MIRUVOR LTD v. PANAMA-GLOBE STEAMER LINES S.A AND OTHERS

HCCL 138/1996 and
HCCL 169/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NOS. 138 AND 169 OF 1996

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J U D G M E N T

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The applications

1. By summonses dated 28 September 2005, the 3^rd defendant seeks an order setting aside previous ex parte orders that extended the validity of the writ in each action, together with an order setting aside service of the concurrent writ issued on 23 April 2004 in each action.

2. These cases have some history. 

The background

3. The present actions arise out of the same facts as those the subject of consideration in HCCL 160 of 1996, wherein the plaintiff, Miruvor Ltd, sued National Insurance Co. Ltd to enforce payment under eight policies of marine insurance.

4. Miruvor had insured with National Insurance various shipments of electrical goods sold to a Paraguayan buyer, Dansun SRL of the city of Ciudad del Este.  The policies were issued in 1995 upon ‘all risk’ terms and incorporating Institute Cargo Clauses (A).

5. The goods were stolen, but National Insurance declined payment of Miruvor’s claim.  Thus Miruvor commenced HCCL 160 of 1996.

6. This court rendered judgment on 24 October 2001.  That judgment speaks for itself.  In substance, the court acceded to Miruvor’s claim, save under one policy (no. 7), and awarded judgment against the insurer in the sum of US$807,253.50, together with interest and costs.

7. That first instance judgment was subject both to an appeal and a cross appeal.  The Court of Appeal, by judgment dated 21 February 2003, upheld the decision below in respect of seven of the policies, but allowed the cross appeal against rejection of liability under policy no. 7.  Thus the appellate court varied the first instance order to add the further amount of Miruvor’s claim under policy no. 7.

8. National Insurance sought leave to take the matter further to the Court of Final Appeal, but ultimately did not proceed with its application.  On 24 June 2003 it settled the principal sum together with interest.

9. The present proceedings are the by-product of this earlier litigation upon those insurance policies.  They have been brought by the subrogated insurer in the name of the insured against the 3^rd defendant carrier of the goods.  The claim is that the 3^rd defendant has misdelivered the goods in Paraguay against forged bills of lading.

10. The 3^rd defendant carrier, Pro Line Ltd & Co. GmbH, is a German company.

11. On 26 July 2004 the plaintiff made an application under Order 11, rule 1(1) RHC for leave to serve out of the jurisdiction on the 3^rd defendant.  That application was granted.  Service of the writs, together with ancillary documents including the certified German translations thereof and the order granting leave, was effected under the Hague Convention on 6 October 2005.

12. The 3^rd defendant entered an Acknowledgment of Service on 29 October 2004.  On 30 August 2005 the plaintiff filed its Points of Claim.  On 26 September 2005 the 3^rd defendant served its Defence in each action.

13. The present applications, the subject of this judgment, were issued by the 3^rd defendant by summonses dated 28 September 2005.

Renewal of writs

14. The fundamental issue of which the 3^rd defendant makes complaint is what it argues to be the wrongful renewal of the writs in these actions.  The history in this respect is as follows.

15. In HCCL 138 of 1996, the writ was issued on 22 May 1996; the first expiry date was 23 May 1996.  Subsequently eleven extensions were sought and granted.  The final extension, for two months, was granted on 2 September 2004.

16. In HCCL 169 of 1996, the writ was issued on 24 June 1996; the first expiry was on 23 June 1997.  Thereafter ten extensions were granted in various terms.  The final extension, also for two months, was given on 2 September 2004.

17. The 3^rd defendant now says the extensions of validity of the writs were wrong and should be set aside.

The ambit of the argument

18. For the 3^rd defendant, Ms Jane Lo submitted that, looking at the facts which prevailed at the time of each of the applications, the reasons the plaintiff gave did not amount to good reasons for extension.

19. In terms of the sequence of renewals Ms Lo focused on the circumstances at the time when applications for extension were made before Deputy Judge Woolley on 8 November 2001 as the initial instance of the court erring in the exercising of its discretion; thereafter, she said, all further renewals were bad.

