XCHRX FRANK DINARDO JR. AND OTHERS t/a ONE SYLVAN ROAD NORTH ASSOCIATES v. LARK INTERNATIONAL LTD.

HCA 14565/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14565/98

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DECISION

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1. This is an appeal from the Decision of the Registrar granting summary judgment to the Plaintiff. The claim was based on the judgement of the Superior Court in the Judicial District of Fairfield at Bridgeport, Connecticut, U.S.A. in action No. CV-94-0310585S ("the Civil Action").

2. In that action the Judge awarded the Plaintiff damages in the sum of US$56,000, attorney's fees in that action in the sum of US$33,670.64 and an additional amount of US$37,544.24 as attorney's fees stemming from another action viz. Case No. 394CV00655 ("the Housing Court Action").

Name of Plaintiff

3. Before I deal with the merits of the arguments before me, I should note that the proceedings in Hong Kong had been instituted in the name of "One Sylvan Road North Associates" being the name of the plaintiff in the Civil Action and the Housing Court Action.

4. Mr Benjamin Chain, counsel for the Defendant, has taken the preliminary point that Order 81 rule 1 of the Rules of the High Court only permits partners carrying on business in this jurisdiction to sue in the firm's name. Since there is no evidence that "One Sylvan Road North Associates" carries on business in this jurisdiction, the institution of proceedings in the firm name is irregular, although Mr Chain correctly concedes that this does not nullify the proceedings.

5. Mr Josiah Lee, counsel for the Plaintiff, applied for leave to correct the name of the plaintiff to include the partners' names. Their names had been disclosed in the Lease Agreement (the foundation of the actions in the USA) as the persons doing business under the style and partnership name of "One Sylvan Road North Associates". Thus it was not necessary for the Plaintiff to adduce any new evidence as to identity.

6. Mr Chain was unable to point to any prejudice that the Defendant would suffer by reason of the correction. He was asked if he needed any time to deal with the amendment but he did not seek an adjournment for that purpose. In the light of the above and in the exercise of my discretion, I gave leave to correct the name of the plaintiff so as to include the partners' names. The costs (if any) of the correction and any amendment should be to the Defendant.

Principles

7. The principles on which the Court should act when dealing with an application for summary judgment based on a foreign judgment are clear. If the foreign judgment is a final and conclusive judgment of a court of competent jurisdiction in the territory in which it was pronounced, summary judgment should be granted to the Plaintiff, unless the foreign judgment had been obtained by fraud, or unless the enforcement of the foreign judgment would be against public policy, or unless the proceedings in the foreign court offend this court's view of substantial justice.

8. The reference to "fraud" includes acts, omissions or concealment by which an undue or unconscientious advantage is taken of another(Kerr on Fraud and Mistake, 7th ed. p.1). It can include omission. Mr Chain also submitted, and I am prepared to assume for present purposes, that any such act or omission need not be intentional.

9. If this court is persuaded that the foreign judgment had been obtained by fraud, that judgment would not be enforceable here. The foreign court's view as to the fraud is neither conclusive nor relevant. It does not matter that the foreign court itself thought that no fraud had been practised on it (Jet Holdings Inc. v Patel [1990] 1 QB 335, 344 E-G).

10. Of course, as in any application for summary judgment under Order 14 of the Rules of the High Court, the burden is on the Defendant to show cause that there is a triable issue or that there ought for some other reason to be a trial of the claim.

Issues

11. In the present case, the Defendant seeks to persuade this Court that a fraud had been practised on the court in the USA, and/or that the enforcement of the foreign judgment would be contrary to public policy by reason of the fraud so practised. Thus the argument based on public policy is derived from the argument based on fraud on the court.

Facts

12. Before I go into the merits of the arguments, however, it is first necessary to look into the factual background leading to the foreign judgment.

