THE GANNON COMPANY (HONG KONG) LTD v. ROBERT PAUL GREENE

DCCJ 3906/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3906 OF 2011

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DECISION

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Introduction

1.  This is an application taken out by the defendant by way of summons dated 14 March 2013 to:-

(1) set aside the plaintiff’s concurrent writ of summons (“the Concurrent Writ”) under Order 12, rule 8 of the Rules of the District Court (“RDC”);

(2) discharge the ex parte order made by Master Lui granting leave to the plaintiff to issue and serve the Concurrent Writ on the defendant out of jurisdiction;

(3) seek a declaration that the court has no jurisdiction and dismissing the action, or alternatively a declaration that the court should not exercise jurisdiction and a stay of the action sine die; and

(4) set aside the default judgment dated 20 February 2012 (“the Default Judgment”) on the basis of irregularity under RDC Order 13, rule 9.

Factual Background

2.  The plaintiff is a company incorporated in Hong Kong.  At all material times and up to the date of his resignation on 2 March 2010, the defendant was a director of the plaintiff.

3.  According to the statement of claim, prior to February 2009, the defendant had made approaches to Mr William Franke (“Mr Franke”), a director of the plaintiff and a director of Gannon Pacific, who is also the sole shareholder of the plaintiff, with requests for the approval of an advance to enable the defendant to meet personal expenses associated with the sale of his residence in the United States.  According to the plaintiff’s case, on each of those occasions, Mr Franke had refused the defendant’s request.

4.  Further, according to the plaintiff, the defendant approached one Mr Walter Blocker (“Mr Blocker”), also a director of the plaintiff, with a similar request as that made to Mr Franke.  The plaintiff claims that Mr Blocker, without reference to Mr Franke or Gannon Pacific and without their authority, agreed to pay the sum of US$40,000 to the defendant.

5.  It has further been alleged by the plaintiff that on 11 February 2009, the plaintiff, at the direction of Mr Blocker, again without reference to Mr Franke or Gannon Pacific and again without their authority, caused the plaintiff to transfer from its account with HSBC the sum of US$40,000 to the defendant’s account with the First National Bank of St Louis in the United States.

6.  The sum of US$40,000 was recorded in the books and records of the plaintiff as an “advance” to the defendant. 

7.  In a declaration filed by the defendant in the United States District Court for the Eastern District of Missouri, Eastern Division in a related action, the defendant has inter alia declared:-

“10. I advised Mr Blocker that the loan would be of short duration and would be rapid in full ..….

12. The loan appears as an account receivable in the accounting books and records of Gannon Company (Hong Kong).

13. I intend to repay the $40,000 in full ..….” 

8.  Despite of the above, the payment has never been acknowledged by the plaintiff to be a “loan” as the payment was allegedly caused to be made by the plaintiff without requisite authority.

9.  On 9 September 2011, the plaintiff through its solicitors made demand on the defendant for the repayment of the said sum of US$40,000 but the defendant has failed to repay the same up to today.   

Procedural background

10.  On 12 October 2011, the plaintiff issued its writ of summons and statement of claim against the defendant.

11.  By the Order of Master Lui dated 31 October 2011 (“the Order”):-

(1) The plaintiff obtained leave to issue a Concurrent Writ of Summons and serve it out of jurisdiction on the defendant on the basis of Order 11, rule 1(1)(p).  The plaintiff’s application to serve out was supported by the affidavit of Anthony Francis Hill filed on 27 October 2011 (“Hill’s Aff”).

(2) Time limit for the defendant to acknowledge service was 28 days after service of the Concurrent Writ.

12.  On 9 November 2011, the plaintiff issued the Concurrent Writ together with the statement of claim.

13.  On 20 February 2012, the Default Judgment was issued, supported by two affidavits of service (with materially identical contents) dated 22 November 2011 and 20 January 2012.

14.  On 14 March 2013, the defendant applied to set aside the Default Judgment. 

15.  To support the defendant’s application, the following evidence has been filed:-

(1) affidavit of Yee Ling Wan filed on 14 March 2013 (“Wan’s Aff”) ;

(2) affidavit of the defendant, Robert Paul Greene filed on 17 June 2013 (“Greene’s 1^st Aff”); and

(3) 2^nd affidavit of the defendant dated 16 July 2013 (“Greene’s 2^nd Aff”).

16.  The plaintiff’s evidence includes:-

(1) The original affidavit in support, ie Hill’s Aff;

(2) The affidavit of William Edward Franke filed 22 April 2013 (“Franke’s 1^st Aff”); and

(3) The 2^nd affidavit of William Edward Franke dated 1 July 2013 (“Franke’s 2^nd Aff”).

17.  At the beginning of the hearing of the defendant’s summons, the defendant’s counsel, Mr Julian Lam, applied to extend the time for the defendant to defend the proceedings under Order 12, rule 8 of the RDC.  Order 12, rule 8 provides:-

“A defendant who wishes to dispute the jurisdiction of the court in the proceedings by reason of such irregularity as is mentioned in rule 7 or in any other ground shall give notice of intention to defend the proceedings and shall, within the time limited for service of a defence, apply to the Court for ….”

(a)   an order setting aside the Writ or service of the writ on him, or …..

(b)   …….”

18.  Mr Lam asked the court to exercise its discretion pursuant to Order 3, rule 5 and Order 12 rule 6 of the RDC which give the court power to extend the time for such application in appropriate cases.  The defendant however did not provide any reason for the delay in the application.  Mr Andrew Sheppard, counsel for the plaintiff, opposed to the application on the ground that no application was made for 10 months after the time limit imposed under the Order of Master Lui when the defendant supposed to give notice within 28 days from the service if he wished to dispute the jurisdiction of the court.  Further, no explanation was given as to why nothing was done in the 10 months after the writ was served on the defendant.

19.  After hearing counsel’s arguments, I made a ruling that the application by the defendant to extend time to give notice to defend the proceedings under Order 12, r 6 and Order 3 r 5 should be refused with costs.  The main reasons why I had refused the application were: (1) no explanation was ever given in the defendant’s summons as to why such an application had never been made prior to the date of the hearing; and (2) no explanation was ever given by way of affidavit evidence of why it had taken more than 10 months after the writ was served on the defendant for him to make the application.  I ruled that under the underlying objectives of the Civil Justice Reform, it is of paramount importance that a party making an application should get his house in order and not to make last minute application that could have been made much earlier.  I therefore ruled that the defendant’s last minute application to extend the time under Order 3, r 5 and Order 12, r 6 should not be allowed as he had plenty of time before the date of the hearing to make such an application.  In doing so, I have taken into account of what would now be regarded as the proper procedural steps in making such applications as set out by McWalters J in Choi Chung Bun Vincent v Australia China Holdings Ltd [2011] 3 HKLRD 622, at §§49-51 and Litton JA (as he then was) in Mercedes-Benz AG v Leiduck & Another [1995] 1 HKC 448, at p 455.

20.  However, before making such ruling, I had been assured by counsel on both sides that my ruling above would not have prevented the court to proceed with hearing the parties’ submissions on the setting aside applications under Order 13, r 9 and Order 12, r 8 as the issues fall upon the court to consider will be substantially the same due to the procedural steps laid down in Choi Chung Bun, supra.  On that basis, the hearing proceeded.