20. Ms Lo noted that by that stage the judgment of this court in HCCL 60 of 1996 had been handed down for over one month (since 4 October 2001); thus, she said, the parties to that action must have been entitled to have expected that those proceedings finally had been determined.  She said that by then “any remote uncertainties” about the plaintiff’s position in the insurance claim that could have affected its decision on whether to proceed against the 3^rd defendant carrier must have been eliminated.

21. Ms Lo also argued that the only known reason for the extensions as then, and subsequently, granted was that HCCL 60 of 1996 was under appeal.  There was no certainty, she said, as to whether the appellants in that case would proceed with their appeal, and the fact that there might have been settlement negotiations between the parties did not amount to a sufficient reason justifying the renewal of the writs.

22. In sum, Ms Lo said that the writs should not have been extended pursuant to the ex parte applications on 8 November 2001 and/or any of the two subsequent applications and hence the orders ought to be set aside.

23. For the plaintiff, Mr Colin Wright argued that the 3^rd defendant’s applications now are misplaced and should be dismissed on two bases :

(1) First, the 3^rd defendant had not established that the court had erred when exercising its discretion to grant the ex parte applications for renewal of the writs (the ‘Discretion Issue’); and

(2) Second, the 3^rd defendant had submitted to the jurisdiction of this court by filing its Defences of 26 September 2005, and hence had lost its right to challenge the service of the writs (the ‘Submission to Jurisdiction Issue’).

24. In the course of argument before this court, an additional issue was raised.  Mr Wright made the point that the 3^rd defendant had filed its present applications on 28 September 2005, i.e., 29 days from when the plaintiff filed its Points of Claim on 30 August 2005.  They were, he said, one day late (the ‘Time Issue’).

25. I deal with each of these issues in turn.

The Discretion Issue

26. The court has a discretion to extend the validity of a writ; whether there is sufficient reason to grant the extension depends upon the particular circumstances of the case and must be left to the judgment of the judge deciding the particular application : see Kleinwort Benson Ltd v. Barbrak Ltd, The ‘Myrto’ (No. 3) [1987] 1 AC 597 at 622H-623A.

27. The saving of unnecessary legal proceedings and costs is a good reason for extending the validity of a writ and in not requiring a party to prosecute its claim for the time being : see Kleinwort Benson, op cit, at 623H and 624C.

28. Mr Wright pointed to Miruvor’s ongoing action against National Insurance as the source of a desire to save unnecessary legal proceedings and costs.  It was, he argued, “clearly in the interests of both the plaintiff and the 3^rd defendant for legal proceedings by the plaintiff against the 3^rd defendant not to be prosecuted pending the final determination of the Insurance Action”.

29. Whilst this argument possessed a certain initial appeal, on reflection this submission does not strike me as well-founded.  The plaintiff would sue the 3^rd defendant regardless of the outcome of the insurance action.  If the plaintiff won (as indeed it did), the insurer would step in to run the claim against the 3^rd defendant (as indeed it has done).  On the other hand, if the plaintiff had lost, it would itself continue with the claim.

30. Accordingly it is not easy to see why there were “unnecessary legal proceedings”, nor why there has been a saving in overall legal costs by not serving the writ, even had there been a consensual stay of this action (as Ms Lo suggested may well have occurred) to await the outcome of the proceedings by insured against insurer.

31. This is the more true after the judgment, on 4 October 2001, in HCCL 60 of 1996.

32. Counsel on both sides have attempted to derive assistance from the principal authority of Kleinwort Benson, op cit.  In that case, the plaintiff bank had obtained ex parte extensions of the writ to save costs that would have fallen on the defendant cargo owners : op cit, at 623H.  However, the present case factually is very different.  In holding the proceedings against the 3^rd defendant in abeyance, Miruvor effectively was saving costs only for itself, and it is those costs which now are being incurred by its insurer and by the 3^rd defendant.

