ABN AMRO BANK N.V. v. CHARLES FABRIKANT FORTGANG

                 HCA537/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 537 OF 2007

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REASONS FOR JUDGMENT

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1.     On 30 July 2007 the defendant issued a summons (“the summons”) seeking an order declaring that the writ has not been duly served upon the defendant and that in the circumstances the Court has no jurisdiction in respect of the subject matter of the claim.

2.     The summons was heard by Master Roy Yu on 28 November 2007.  He dismissed the summons with an order that costs be in the cause.

3.     The defendant lodged a notice of appeal against the decision of the master on 5 December 2007.

4.     The appeal came before me on 3 January 2008.  After hearing arguments, I dismissed the appeal with costs to the plaintiff.  I indicated at the time that written reasons would be handed down.  These are my reasons.

Background

5.     The plaintiff’s claim against the defendant is on a personal guarantee in writing dated 21 August 2000 given by the defendant to the plaintiff to secure banking facilities granted by the plaintiff to Fabrikant Hong Kong Ltd as the borrower.  The defendant was a director of the borrower at all material times.

6.     The borrower was wound up by the Court on 8 November 2006 on a petition presented by another creditor.

7.     According to the statement of claim, as at 14 December 2006 the borrower was indebted to the plaintiff in the sum of US$11,176,607.74 inclusive of accrued interest.

8.     By a letter dated 15 December 2006 the plaintiff demanded payment of the said sum from the defendant pursuant to the terms of the guarantee.

9.     By clause 19.1 of the guarantee, it was provided that the guarantee should be determined and construed in accordance with the laws of Hong Kong and that the defendant irrevocably submitted to the jurisdiction of the Hong Kong Courts.

10.     The writ of summons was issued on 16 March 2007.

11.     On 22 March 2007 the Registrar gave leave to the plaintiff to serve a concurrent writ against the defendant out of the jurisdiction “at One Rockefeller Plaza, New York, New York 10020, USA or elsewhere in the USA.”

12.     On 21 June 2007 the plaintiff’s process server served the concurrent writ on the defendant at 778 Park Avenue, Apr 28FL, New York, NY 10021 (“the NY address”) by leaving a copy of the writ with the concierge at the apartment building and by posting a copy of the writ to the defendant at the NY address the following day (“the first service”).

13.     On 19 July 2007 the defendant’s solicitors in Hong Kong acknowledged service indicating that the defendant intended to contest the proceedings.  On 18 July 2007, however, the said solicitors had written to the plaintiff’s solicitors indicating that they had instructions to issue a summons to set aside the service of the writ as it was maintained that service was irregular.

14.     On 30 July 2007 the summons was issued.

15.     On 15 August 2007 the plaintiff’s process server once again served the concurrent writ at the NY address by delivering a copy to the concierge at the apartment building and by posting a copy of the writ to the defendant at the NY address (“the second service”).

16.     On 3 September 2007 the summons was by consent adjourned for argument to a date to be fixed.  Directions were given for the filing of evidence.

17.     On 12 September 2007 the defendant’s solicitors filed another acknowledgement of service of the concurrent writ indicating that the defendant intended to contest the proceedings.

18.     By a fax dated 13 September 2007 addressed to the plaintiff’s solicitors, the defendant’s solicitors stated that :

“

In order to protect our client’s rights, we filed a copy of the Acknowledgement of Service with the Court yesterday, and attach herewith a copy of the same.  Please note however that this has been filed without prejudice to our client’s pending application(s) under Order 12 Rule 8 of the Rules of the High Court. Our client makes no admission as to whether either attempt at service of the Concurrent Writ amounted to good service.  For the avoidance of doubt, our client’s rights in this matter are hereby reserved …………………………………..”

19.     Then, twelve days later on 25 September 2007 the defendant’s solicitors filed and served the defence.  The covering letter addressed to the plaintiff’s solicitors dated 25 September 2007 enclosing the defence by way of service stated that :

“	Please find enclosed herewith, by way of service upon you, a copy of the Defence which was filed with the Court today.”

20.     There was no indication in the letter dated 25 September 2007 that the defence was being served without prejudice to the pending application by the summons.

21.     There was also no indication in the defence that the defence was filed and served without prejudice to the pending application by the summons.