Relevant principles

21.  As stated, there are two applications before the court.  The first is to set aside service of the Concurrent Writ and the second is to set aside the Default Judgment.  The issues arise in both applications are interlinked and it will be difficult to separate those issues and consider them in isolation.  As can be seen shortly, some of the arguments in relation to the setting aside of the Concurrent Writ may also apply when considering the setting aside of the Default Judgment issue.   

22.  RDC Order 13, r 9 provides:-

“Without prejudice to rule 7(3) and (4), the Court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance of this Order.”

23.  It is trite that judgment in default is no bar to an application to set aside service of the writ and all subsequent proceedings, including judgment, on the ground that service out of the jurisdiction under Order 11 was wrongly ordered in the first place: Hong Kong Civil Procedure 2013, §13/9/1. 

24.  In an application to set aside a default judgment under Order 13, rule 9 on the basis that the court should not have exercised jurisdiction under Order 11, the following should be borne in mind:-

(1) This is a mixed fact and law issue where the court assesses the merits of the legal argument on the basis of the facts of the plaintiff as presented to the Master who granted leave to serve out.

(2) That legal argument must be more than reasonably arguable, such that it has a reasonable prospect of success.

(3) Once the challenge passes this test, then the judgment should be set aside with a direction to the defendant to apply to set aside the leave out within a time frame specified by the court.

See: Choi Chung Bun Vincent v Australia China Holdings Ltd [2011] 3, supra, §§49-51 per McWalters J.

25.  In an application to set aside service of the writ on the ground that service out was wrongly ordered, the following matters are to be considered by the court:-

(1) whether there is a good arguable case that the case falls under RDC O 11, r 1(1)(p);

(2) whether there is a serious issue to be tried;

(3) whether Hong Kong is clearly the appropriate forum for the trial of the action.

See: Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd [2008] 5 HKLRD 631, §22 per Ma CJHC; Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454, §29 per Cheung JA.

26.  As the plaintiff is required to seek leave to serve out of the jurisdiction, the burden is on the plaintiff to show that Hong Kong is clearly the appropriate forum for the trial of the action: Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd [2008] 5 HKLRD 631, §22 per Ma CJHC.

The defendant’s case

27.  The defendant’s primary case is that the Default Judgment ought to be set aside because it was entered irregularly.  Further, he claims that the Concurrent Writ ought to be set aside also.  The defendant relies on 3 main grounds.  They are:-

(i) The plaintiff’s claim does not fall under rule 1(1)(p) of Order 11 of the RDC ;

(ii) There is no serious issue to be tried; and

(iii) Hong Kong is not a natural forum.

The plaintiff’s case

28.  The plaintiff’s primary case is that the judgment entered against the defendant was a regular one and there is no reason why, based on the facts of this case and the legal principles involved, the judgment ought to be set aside.  The plaintiff’s counsel having cited extensively the general principles and some of the classic authorities governing setting aside of regular judgment under Order 13, r 9 of the RDC, went on to argue why, based on the facts of this case, the judgment entered ought not to be set aside.

29.  Those classic authorities governing setting aside regular judgments included Farden & Another v Richter [1889] XXIII QBD 124;  The ‘Saudi Eagle” [1986] 2 Lloyd’s Rep 221; Evans v Bartlam [1937] AC 473; Tong Yi Sang and another v Fung Law & Ng and others [1993] 2 HKC 665; Premier Fashion Wears Ltd v Li Hing Chung [1994] 1 HKC 213; Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157; Faircharm Investments Ltd v Citibank International plc [1998] WL 1042303; Day v Royal Automobile Club Motoring Services Ltd [1999] 1 WLR 2150; L&M Specialist Construction Ltd v Wo Hing Construction Co Ltd  [2000] 3 HKLRD 262; Young Bing Ching (deceased) v Chow Yung Fong & another [2001] 2 HKLRD 394; Charis Manolakaki v John Constantinides [2002] EWHC 401 (CH); Liu Chong Hing Bank Ltd v Union World (HK) Ltd & others, unreported, [2004] HKEC 1277; Wan How Wan v Wan Hoi Wei, unreported, [2011] HKEC 240; and Choi Chung Bun Vincent, supra.

30.  On this issue, the plaintiff’s counsel concluded by citing the recent decision of Cheung Chi Po v Ke Jun Xiang [2012] HKC 724, where the Court of Appeal reiterated that to set aside a judgment a defendant has to show a real prospect of a successful defence on the merits, describing as ‘incredible’ the contentions of the defendant in that case as being inherently improbable and lacking in conviction, something which the plaintiff says can find resonance in the instance case.

31.  The plaintiff further submits, for the reasons stated in its counsel’s written skeleton argument, that Hong Kong is the convenient forum to decide this case.   

32.  Further, the plaintiff says that the defendant has failed to demonstrate that his intended Order 12, r 8 application has a reasonable prospect of success.  It says that the defendant’s resistance to the default judgment was neither genuine nor was there any realistic suggestion that the dispute will be resolved on the merits, as the defendant has not identified any defences which should enjoy any real prospect of success. 

Discussion

33.  Summing up the parties’ arguments, which in my view have been very ably presented by counsel on both sides in their written and oral submissions, I consider the following are the main issues which fall upon the court to decide:-

(i) whether the plaintiff’s claim fall within rule 1(1)(p) of Order 11;

(ii) whether there is serious issue to be tried;

(iii) whether Hong Kong is a convenient forum to decide the case;

(iv) whether the defendant has established an arguable defence with real prospect of success.

Whether the plaintiff’s claim fall under rule 1(1)(p)

34.  Under rule 1(1)(p) of Order 11, the plaintiff has to show that 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”. [emphasis added]

35.  The defendant submits that the plaintiff cannot arguably show that its claim falls within rule 1(1)(p) at all and that leave should be set aside on this ground alone.

36.  The plaintiff’s answer to that is the unauthorized monies received by the defendant were recorded in the books of the plaintiff as an “advance” to the defendant on 9 February 2009, as the defendant who was (then) a director of the plaintiff manifestly knew, and for which the defendant as a director and as Chief Financial Director of the plaintiff would have been responsible.  The plaintiff says that it would appear “beyond peradventure” that the defendant acknowledged this fact by those matters cited in §8 of the statement of claim (“SoC”) and, in particular, “pursuant to the Declaration of (the defendant), made under oath in the  United States District Court for the Eastern District of Missouri Eastern Division, …”.  In §§10-12 of the said declaration, the defendant stated the following in regard to the US$40,000 loan:-

“10. In February 2009, I approached Mr Blocker and requested a $40,000 loan. I told Mr Blocker that I required the money to pay expenses in connection with a personal residence I was attempting to sell. I advised Mr Blocker that the loan would be of short duration and would be repaid in full.

11. At the time of the loan, I was not aware that the loan was made with company funds. I was later made aware that the loan was made through the company, but I did not (and do not) believe there was anything improper about the loan. As COO of Gannon International, I was aware of other high level executives of the company receiving similar loans or advances. For example, I initiated advances or loans to Gannon International’s Chief Executive Officer William Franke on a regular basis. Mr Franke was paid a monthly salary of $25,000. From conversations with Mr Franke, I am aware that Mr Franke’s monthly personal obligation were in excess of $60,000, including a $33,000 mortgage payment on his personal residence. Nearly every month, I processed advances or loans to Mr Franke from Gannon-affiliated entities.