33. If anything, the circumstances of these cases represent a logical opposite to those in Kleinwort Benson, op cit.  By repeatedly applying to extend the validity of the writs, the plaintiff injected into this litigation a significant element of uncertainty and another issue for argument.  In short, by its actions the plaintiff increased the potential for, rather than saved, unnecessary costs.

34. Mr Wright raised the argument that the extensions did not cause the 3^rd defendant any prejudice, because it had known about the actions all along, whilst, on the other hand, to revisit the previous decisions would cause the plaintiff hardship because it already had lost the opportunity to serve the writs in time.

35. However, as Ms Lo pointed out (correctly, in my view), one does not turn to consider the further issue of prejudice or hardship until one has surmounted the primary hurdle of establishing that good reasons exist for exercising the discretion to grant such extensions : see Chow Ching Man v. Sun Wah Ornament Manufactory Ltd [1996] 2 HKLR 338, per Bokhary JA (as he then was) at 341B-C.  And, on analysis and with the benefit of argument, the plaintiff’s ostensible reason for extending the writs does not seem to me to amount to a good reason.

36. At bottom, the present case well illustrates the fundamental point about ex parte applications.  An ex parte applicant must recognize that it is asking the court to exercise its power on the basis of limited evidence and submissions on the part of one side only; hence there must be an opportunity for the court to revisit the matter, with the consequence that the court’s decision may well turn out to be different from that which prevailed at the ex parte stage.

37. In this context the judgment of the English Court of Appeal in WEA Ltd v. Visions Channel 4 Ltd [1983] 1 WLR 721 is instructive.  In that case, Sir John Donaldson MR said, at 727D-F :

“… ex parte orders are essentially provisional in nature.  They are made by the judge on the basis of evidence and submissions emanating from one side only.  Despite the fact that the applicant is under a duty to make full disclosure of all relevant information in his possession, whether or not it assists his application, this is no basis for making a definitive order and every judge knows this.  He expects at a later stage to be given an opportunity to review his provisional order in the light of evidence and argument adduced by the other side and, in so doing, he is not hearing an appeal from himself and in no way feels inhibited from discharging or varying his original order.”

38. Guided by this principle, I have revisited the circumstances of the plaintiff’s applications for renewal of the writs.  I have now concluded that the court should not have exercised its discretion to grant the extensions on the basis that there was insufficient reason so to do.

The Submission to Jurisdiction Issue

39. Had the ‘Discretion Issue’ been the sole question for decision, this case would have been tolerably straightforward; I should have been minded to hold that the 3^rd defendant would have succeeded on this basis.

40. However, by its actions the 3^rd defendant has chosen to complicate the matter.  And in so doing it seems to me that it has jeopardized its chance of success.

41. The sequence of events was thus : in response to the plaintiff’s Points of Claim, the 3^rd defendant first served a substantive Defence on 26 September 2005.  Two days later, on 28 September 2005, it filed the present applications to challenge the jurisdiction.

42. This is precisely the reverse of the procedural sequence contemplated in Order 12 rules 7 and 8, which provide :

“7. The acknowledgement by a defendant of service of a writ shall not be treated as a waiver by him of any irregularity in the writ of service thereof or in any order giving leave to serve the writ or extending the validity of the writ for the purpose of service.

8. (1) A defendant who wishes to dispute the jurisdiction of the court in the proceedings by reason of any such irregularity as is mentioned in rule 7 or on 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 …

(d)  the discharge of any order extending the validity of the writ for the purposes of service.”

43. The rules thus contemplate that any application to challenge jurisdiction should precede the substantive defence.  As the editors of Hong Kong Civil Procedure 2006 explain, at MN 12/8/2 :

“… 3. If a defendant chooses to make an application under r.8(1), he should not meanwhile serve a defence, or take any step to defend the case on the merits, or apply for other primary relief; this may be construed as a submission to the jurisdiction or a waiver of irregularity (see Guangdong li Fruit Wholesale Market Co. Ltd v. Yip Lai Fong [2003] 1370 HKCU 1) …”

44. The Supreme Court Practice 1999 (the last English edition before the change to the Civil Procedure Rules) contains an identical passage absent, of course, reference to the 2003 Hong Kong case.