13. The Plaintiff is a partnership in the State of Connecticut, and the landlord of property known as One Sylvan Road. The Defendant is a company incorporated in Hong Kong, and the guarantor under a guarantee dated 28 July 1986 guaranteeing payment of rent by Lindblad Travel Inc.

14. Pursuant to the guarantee, the Plaintiff leased the property to Lindblad by a Lease Agreement dated 1 August 1986. Clause 8 of the guarantee provided amongst other things that the Defendant consented to the jurisdiction of any court located within the State of Connecticut.

15. By subsequent agreement, the Defendant assumed all the rights and obligations as if it were itself the tenant of the property. At a later stage, the parties agreed that the property would be leased to a company called Reach Marketing, but the Defendant reaffirmed its responsibilities to the Plaintiff notwithstanding Reach's obligations.

The Civil Action

16. The rents due for November and December 1992 were not paid. In January 1994, i.e. about a year later, the Plaintiff commenced the Civil Action in the State Court against the Defendant for damages.

The Housing Court Action

17. The following month February 1994, there was also default in the payment of rent. The rent was US$37,500 for which the Defendant was liable to pay US$13,125, the sub-tenant being responsible for the remainder.

18. The Plaintiff served a Notice of Default in February 1994 which apparently included the failure to pay rent for the 2 months in late 1992, as well as the failure to pay rent in February 1994. The defaults were not remedied.

19. The following month March 1994, the Plaintiff served a Notice to Quit.

20. On 6 April 1994, the Plaintiff instituted the Housing Court Action in the State Court, by way of a summary process complaint, for possession. It is apparent from the papers in the U.S. proceedings that this complaint specifically set out the ground for termination as the default to pay rent for February 1994. The other incidents of default in the default notice (i.e. non-payment of rent in November and December 1992) were not alleged in the Notice to Quit or in the Housing Court Action complaint.

Defendant's removal of the Housing Court Action to Federal District Court

21. The Housing Court Action was commenced in the State Court. On 21 April 1994, the Defendant removed this action to the Federal District Court.

22. The Defendant's Notice of Removal stated that the Federal District Court had original jurisdiction pursuant to 28 U.S.C. § 1332 "based on the diversity of citizenship between the parties to the State Court Action and the matter in controversy exceeds the sum or value of $50,000 exclusive of interest and costs".

23. In paragraph 5 of the Notice of Removal, the Defendant stated that "the amount in controversy between the Plaintiff and the Defendant exceeds the sum of $50,000, exclusive of interest and costs, in that inter alia Plaintiff's notice of default is based upon an alleged failure to pay rent for the months of November and December 1992, in an amount in excess of $50,000". No mention was made in this Notice of Removal of the existence of the Civil Action.

Federal District Court's Remand of the Housing Court Action to original court

24. However on 28 April 1994, the Plaintiff issued a Motion for the Federal District Court to remand the Housing Court Action back to the State Court. The ground for the Motion was that the Housing Court Action was an action for possession, not for damages, and the action does not meet the amount in controversy requirement, as the rent due for February 1994 was US$37,500 for which the Defendant was only responsible for US$13,125.00, and a sub-tenant paid the remainder.

25. In the Plaintiff's Reply Memorandum of Law in support of the Motion to Remand, the Plaintiff rebutted the Defendant's allegation that the Plaintiff had claimed for non-payment of the 1992 rents in that action (the Housing Court Action). The Plaintiff referred to the fact that it has brought a separate action to recover the 1992 rents which was pending in the State Court. In summary, the Plaintiff emphasised that the Housing Court Action was an action based on failure to pay rent for February 1994 in the amount of $13,125 only. As such, it failed to meet the amount of controversy requirement for the Federal District Court to have original jurisdiction. (I should add that the Plaintiff did not then submit any arguments against diversity of citizenship).

26. On 16 August 1994, the District Judge in the Federal District Court ruled in favour of the Plaintiff and ordered the remand of the Housing Court Action back to the State Court.