12. The loan to me was in no way kept secret from Gannon International. The loan appears as an account receivable in the accounting books and records of Gannon Company (Hong Kong).

13. I intend to repay the $40,000 loan.”  

37.  The director and chairman of the plaintiff, Mr Franke, in his affidavit filed on 22 April 2013, ie Franke’s 1^st Aff, deposed of the fact that he was not aware of any arrangements made by Mr Blocker, purportedly on behalf of the plaintiff, for the plaintiff to “loan” these funds to the defendant or their alleged purpose. The “loan” was said to have been made without his knowledge or authorization in any capacity whatsoever, whether as chairman of the board of the plaintiff or otherwise: see §9 of Franke’s 1^st Aff.

38.  In the statement of claim, the plaintiff pleaded that the defendant first approached Mr Franke prior to February 2009 with the approval of an advance to enable him to meet personal expenses associated with the sale of his residence in the United States. However, on each of those occasions, the defendant’s request was rejected by Mr Franke.  It is further pleaded that the defendant then approached Mr Blocker, also a director of the plaintiff, in February 2009 for a similar request.  It was Mr Blocker who, without reference to Mr Franke or Gannon Pacific and without their authority, agreed to pay the sum of US$40,000 to the defendant. It was also Mr Blocker who had caused the plaintiff to transfer the sum from its HSBC account in Hong Kong to the defendant’s account in a bank in the United States : see §§ 4-6 of SoC. 

39.  In the affidavit of the plaintiff’s solicitor, which was filed in support of the serving out application, Mr Hill stated that the material facts on which the plaintiff’s claim is based are set out in the statement of claim and the plaintiff’s claim is “for money had and received” by the defendant from the plaintiff: see §6 of Hill’s Aff.   

40.  I agree with Mr Lam that in order for the plaintiff to bring its claim under rule 1(1)(p) of Order 11, the plaintiff has to show that the claim is brought for money had and received against the defendant in his capacity as constructive trustee and that the defendant’s alleged liability arose out of acts committed within the jurisdiction.

41.  In Dicey & Morris, The conflicts of Laws (12^th ed, 1993) pp 348-349, when commenting on an the equivalent provision under the English Law, the learned authors of this leading work have this to say:-

“(20) The court may assume jurisdiction if in the action begun by the 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 arising out of acts committed, whether by him or otherwise, within the jurisdiction.

Comment

“A claim in constructive trust normally arises in one of three situations.  The first is where a person receives for his benefit trust property transferred to him in breach of trust; he is liable as a constructive trustee if he received it with notice, actual or constructive, that it was trust property and that the transfer to him was a breach of trust, or subsequently discovered the facts.  The second is where a person receives trust property lawfully and then misappropriates it or otherwise deals with it in a manner inconsistent with the trust.  The third is where a person knowingly assists in the furtherance of a fraudulent and dishonest breach of trust.  The first and second categories are often referred to as “knowing receipt” cases, and the third as “knowing assistance”.  Clause (20) was added in 1990 after it had been held that a claim based on constructive trust (in each of the three categories) was not founded on a tort for the purposes of clause (6).” [emphasis added]

42.  In Nabb Brothers Limited v Lloyds’s Bank International (Guernsey) Limited [2005] EWHC 405 (Ch), Lawrence Collins J at  §§66-69 of the judgment stated the following:-

“66. It is therefore unnecessary to decide the interesting questions on the applicability of CPR Rule 6.20(14) and (15). RSC Order 11, Rule 1(1)(t) allowed service out of the jurisdiction where “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.” This provision was added in 1990 after it had been held that a claim based on constructive trust was not founded on a tort for the purposes of Order 11, Rule 1(1): Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1QB 391.

67. CPR Rule 6.20(14) allows service out of the jurisdiction where “a claim is made for a remedy against the defendant as constructive trustee where the defendant’s alleged liability arises out of acts committed within the jurisdiction”.  CPR Rule 6.20(15) provides for service out of the jurisdiction where “a claim is made for restitution where the defendant’s alleged liability arises out of acts committed within the jurisdiction.”  Neither of these provisions contains the words “whether by him or otherwise” which were in the amended Order 11, rule 1(1)(t).

68. In this case the essence of the claim is that the director misused money which had been entrusted to him by the claimant by transferring it to the defendant as trustee of the Trust.  The defendant still holds most (but not all) of the money which was transferred to it.  At the time of receipt the defendant had no reason to know, believe or suspect that the money did not belong to the director.  The most that can be said is that the defendant has been put on notice of the claim by the claimant to a beneficial interest.

69. The first issue which would arise is whether this is a claim for a remedy against the defendant as constructive trustee.  On one view this is a claim which falls into the category of a proprietary equitable claim: Re Montagu’s Settlement Trusts [1987] Ch 264, 285; Agip (Africa) Ltd v Jackson [1990] Ch 265, 290, per Millett J, affd [1991] Ch 547.  Such a claim against a volunteer is not strictly dependent on the imposition of a constructive trust; nor is it dependent on any discretion vested in the court.  It does not necessarily follow that the defendant is treated as a trustee of the money: Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, at 707.” [emphasis added]

43.  The same principle has been applied in the local case of Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454 at p 464-465, § 29 & §36:-

“29. In order to obtain leave under O 11 r 1, the plaintiff must satisfy the court that:-

(a) There is a good arguable case (in the sense that there is a good prospect of success at trial, per Kempster J in Deak v Deak Perera Far East Ltd [1991] 1 HKLR 551) that his case comes within paras (f) and (p).

(b) The discretion should be exercised in its favour in that:

(i) There is a serious issue to be tried on the merits of the case;

(ii) Hong Kong is the appropriate forum under the principle governing forum conveniens for the trial of the action.

 See Deak v Deak Perera Far East Ltd and Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438.”

“36. As to para (p) the issue is whether the acts which formed the basis of liability of the defendants as constructive trustees were committed in Hong Kong.” [emphasis added]

44.  In Kayden Ltd v Securities and Futures Commission (2010) 13 HKCFAR 696, at 715-716 §§35-39, Riberio PJ stated the following:-

“35. Secondly, the SFC’s attempted reliance on s 213(2)(b) runs counter to the principles developed in the line of cases commencing with Parker v Schuller. There, the plaintiff had obtained leave to serve a foreign defendant alleging breach of a contract within the jurisdiction consisting of a failure to deliver goods at Liverpool. It later sought to allege instead that the breach was of an obligation to deliver the documents required under the CIF contract. The English Court of Appeal refused to entertain the new basis for establishing jurisdiction. Romer LJ stated:-

…… an application for leave to issue a writ for service out of the jurisdiction ought to be made with great care and looked at strictly. If a material representation upon which the leave was obtained in the first instance turned out to be unfounded, the plaintiff ought not to be allowed, when an application was made by the defendant to discharge the order for the issue of the writ and the service, to set up another and a distinct cause of action which was not before the Judge upon the original application.