45. Order 12, rules 7 and 8 were enacted in their present form in 1979.  There was good reason for the procedural change as thus reflected.

46. Prior to this change, a defendant wishing to challenge the court’s jurisdiction risked submitting to the court’s jurisdiction simply by raising a jurisdictional challenge.  The defendant would have to enter what then was known as a “conditional appearance” before the court.  If such challenge to jurisdiction failed, this appearance would stand as unconditional and, as consequence, the objecting party then would have been taken to have submitted to the jurisdiction: see, for example, Somportex Ltd v. Philadelphia Chewing Gum Corporation [1968] 3 All ER 26 (CA).

47. In practice, this somewhat cumbersome procedure too often represented a trap for the unwary.  Hence the rules were altered.  A new code, in terms of the provisions of Order 12, rule 8, now was to provide the statutory template for taking objection to the jurisdiction.

48. Henceforth a defendant wishing to mount a challenge to the jurisdiction should do so at the outset, within a given period, and prior to entering any substantive defence to the claim purportedly mounted against him.  What, however, is the position of the defendant, like the 3^rd defendant in the present case, who essentially ignores the new procedure?  It seems to me that he who ignores the rules does so at his peril.

49. Ms Lo for the 3^rd defendant argued that an introductory paragraph inserted at the beginning of the 3^rd defendant’s Defence effectively saved the position.  This opening paragraph purported to give notice that the Defence was being filed “strictly without prejudice to the Third Defendant’s applications (i) to have the writ served against it set aside and/or (ii) to have the Plaintiff’s claim dismissed for want of prosecution.”  Thus said Ms Lo (who was not the author of this document), the effect of this paragraph was to render the Defence not a Defence at all; as she put it, in light of this introductory paragraph, the rest of this Defence in effect was, as she somewhat bluntly termed it, “all rubbish”.

50. I did not find this submission attractive.  To the contrary, the position struck me as absurd.  A Defence as settled by London counsel (as I was informed was the case) is not often thus characterised. 

51. Furthermore, the 3^rd defendant had filed this ‘Defence’ on 26 September 2005, but did not choose to make its applications to challenge the jurisdiction until two days later, on 28 September 2005.  When the plaintiff received this ‘Defence’, what was it to do?  Was it to assume that a challenge to the jurisdiction thereafter was to be mounted, and thus do nothing to begin preparing a response to the substantive issues raised in that document?  And, should this be the position, when was time to begin to run?

52. The procedural regime set out in Order 12, rule 8 came into being precisely to eliminate this type of uncertainty.  If a challenge to primary jurisdiction (as opposed to whether jurisdiction, once legitimately established, should in fact be exercised) was to be made, it was to be done in the prescribed manner, and if not done, then such a challenge would fall by the wayside.

53. In Chan Kui v. Lee Fai (t/a Fai Kee Timber) HCPI 126 of 1995, unreported, 2 May 1997, the defendant in that case had tried to preserve its option to dispute the jurisdiction while also purporting to defend the case on the merits.  Faced with this situation, Jerome Chan J observed :

“16. The law applicable was not controversial.  It was accepted to be the law that the test to be applied should be an objective one.  The issue was whether judged objectively the defendant had conducted himself in such a way that he had submitted himself to the jurisdiction of the court notwithstanding his express declaration of non-acceptance of the jurisdiction of the court?  It was accepted, very properly in my view, that mere express declaration of non-acceptance of the court’s jurisdiction and/or an express disclaimer of ‘without prejudice’ or ‘under protest’ would not per se render all conducts thereunder incapable of objectively amounting to a submission to the court’s jurisdiction.  Had it been otherwise, they would have become unrestricted permits to the defendant to defend the action on the merits whilst refusing to submit to the court's jurisdiction.  Such an absurd right cannot exist in law.  No one can be allowed to blow hot and cold at the same time.  No defendant can be allowed to invoke the court’s jurisdiction to defend the action on merits whilst denying the court’s jurisdiction over him.