27. In the reasoned decision, the Court considered both parties' arguments, and specifically considered the fact that the Plaintiff was claiming damages for non-payment of the 1992 rents in a separate action. It concluded that as far as the Housing Court Action was concerned, the Plaintiff was seeking possession based on non-payment of US$13,125 only. In its ruling, the judge held that "the amount in controversy in this case does not meet the jurisdictional requirements of 28 U.S.C. § 1332, and therefore, the federal court does not have subject matter jurisdiction over the matter" (my emphasis).

28. That decision was clearly right because the Federal District Court's jurisdiction under the statute was based on the amount of the matter in controversy in the action, i.e. the Housing Court Action. The non-payment of the 1992 rents was not a matter in controversy in the Housing Court Action - they were matters in controversy in a different action, viz. the Civil Action.

29. The question whether those two actions ought to become one action (e.g. under the process known to the Hong Kong courts as consolidation) was not before the Federal District Court. The Federal District Court was not seised of this question, because to see whether the Housing Court Action came within its jurisdiction, it simply needed to look at the amount of the matter in controversy actually in the Housing Court Action claim, and see if that amount met the statutory amount.

30. There was no evidence that the Defendant had asked the Federal District Court to rule that the matters in controversy in the two actions ought to be (although they were not then) joined in one action. There was no evidence that the Plaintiff had made any submission to that Court that they could not or ought not be joined in one action. The submission of the Plaintiff, according to the Reply Memorandum of Law, was based simply on the fact that the matter then in controversy in the Housing Court Action was possession and a claim for US$13,125 only.

Defendant's primary allegation of concealment

31. It is convenient here to consider the Defendant's primary allegation of concealment. Mr. Chain argued that the Plaintiff had failed to disclose to the Federal District Court that its attorney's fees for the Housing Court Action amounted to some US$37,544.24. When this amount was added to the US$13,125 unpaid rent, that would exceed the US$50,000 requirement.

32. However, in the Defendant's own Notice of Removal, it is stated that 28 U.S.C. § 1332 applies when there is diversity of citizenship between the parties "and the matter in controversy exceeds the sum or value of $50,000 exclusive of interest and costs". Mr. Chain did not seek to argue that attorney's fees were different to the costs referred to in that provision.

33. In any event, there was no evidence to show that attorney's fees of US$37,544.24 had already been incurred by the Plaintiff at the point in time when the Federal District Court made its ruling, about 4 months after the commencement of proceedings.

Subsequent development of Housing Court Action

34. There was no appeal from the Ruling of the District Judge. Subsequently the Housing Court Action was settled, with the eviction proceedings being withdrawn. However the parties preserved their respective claims to the attorney's fees and costs in the Housing Court Action.

Development of Civil Action proceedings

35. As for the Civil Action, the Plaintiff proceeded with it and in February 1997, the Report of the Attorney Trial Referee was completed giving judgment to the Plaintiff.

36. The Report did not include the sum of US$37,544.24 which the Plaintiff claimed were attorney's fees incurred by it in the Housing Court Action. The Attorney Trial Referee's decision was based on two grounds :- first, that since the eviction proceedings were settled, neither party should be entitled to recover attorney's fees; and secondly, that the Plaintiff's complaint in the Civil Action did not include a prayer for relief in the nature of attorney's fees and costs incurred in the Housing Court Action.

37. On 30 December 1997 however, the Judge of the Superior Court in the Judicial District of Fairfield at Bridgeport, Connecticut reversed the Attorney Trial Referee's decision refusing attorney's fees incurred in the Housing Court Action.

38. The judge held in his Memorandum of Decision that in the Plaintiff's Fourth Revised Amended Complaint filed on 23 May 1996, the Plaintiff had alleged that the Defendant had agreed in the guarantee "to indemnify the plaintiff for any reasonable fees and expenses including attorney's fees incurred by the plaintiff landlord for the failure of the defendant to comply with the provisions of the written guaranty". That was a sufficient pleading to support the award of attorney's fees incurred by the Plaintiff in the Housing Court Action, which had been sought by the third revised amended complaint filed in the Civil Action in September 1995.