36. The need for a strict approach is dictated by at least three related considerations.  First, it is grounded on recognition of the need for special care given the extraordinary nature of the long-arm jurisdiction asserted under O 11.  As Lord Mustill pointed out, it involves seeking to compel a foreign defendant to submit to adjudication by the court or suffer judgment and execution in default.

37. Secondly, as indicated in the passage from Parker v Schuller cited above, the court acts on the faith of the plaintiff’s representations made to it ex parte when granting leave for service of process abroad.  Given the extraordinary nature of the jurisdiction which the court would thereby be asserting it insists on special care on the plaintiff’s part and full disclosure of the basis upon which that jurisdiction is invoked.

38. Thirdly, as Neill LJ pointed out in Excess Insurance Co Ltd v Astra SA Insurance and Reinsurance Co:-

…… it is not only the court which must be apprised of the cause of action alleged.  The defendant must know the basis of the claim which he has to meet so that, if so advised, he can challenge the order which asserts the court’s jurisdiction over him.

39. In Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc, Slade LJ emphasized the need for strict adherence to the legal basis advanced in support of service out but was prepared to admit of a possible exception:-

…… if the draftsman of a pleading intended to be served out of the jurisdiction under O 11 r 1(1)(f) (or indeed under any other sub-paragraph) can be reasonably understood as presenting a particular head of claim on one specific legal basis only, the plaintiff cannot thereafter, for the purpose of justifying his application under O 11 r 1(1)(f), be permitted to contend that that head of claim can also be justified on another legal basis (unless, perhaps, the alternative basis has been specifically referred to in his affidavit evidence, which it was not in the present case).  With this possible exception, if he specifically states in his pleading the legal result of what he has pleaded, he is in our judgment limited to what he has pleaded, for the purpose of an Order 11 application.  To permit him to take a different course would be to encourage circumvention of the Order 11 procedure, which is designed to ensure that both the court is fully and clearly apprised as to the nature of the legal claim with which it is invited to deal on the ex parte application, and the defendant is likewise apprised as to the nature of the claim which he has to meet, if and when he seeks to discharge an order for service out of the jurisdiction.”

[emphasis added]

45.  In my view, it is quite clear that when the defendant received the US$40,000 transferred to him by the plaintiff under the authorization of Mr Blocker, he was either receiving the money as sum advanced to him by the plaintiff (on the plaintiff’s case) or as a loan by the plaintiff (on his own case).  There was no suggestion, whether in the statement of claim or in the affidavit of Mr Hill filed in support of the serving out, ie Hill’s Aff that the plaintiff claims for money had and received by the defendant in his capacity as constructive trustee.  

46.  I do not accept Mr Sheppard’s submission that if the defendant was receiving money from the plaintiff, he must have received it in his capacity as a constructive trustee. He rhetorically asked otherwise in what capacity the defendant was receiving the money if he was not receiving the money as constructive trustee.  He submits that he could not see any other capacity the defendant was supposed to be receiving the US$40,000.

47.  I disagree.  As can be seen under the next heading of discussion, money had and received as constructive trustee carries a very specific meaning in law and only confines to very narrowly defined situations.  In my view, if the US$40,000 was transferred to the defendant by the plaintiff, merely as an “advance” or as a loan, at most it would only qualify as a simple debt for which the plaintiff has a legitimate claim against the defendant and the defendant has a duty to re-pay.  However, it is difficult to see how the defendant could be said to have received and kept that sum of money in the capacity as a constructive trustee.   

48.  On this ground alone, I am of the view that the original application to apply to serve out of the jurisdiction was defective in that it could not be said that this case falls within the definition of Order 11, r 1(1)(p) as the defendant had, in my opinion, never had or received the money as constructive trustee.  As such, the judgment entered, which was based on an application under rule 1(1)(p), was irregular and must be set aside for that reason alone.     

Whether there is a serious issue to be tried

49.  On an application by a defendant to set aside leave granted under Order 12 rule 8, it has been said that the court is called upon to consider:-

“(1) Whether the plaintiff can show a good arguable case that the case falls within one or more of the categories sent out in Order 11 rule 1. The requirement of showing a good arguable case is the threshold which the plaintiff must cross to demonstrate the Court has jurisdiction under Order 11. The plaintiff is not, however, required to show a good arguable case on the merits. It suffices for the plaintiff to show that there are serous issues to be tried. (Hong Kong Civil Procedure 2007 para 11/1/8 p 104 and Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438 per Lord Goff at p 452B-457C.)

(2) Where the plaintiff can establish that the case falls within one of the categories in Order 11 rule 1, the Court is required to exercise a discretion and decide, in the words of Order 11 rule 4(2) whether it is a “proper” case for service out. In the exercise of such discretion, the Court may consider questions of forum non conveniens.”

See: Ren Yun Liang v China Merchants Bank Co Ltd (2007) HCA 1456/2005, unreported (29 January 2007; Mr Recorder Benjamin Yu SC) at §18.

50.  I agree with Mr Lam that in order to show that there is no serious issue to be tried, the burden is on the defendant to demonstrate that the statement of claim ought to be struck out as disclosing no reasonable cause of action, or is frivolous or vexatious or that it may prejudice, embarrass or delay the fair trial of the action, or is otherwise an abuse of the process of the court: Ren Yun Liang v China Merchants Bank Co Ltd, supra. at §32.

51.  The defendant submits that the plaintiff has pleaded no basis on which it is entitled to claim the sum of US$40,000 against the defendant.  Alternatively, the statement of claim is frivolous, vexatious or otherwise an abuse of process.

52.  The plaintiff says its claim is for money had and received by the defendant from the plaintiff: §3 SoC; §6 Hill’s Aff. 

53.  I accept that it is now well established law that the cause of action for money had and received is a claim in restitution or unjust enrichment. In Cheong Shing Ltd v Yu Kwan (2008) 11 HKCFAR 594, Litton NPJ at p 611 §54 stated the following:-

“54. The plaintiff’s statement of claim, in para 3 of the prayer for relief, seeks “repayment of the sum of HK$28,260,000 as money had and received or otherwise by way of restitution”. Neither Mr Tong SC nor Mr Vos QC has addressed us on this form of relief. Mr Tong’s argument was that we should simply affirm the finding of the two courts below that the money was a loan, and para 3 in his prayer for relief was very much his “fall-back” position. Mr Vos, as mentioned earlier, submitted that we should allow the appeal and discharge the judge’s order for repayment upon the terms set out in para 48 above. Not having received submissions from counsel on restitution as a form of relief, I would simply say this: The term “money had and received” or “money had and received to the use of the plaintiff” expresses the old common law form of action; it is nowadays encompassed by the claim in restitution in common law: see observations to this effect by Lord Goff of Chieveley in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at p 683B.”

[emphasis added]

54.  I further agree with Mr Lam that in a claim in unjust enrichment, it is trite that there must be some kind of unjust factor, such as mistake or duress in Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (HCA 1957/2005, 28 July 2001), unreported.  In that case, Poon J at §123 of the judgment explained the cause of action of “money had and received” in the following terms:-

“123. Money had and received is now regarded as an action for restitution on the basis of unjust enrichment: see Goff & Jones on the Law of Restitution (7^th edn), at para 1-003. The general approach is to look for an unjust factor, something which makes it unjust to allow the payee to retain the benefit: Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, per Lord Hope at p 409B. Such unjust factors include mistake, whether of fact or law, and duress. The burden is on the payer to show that the payment was unjust by reason of the factor.”