22.     The master dismissed the summons on 28 November 2007.  I am told that he did so on the ground that by the filing and serving of the defence by the defendant on 25 September 2007 the defendant has submitted to the jurisdiction of the Court.

23.     Counsel agreed that the issues on this appeal are :

(1)    whether the filing and serving of the defence on 25 September 2007 shows that the defendant has submitted to the jurisdiction of this Court and that the defendant cannot now claim that the writ has not been duly served on him;

If the defendant has submitted to the jurisdiction of this Court it is agreed that issue (2) does not arise and that the appeal should be dismissed.

If the defendant has not submitted to the jurisdiction of this Court then:

(2)    whether the second service of the writ on 15 August  2007 in New York satisfied the requirements under New York law.

Submission to the jurisdiction

24.     The proper test as to whether there has been a submission to the jurisdiction of the Court has been set out in the judgment of Sir Andrew Morritt C in Global Multimedia International Ltd v Ara Media Services and another (Abu-Aljadail and others, Part 20 defendants) [2007] 1 All ER (Comm) 1160.  At paragraphs 27 and 28 of his judgment he said :

“

[27]   The test to be applied in determining whether any particular conduct amounts to a submission to the jurisdiction was considered by Colman J in Spargos Mining NL v Atlantic Capital Corp reported only in (1995) Times, 11 December, but quoted in full by Patten J in SMAY Investments Ltd v Sachdev [2003] EWHC 474 (Ch) at [41], [2003] 1 WLR 1973 at [41].  I reproduce the whole of the quote as set out in that para [41] from the judgment of Patten J: ‘In approaching the question of submission, I have in mind the following authorities.  In Astro Exito Navagacion SA v WT Hsu, otherwise know, more pronounceably, as The Messiniaki Tolmi [1984] 1 Lloyds Reports, 266, Goff LJ said at p 270, “Now a person voluntarily submits to the jurisdiction of the court if he voluntarily recognises, or has voluntarily recognised, that the court has jurisdiction to hear and determine the claim which is the subject matter of the relevant proceedings.  In particular, he makes a voluntary submission to the jurisdiction if he takes a step in the proceedings which in all the circumstances amounts to a recognition of the court’s jurisdiction in respect of the claim which is the subject matter of those proceedings.  The effect of a party’s submission to the jurisdiction is that he is precluded thereafter from objecting to the court exercising its jurisdiction in respect of such claim.  Whether any particular matter, for example an application to the court, amounts to a voluntary submission to the jurisdiction must depend upon the circumstances of the particular case.”  In [Sage v Double A Hydraulics Ltd [1992] The Times, 2 April 1992, TLR 165], Farquharson LJ said (and this is a report of the judgment which is not reported in oratio recta): “A useful test was whether a disinterested bystander with knowledge of the case would have regarded the acts of the defendant, or his solicitors, as inconsistent with the making and maintaining of his challenge”.  In arriving at the view to be imputed to the disinterested bystander, it seems to me that one has to bear in mind that there will be an effective waiver, or a submission to the jurisdiction, only where the step relied upon as a waiver, or a submission to the jurisdiction, cannot be explained, except on the assumption that the party in question accepts that the court should be given jurisdiction.  If the step relied upon, although consistent with the acceptance of jurisdiction, is a step which can be explained also because it was necessary or useful for some purpose other than acceptance of the jurisdiction, there will, on the authorities, be no submission ... If the well-informed bystander had been left in doubt because what the defendants had done was equivocal, in the sense that it was explicable on other grounds in addition to agreement to accept the jurisdiction of the court, then the conclusion must be, on the authorities, that there would have been no submission to the jurisdiction.  The representation derived from the conduct of the party said to have submitted must be capable of only one meaning.’

[28]     Thus the test to be applied is an objective one and what must be determined is whether the only possible explanation for the conduct relied on is an intention on the part of the defendant to have the case tried in England.”

25.     The same test was applied by the Court of Appeal in Miruvor Ltd v Panama-Globe Steamer Lines SA [2007] 1 HKLDR 804.

26.     In Miruvor it was held that there was no submission to the jurisdiction of the Court.  That was because it was made plain in the defence that was filed and served in that case that there was going to be a challenge to the jurisdiction.  The third defendant filed defences which commenced with a first paragraph which read :

“	For the avoidance of doubt, this defence is made strictly without prejudice to be 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.”

