Linda Chan J dismissed its application and refused leave to appeal, whereupon the 2^nd defendant applied to this court for leave to appeal.  We heard the application on the basis that, if leave to appeal is given, it will be treated as the hearing of the appeal as well. 

2.  By the proposed appeal the 2^nd defendant seeks to raise three main points: (1)  there was no real issue between the plaintiffs and the 1^st defendant which the plaintiff may reasonably ask the court to try, for the purpose of the “necessary or proper party” gateway for service out of the jurisdiction; (2) there was prima facie an arbitration agreement between the parties and the action should therefore be stayed and the matter referred to arbitration pursuant to section 20 of the Arbitration Ordinance (Cap 609); and (3) Hong Kong is not the appropriate forum for the trial of the action.

3.  On 14 November 2022, we granted leave to appeal on the first and third points.  This is our judgment in the appeal on those two points and in the application for leave on the second point.

Background

4.  Both plaintiffs are German companies under the control of Mr Dirk Oliver Haller.  In late 2013 and early 2014, they purchased from a third party four consignments of frozen bluefin tuna, which were in transit by sea from Spain to Hong Kong.  It is common ground that, through the liaison of a common contact person Mr Wang Tao (“Wang”), the 2^nd defendant in turn bought these cargoes of tuna from either the 1^st or 2^nd plaintiff, at the total price of US$5,794,830, CFR Hong Kong.  The parties’ respective cases on the structure and legal consequences of the transaction are, however, very different.

5.  On the plaintiffs’ case, the transaction was a simple sale and purchase concluded between the 1^st or 2^nd plaintiff (as the case may be)  as seller, and the 2^nd defendant as buyer, based on four Order Confirmations (“POCs”)  signed by the 2^nd defendant.  The first POC was dated 15 November 2013 and the others 22/23 January 2014.  The seller was the 1^st plaintiff except in the case of the third POC where the seller was the 2^nd plaintiff.

6.  For its part, the 2^nd defendant denies having signed the four POCs, saying its signatures on them were forged, and states that, instead, it had purchased those cargoes of tuna from the 1^st plaintiff based on three Order Confirmations entered into between them (“DOCs”), signed by the 1^st plaintiff and the 2^nd defendant.

7.  The 2^nd defendant says that because one of the bills of exchange (mentioned below)  was issued mistakenly by the 2^nd plaintiff rather than by the 1^st plaintiff, the 2^nd defendant was asked and agreed to split one of the DOCs into two, one signed by the 1^st plaintiff and the other signed by the 2^nd plaintiff.  These split documents were, however, made for the purpose of being shown to the banks only.  The 2^nd defendant did not sign them and did not consider itself to have entered into any contract with the 2^nd plaintiff.

8.  The 2^nd defendant further says that the transaction was not a simple sale and purchase between the 1^st plaintiff and the 2^nd defendant, but part of a larger composite transaction involving a sub-sale of the cargoes to the 1^st defendant.  Thus, at the same time when each of the DOCs was entered into, the 2^nd defendant also entered into a Sales Contract for the back-to-back sale of the cargo to the 1^st defendant at a higher price.  In addition, on each occasion, all three parties (i.e. the 1^st plaintiff and the 1^st and 2^nd defendants)  executed a Tripartite Agreement (三方協議)  in Chinese which provided as follows (in English translation, using the one for the transaction numbered 1209DE as example):

“ Party A: [2^nd defendant]

   Party B: [1^st plaintiff]

   Party C: [1^st defendant]

Party C commissions Party A to import Deep Frozen Tuna Fillets from Party B. Party A agrees to enter into the Order Confirmation No. GM13MKK-1209DE with Party B, and to enter into the Sales Contract No. GM13MKE-1209HK with Party C, in its [Party A’s] own name. The Order Confirmation and the Sales Contract shall be directly binding on Party B and Party C. All the rights and obligations, commercial interests and risks under the Order Confirmation and the Sales Contract shall be enjoyed all borne by Party B and Party C. The three parties have come to agreement after friendly negotiation as follows:

1. Party C agrees to pay Party A agency commission as amount of 2.2% of the Order Confirmation and the commission shall be paid along with payment of the price.

2. In the event the goods are not in conformity with the quality requirements of Party C due to reasons attributable to Party B, Party B shall pay damages to Party A in the amount of 5% of the Order Confirmation and another 10% to Party C.

3. Party A agrees to pay Party B the amount of the Order Confirmation or the bill of exchange drawn under it after Party A has received from Party C the full amount of money of the Sales Contract or the bill of exchange drawn under it. In the event Party C delays or refuses to pay any amount of the Sales Contract or the bill of exchange drawn under it, Party A is entitled to delay or refuse to pay Party B the amount of money of the Order Confirmation or the bill of exchange drawn under it correspondingly. In the event Party C delays any payment, it shall pay interest to Party A at 0.3% per week of the delayed payment from the due date to the date it is actually paid, compounded monthly. The payment of interest is without any prejudice to any rights or remedies of Party A under this Agreement or applicable law.

4. Party B agrees to guarantee as joint obligor the performance by Party C of its obligations under this Agreement, the Sales Contract and the bill of exchange drawn under it. The guarantee period shall be two years from the date of expiration of the period for performance for the principal debt.

5. This Agreement, the Order Confirmation executed between Party A and Party B, and the Sales Contract executed between Party A and Party C shall be governed by the laws of the People’s Republic of China. Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration Commission for arbitration, which shall be conducted in accordance with the Commission’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all three Parties. The arbitration shall take place in Beijing. The language of the arbitration shall be Chinese.

   This Agreement has equal legal effect as the Contracts No. GM13MKK-1209DE and No. GM13MKE-1209HK. This Agreement shall be made and executed in three counterparts and one for each Party hereto respectively, and shall take effect from the date of its being signed by the three Parties.”

9.  It is common ground that the 2^nd defendant accepted four bills of exchange (“Bills”), one in November 2013 and three in January 2014, drawn by the 1^st plaintiff and, in the case of the third Bill, by the 2^nd plaintiff, for amounts corresponding to the prices stated in the POCs or the DOCs (including the split one)[1] totalling US$5,792,830, payable at Bank of China (Head Office)  in Beijing (“BOC”).

10.  The plaintiffs allege that the 2^nd defendant also issued four “Acknowledgments” between November 2013 and February 2014, signed by two persons on its behalf, whereby the 2^nd defendant confirmed that it had received the tuna cargoes, acknowledged that it owed the plaintiffs the amounts stated in the invoices “free of any objections, set-offs and/or counter-claims”, and promised to make full payment against the invoices at their due dates “by encashment of the accepted Bill of Exchange”.  The 2^nd defendant disputes the authenticity of these Acknowledgements.

11.  The tuna cargoes arrived in Hong Kong in November 2013 and February 2014, and delivery was taken from the carriers, presumably by production of the bills of lading.  The 2^nd defendant says the cargoes were not released to it or its representatives and that it did not know who took delivery of the cargoes.