17. The defendant’s express intent to deny the court’s jurisdiction was beyond doubt.  Not only had he constantly made this known to the masters whenever he appeared before them, he had expressly declared that his participation in the assessment of damages to be ‘under protest’ and ‘without prejudice’.  Mr Chan for the defendant said such proclamation must be taken into account in judging the defendant’s conduct objectively.  I was of the view that such subjective proclamation of self-interest, though should be taken into account, would pale into insignificance when judged objectively against the defendant’s conduct.  His conduct in actively defending the assessment on merits was wholly inconsistent with any denial of the court’s jurisdiction when judged objectively.  He had behaved in a manner wholly and diametrically opposed to his proclamation.  That was an obvious attempt to have the best of both worlds.  He cannot, in law, be permitted such privileged position.  Once a defendant acted wholly contrary to his proclaimed intent, he must be taken to have changed his intent.  He cannot be permitted to hold diametrically opposed intents at the same time.  The mind and the conduct must be consistent rather than different.  To hold otherwise would bring absurdity and illogical conclusions to the law.  I am satisfied that it was impossible in law for the defendant to be entitled to defend the assessment of damages on merits ‘under protest’ or ‘without prejudice’ to his denial of the court’s jurisdiction.  The defendant must make a choice between maintaining his stance on the denial of the court’s jurisdiction, or to defend the proceedings on merits.  He cannot have both.  If he maintains his denial of court’s jurisdiction, he must refrain from taking any step that could be considered as defending the proceedings on merits.  He would have to accept the risk of a decision against his interest.  He would have to waive his right to argue against the plaintiff’s submissions and evidence on merits, and take his chances with the decision. There could be no harshness or unfairness as suggested by Mr Chan in such situation.  To the contrary, to hold otherwise would be unduly unfair.”  (Emphasis added.)

54. The Court of Appeal affirmed this first-instance decision on a somewhat different basis : see [1997] 3 HKC 228.  In that judgment, which was not cited to me, Godfrey JA noted, at paragraph 21 :

“21. A defendant who invokes or utilises the jurisdiction of the court with a view to his own advantage waives by doing so his right to object to any earlier procedural irregularity (unless fundamental).  A defendant who wishes to dispute the jurisdiction of the court over him must be careful not to take any step in the action which may be regarded as a submission to the jurisdiction of the court. The defendant here invoked the jurisdiction of the court to set aside the ‘regular’ judgment obtained by the plaintiff on 23 July 1996; and he utilised the jurisdiction of the court to contest the assessment of damages.  He has, in my judgment, clearly waived his right to object to the master’s order extending the validity of the writ.  It may be that the order should not have been made at all; but the defendant by his conduct has waived his right to take the point: cp. Cooze v. Neumegen (1842) 9 M & W 200, in which case there was an irregularity in the writ of summons but the defendant, although he protested against this at the trial, and indeed took no part in the trial, was held to have waived the irregularity merely by appearing, albeit under protest, at the trial.  As Alderson B said (at p.292):

‘If a defendant wishes to take advantage of an irregularity in the proceedings, he should not appear at all at the trial, but should allow the plaintiff to go on at his peril.’”  (Emphasis added.)

55. In the same case Cheung JA emphasized the importance of following the procedure in Order 12 rules 7 and 8 :

“24. … Unfortunately the procedure under O.12, r.8 was not followed. This procedure was introduced as an improvement on the old one which contained many traps for a defendant who might find himself in a situation such as this.  One of the pitfalls was that, although the defendant could challenge jurisdiction without entering appearance, by not entering an appearance, the plaintiff could enter judgment for default of appearance: see Note 12/7-8/1 of Supreme Court Practice 1997. This is precisely the situation the Defendant now faces by not filing any notice of intention to defend.  The Plaintiff, as he was entitled to do, had entered default judgment against him.

