XCHRX ARABIAN AMERICAN INSURANCE CO. (BAHRAIN) E.C. v. GRAND UNION INSURANCE CO. LTD. and Another

1995, No. CL-45

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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J U D G M E N T

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1. This is an application by the Second Defendant for an order declaring that the Court has no jurisdiction over the Second Defendant in respect of the subject-matter of the Claim or the relief or remedy sought, and for an order setting aside the order of 17 March 1995 by which leave was given to issue and serve a concurrent Writ out of the jurisdiction.

2. The claim arises out of a contract of re-insurance. The Points of Claim set it out quite shortly. All the parties are insurance companies. The claim against the Defendants is on a re-insurance slip whereby the Defendants, in different proportions, bound themselves to follow the settlements of the Plaintiff. There is no dispute by the Second Defendant that the claim is well-founded in fact and in law on the merits.

3. However the Second Defendant, the bearer of the minor proportion of the re-insurance cover, is an Australian company and outside the jurisdiction of the Hong Kong Courts.

4. The basis of the application is that the Second Defendant is not a "necessary or proper party" to the proceedings as required by Order 11 Rule 1(1)(c). At the heart of the Second Defendant's contention, described as its "essential point" in the skeleton submission, is the assertion that the Plaintiff is proceeding against it only because the First Defendant, having been insolvent for a number of years (now in liquidation) with no realistic hope of a dividend, or realisation of assets even, will be unable to satisfy any judgment. In other words, because the Plaintiff knows it cannot or may not satisfy its judgment against the First Defendant, it is "going for" (my expression) the party outside the jurisdiction. As I expressed to Mr. Lewis at the outset, this proposition, which came through the affirmations on behalf of the Second Defendant, was a novel one. It has substantial ramifications.

5. I have been referred to a number of authorities including:

1) Multinational Gas & Petrochemical Co. -v- Multinational Gas & Petrochemical Services Ltd. 1983. Ch. 258

2) Goldenglow Nut Food Co. Ltd. - v- Commodin Produce Ltd. 1987 2 L.L.L.R. 569

3) Mercantile Mutual Holdings Ltd. -v- IRM (In Liquidation) and others. N.S.W. Supreme Court (Commercial Division) 23 June 1994, (Giles J.)

4) Tyne Improvement Commissioners -v- Armement Anversois Société Anonyme - The Brabo 1949.1.A.E.R. 294

6. It is not disputed that the action is well based on the merits. It is argued that it is not "bona fide" in the sense that the proceedings are commenced against the First Defendant only with the sole object in mind of making the Second Defendant answerable to the Court's jurisdiction.

7. Is there a "real issue" between the parties? The Second Defendant does not have a good defence in law to the claim. Nor can it be said that the Plaintiff's rights are predominantly against the First Defendant. The rights against the two defendants are equal. The liability in money terms is different because they have simply undertaken different indemnities. That does not affect the rights. There is a "real issue".

8. The term "bona fide" relates to the cause of action. In my view it cannot relate to the prospects of recovery; the action itself is well-founded and therefore at the outset I make it clear that proceeding against a defendant who may be able to satisfy a judgment whereas another defendant may not or even will not, is wholly unrelated to the "bona fides" of an action.

9. In the Multinational Gas case Lawton, L.J. referred to a long line of authorities before stating the principles. The first, which really goes without saying, is that a court should be exceedingly careful before it allows a writ to be served out of the jurisdiction. The second is that leave ought not to be given if the sole or predominant reason for beginning the action against a party duly served within the jurisdiction, is to enable an application to be made to serve parties outside the jurisdiction. The third is that the mere fact that the party within the jurisdiction will be unable to satisfy a judgment does not of itself mean that the action was not properly brought against that person. That latter principle is no more than I would have expected bearing in mind my initial observation to Mr. Lewis. It means some other, substantial factor, must exist to call into question the "bona fides" of the action. The fourth, which cannot arise in this case is that if the action against the party within the jurisdiction is bound to fail, it is not properly brought. That too must be common sense.

10. A consideration of the decision of the Court of Appeal in the case of Massey and Anor -v- Haynes & Co. and Schenker & Co., upon which Mr. Scott relies to some extent, affords some assistance although it is a decision now over a century old. However it sets out what one would regard as sensible practical criteria. It was of course concerned with the same rule (though a different sub-sub-section at that time) - the defendant out of the jurisdiction must be a necessary and proper party.