12.  When the plaintiffs presented the Bills to BOC for collection on their respective maturity dates between March and June 2014, they were dishonoured by the 2^nd defendant. The 2^nd defendant contends that by virtue of the provisions of the Tripartite Agreements, it was not obliged to pay because it had itself not been paid by the 1^st defendant.

13.  The 1^st plaintiff denies having entered into the Tripartite Agreements, and says they are forgeries.  The plaintiffs say that prior to receiving those Tripartite Agreements, they had never heard of the 1^st defendant and did not know about any sub-sale by the 2^nd defendant of the tuna cargoes.

14.  In June 2015, relying on a Hamburg arbitration clause contained in the POCs (but not the DOCs), the plaintiffs commenced arbitration in Hamburg against the 2^nd defendant. The 2^nd defendant challenged the arbitral tribunal’s jurisdiction on the ground that its signatures on the POCs were forged.  After hearing factual and expert handwriting evidence, the tribunal issued an award in relation to each POC in December 2018, finding there was a lack of evidence to prove that the 2^nd defendant’s signatures on the POCs were genuine, and declining jurisdiction to hear the plaintiffs’ claims.

15.  The plaintiffs then procured a writ to be issued in the High Court of Hong Kong on 27 December 2018 against the 1^st and 2^nd defendants as well as BOC as the 3^rd defendant.  The reliefs claimed in the writ were: (1) a declaration that the Tripartite Agreements are false and/or fraudulent and null and void; (2) a declaration that the 2^nd and/or 3^rd defendants are bound by this declaration; (3) a declaration that the 2^nd and/or 3^rd defendants are liable under the Acknowledgements to pay the plaintiffs the admitted sums and an order that they do pay the plaintiffs forthwith; (4) an order that the 2^nd and/or 3^rd defendants are liable under the POCs and/or the Bills to pay the plaintiff’s the full sums due; (5) an order that the 1^st and/or 2^nd defendants are liable to the plaintiffs for converting the cargoes of tuna; (6) a declaration that the 1^st and/or 2^nd defendants conspired to defraud the plaintiffs; and (7) damages to be assessed.

16.  The writ was served in Hong Kong on the 1^st defendant, a Hong Kong company, and on BOC, a non-Hong Kong company registered in Hong Kong, on 20 September 2019.  On 8 October 2019, the plaintiff applied ex parte for leave to issue a concurrent writ and to serve it on the 2^nd defendant out of the jurisdiction, relying on the “necessary or proper party” gateway in Order 11 rule 1(1)(c)  of the Rules of the High Court (Cap 4A).  Leave was granted by a Master on 15 October 2019.  The plaintiffs subsequently obtained two successive orders extending the validity of the writ.  The writ was eventually served on the 2^nd defendant in Beijing on 28 July 2020.

17.  On 19 October 2020, the plaintiffs discontinued their claim against BOC.

18.  On 21 December 2020, the plaintiffs filed a statement of claim, pleading a claim against the 2^nd defendant for the sums due under the Bills and the price of the cargoes under the POCs, alternatively damages for breach of the POCs.  There was notably no claim pleaded against the 1^st defendant.

19.  On 15 January 2021, the 2^nd defendant issued a summons seeking orders to set aside service of the writ out of the jurisdiction, to set aside the extensions of the validity of the writ, and to stay the action in favour of arbitration at CIETAC pursuant to section 20 of the Arbitration Ordinance or on the ground of forum non conveniens.

20.  On 11 February 2021, the plaintiffs amended their statement of claim to plead that the 2^nd defendant provided copies of the Tripartite Agreements to the plaintiffs in 2015 and that the plaintiffs had no prior knowledge of the 1^st defendant and had not entered into the Tripartite Agreements.  A claim was added for a declaration that the Tripartite Agreements do not exist and that the documents are forgeries.

The judgment below

21.  In her decision handed down on 4 March 2022 (“Decision”), Linda Chan J rejected the 2^nd defendant’s applications and dismissed its summons, except that she set aside the second extension of the validity of the writ on the ground that there had been material non-disclosure by the plaintiffs in the ex parte application before the Master, but she nevertheless re-granted the extension on an inter partes basis.

22.  It is unnecessary to refer to all the matters decided by the judge, for the 2^nd defendant has raised only three grounds for the proposed appeal, namely:

(1)  For the purpose of Order 11 rule 1(1)(c), there is no real issue to be tried between the plaintiffs and the 1^st defendant which the plaintiff may reasonably ask the court to try.

(2)  There is prima facie evidence that the Tripartite Agreements were executed by the 1^st plaintiff and the judge should have stayed the action under section 20 of the Arbitration Ordinance.

(3)  The judge erred in holding that Hong Kong is the more appropriate forum for the trial of the action.

23.  On 21 March 2022, the judge refused leave to appeal, stating that all the grounds raised were the same as the contentions at the hearing, which had already been dealt with in a Decision, and that she was not satisfied that they had any prospect of success or that there was any other reason why leave should be granted.  The 2^nd defendant now applies to this court for leave to appeal.  As mentioned above, we have given leave to appeal on Grounds 1 and 3, which we shall first deal with below, before turning to Ground 2.

Ground 1 – the “necessary or proper party” gateway

The principles

24.  Order 11 rule 1(1)(c)  provides that with the leave of the court, a writ may be served out of the jurisdiction if in the action:

“ 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”.

25.  The effect of applying this head may mean that a foreign defendant with no connection to Hong Kong is made a party to legal proceedings here against his will simply because another defendant is being sued here.  It has been said that the necessary or proper party head is “anomalous”, in that, in contrast to the other heads, it is not founded upon any territorial connection between the claim and Hong Kong as a jurisdiction: Altimo Holdings and Investment Ltd & ors v Kyrgyz Mobil Tel Ltd & ors [2012] 1 WLR 1804, §73 per Lord Collins.  His Lordship has also recently stated in the Court of Final Appeal’s decision of Fong Chak Kwan v Ascentic Ltd & others [2022] HKCFA 12 (footnotes omitted):

“ 105. The purpose of the gateways is to set out a list of the situations in which the legislator considers that there may be a sufficient link with Hong Kong to justify a defendant in another country or law district being sued in Hong Kong. In some cases the link may be tenuous. Four examples will suffice. First, the clearest example is Gateway C, which allows service abroad on a person who is a ‘necessary or proper party’ to proceedings in Hong Kong, but this head of jurisdiction is not founded upon any territorial connection between the claim, the subject matter of the relevant action and the jurisdiction of the court: Tyne Improvement Commissioners v Armement Anversois SA (The Brabo); Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd. As Sir Francis Piggott, the Chief Justice of Hong Kong, said more than 100 years ago, the necessary or proper party head ‘throws the net of jurisdiction over a wider area; and the principle of considering the nature of the cause of action which pervades the whole subject, appears here to be ignored’: Piggott, Foreign Judgments and Jurisdiction, vol. 3, p. 238 (1910). …”

26.  It has therefore been emphasised that caution must always be exercised in extending jurisdiction over foreign defendants under the necessary or proper party head, and that the court should not grant leave under this head as a matter of course merely because not to do so would mean that more than one set of proceedings would be required: Tyne Improvement Commissioners v Armement Anversois SA (The Brabo) [1949] AC 326, 338-339; Golden Ocean Assurance Ltd v Martin (The Goldean Mariner) [1990] 2 Lloyd’s Rep 215, 222; Dicey, Morris and Collins on The Conflict of Laws (16^th ed. 2022), §11-122. 