55.  In Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, Ribeiro PJ at §§66-68 of the judgment put this under the heading of “restitution claim” and defined it as follows:-

“66. The common law cause of action asserted by the plaintiff for money had and received where consideration has totally failed is now generally regarded as a species of claim for restitution based upon principles of unjust enrichment ……

67. A useful framework for approaching such claims which was adopted by both parties involves asking four questions:-

(a) Was the defendant enriched?

(b) Was the enrichment at the plaintiff’s expense?

(c) Was the enrichment unjust?

(d) Are any of the defences applicable?

68. This approach was evolved and is generally accepted in academic writings: see eg, Birks, An Introduction to the Law of Restitution (1989 Rev ed) chap 1; Burrows, The Law of Restitution (2^nd ed, 2002) p 15; Goff & Jones: The Law of Restitution (6^th ed, 2002) §1-016; and Hedley and Halliwell, The Law of Restitution (2002) §1.16; Virgo, The Principles of the Law of Restitution (1999) p 9.  It has received substantial judicial support and will be adopted in this judgment: see eg, Lipkin Gorman v Karpnale Ltd  [1991] 2 AC 548 at pp 559 and 578; Commissioner of State Revenue (Vict) v Royal Insurance Australia Ltd (1994) 182 CLR 51 at p 75; Banque Financiere de la Cite SA v Parc (Battersea) Ltd [1999] 1 AC 221 at pp 227 and 234; and Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 at pp 408.”

56.  In the statement of claim, the plaintiff pleaded that “the sum of US$40,000 deposited into to (sic) the defendant’s account was recorded, without the knowledge of Mr Franke and Gannon Pacific and without their authority, in the books and records of the plaintiff as an “advance” to the defendant”: see §7 of SoC.  Gannon Pacific was at the material time the sole shareholder of the plaintiff.

57.  I agree with Mr Lam that the plaintiff cannot rely on the fact that the payments were made without the plaintiff’s authority (as contrast to the authority of Mr Franke and Gannon Pacific which was pleaded), as this has not been pleaded in the statement of claim.  According to the principles laid down by McWalters J in Choi Chung Bun Vincent v Australia China Holdings Ltd, supra, the mixed fact and law issue must be according to the basis of the facts of the plaintiff as presented to the Master who had granted the leave to serve out at the time and not at some later stage.     

58.  The defendant’s case is that the money advanced to him was to enable him to meet the personal expenses associated with the sale of his residence in the United States.  His claim is that the request was made at a time when he was in Missouri, USA and while Mr Blocker was in Vietnam.  According to the defendant, Mr Blocker and his family members had lent money to the Plaintiff in Vietnam and this was the source of money ultimately lent to the defendant by the plaintiff.  It has been further alleged by the defendant that Mr Blocker had discussed the advance with the Chief Financial Officer of the plaintiff, one Mr Tran Quoc Hung (“Mr Tran”) in Vietnam.  It was Mr Tran who had effected the transfer from the plaintiff to the defendant and the advance/loan was recorded on the books of the plaintiff as “loan to Robert and Wendy Greene”.  The defendant further claims that the loan transaction was also reported in the plaintiff’s ledger and was completely transparent.  He claims that the advance was approved by Mr Blocker as CEO of Gannon Vietnam and by Tran as CFO of the plaintiff.  Both Mr Blocker and Mr Tran reside in Vietnam: see Wan’s Aff §§12(3)-(6).

59.  In Mr Franke’s 1^st affidavit, he stated that he was not aware of any arrangements made by Mr Blocker, purportedly on behalf of the plaintiff, for the plaintiff to “loan” these funds to the defendant or their alleged purpose.  He claimed that the “loan” was made without his knowledge or authorization in any capacity whatsoever, whether as chairman of the board of the plaintiff or otherwise.  He also mentioned that on other occasions he had extended credit to the defendant but those advances were made by way of promissory notes.  Apparently, those advances have since become subject of litigation between the defendant and Mr Franke in the courts in the United States.  Mr Franke further claimed that the defendant was in Asia and not in the United States in February 2009 as the Gannon Group at the time was negotiating with a Hong Kong company for the sale of Gannon Vietnam Company Limited, a subsidiary 100% owned by the plaintiff.  For reasons stated in his affidavit, Mr Franke also stated that a personal loan from the plaintiff to the defendant would have been an “extraordinary event” outside the plaintiff’s normal course of business and as such should have brought to his attention but it was not: see §§9-11 of Franke’s 1^st Aff.

60.  Despite of the above and what has been stated in the rest of Mr Franke’s 1^st affidavit, it is not disputed by the plaintiff that Mr Blocker as CEO and Mr Tran as CFO of Gannon Vietnam had the authority to approve the transfer of the money to the defendant.  It has not been pleaded or satisfactorily explained by Mr Franke in his affidavits of why it was necessary for Mr Blocker, who had authorized the transfer of the money to the defendant, to obtain the authorization of Mr Franke or Gannon Pacific.  Further, it has not been pleaded or satisfactory explained in the evidence as to why, if such payments were made without the authority of Mr Franke or Gannon Pacific, it would render the receipt of the money on the part of the defendant as “unjust”.

61.  Both in the statement of claim and in the evidence filed on its behalf in the present application, the plaintiff has placed a lot of emphasis on the fact that the defendant had, in a related action in Missouri, USA, made declarations to the effect that he had obtained the loan from the plaintiff via Mr Blocker and intended to repay the loan.  However, it is clear from §8 of the statement of claim that the plaintiff had never acknowledged that the “advance’ made to the defendant was a loan:-

“Notwithstanding the defendant’s stated intention to make repayment to the plaintiff as set out in the said declaration the payment is not acknowledged by the plaintiff to be a “loan” as the payment was caused to be made by the plaintiff without requisite authority.”  

62.  As such, I fail to see why the fact that the defendant had declared that the money was obtained by him as a loan without the “requisite authority” of Mr Franke or Gannon Pacific would make it an unjust enrichment on his part.

63.  In my judgment, the plaintiff has not identified any unjust factor in the statement of claim which would enable it to claim that the case falls within the ambits of Order 11, rule 1(1)(p).  Once that fails, it is difficult in my view to see why there is still a serious issue to be tried.

64.  Thus, in my view, there is no serious issue to be tried on the face of the plaintiff’s pleaded case.   

65.  In case I am wrong on the above and for the sake of completeness, I would now move on to discuss the remaining 2 issues, namely, (1) whether Hong Kong is a convenient forum for this particular case; and (2) whether the defendant has established an arguable defence with real prospect of success for the purpose of.

Is Hong Kong the appropriate forum?

66.  It is not disputed amongst the parties that identification of the natural forum is governed by the principles enunciated in Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460.  The proper approach was explained in Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454 at §§58-59 per Cheung JA:-

“58. The ‘appropriate’ or ‘natural’ forum is one ‘with which the action had the most real and substantial connection’. This includes not only factors affecting convenience and expense (such as availability of witness) but also other factors such as the law governing the relevant transaction and the place where the parties respectively reside and carried on business, Spiliada at page 478.