11. The judgment of Wills, J. (at p. 334) at first instance is the crux of the matter:

"Of course the jurisdiction must be exercised with care and forbearance, but ample power is given to the court to prevent abuse of the process by the limitation carefully inserted in subsection (g) (as it was then categorised) that the person sought to be made a defendant must be a "proper" party to an action "properly brought" against some other party in this country. If there was the least ground for saying the action was brought against the brokers in this country 'mala fide', and with the knowledge that they were not liable, simply to try in England a case which otherwise could not be tried here, then although the action was against a person in this country it would not be "properly" brought. The Court must be satisfied of bona fides before the jurisdiction ought to be exercised, and the Court must be further satisfied that the person to be served abroad is a "proper party." It is hard to define it exhaustively, but I think that if according to the regular practice of the Courts of this country - supposing all parties subject to the jurisdiction - the person to be served is one who as a matter of course would be joined on the same writ and be treated as one of the defendants in the action, he is a "proper" if not a "necessary" party to the action."

12. He then went on to refer to two cases, the first of which, though decided on a technical ground had in its judgment observations of general application and Wills, J. used them to support his statement that :

"Both the persons abroad to be joined as defendants and the persons sought to be sued in this country must be parties really and substantially concerned with the questions to be litigated."

13. In the appeal, Lord Esher, Master of the Rolls, posed the question - "Supposing both parties had been within the jurisdiction, would they both have been proper parties to the action? If they would and only one of them is in this country, then the rule says that the other may be served, just as if he had been within the jurisdiction."

Lopes L.J. in support, added :

"If both these parties were in the jurisdiction, it could not be contended that they were not both "proper parties" to the action."

14. I also bear in mind the reservations expressed by Lord Porter in "The Brabo" at p. 299 (D & F.)

15. The decision of the Court of Appeal in Electric Furnace Company -v- Selas Corporation of America - 1987.R.P.C. p. 23 contains a passage in the judgment of Slade L.J. which is particularly apposite:

"If a plaintiff has a good cause of action for damages against two defendants, one in this country and one out of the jurisdiction, it must, at least ordinarily, be of potential advantage to him to obtain a judgment in this country against the foreign defendant as well as against the defendant in the United Kingdom, because this will enable him to choose against which of the defendants he will seek to enforce this judgment". This right of choice may well be valuable to him for a number of quite different reasons. The respective financial situations of the two defendants may be one reason, but there may be several other good reasons. For example, it may be practically easier to enforce the judgment against one defendant than the other. Alternatively, he may prefer, for good commercial reasons, to enforce his judgment against one defendant rather than against the other."

16. That sufficiently disposes of the motion that the fact that one defendant will not be able to meet a judgment, that it will be comparatively easy to obtain such a judgment, in some way means that there is no real issue between the parties and that it would be wrong to allow proceedings against a defendant outside the jurisdiction. The very last point made by Slade L.J., which reflected the fact that the Plaintiffs preferred to enforce a judgment against a commercial rival, as opposed to a potential customer, serves to indicate that the Second Defendant's argument in this application is untenable. Not only is it legitimate for a Plaintiff to decide against which Defendant he will enforce his judgment, a decision which will largely be determined by the respective financial positions of the Defendants, but he may actually exercise a preference for the hard-headed commercial reason of future business prospects.

17. Applying this rational line of thought and authority to this case, I am satisfied that the writ was properly issued and served. The Second Defenant is a proper and necessary party to this action. The fact that the First Defendant is in liquidation and, if it be a fact also, will never to able to satisfy a judgment in whole or in part, is in my view irrelevant. When Lawton L.J. referred to the inability to satisfy a judgment as a mere fact, he had in mind some substantial fact over and above that fact as constituting lack of "bona fides". I am satisfied on the evidence I have heard and read, that it is by no means certian that the First Defendant will never have the wherewithal to meet a judgment. Investigation into its affairs remains. There are potential assets which are not classified as irrecoverables. There may indeed be sound commercial thinking in obtaining a number of judgments against the Second Defendant to constitute a platform for recovery at some future stage. There may indeed be some fiscal advantage in obtaining judgments because losses in one sector may be offset against gains in another.

18. The point of issue estoppel raised by the Plaintiff is one on which I would not be prepared to make a finding without detailed consideration of the issues and arguments in the other cases referred to. In view of my finding on the discretion to be exercised in this application it is not necessary. If either party seeks a specific ruling on the issue estoppel point, it will need to be argued 'in extenso' with the detailed consideration to which I have referred.

19. Accordingly I dismiss this application with costs to the Plaintiff.