27.  One of the principles reflecting the especial care needed in applying this head is the requirement that there is a real issue to be tried between the plaintiff and the anchor defendant.  The principle was stated under the old rule[2] in Ellinger v Guinness, Mahon & Co [1939] 4 All ER 16, 22F, where Morton J said:

“ I do not think it is part of the function of the court, in considering whether an action is ‘properly brought’ against a party within the jurisdiction, to arrive at a conclusion as to whether the plaintiff will or will not succeed against that party. It is enough if the court is satisfied that there is a real issue between the plaintiff and that party which the plaintiff may reasonably ask the court to try.”

28.  The principle has since been expressly incorporated into Order 11 rule 4(1)(d), which, albeit framed as an evidential requirement, is in substance declaratory of the existing law (see Altimo Holdings at §65).  It provides that an application for leave to serve out must be supported by an affidavit stating:

“ where the application is made under rule 1(1)(c), the grounds for the deponent’s belief that there is between the plaintiff and the person on whom a writ has been served a real issue which the plaintiff may reasonably ask the Court to try.”

29.  This requirement is plainly intended to prevent a spurious claim against the anchor defendant being used as a device for bringing in a foreign defendant.  In several cases in Hong Kong, Stone J memorably referred to the need to guard against the necessary or proper party head being “creatively utilised” to rely on an existing defendant as a “jurisdictional Trojan Horse”: Inchcape JDH Ltd v Baltrans Exhibition & Removal Ltd & another [1997] HKLRD 1278, 1282B-C; Heliopolis Co Ltd & others v Euroscan Express (HK)  Ltd & another (HCCL 42/1996, 18 December 1997); Dallah Albaraka (Ireland)  Ltd v Symphony Gems NV & others [2005] 3 HKLRD 703, §23. 

30.  Based on the rules, so far as the gateway is concerned, to obtain leave to serve out on the necessary or proper party head, the plaintiff has to show a good arguable case that:

(1)  the claim against the anchor defendant involves a real issue between the plaintiff and that the defendant;

(2)  it is a real issue which the plaintiff may reasonably ask the court to try;

(3)  the foreign defendant is a necessary or proper party to the claim against the anchor defendant.

31.  The fact that the anchor defendant is sued only for the purpose of bringing in the foreign defendant is not fatal to the application for leave to serve the foreign defendant out of the jurisdiction, but merely a factor in the exercise of the discretion, provided there is a viable claim against the anchor defendant: Altimo Holdings, §§76-79.  Thus, for example, where the anchor defendant was insolvent and unlikely to be able to meet any judgment against it, but was nevertheless sued for the predominant purpose of enabling a foreign defendant to be brought in, the requirement was satisfied: Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd & others [1983] 1 Ch 258 at p 268B-C per Lawton LJ, and p 279 per May LJ, per contra pp 285-286 per Dillon LJ.  This is however separate from the question whether there is a real issue with the anchor defendant that the plaintiff may reasonably ask the court to try: Erste Group Bank AG, London Branch v JSC ‘VMZ Red October’ & others [2015] 1 CLC 706, §§41-43.

32.  It should also be borne in mind that Order 11 rule 4(2)  provides:

“No such leave shall be granted unless it shall be made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction under this Order.”

33.  Apart from forum conveniens factors, this rule also applies to the question whether the case falls within both the letter of the rule and its true spirit, a requirement recently reiterated by Lord Collins of Mapesbury NPJ in Fong Chak Kwan as follows (footnotes omitted):

“117. It is well established that, in deciding whether a case falls within one of the heads of jurisdiction, the court must consider the substance of the matter and not merely whether the case technically falls within the letter of the head of jurisdiction in question: the case must be clearly within both the letter of the rule and the spirit of the head: Johnson v Taylor Bros & Co Ltd; Rosler v Hilbery; GAF Corp v Amchem Products Inc; Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc. The authorities show, contrary to a recent dictum by the English Court of Appeal in a case in which the authorities do not seem to have been cited, that this principle applies to the question whether the claim falls within the spirit of a gateway, and not simply to the exercise of the discretion. Nor does it apply exclusively to the construction of the heads of jurisdiction, although it has sometimes been used in this sense, for example by Lord Mustill in Mercedes-Benz v Leiduck,when discussing whether a Mareva injunction was within the injunction gateway. The wider, and principled, view is demonstrated by Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc,in which the English Court of Appeal said that ‘it would certainly contravene the spirit, and also we think the letter, of the rule if jurisdiction were assumed on the strength of some relatively minor or insignificant act having been committed here, perhaps fortuitously.’ ”

The evidence

34.  Based on the investigations carried out on its behalf in 2018, the plaintiffs’ evidence is that the 1^st defendant was incorporated with the assistance of a company secretarial firm in Hong Kong called International Professional Secretary Ltd (“IPSL”).  In March 2012, Ms Lo, the person in charge of IPSL, was approached by Ms Sun Jiujiang (“Sun”), who was apparently an assistant of Wang, with enquiries about company names that included the word “Vestey”. Eventually, on 10 April 2012, the 1^st defendant was incorporated in its present name, with one Ms Rui Xiaoyan (“Rui”)  as its sole director and shareholder.  In June 2013, Sun sent instructions to IPSL to prepare papers for the appointment of one Michael Rolf Perlitz (“Perlitz”)  as a director of the 1^st defendant, attaching a copy of his passport and proof of address.  Company records show that on 26 June 2013, Rui transferred her entire shareholding in the 1^st defendant to Perlitz and that Perlitz replaced Rui as the sole director of the 1^st defendant.  Fees for these changes were paid for by Sun.  IPSL remained the company secretary until April 2015 when it was replaced by another firm.

35.  Perlitz had however confirmed in an affidavit filed on behalf of the plaintiffs that he had never seen and did not execute the Tripartite Agreements, had never consented to be a shareholder or director of the 1^st defendant, and had indeed never heard of that company before the plaintiffs brought it to his attention.  Perlitz’s passport shown in the 1^st defendant’s records had expired at the time when he was supposedly appointed a director.  He said that the signatures on the Tripartite Agreements did not even remotely approximate his signature, and believed that his identity had been stolen and used for fraudulent purposes. 