59. …… Ultimately one has to consider the forum where the action could most suitably be tried for the interests of all the parties and for the ends of justice.  Comments of a similar nature although differently put have been made by the Courts in the past: the Court is not simply to load up factors which point to any particular jurisdiction but to focus on the appropriateness of a forum from the point of view of the trial of the action, see: Rambas Marketing Co. LLC v Chow Kam Fai David [2001] 3 HKC 250 per Recorder Ma (Now MA CJHC) at 255.”

67.  In the recent case of Yantai Wanhua Polyurethanes Co Ltd v Pur Products Ltd [2013] 1 HKLRD 590 at pp 599-600, Anthony J summed up such principles in the following terms:

“24. Natural or appropriate forum means the forum that has the most real and substantial connection with the action. To determine which is the natural or appropriate forum, the court must focus on the appropriateness of the competing forum in light of the factors from the point of view of the matters actually likely to arise in the trial of the action rather than merely loading up factors which point to any particular jurisdiction.”

68.  I am further assisted by the recent case referred to me by the plaintiff’s counsel in Huntley International Ltd v ASAP Ltd Import Export SpA [2011] HKEC 247, unreported (Suffiad J; 18 February 2011) where the learned judge at §§60-65 of the judgment laid down what is regarded as the proper approach in such cases:-

“60. The correct approach in determining an application for leave to serve out of jurisdiction is stated against marginal note 11/4/8F of the Hong Kong Civil Procedure 2011 and can be summarized as follows.

61. On an application for leave to serve out of the jurisdiction, the application is decided on the affidavit evidence of the parties and the issue is whether upon the whole of the evidence, the plaintiff shows a good arguable case within one of the sub-paragraphs of Order 11, rule 1(1), or in the court’s discretion the order ought not to have been made or to stand, or the writ or notice was wrongly issued or the service is irregular, so that on these or other grounds the order, writ or service ought to be set aside.

62. In doing so, the court considers all the affidavit evidence filed up to the date of the hearing, not just that of the plaintiff by the time of the ex parte application.

63. The onus to establish a good arguable case on the merits and satisfy the court on forum conveniens issues remain on the plaintiff at the inter partes stage.

64. Where there are disputed issues of fact essential to the resolution of whether the case meets the conditions prescribed for service out of the jurisdiction under Order 11, rule 1, the court should have regard to all the admissible material before it and not just the plaintiff’s case. The court has to conclude that the plaintiff has a good arguable case and not just a case that could be argued.

65. The court does not usually try the case upon the affidavits, but must reach a provisional or tentative conclusion that the plaintiff is probably right, before allowing service outside the jurisdiction to stand.”       

69.  In GDH v Creditor Co Ltd  [2008] 5 HKLRD 895, Deputy Judge Anthony To (as he then was) summarized the appropriate principles and procedures governing the grant of leave for service out of jurisdiction and of setting aside such service at pp 906-907 as follows:-

“16. The principles and procedures governing the grant of leave for service of a writ out of the jurisdiction and of setting aside such service are prescribed in O 11 and O 12 of the RHC and are very well settled. A plaintiff seeking to serve a writ out of the jurisdiction has to apply for leave by way of an ex parte application. He has to show firstly that he has a good arguable case that his case falls within one of the subparagraphs of O 11 r 1(1) so as to give the court jurisdiction to consider the application. An arguable case is not sufficient: see Hong Kong Civil Procedure 2008, Vol 1, pp 104-105 para 11/1/8 and AJ Lucas (Hong Kong) Ltd v Drilltec Gut GmbH Grossbohrund Umwelttechnik (unrep, HCCT 36/2005, [2006] HKEC 279), per Burrell J. Though the court will not require proof to its satisfaction, it will require something better than a mere prima facie case. This is a high threshold. The court has no discretion to exercise any jurisdiction if this threshold is not achieved: see Tyne Improvement Commissioners v Armement Anversois SA [1949] AC 326. Where questions of fact are concerned, the court looks primarily at the plaintiff’s case and relies on the plaintiff’s duty of full and complete disclosure at the ex parte stage.

17. Once the court is satisfied that it has jurisdiction under one of the subparagraphs of O 11 r 1(1), it shall conduct an examination of the merits. It has to be satisfied that there is a serious issue to be tried both as to merits (if not already decided under the first stage) and as to forum conveniens before exercising its discretion to grant leave to service the writ out of the jurisdiction. This is the lower degree of proof required to enable it to exercise its discretion to grant leave: see Seaconsar Far East Ltd and Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438.

18. A defendant served with a writ out of the jurisdiction who disputes the court’s jurisdiction may apply by way of an inter parte application to set aside the service under O 12 r 8. The parties may file affidavits in support of or in opposition to the application to set aside the service. To resist an application to set aside the service out of the jurisdiction, the plaintiff has to show a good arguable case that his case falls within one of the subparagraphs of O 11 r 1(1) and that there is a serious issue to be tried. But he is not required to discharge the same high standard of proof as applicable at trial or at the ex parte stage. The court will not resolve disputes of facts on affidavit. The question whether the plaintiff has shown a good arguable case is to be decided primarily by reference to the plaintiff’s evidence: Tay Choo Wah & Another v Singapore-Johnore Express (Pte) Ltd [1992] 1 HKLR 19. The court will weigh the arguments on both sides. A “good arguable case” reflects that one side has a much better argument on the material available. It is the concept of the court being satisfied, or as satisfied as it can be having regard to the limitations which an interlocutory process imposes, that factors exist which allow it to take jurisdiction: Hong Kong Civil Procedure 2008, Vol 1, p 134 para 11/4/9.

19. If the plaintiff succeeds in proving a serious issue to be tried, the defendant who seeks to set aside the service has to assume the more onerous burden of showing that the plaintiff’s claim is liable to be struck out. A similar approach was adopted by Recorder Yu in Ren Yun Liang & Others v China Merchants Bank Co Ltd & Others (unrep, HCA 1456/2005, [2007] HKEC 159). The court at an interlocutory hearing will not enter summary judgment nor dismiss or strike out a claim if there is an arguable case on the facts or in law. The court will not resolve disputed questions of fact on affidavit. Thus, the court will be extremely cautious before striking out a claim if it does not have all the relevant facts or if the issues of fact may be interwoven with legal issues, or is in any way fact sensitive, or if the case raises an arguable point of law or if the principles of law are not fully settled: see Allen v Gulf Oil Refining Ltd [1981] AC 1001. In this sense, a serious issue to be tried imposes a higher threshold on the defendant to prove the lack of one than on the plaintiff to prove there is one.

20. If, on balance, the court is not satisfied that the plaintiff has shown a good arguable case that his case falls within one of the subparagraphs of O 11 r 1(1) and a serious issue to be tried or if the court is satisfied that the plaintiff’s case is bound to fail on the merits, the leave granted at the ex parte stage will be set aside. ”

70.  Following the guidance of Ma CJHC (as he then was) in Rambas, the defendant submits that it is appropriate to identify what issues would likely to be raised at trial in order to identify the relevant connecting factors.  The defendant says that his defence at trial would be along the following lines:-

(1) Mr Blocker of the plaintiff agreed to loan money to the plaintiff: §12(4) Wan’s Aff .

(2) Due to the fact that the plaintiff owed Mr Blocker money, the plaintiff was used as a vehicle by Mr Blocker to loan money to the defendant: §12(4) Wan’s Aff.