27.     After citing the relevant authorities, Rogers VP said at page 809 :

“

The question which appears to me to be relevant, therefore, is whether looked at fairly and sensibly has what the defendant has done constituted a submission to jurisdiction.  In my view, when the defences are considered it is abundantly clear from the first paragraph that the third defendant intended to challenge the jurisdiction and was to make an application to that effect.”

28.     Thus it was held in Miruvor that there was no submission to the jurisdiction.

29.     The defendant’s solicitors did write to the plaintiff’s solicitors by a letter dated 18 July 2007 stating that they had instructions to apply to set aside the writ.  

30.     On 19 July 2007 they acknowledged service of the writ.  

31.     The summons was issued on 30 July 2007.

32.     On 15 August 2007 the plaintiff’s process server effected was the second service of the concurrent writ.

33.     On 12 September 2007 the defendant’s solicitors filed another acknowledgement of service of the concurrent writ.  On 13 September 2007 they wrote to the plaintiff’s solicitors making it clear that the acknowledgement was filed without prejudice to the pending application by the defendant’s summons.  

34.     What happened next was that twelve days later on 25 September 2007 the defendant’s solicitors filed and served the defence.  In neither the covering letter serving the defence nor in the defence itself was there any indication that the filing and serving of the defence was without prejudice to the pending application by the defendant’s summons.

35.     By a letter dated 28 September 2007 the plaintiff’s solicitors wrote to the defendant’s solicitors and stated, inter alia, :

“	Your client by filing and serving the Defence submits to the jurisdiction of the Hong Kong Courts and/or waives any alleged irregularity (which is expressly denied) in the service of the Writ in this action.
	As the Hong Kong Courts have jurisdiction over this action (as they  have always had), your client’s Summons returnable on 28th November 2007 is liable to be dismissed with costs to our client.
	To save incurring further costs, we suggest that you consider withdrawing the Summons at this stage.  For the time being, we shall withhold the filing of our client’s affidavit in opposition for one week.
	All rights of our client herein are expressly reserved.”

36.     The defendant’s solicitors did not reply denying that the defendant had submitted to the jurisdiction of the Hong Kong Courts.   Instead by a letter dated 10 October 2007 faxed to the plaintiff’s solicitors, the defendant’s solicitors asked for confirmation as to whether a copy of the affidavit in opposition to the defendant’s summons would be served.

37.     Mr Maurellet, for the defendant, submitted that purely as a precaution the defendant filed and served a bare denial defence with no intention to submit to the jurisdiction.  He also submitted that when the defendant filed and served its defence there was already a pending application by the defendant’s summons.  By the letter dated 10 October 2007 the defendant’s solicitors were asking for the evidence to be filed in accordance with the directions previously given by the master.  In the circumstances it was submitted that the defendant’s conduct by filing and serving the defence was equivocal and that it cannot be said that the defendant has submitted to the jurisdiction.

38.     I am unable to accept Mr Maurellett’s submissions.  

39.     Although right up to 13 September 2007 the steps taken by the defendant and his solicitors would not amount to a submission to the jurisdiction of the Court, it seems to me that by 25 September 2007 the position was different.

40.     By that date the second service of the concurrent writ at the NY address had been effected.

41.     The correspondence between the solicitors shows that before the plaintiff effected the second service the plaintiff’s solicitors had requested the defendant’s solicitors to accept service of the writ in Hong Kong.  However, this request was refused by the defendant and the plaintiff effected the second service of the concurrent writ.

42.     Thereafter, by a letter dated 28 August 2007 the plaintiff’s solicitors asked the defendant’s solicitors to consider withdrawing the summons to save costs.  However, by their letter dated 29 August 2007 the defendant’s solicitors replied stating, inter alia, that they were unable to consent to the withdrawal of the summons unless the plaintiff was prepared to pay all the costs of and occasioned by the summons.   Thus, subject to being paid the costs of and occasioned by the summons the defendant was quite prepared to consent to the withdrawal of the summons.

43.     As the plaintiff did not accede to the defendant’s request for an order for costs in his favour, the defendant was not prepared to withdraw the summons.  The summons was pending.  Directions were then given on 3 September 2007 for the filing of evidence.