36.  The 1^st defendant had no office in Hong Kong or staff, and had the company secretary’s office as its address.  After being served with the writ, it has not filed an acknowledgment of service or taken any step whatever in the action.

The arguments

37.  On behalf of the 2^nd defendant, Mr Chang SC submits that in assessing whether there is a real and live issue between the plaintiff and the anchor defendant, the court must examine the plaintiff’s claim against the anchor defendant in isolation, on the assumption that the foreign defendant is not joined: Erste Group Bank, §§38, 80; Vitol Bahrain EC v Nasdec General Trading LLC & others [2014] EWHC 984 (Comm), §46.  He submits that there is no real issue between the plaintiffs and the 1^st defendant.  Perlitz, the sole registered shareholder and director of the 1^st defendant, has given evidence to support the plaintiffs’ case.  It is unrealistic to expect any other person to come forward to represent the 1^st defendant in the action.  The court should not allow an action to proceed against the 1^st defendant for a declaration, when the 1^st defendant does not, and will almost never, assert that it and the plaintiffs are bound by the Tripartite Agreements.  The plaintiffs are seeking declaratory relief not in order to determine any dispute between them and the 1^st defendant, but to determine their dispute with the 2^nd defendant.  If the 2^nd defendant was not joined, there would be no point in pursuing a claim for the declaration against the 1^st defendant.  The requirement of rule 1(1)(c)  is not satisfied, and leave to serve out should be set aside.

38.  In response, Mr Sussex SC submits on behalf of the plaintiffs that whether or not there is a real issue between the plaintiff and the anchor defendant is not to be examined without regard to the claim against the foreign defendant, citing in support Mahajan v HCL Technologies (Hong Kong)  Ltd & others (CACV 46 & 49/2008, 20 November 2008).  The plaintiffs have a real interest in the subject matter of the declaration sought and in obtaining the declaration against both defendants as proper contradictors, so that both defendants, who are parties to the Tripartite Agreements, cannot dispute that they are false, null and void. There is a case for obtaining a declaration against the 1^st defendant since it is the 2^nd defendant’s case that it had acted as agent for the 1^st defendant in the transactions and that Sun acted on behalf of the 1^st defendant in executing the Tripartite Agreements.  Since on Perlitz’s own evidence he has no authority to act on behalf of the 1^st defendant, it follows that he has no authority to agree to the declaration sought.  If the action proceeds in Hong Kong, Ms Lo of IPSL can be subpoenaed to give evidence of who was behind the 1^st defendant.

Discussion

39.  As Mr Chang submits, the requisite analysis for this gateway has two stages.  The questions at the first stage are whether there is a real issue between the plaintiff and the anchor defendant, and whether that issue is one which the plaintiff may reasonably ask the court to try.  It is only where there is such a real issue that one asks, at the second stage, whether the foreign defendant is a necessary or proper party to the claim against the anchor defendant (see §30 above).  It is evident from the structure of the rules that, in the first stage, the focus is on the case against the anchor defendant in itself.  Depending on the facts, the requirement of a real issue may be concerned with the strength or genuineness of that case, so as to exclude claims that are hopeless or artificial. 

40.  The application of this requirement is illustrated in several cases.  In Vitol Bahrain, the claimant, having purchased certain cargoes of oil from D1, delivered them into shore tanks.  D3 alleged that D1 was a company set up by a delinquent manager of D3 who had misappropriated the cargoes, and claimed title to the oil.  The claimant brought proceedings in England against D1 as the anchor defendant, claiming a declaration that D1 had good title to the oil and passed good title to the claimant.  The claimant sought to serve D3 as a defendant out of the jurisdiction on the ground that it was a necessary or proper party to the claim against D1.  D1 served a defence in which it maintained that it had title, gave good title to the claimant, and did not resist the making of any declaration to that effect.  In considering the matter in the context of forum non conveniens, Popplewell J first examined the claim against D1 and said (at §46):

“ The starting point when considering the necessary or proper party head of jurisdiction is to examine the nature of the claim which arises against the anchor defendant(s). That is the claim to which it must be necessary or proper for the additional defendant(s)  to be party. At this first stage, the approach requires consideration of such claim in isolation, that is to say assuming that there will be no joinder of the additional foreign defendant(s).”

The judge went on to hold that the claim advanced against D1 would not and could not have been made against it in the absence of joinder of D3, and would not and could not have been pursued against D1 alone.  The court would not entertain a claim against D1 for a declaration that it had good title to the cargo and passed it to the claimant, since both agreed on that matter, for:

“ 47. … The Court will not allow A to bring a claim against B for a declaration that B has no right or claim against him where no such right or claim has been asserted by B against A: In re Clay [1919] Ch 66; Midland Bank Plc v Laker Airways [1968] QB 689. One reason is that the Court will not make declarations which serve no useful purpose.”

Permission for service out of the jurisdiction was therefore set aside.

41.  In Erste Group Bank, the claimant had lent money to D1, guaranteed by its parent, D2.  D1 and D2 were Russian companies and had become subject to insolvency procedures in Russia.  The claimant alleged that D1 to D7 were all part of a conspiracy to hive down the assets of D1 and D2 to D7, putting them out of the reach of the creditors.  The claimant (relying on exclusive jurisdiction agreements in favour of England)  brought an action in England against D1 and D2 in debt and also for damages for conspiracy and other tort claims, and, having obtained summary judgment against D1 and D2 on its debt claims, obtained leave to serve the proceedings on the other defendants out of the jurisdiction based on, inter alia, their being necessary or proper parties.  On the appeal by D3 and D5 challenging jurisdiction, the English Court of Appeal[3] stated in relation to the necessary or proper party head (now found in CPR Practice Direction 6B, para 3.1(3)[4])  that:

“ 38. At the first stage under paragraph 3.1(3)(a), the court has to examine the nature of the claim which arises against the anchor defendants in isolation; that is to say on the assumption that there will be no additional joinder of the foreign defendants. The court has to be satisfied that not only is there ‘a real issue’ between the claimant and the anchor defendants, but also that it is an issue ‘which it is reasonable for the court to try’.”

“ 46. Thus, in our judgment, it was clearly incumbent upon the judge at the first stage of the process under paragraph 3.1(3)(a), to address as a separate question, distinct from the issue of the necessary or proper party arising under paragraph 3.1(3)(b), whether the Bank’s claims against D1 and D2 … viewed in isolation, satisfied the requirements of paragraph 3.1(3)(a), namely whether there was between the Bank and D1 and D2, ‘a real issue which it is reasonable for the court to try’. …”

After considering the facts, the court noted that there was no real issue at all as to the claimant’s entitlement to its debt, as its claims had been admitted in the Russian insolvency proceedings; D1 and D2 had both failed to file any notice of intention to defend the action; it was difficult to see any utility in the court trying the conspiracy claims against D1 and D2 since they would not give rise to any greater recovery.  The court concluded that the gateway requirements were not satisfied because the claimant could not demonstrate that, viewed in isolation, it would have been reasonable for the English court to try the claims against D1 and D2 (see §§78-80).