… 26. Order 12, r.8 provides the Defendant with the procedure of challenging the Court’s jurisdiction without unwittingly submitting himself to jurisdiction by taking part in the proceeding.  To observe O.12, r.8 is not merely a question of insisting on form over substance. In this case, the procedure was not followed.  Instead the Defendant chose to lodge an appeal against the decision of the Master.  Ms Eu, S.C., said that she would not rely on the appeal as a submission to jurisdiction and it is therefore not necessary to rule on this particular issue.  However, I would say that it is meaningless to argue that an unqualified right of appeal against the Master’s decision is provided by O.58, r.1 because the point is that by not adopting the O.12, r.8 procedure, such as not filing the notice of intention to defend, the Defendant will find that a judgment is being entered against him.

Submission to jurisdiction

27. The subsequent steps taken by the Defendant are clearly steps taken in submitting to the jurisdiction of the Court.  The summons taken out to set aside the judgment, the prosecution of the summons and taking part in the assessment of damages, although under protest, are clearly steps taken inconsistent with the challenge of the court's jurisdiction. Cave J. in Rein v. Stein (1892) 66 LT469 stated that:

‘It seems to me that, in order to establish a waiver, you must show that the party alleged to have waived his objection has taken some step which is only necessary or only useful if the objection has been actually waived, or if the objection has never been entertained at all.’

28. The two steps taken by the Defendant are wholly unconnected with the challenge to jurisdiction.  They dealt with challenge to the merits of the case.  All these steps needed not be taken if the procedure under O.12, r.8 was observed.  The learned judge was correct to dismiss the Defendant’s appeal.”  (Emphasis added.)

56. In the instant case, the filing of 3^rd defendant’s ‘Defence’ manifestly failed to follow the clear procedure prescribed in Order 12, rule 8 for the purpose of taking objection to the primary jurisdiction of the court.

57. For my part I fail to see why the 3^rd defendant, who has chosen to ignore the relevant (and well-tried) procedure, now should be permitted the latitude of putting in a reasoned Defence whilst at the same time attempting to preserve a primary jurisdictional objection, and I am firmly disinclined to countenance such an approach.  

58. In my view, the introductory paragraph purporting to reserve the right to take issue with jurisdiction does not circumvent the difficulty, as Ms Lo has argued.  The 3^rd defendant cannot have it both ways.  It seems to me that by filing its Defence in the manner in which it has the 3^rd defendant must be taken to have submitted to the jurisdiction.

59. In the circumstances, therefore, I find in favour of the plaintiff on the submission issue, and accordingly I dismiss the 3^rd defendant’s applications on this basis.

The Time Issue

60. For the sake of completeness I record that Mr Wright raised a further issue in his skeleton argument, this being the point that the 3^rd defendant had filed its present applications 29 days after the plaintiff filed its Points of Claim, i.e., one day late.

61. Both Mr Wright and Ms Lo spent some time on this issue in oral argument.  Ms Lo even went so far as to proffer an explanation for such lateness, and in the event I was persuaded, in the exercise of my discretion, to hear the 3^rd defendant’s applications notwithstanding that they appeared to be one day out of time.

62. However it transpired after the hearing, in a subsequent affirmation filed by the 3^rd defendant’s solicitors, that these applications in fact were not out of time.  The directions for filing of pleadings did not order that time should run in the vacation period, and, accordingly, 28 days from 30 August 2005, when the Points of Claim was filed, would be 28 (not 27) September 2005.

63. There is thus nothing in this point, save to note that it is a little unfortunate that time was taken up in argument on an issue that, in light of the provision of further information, turned out not to be ‘live’ at all.

Order

64. The result of the foregoing is that the 3^rd defendant’s applications are dismissed.

65. I make a costs order nisi that costs are to follow the event, and that the costs of and occasioned by such applications be to the plaintiff in any event, to be taxed if not agreed.