(3) To effect the loan, Mr Blocker and Mr Tran, the Financial Director/Chief Financial Officer of the plaintiff (see §15 of Greene’s 1^st Aff; cf §15 Franke’s 1^st Aff advanced the money to the defendant on behalf of the plaintiff: §12(5) Wan’s Aff).

(4) Mr Franke knew of the advances: §14 Green’s 1^st Aff.

(5) In the premises, the money paid to the defendant was legitimate so the plaintiff has no claim.

71.  Thus, the defendant says that the issues that would have to be determined at trial will include the following:-

“(1) Whether Mr Blocker agreed to loan the US$40,000 to the defendant.

(2) Whether the plaintiff was merely a vehicle through which monies lent by Mr Blocker to the plaintiff were transferred to the defendant.

(3) Whether Mr Blocker and Mr Tran acting together, had sufficient authority to advance the US$40,000 to the defendant on behalf of the plaintiff .

(4) Relating to (3):

(a) Whether Mr Franke was in fact ignorant of the advance made by the plaintiff.

(b) If Mr Franke was ignorant, whether this meant that the defendant Mr Blocker and Mr Tran had no authority to advance the US$40,000.”

72.  Based on the above, the defendant’s counsel identified the following factors which indicate that Hong Kong is not the natural forum.  They included:-

(1) The case will primary turn on the evidence of the defendant, Mr Franke, Mr Blocker and Mr Tran.  As both the defendant and Mr Franke are US citizens and Mr Blocker and Mr Tran are residing in Vietnam, it will be more convenient to have the trial take place in the United States.

(2) It would be necessary to call Mr Michelle Sinn as a witness to prove whether or not Mr Blocker made loans to the plaintiff.  From the evidence, it appears that Ms Sinn resides in the United States although it is not entirely clear.  However, reference has been made by Mr Franke in his 1^st affidavit that he has dispatched Ms Sinn to Vietnam.

(3) Any enforcement proceedings (of the Hong Kong judgment) will have to take place in the US if the plaintiff succeeds.

73.  On the other hand, the plaintiff claims that Hong Kong is clearly a convenient forum for the trial.

74.  The plaintiff’s counsel in his oral submission to the court says that the witnesses do not have to travel half way round the world in order to attend the trial as Mr Blocker and Mr Tran, even according to the defendant’s case (see Wan’s Aff §12(5)), are residing in Vietnam.  In relation to Mr Franke and Ms Sinn, the plaintiff says that they would have no difficulty to travel to Hong Kong to give evidence if necessary.  As to the alleged difficulty in the enforcement of the Hong Kong judgment, the plaintiff says that as proceedings had already started in the United States, there is no prejudice on this front.  However, according to the plaintiff, the most important thing is that the plaintiff is a company incorporated in Hong Kong and therefore the “residence” of the plaintiff is in Hong Kong.

75.  The plaintiff’s counsel further produced annual return documents of the plaintiff to show the registered address of the plaintiff is in Hong Kong, albeit it is at its company secretary’s address.  Further, the plaintiff submits that Hong Kong will be a better place to deal with matters which concerns with Hong Kong company law.  Also, the plaintiff says that the fact the defendant had accepted the role as a director of the plaintiff in Hong Kong shows that he must be willing to submit to the jurisdiction of the court in Hong Kong.

76.  I tend to agree with Mr Lam’s submission on this issue that the matters which the plaintiff relied on in its application before the Master concerning why Hong Kong has a “close and most real connection”, namely (1) the plaintiff is a company incorporated in Hong Kong under the Companies Ordnance, Cap 32; (2) the defendant was a director of the plaintiff in Hong Kong; and (3) funds were advanced to the defendant originated from the plaintiff’s account in Hong Kong compared palely with the other factors mentioned by the defendant.

77.  In my view, this dispute in substance is really between 2 Americans, ie Mr Franke and the defendant.  The fact that the plaintiff happens to be a company incorporated in Hong Kong and the fact that the defendant was a director of the plaintiff do not necessarily make Hong Kong the forum “where the action could most suitably tried for the interests of all the parties and for the ends of justice”: per Cheung JA in Dynasty Line Ltd, supra.  I bear in mind the fact that even on the plaintiff’s case, this was a simple loan “advanced” case where it would involve very little company law or law of evidence if the case goes to trial.  It has been said that where the legal issues are straightforward or if the competing fora have domestic laws which are substantially similar, the identity of the governing law will be a factor of rather little significance: see Dicey, Morris & Collins, The Conflict of Laws (15^th ed, 2012), §12-034.

78.  Further, I also take into account of the fact that even though the advance or loan was made from Hong Kong, the money was in fact received by the defendant in his account in the USA. 

79.  I also note from a bank statement of the plaintiff kept with HSBC (which was produced as an exhibit by the plaintiff to support the service out before Mater Lui by the plaintiff’s solicitor: see Exhibit AFH-2 under Hill’s Aff) that the correspondence address of the plaintiff was at an address in Ho Chi Minh City in Vietnam. This indicates that the plaintiff in fact did not run any operation office in Hong Kong and its business was run either from the States or in Vietnam.  This would further remove the connection the case has with Hong Kong.

80.  Further, given the fact that almost all the potential witnesses are either American citizens or residing in America and none of them have any close connection with Hong Kong; and the fact that the amount claimed in these proceedings are relatively small in comparison of flying out all the witnesses from different parts of the world to attend a trial here, I am of the opinion that for the interests of all parties and for the ends of justice, Hong Kong is not the appropriate or natural forum with which the action had the most real and substantial connection.  In this case, I consider that United States will be the more appropriate or natural forum.

Whether the defendant has established an arguable defence with real prospect of success?

81.  For reasons stated in §§34-64 above, I am of the view that the defendant has established an arguable defence with real prospect of success.  However, as said, for the consideration of the defendant’s setting aside judgment under order 13, r 9, strictly speaking, I do not need to make findings on the issue once I am satisfied that the serving out was defective due to a failure to meet the requirement under Order 11, r  1(1)(p).

82.  Before I conclude my findings in this case, I think it will be apt for me to briefly mention 2 matters which had been mentioned in counsels’ skeleton arguments and during submissions.  They are: (i) alleged material non-disclosure on the part of the plaintiff when obtaining the order of service out; and (ii) some disparaging remarks made on behalf of the defendant in the related action in the United States.

Material non-disclosure

83.  The relevant principles on making full and frank disclosure in  an ex parte application has been summed up by the defendant’s counsel as follows:-

(1) The plaintiff’s duty in its ex parte application was to make full and frank disclosure of all material facts to the court.

(2) Material facts in an application for service out are those facts relevant to the court’s decision whether to assume jurisdiction.

See: Hady v Bazar [2012] 3 HKLRD 29 at §§99-103 per DHCJ Peter Ng SC.

(3) Gee on Commercial Injunctions (5^th ed, 2004), §9.002 has a useful summary of what this duty entails:-

“The duty of full and frank disclosure extends to placing before the court all matters which are relevant to the Court’s assessment of the application, and it is no answer to a complaint of non-disclosure that if the relevant matters had been placed before the Court, the decision would have been the same. The test as to materiality is an objective one, and it is not for the applicant or his advisers to decide the question; hence, it is no excuse for the applicant subsequently to say that he was genuinely unaware, or did not believe, that the facts were relevant or important.”