42.  A similar approach was taken in Gunn v Diaz [2017] RTR 24, where Andrews J said that in assessing whether it might not be reasonable for the court to try the claim, the court would have to consider whether there was any utility in its trying the claims against the anchor defendant.  If the claimant had nothing to gain from a trial of those issues (other than using the claim against the anchor defendant as a vehicle for bringing in the target defendant), then the requirement would not be satisfied (see §99).

43.  Mr Sussex disputes the approach of examining the claim against the anchor defendant in isolation. First, he points out that the wording of the English rule is different from the rules in Hong Kong.  The principal difference, it seems to us, is that whereas the English rule requires that there is “a real issue which it is reasonable for the court to try”, the Hong Kong rule refers to “a real issue which the plaintiff may reasonably ask the court to try”.  The traditional wording retained in Hong Kong reflects a more subjective formulation of the requirement as articulated by Morton J in Ellinger v Guinness, Mahon & Co: see Erste Group Bank, §48.  But this difference does not in our view affect the present argument.

44.  Mr Sussex relies on Mahajan v HCL Technologies (Hong Kong)  Ltd & others and in particular certain dicta in the judgment of Le Pichon JA to the effect that a consideration of the entire action is required and that to isolate out and to have regard only to the claim against the anchor defendant would be to adopt an unnecessarily blinkered view.[5] Those statements must, however, be seen in the context of the facts of that case.  It was an action by the plaintiff for monies due on the termination of his employment.  There was an issue as to who his employer truly was.  He duly brought an action against D1, a Hong Kong company, and also against D2 (the foreign parent company of D1)  and D3 (the chairman and chief executive of D2), claiming against them in the alternative.  After D1 served a defence which admitted it was the plaintiff’s employer, the plaintiff obtained leave to serve the action out of the jurisdiction on D2 and D3 based on the necessary or proper party head.  They then applied to have service set aside, arguing that D1’s admission that it was the employer precluded the plaintiff from pursuing his alternative claims against D2 and D3.  That was rejected on the ground that where a plaintiff has alternative claims against different defendants, he can sue both in the same proceedings and has a right to postpone election until judgment.  The alternative plea against D2 and D3 could be advanced in parallel with the plea against D1 despite D1’s admission.

45.  In our view Mahajan does not assist the plaintiffs.  It was a case about mutually exclusive, alternative claims.  It has long been accepted that such claims properly fall within the necessary or proper party head, even though the claim against the foreign defendant is advanced on the ground that the anchor defendant is not liable: Massey v Heynes (1888)  21 QBD 330.  Further, whilst D1 admitted it was the employer, the claim against it was still contested and remained to be tried (even though it was submitted by D2 and D3 that the only “real issue” left was the assessment of quantum).  In a broad sense, to see what is really happening, the action has to be “looked at as a whole”, as Le Pichon JA said.  But her Ladyship also affirmed the need to guard against “a specious claim against the original defendant being used as a device to found jurisdiction to serve another party outside the jurisdiction”.[6] That undoubtedly puts the focus on the claim against the anchor defendant.  The decision in that case is not, in our view, inconsistent with the subsequent English decisions mentioned above.

46.  In the present case, the whole point of the plaintiffs’ action is to recover the price of the cargoes or amounts of the Bills or damages for breach of the contracts of sale. These are claims made against the 2^nd defendant under the POCs or the Bills, and were indeed the only claims pleaded in the original statement of claim.  A claim that the 1^st and/or 2^nd defendants are liable for conversion of the cargoes was mentioned in the writ but has not been pursued since. 

47.  The 1^st defendant has not asserted any claim or right against the plaintiffs (or, for that matter, against the 2^nd defendant)  whether on the basis of the Tripartite Agreement or otherwise.  It has never propounded the Tripartite Agreements or relied on them in any way.  The plaintiffs do not claim any rights against the 1^st defendant which depend on the existence or otherwise of the Tripartite Agreements.  If the 2^nd defendant is not joined, the plaintiffs have no reason at all to pursue the 1^st defendant.

48.  The plaintiffs’ claims for recovery have no connection with the Tripartite Agreements at all but for the fact that they are raised by the 2^nd defendant as a defence.  Even so, it would have been sufficient for the plaintiffs, in reply, to aver that the Tripartite Agreements were forgeries and thus null and void, and the issue would be raised thereby and in due course contested and determined as between the plaintiffs and the 2^nd defendant, without any declaration being sought.

49.  Even if the plaintiffs go further and seek a declaration as to the voidness or non-existence of the Tripartite Agreements, their real interest seems to us to be in seeking that declaration against the 2^nd defendant, so as to ensure the 2^nd defendant cannot rely on the documents as against the plaintiffs.  The 2^nd defendant would be a proper contradictor, with a true interest to oppose the declaration sought: see Convoy Global Holdings Ltd & another v Kwok Hiu Kwan & another [2021] HKCA 1594, §29; Koo Ming Kown v Rev Mr Mok Kong Ting & Ors (HCA 2337/2016, 4 May 2018), at §20.  In contrast, it is difficult to see what interest the plaintiffs can have in obtaining a declaration as against the 1^st defendant and what interest the 1^st defendant can have in opposing it.

50.  In her Decision,[7] the judge stated that it remains unknown who signed the Tripartite Agreements on behalf of the 1^st defendant and whether the 2^nd defendant was put on inquiry that the signer had no authority from the 1^st defendant.  In effect the 2^nd defendant is seeking to uphold the Tripartite Agreements as against the 1^st defendant and the 1^st plaintiff on the basis that it had no knowledge of any forgeries and dealt with the persons who signed the Tripartite Agreements on behalf of the 1^st defendant and the 1^st plaintiff in the belief that they had authority to do so.  The judge concluded that:

“ It is artificial to say that there is no real issue on the validity of the TPAs as between P1 and D1, when D2 is a party to the same agreements and has been relying on such agreements as if they are valid and binding upon all parties.”

51.  With respect, the matters referred to seem to us to demonstrate the reality that the real issue lies between the plaintiffs and the 2^nd defendant.  The artificiality lies, in our view, not in saying that there is no real issue with the 1^st defendant on the validity of the Tripartite Agreements which the plaintiffs may reasonably ask the court to try, but in the opposite.

52.  Mr Sussex submits that as the declaration sought concerns the effect of a contract, the parties to the contract would be proper parties to the action.  As a general proposition this statement is unobjectionable, and it may be that if the 2^nd defendant was otherwise properly served, the 1^st defendant can be said to be a proper party to the plaintiffs’ claim against the 2^nd defendant.  But rule 1(1)(c)  is premised on the foreign defendant being a necessary or proper party to the claim brought against the anchor defendant, not the other way round.  The inverted position here provides no basis for service out under this head, as illustrated by Vitol Bahrain, at §56, and Rosler v Hilbery [1925] 1 Ch 250, 258, 263.  Further, as Mr Chang has pointed out, the question whether the 2^nd defendant is a necessary or proper party to the claim against the 1^st defendant arises at the second stage, after analysing whether there is a real issue with the 1^st defendant that the plaintiffs may reasonably ask the court to try.