44.     Although by 25 September 2007 the summons was still pending the correspondence clearly shows that the defendant was quite prepared to consent to the withdrawal of the summons provided it obtained an order for costs in his favour.  It seems to me that the defendant continued with the summons so that he could get an order for costs in his favour.   

45.     When the defendant’s solicitors filed and served the defence on 25 September 2007 they did so without stating or indicating either in the defence itself or in the covering letter that this was done without prejudice to the pending application by the summons.

46.     It is useful to bear in mind what was said by Evans LJ in Busisiwe Ngcobo v Thor Chemicals Holdings Ltd and others The Times 10 November 1995, Lexis Transcript at page 4 as follows :

“

First, it seems to me clear beyond argument that the service of a Defence is inconsistent with objecting to the court continuing to have jurisdiction over the merits.  That is the issue which of course arises on a stay application.  The judgement in Sage’s case seems to me to be clear authority for that proposition.  Different considerations arise if a Defence is served with an express reservation that it is without prejudice to some other procedural step that is either being taken or contemplated.  But the unqualified service of a Defence seems to me to be almost a paradigm example of conduct which indicates a willingness that the court should consider the merits of the matter.”

47.     I would also refer to what Sir Andrew Morritt C said in Global Multimedia at paragraph 30 :

“	If [the solicitor ] genuinely wishes to preserve his client’s ability to contest the jurisdiction of the court he will refrain from entering on the merits of the claim or at least only do so on a clear and express without prejudice basis.”

48.     There is no evidence that the defence was filed and served purely as a precaution with no intention to submit to the jurisdiction.  The defence did plead to each and every allegation in the statement of claim.  Whether the defence will survive an O.14 application is a different matter.  It may well be the case that the defendant did not make any positive averment in the defence because he has none to make on what appears to be a simple claim by the plaintiff on a guarantee.

49.     In his second affidavit, Jonathan Rostron, the defendant’s solicitor states at paragraph 8 :

“

After the Plaintiff’s solicitors informed us on 28 August 2007 of the Second Service, I wrote to them on 29 August 2007, 4 September 2007 and 6 September 2007 explaining the Defendant’s position and why the Second Service was procedurally incorrect.  I also indicated to the Plaintiff’s solicitors on 12 and 13 September 2007 that the filing of the Acknowledgment of Service form was merely to protect the Defendant’s rights in this action (see Exhibit “MKK-1” to MKK’s Affirmation), as indeed was the filing of a Defence on 25 September 2007 which denies the Plaintiff’s claim.  In any event, the Summons to set aside was issued and served within 14 days after the filing of the Defendant’s notice of intention to defend.”

50.     Contrary to what is stated there, the exhibits referred to do not show that the solicitor ever indicated to the plaintiff’s solicitors that the filing of the defence was “merely to protect the Defendant’s rights in this action”.  No particulars are provided to this bald allegation.  It is also unconvincing.  If the defence was filed and served purely as a precaution to protect the defendant’s rights then why was a defence not filed and served in time after the first acknowledgment of service on 19 July 2007?  No explanation is provided.

51.     There was in any event no need at all to file and serve a defence to protect the defendant’s rights because :

(1)    The plaintiff’s solicitors had never given any notice of an intention to enter judgment in default of defence as required by O.19; r.8A RHC; and

(2)    The plaintiff could not have entered judgment in default of defence in any event by virtue of the provisions of O.18; r.2(3) RHC.  This had the effect of extending time for the service of the defence within 14 days after the final determination of the defendant’s summons.  So there was no danger of judgment being entered by default.

52.     In my view the step taken by the defendant’s solicitors of filing and serving the defence on 25 September 2007 was not a step which can be explained because it was necessary or useful or for some purpose other than acceptance of the jurisdiction.

53.     Looking at the matter sensibly, realistically and fairly and applying an objective test, in my judgment the defendant has submitted to the jurisdiction of the court.

54.     It matters not that on 10 October 2007 the defendant’s solicitors asked for the evidence in opposition to the summons to be filed and served by the plaintiff’s solicitors.  By that time in my judgment the defendant had already submitted to the jurisdiction of the court.

55.     Issue (2) does not arise.

56.     In my judgment the master correctly dismissed the summons.  I, therefore, dismissed the appeal with costs to the plaintiff as costs should follow the event.