(4) If the facts are not fairly stated in the affidavit, it will not assist the plaintiff to be able to point to some exhibit from which the fact might be extracted: Gee, §9.003.

(5) The need for a strict approach to applications for service out of the jurisdiction was emphasised and explained in Kayden Ltd v Securities and Futures Commission, §§35-38 per Riberio PJ.

84.  Based on the above principles, it has been submitted on behalf of the defendant that the following matters constitute material non-disclosure:-

(1) First, the plaintiff appears to have failed to draw the court’s attention to the fact that O 11 r 1(1)(p) only applies to claims that the defendant is a constructive trustee, and not for common law money had and received claims.  The defendant says that this is plainly relevant to the plaintiff’s application, and the relevant principles are clearly stated in the White Book see §11/1/34.

(2) For the avoidance of doubt, the defendant further says that the failure to refer to a point of law on which there is clear authority can constitute material non-disclosure: see eg Centel Shipping Co Ltd v Owners and/or Demise Charterers of King Coal (HCAJ 171/2012, 13 December 2012), §23(2)(b) per Au J.

(3) Secondly, in §8 of the statement of claim, the plaintiff placed heavy reliance on a supposed admission by the defendant that he intended to repay the $40,000 loan.

(4) However, there is no indication in the plaintiff’s affidavit in support (see §6 of Hill’s Aff to the full passage in the defendant’s declaration, which begins from §10 onwards.  The important missing passages according to the defendant are as follows:-

“10. In February 2009, I approached Mr Blocker and requested a $40,000 loan. I told Mr Blocker that I required the money to pay expenses in connection with a personal residence I was attempting to sell. I advised Mr Blocker that the loan would be of short duration and would be repaid in full.

11. At the time of the loan, I was not aware that the loan was made with company funds.  I was later made aware that the loan was made through the company, but I did not (and do not) believe there was anything improper about the loan. […… explanation for why …… ]

12. The loan to me was in no way kept secret from Gannon International.  The loan appears as an account receivable in the accounting books and records of Gannon Company (Hong Kong).”

(5) The defendant says that had these passages been directly drawn to the court’s attention, the court may well have queried whether §8 of the Statement of Claim supported the plaintiff’s (inherently defective) cause of action.  It is certainly not an admission that the plaintiff has a claim for money had and received.

85.  For the foregoing reasons, it is submitted on behalf of the defendant that there was material non-disclosure in the plaintiff’s ex parte application, and that it ought to be struck out on this basis alone.

86.  I do not consider that either the plaintiff or those representing it had deliberately tried to conceal the fact that the defendant had received the money not in the capacity as constructive trustee when making the service out application.   In the statement of claim, it is clear that the plaintiff was trying to plead all the relevant facts it thought was necessary in support of its claim against the defendant and, based on those pleased facts, in applying for service out in front of the Master.  The fact that the pleader of the statement of claim had failed to mention the defendant was receiving the money as constructive trustee was probably something that he or she could not say on the instructions given by the plaintiff or it might be due to an innocent omission.  I do not think there was deliberate failure in making full and frank disclosure on the part of the plaintiff or its legal representatives in this case.  Nonetheless, that essential element of the defendant had and received the money in the capacity as constructive trustee required by Order 11 r 1(1)(p) was not there.  I agree with Mr Lam that had this fact, ie the defendant had not received the money in the capacity as constructive trustee, been disclosed to the Master, the court might not have ordered the issue of the writ out of jurisdiction in the first place.      

Disparaging remarks made in the related action in Missouri, United States

87.  It has been alleged by the plaintiff that, in the proceedings commenced by Petition in Missouri to enforce the judgment of this court, the defendant repeatedly denies what he describes as “the legitimacy or veracity of the allegations” upon which the Petition is based.  The defendant then appeared to purport to oppose the enforcement of the Default Judgment by those defences described at §18(10) thereof on grounds inter alia that:-

(i) These proceedings have not accorded with (unspecified) ‘international laws and treaties’.

(ii) Hong Kong is an inconvenient forum for the defendant, who is resident in the USA.

(iii) The plaintiff is alleged by the defendant not to have made the loan and hence has no interest or standing in the proceedings.

(iv) The plaintiff is alleged to be guilty of fraud and illegality in asserting the claim when it is said that the plaintiff knew that the defendant did not borrow the $40,000 in question from the plaintiff.

(v) The defendant contemptuous of the court, alleged: “The [Hong Kong] Judgment is not enforceable because it was rendered under a system which does not provide impartial tribunal or procedures compatible with the requirements of due process of law, where the Hong Kong forum did not provide adequate protections of [D]’s due process rights.”

(vi) The defendant alleged that 3 months’ notice or 13 weeks’ notice of the proceedings in Hong Kong was not sufficient time to enable him to file and Acknowledgement of Service in the proceedings.

(vii) Despite the Affidavit of Service of the Amended Writ upon the defendant personally on 21.11.11, the defendant “…… does not have recollection of ever being served with a complaint in the underlying action, and, even if he was served, considering the extreme distance of Hong Kong from [D]’s domicile of St Louis, Missouri, USA as well as the hardship and inconvenience of obtaining Hong Kong counsel and preparing a defense in a foreign forum, [D] was not afforded notice of the foreign proceedings in sufficient time to enable him to defend.”

(viii) The defendant alleges harassment against the plaintiff.

(ix) The defendant contends that the enforcement of the Judgment is barred by rest judicata.

88.  As I told counsel during the hearing of the summons, I find some of the remarks made by the defendant, as quoted by the plaintiff’s counsel in his submissions summarized above, rather offensive if not bordering on being contemptuous to this court. However, I bear in mind that this might be matters said by his over-zealous lawyers in the United States who have very little understanding of our system and what was said also have very little to do with the issues I have to determine under the defendant’s summons in this case.  Hence, I am prepared to ignore those disparaging remarks at this stage and chose to concentrate on the issues in dispute between the parties in this case.  But I certainly take a very dim view of any litigants who express such views, whether by himself or through his lawyers, even in proceedings not issued or fought within the jurisdiction.   

Conclusion

89.  To conclude, based on the aforementioned reasons, on the summons taken out by the defendant dated 14 March 2013, I hereby order that:-

(1) the service of the Writ of Summons and/or Concurrent Writ herein be set aside on the ground that the service out of jurisdiction was wrongly ordered in the first place; and

(2) the Default Judgment entered against the defendant in the action herein dated 20 February 2012 be set aside for irregularity.

90.  In view of my conclusion reached above, I do not consider it is necessary for me to deal with paragraph 2 of the defendant’s summons.

Costs

91.  Costs should follow the event.  Following my conclusions reached above, I hereby make an order nisi that the plaintiff do pay the costs of the defendant of the summons herein (save and except for the time spent in arguing the extension of time under Order 12, rule 8 mentioned in §§17-20 above), such costs to be taxed if not agreed, with certificate for counsel.  Unless a party applies to vary the above costs order within 14 days from the date of this decision, such costs order will become absolute.

92.  Lastly, I would like to thank counsel on both sides for their very helpful assistance rendered to this court.