53.  Mr Sussex submits that the need for a defendant to claim a right before a declaration could be made by the court is “not interpreted so rigidly” in the modern rule, citing Fujifilm Kyowa Kirin Biologics Co Ltd v AbbVie Biotechnology Ltd [2018] Bus LR 228, §61.  But the court in that case also referred to the “manifest and real commercial interest” of the claimant in obtaining the declarations against the defendants in question and the fact that the declarations served “a legitimate and useful purpose” (see §§61 & 63).  Such interest and purpose are lacking in the plaintiffs’ claim for a declaration against the 1^st defendant in the present case.  There must, in general, be a real and present dispute between the parties as to the existence or extent of a legal right between them before the court would grant a declaration, although the plaintiff does not need to have a present cause of action against the defendant: Rolls-Royce plc v Unite the Union [2009] EWCA Civ 387, §120(2).  The court will, in general, reject a claim for a declaration that the plaintiff is under no duty to the defendant if the defendant does not assert that the plaintiff owes him such a duty: Zamir & Woolf, The Declaratory Judgment (4^th ed), §4-65; Vitol Bahrain, §47; Citigroup Global Markets Ltd v Amatra Leveraged Feeder Holdings Ltd & others [2012] EWHC 1331 (Comm), §38.  On established principles it seems to us that there is no proper claim here for a declaration against the 1^st defendant in its own right.

54.  Mr Sussex also submits that the plaintiffs seek a declaration of right, not a negative declaration of non-liability, against both the 1^st and 2^nd defendants based on the same claim, and that this is not a case involving separate claims against the anchor and foreign defendants, where the sustainability of the claim against the anchor defendant can be considered in isolation.  Reliance is placed on Galapagos Bidco SÀRL v Kebekus & others [2021] EWHC 68 (Ch).  But that was a very different case.  There the claimant company had entered into a financial restructuring with some of its creditors, effected under the terms of an earlier inter-creditor agreement.  The claimant issued proceedings in England seeking declarations that the restructuring complied with the terms of that agreement.  D2 to D6 were domiciled in the UK; D1 and D7, who were domiciled in Germany and Luxembourg respectively, challenged the jurisdiction of the English court, but their challenges were eventually dismissed.  Mr Sussex relies upon what Zacaroli J stated in his judgment as follows:

“ 58. Further, in light of the fact that the same declarations are sought against all parties, the contention advanced by [D1 and D7] that there is no sustainable claim as against the anchor defendants turns (assuming their substantive arguments, which I address below, are successful)  on whether or not the foreign defendants are parties to the proceedings. That is because the essence of their case is that in the absence of [D7] and/or [D1] there is no sustainable claim because there is no-one before the court who actively opposes the declarations sought and who is in a position to present opposing arguments. That objection falls away if [D1] and/or [D7] are joined and, in that event, the claim against the anchor defendants themselves would need to continue: there could be no question of the court granting the declaration as against the anchor defendants only on the basis that they did not oppose it, if the dispute between [the Claimant] and the other parties remained unresolved.

   59.     That is very different from the case involving separate but connected claims against the anchor defendant and the foreign defendant: in such a case, the sustainability of the claim against the anchor defendant is a free-standing point, unaffected by whether or not the foreign defendant is also a party.”

   (See also §§136-137)

55.  In our opinion, with respect, Galapagos Bidco does not assist the plaintiffs here.  First, the decision turned not on the equivalent of Order 11 rule 1(1)(c), but on Article 8(1)  of the Recast Brussels Regulation, which is couched in very different terms, asking whether “the claims are so closely connected that it is expedient to hear and determine them together”.[8] The conditions for the application of Article 8(1)  are different from the requirements of Order 11.[9]  Secondly, on the facts, the court found that there was actually a lis between the claimant and at least one of the anchor defendants which was a trustee, since there were beneficiaries in the trust (including D7)  who took issue with the validity of the restructuring.[10]  Thirdly, the validity of the restructuring agreement there would have an effect on the legal relations between the claimant and the anchor defendants who were creditors of the claimant and parties to the inter-creditor agreement.  The restructuring involved the release of the original debt owed to them.  The claimant made a single claim affecting all defendants and its legal relations with each of them.  In the present case, the plaintiffs have, on their case, no legal relation at all with the 1^st defendant, and the 1^st defendant has not asserted otherwise.

56.  On the facts, Mr Sussex submits that it is the 2^nd defendant’s case that it has acted as “agent” for the 1^st defendant in the transactions, and that a dispute raised by an agent should give rise to a sufficient lis against the principal.  But it is not contended by anyone that the 1^st defendant is directly liable to the plaintiffs for the price of the goods.  Nor do the plaintiffs contend that it has any legal relations with the 1^st defendant.  It is certainly not the plaintiffs’ case that the 1^st or 2^nd defendant is liable to them in the alternative.  We fail to see how this point advances the plaintiffs’ case.

57.  It is also submitted that the 2^nd defendant’s case was that Sun coordinated the execution of the Tripartite Agreements by the 1^st defendant and that, if so, Sun had asserted the genuineness of the Tripartite Agreements on behalf of the 1^st defendant.  We do not think this argument takes matters any further.  It was, of course, the 2^nd defendant’s contention that the Tripartite Agreements were genuine and were executed by the 1^st defendant. This does not alter the fact that there is no real and present dispute between the plaintiffs and the 1^st defendant.  No one has asserted on behalf of the 1^st defendant, ever since the prices failed to be paid in mid-2014, that it was party to the Tripartite Agreements.

58.  We accept that the fact that the 1^st defendant has not filed any acknowledgment of service is not conclusive, for if there is a proper claim for a declaration against the 1^st defendant, then a trial may still be appropriate even if uncontested by it.  This was the case in Satfinance v Athena Art [2020] EWHC 3527 (Ch), relied upon by the plaintiffs, where it was indeed common ground that if the anchor defendants were to participate actively in the litigation, there would be a real issue to be tried between them and the claimant,[11] since the claimant had a real interest in establishing his title to the painting in question by suing the anchor defendants.  Likewise, in the present case, since Perlitz, on his own evidence, has no authority to represent the 1^st defendant, it cannot be said that he has admitted on the 1^st defendant’s behalf that the Tripartite Agreements are forgeries.  It does not follow, however, that as between the plaintiffs and the 1^st defendant, there is a real issue in the form of the claim for declaration that the plaintiffs may reasonably ask the court to try.

59.  For the above reasons, we consider that the present case does not fall within Order 11 rule 1(1)(c)  and that leave to serve the writ out of the jurisdiction on the 2^nd defendant should be set aside.