39. There was no appeal from that decision and that is the decision that forms the subject matter of the present action. I should add that although the Defendant had, through the Affidavit of Donald Charles Meyer, challenged the nature of the Memorandum of Decision and questioned whether it constituted an official judgment of the Superior Court, Mr Chain has stated that he would not take this point.

Defendant's allegation of fraud and offence to public policy

40. The Defendant's submission based on alleged fraud (and offence to public policy as derived from the alleged fraud) stems from the fact that the Plaintiff had in the Civil Action sought and obtained an award for the attorney's fees incurred in the Housing Court Action.

41. The Defendant's case is not that those attorney's fees should not have been recoverable in the Civil Action and that for that reason, a fraud has been practised by the Plaintiff on the Superior Court in that action.

42. Rather the Defendant's case is that the claim for the Housing Court Action attorney's fees shows that the Plaintiff considered the two actions, i.e. the Civil Action claim and the Housing Court Action claim, were related (Meyer paragraph 20) and that therefore the Plaintiff had practised a fraud on the Federal District Court in 1994, when it moved that court to remand the Housing Court Action back to the State Court.

43. This submission was not made to either the Attorney Trial Referee nor to the Superior Court. It might be said that the Defendant has waived the point (such as it is), certainly as far as the foreign courts are concerned.

44. However, applying Jet Holdings v Patel, I am persuaded that I should not hold that against the Defendant. The question that the Court in Hong Kong should ask itself is whether it can see for itself that there is an arguable case that the Plaintiff had practised a fraud on the Federal District Court.

No fraud or concealment, or offence to public policy

45. I would first note that the action in which the alleged fraud took place was the Housing Court Action, not the Civil Action which concluded with the judgment the subject-matter of the writ.

46. More fundamentally, I cannot see any arguable case of fraud practised on the Federal District Court at the time it ordered a remand.

47. The jurisdiction of the Federal District Court turned upon the applicability (or otherwise) of 28 U.S.C. § 1332. That statutory provision is based on the amount of the matter in controversy in that action. The Federal District Court was concerned with its statutory jurisdiction, not with the question whether the matter in controversy in the Housing Court Action and the matter in controversy in the Civil Action ought to have been dealt with together by joining the two actions into one action.

48. At the time of the Federal District Court's ruling on remand, there was only one matter in controversy in the Housing Court Action:- the Defendant's non-payment of the February 1994 rent, and that amount was only $13,125. Non-payment of rent in November and December 1992 were also matters in controversy, but not in the Housing Court Action - they were matters in controversy in the Civil Action.

49. As discussed above, the Federal District Court did not hear any application to join or consolidate the two actions. As can be seen from the District Judge's Ruling, that court was concerned only with the question whether the claim in the Housing Court Action came within its statutory jurisdiction. It was not the case that an application had been made by the Defendant for consolidation, and the Plaintiff had made any submission that the claim for non-payment of the 1992 rent could not or ought not be made with the claim for non-payment of the 1994 rent. That was not the issue before the Federal District Court.

50. In any event, the Defendant did not remove the Civil Action to the Federal District Court even though the amount claimed satisfied the statutory requirement. Further it was only after the Housing Court Action had been settled that the attorney's fees incurred in that action were claimed in the Civil Action in the third revised amended complaint filed in September 1995.

51. I see no triable issue raised by the Defendant and its argument that the decision of the Federal District Court was procured by fraud or concealment must be rejected. The decision of the Superior Court is not affected and it is thus final and conclusive.

Order

52. In the circumstances, I would agree with the Registrar that the Defendant has not shown any fraud, or offence against public policy based on such fraud, so as to undermine the final and conclusive nature of the judgment of the Superior Court in action No. CV-94-0310585S which would warrant the Court giving leave to defend. I would dismiss the appeal with an order nisi that costs be to the Plaintiff.