Ground 3 – forum non conveniens

60.  As part of its summons before the judge, the 2^nd defendant sought an order that all further proceedings in the action be stayed on the ground of forum non conveniens.  The form of the application was strange.  Since the 2^nd defendant was out of the jurisdiction, the question whether Hong Kong was the appropriate forum arose at the stage when the court considered ex parte whether leave should be granted for service on the 2^nd defendant out of the jurisdiction, and may be re-examined inter partes on the 2^nd defendant’s application to set aside service.  If in that context the court came to the view that the 2^nd defendant was properly served, it is difficult to see any scope for further argument that the action against it should be stayed on the ground of forum non conveniens.

61.  Be that as it may, the judge correctly considered the question of forum non conveniens on the footing that the burden lay on the plaintiffs to show that Hong Kong was clearly or distinctly the appropriate forum for the trial of the dispute.[12]  Having regard to a number of matters specified in the Decision, including principally the existence of the 1^st defendant as the anchor defendant, the judge concluded that the Hong Kong court is the more appropriate forum.[13] 

62.  It seems to us that this ground essentially stands or falls with Ground 1.  From our conclusion above that the case does not properly fall within the necessary or proper party head, it follows that the judge’s conclusion on forum is also vitiated.

Ground 2 – stay in favour of arbitration

The issue

63.  Article 8(1)  of the UNCITRAL Model Law, given legal effect by section 20(1)  of the Arbitration Ordinance, provides as follows:

“ A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

64.  Section 20(5)  provides:

“ If the court refers the parties in an action to arbitration, it must make an order staying the legal proceedings in that action.”

65.  Before the judge the 2^nd defendant contended that as there was an arbitration clause in each of the Tripartite Agreements, the dispute between the 2^nd defendant and the 1^st plaintiff should be referred to arbitration at CIETAC and the action stayed.  By its summons, the 2^nd defendant sought an order, inter alia, that “[p]ursuant to Section 20 …, the Plaintiffs and the 2^nd Defendant be referred to arbitration and the proceedings in so far as appropriate be stayed”.  But since the plaintiffs contended that they had never executed the Tripartite Agreements, the question arose as to the proper approach of the court where the existence of the arbitration agreement is disputed.

66.  On that question the 2^nd defendant submitted, relying on the Singaporean decision in Malini Ventura v Knight Capital Pte Ltd [2015] SGHC 225, that once the applicant for stay shows a prima facie case that the arbitration agreement exists, the court is required to stay the action before it and refer the matter, including the question of the existence of the arbitration agreement, to arbitration.  Reliance is also placed on the decision of this court in PCCW Global Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309,[14] in the context of a debate whether the relevant dispute fell within the scope of the arbitration agreement, that the matter should be stayed for arbitration where there is a prima facie case that the arbitration clause applies.

67.  In contrast, the plaintiffs submitted, relying on English authorities,[15] that where the conclusion of the arbitration agreement is in issue, there are four options open to the court:

“ (1)  (where it is possible to do so)  to decide the issue on the available evidence presently before the court that the arbitration agreement was made and grant the stay; (2)  to give directions for the trial by the court of the issue; (3)  to stay the proceedings on the basis that the arbitrator will decide the issue and (4)  (where it is possible to do so)  to decide the issue on the available evidence that the arbitration agreement was not made and dismiss the application for the stay.”

It was submitted that the court’s power to grant a stay under section 20 only arises if the court is satisfied that there is an arbitration agreement, although the court may grant a stay under its inherent jurisdiction if, for case management reasons, it considers it desirable for the arbitral tribunal to deal with the matter first.

68.  In the Decision, the judge stated that if the issue whether the arbitration was forged cannot be resolved on the evidence available, the court would have to decide whether to resolve the issue or stay the action so as to enable the issue to be resolved in arbitration.  In the latter case, the stay would be granted under the court’s inherent jurisdiction rather than section 20.  In deciding whether to grant such a stay, the court would require the applicant for stay to show at least a prima facie case that the arbitration agreement existed.  In the end, the judge was not satisfied that there was a prima facie case that the Tripartite Agreements were binding on the 1^st plaintiff. Accordingly, she refused to stay the action, and dismissed the summons.[16]  The judge also subsequently refused leave to appeal.

69.  The 2^nd defendant seeks leave to appeal from this court, on the ground that (1) the judge erred in finding there was no prima facie case that the Tripartite Agreements were executed by the 1^st plaintiff, and (2) the judge should have adopted the approach that once there was such a prima facie case, the court must grant a stay under section 20.  The plaintiffs take the position that the judge was correct on both aspects.

Jurisdiction to grant leave to appeal

70.  Prior to the hearing we drew the parties’ attention to section 20(9)  of the Arbitration Ordinance and section 14(3)(ea)(ii)  of the High Court Ordinance (Cap 4)  and raised the question whether this court has jurisdiction to grant leave to appeal for Ground 2.

71.  Section 20(8)  and (9)  of the Arbitration Ordinance provides:

“ (8)  A decision of the court to refer the parties to arbitration under—

(a)  article 8 of the UNCITRAL Model Law, given effect to by subsection (1); or

(b)  subsection (2),

is not subject to appeal.

(9)  The leave of the court making a decision to refuse to refer the parties to arbitration under—

(a)  article 8 of the UNCITRAL Model Law, given effect to by subsection (1); or

(b)  …

  is required for any appeal from that decision.”

72.  Section 14(3)(ea)(ii)  of the High Court Ordinance provides:

“ (3)  No appeal shall lie—

…

(ea)  except as provided by the Arbitration Ordinance (Cap. 609), from any judgment or order of the Court of First Instance—

…

(ii)     under section 20(1) or (2)  of that Ordinance refusing to refer the parties to arbitration”

73.  There is no dispute that this court is not the court referred to in section 20(9), and that these provisions, if they apply, mean that leave to appeal could in this case only be granted by the judge.  Nor has the 2^nd defendant raised any issue with regard to the constitutional validity of these provisions: c.f. Magnus Leonard Roth v Vitaly Petrovich Orlov [2021] HKCA 639.  Instead, Mr Chang presents two arguments in an attempt to overcome these provisions.

74.  First, he submits that there are two distinct situations where the court may refuse to refer the parties to arbitration: first, where the court finds that the case does not come within Article 8(1)  of the Model Law at all on the ground that the matter is not “the subject of an arbitration agreement”; and, secondly, where the court finds that the “agreement is null and void, inoperative or incapable of being performed”.  He submits that section 20(9)  and section 14(3)(ea)(ii)  apply only in the latter situation – where the court’s refusal to refer the parties to arbitration is made under Article 8(1), and not in the former – where the court finds that the case does not even come within Article 8(1).  He prays in aid the Chinese version of section 20(9)  (“凡法院根據 — (a)  藉第(1)款而具有效力的《貿法委示範法》第8條 … 決定拒絕將各方轉介仲裁，則須獲該法院許可，方可針對該決定提出上訴。”)  and submits that the phrase “根據” confirms that section 20(9)  only applies where the court’s refusal to grant a stay is based on Article 8.  Since in this case the judge found that no arbitration agreement existed at all, Article 8 was not engaged, and the judge did not refuse to refer the parties to arbitration under Article 8.

75.  The argument is ingenious but we do not accept it.  It seems to us that the language of section 20(9)  and section 14(3)(ea)(ii)  is apt to apply to the judge’s order in this case.  The 2^nd defendant applied for an order to refer the parties to arbitration and for a mandatory stay of the action (as against the 1^st plaintiff)  specifically and solely pursuant to section 20 and Article 8.  The judge refused to do so.  That seems to us to be “a decision to refuse to refer the parties to arbitration under article 8” within the meaning of section 20(9), and an “order of the Court of First Instance under section 20(1)  … refusing to refer the parties to arbitration” within the meaning of section 14(3)(ea)(ii).

76.  As Mr Sussex points out, section 20(9)  is one of several similar provisions in the Arbitration Ordinance that curtail the possibility of appeal: see sections 15(5), 60(10), 81(4)  and 84(3), in addition to a number of provisions which exclude appeal altogether.[17] It was observed by this court[18] in China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers (HK)  Ltd [2015] 4 HKLRD 609 at §27 that in general, the role of the Court of Appeal under the scheme of the Arbitration Ordinance is more limited than in usual proceedings in the High Court and that even in instances where an appeal to the Court of Appeal is possible, it has to be brought with the leave of the Court of First Instance.

77.  The statute provides in section 20(8)  that a decision to refer the parties to arbitration under Article 8 is not subject to appeal, and provides in section 20(9)  for a restricted avenue for appeal in the obverse situation – where the court has refused to refer the parties to arbitration under Article 8.  It seems to us unlikely to be the legislative intention that there is yet a third category of outcome in an application for a reference and stay under section 20, falling within neither subsection (8)  nor subsection (9), where leave to appeal may be obtained under the general provisions of section 14AA of the High Court Ordinance.

78.  Mr Chang is unable to identify any purpose for a distinction to be made, in the context of leave to appeal, between cases where the court refuses to refer the parties to arbitration because it finds that the agreement is null and void, inoperative or incapable of being performed, and cases where the court refuses to refer because of reasons concerned with the existence or applicability of the arbitration agreement.  No reason has been shown why leave to appeal should be restricted if the lower court has found that the arbitration agreement is null and void because, for example, of a fundamental common mistake, but not restricted where the court has found that the dispute lies outside the scope of the arbitration agreement.  In both cases it may be said that there was no true consent to arbitration which calls into play the respect for parties’ autonomy.  It may be noted that under section 81, a decision by the Court of First Instance to set aside an arbitral award on the ground that it deals with a dispute not falling within the arbitration agreement can only be appealed with the leave of that court.

79.  It is true that the sentence structure in the Chinese version of section 20(9)  is different from the English version.  But the phrase “根據” (which is also used in the Chinese version of section 14(3)(ea)(ii)[19])  seems to us to have been used there simply to mean “under”, without any necessary connotation that the court must first have found that Article 8 applies.  In so far as necessary, if a comparison of the two versions discloses a difference of meaning, we prefer the meaning discussed above which in our view best reconciles the texts, having regard to the object and purposes of the Ordinance: section 10B(3)  of the Interpretation and General Clauses Ordinance (Cap 1).

80.  Mr Chang’s second argument is that, even if section 20(9)  applies so that the Court of Appeal cannot itself grant leave to appeal, it has a residual jurisdiction under section 14 of the High Court Ordinance to set aside a judge’s refusal to grant leave to appeal where there had been unfairness or an improper process: China International Fund Ltd, §§22-24.  He submits that this power should be exercised here because the reason given by the judge for refusing leave to appeal was “plainly inadequate for the purpose of fairness”.  At the hearing Mr Chang applied orally for leave to amend the summons in order to invoke this residual jurisdiction. 

81.  We have no hesitation in rejecting this argument.  It would make a fundamental change in the nature of the application, and yet no proposed amended summons was placed before us.  The relief sought would be an order setting aside the judge’s refusal of leave to appeal, which had nothing to do with the substantive argument on Ground 2.  The application was extremely late, and obviously an afterthought.  We do not think it is even arguable that there was such a substantial defect or unfairness in the process below as to nullify the judge’s decision refusing leave.  We are far from persuaded that the judge’s reasons for refusing leave were inadequate.  If the 2^nd defendant had genuinely felt aggrieved because the court’s letter refusing leave was too brief, it would have enquired with the judge whether she intended to hand down more detailed formal reasons, but it did not. 

82.  For the above reasons, Ground 2 must be rejected for want of jurisdiction. 

83.  Even so, Mr Sussex has invited this court to reject the prima facie approach advocated by the 2^nd defendant. He points out that in the Singaporean cases of Malini at §36 and Tomolugen Holdings Ltd & another v Silica Investors Ltd [2015] SGCA 57 at §§64 & 66, where that approach was adopted, it was emphasised that the Singapore courts would have the final say even after the matter was referred to arbitration. In a case such as the present, however, where the disputed agreement provides for arbitration in another jurisdiction, any challenge against the arbitrator’s decision on jurisdiction may have to be brought in the court of that jurisdiction rather than Hong Kong.  This, he submits, may be highly prejudicial to the party disputing the arbitration agreement: c.f. Excalibur Ventures LLC v Texas Keystone Inc & others [2011] 2 CLC 338, §70(vi), and would be unfair to be imposed on that party on the basis only of the prima facie existence of the alleged arbitration agreement.  He invites the court to adopt the approach in the English cases which offers a wider range of possible options to enable the court to do justice in different circumstances.

84.  Whilst we recognise that the question may be of some general significance, given our view that the 2^nd defendant could not be served pursuant to Order 11 rule 1(1)(c)  and that this court has no jurisdiction to give leave to appeal on Ground 2, we do not think this is an appropriate case in which to express our views on the issue on an entirely obiter basis.  The arguments are involved and, apart from the English and Singaporean authorities mentioned above and a Malaysian decision referred to by the plaintiffs,[20] there are authorities in other jurisdictions which may be relevant.[21]  The question should be left to be dealt with in a case in which it is properly raised.

Conclusion and disposition

85.  For the above reasons, we gave leave to appeal confined to Grounds 1 and 3, and now allow the appeal on those grounds.  There will be an order (in terms of §1(a)  and (b)  of the 2^nd defendant’s summons below)  that leave to serve the writ and the service of the concurrent writ out of the jurisdiction on the 2^nd defendant be set aside.

86.  As an order nisi, we make an order that the plaintiffs are to pay two-thirds of the 2^nd defendant’s costs both here and below, with a certificate for two counsel.