Deutsche Bank Ag, Hong Kong Branch v. Zhang Hong Li

HCCL 19/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 19 OF 2014

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D E C I S I O N

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1.There is no dispute that the principle of One Country Two Systems applies to Hong Kong. There is no dispute that the Arrangement for Mutual Service (“Arrangement”) provides for service of judicial documents in Mainland China.

2.To the extent that Article 277 of the Civil Procedure Law of the People’s Republic of China (“CPL”) is relied upon by the defendant for any argument that the Rules of the High Court cannot be incompatible with Article 95 of the Basic Law and Article 277 as the “superior law” relating to service of judicial documents, Leading Counsel for the defendant accepts that Article 277 only applies to service of process “within the territory of PRC”, and not to residents of PRC generally.

3.There is no dispute that O11 r 5A RHC gives effect to the Arrangement.  The Arrangement refers to and provides for service of judicial documents through the judicial authorities of the Mainland, but under paragraph 1 of the Arrangement, it is where a Writ issued in Hong Kong is to be served “on a person to be served in the Mainland “, that the Writ shall be served through the judicial authorities of the Mainland. 

4.In this case, by Order dated 21 August 2014 (“1^st Order”), this Court granted leave to the plaintiff to issue a Concurrent Writ in the action originally commenced by Writ dated 8 August 2014, for service on the defendant in the Mainland.  The plaintiff sought assistance from the Mainland judicial authorities for service of the Concurrent Writ on the defendant in the Mainland, but the attempts of service were not successful.  By order dated 3 June 2015 (“2^nd Order”), the Court granted leave to effect substituted service of the Concurrent Writ on the defendant, by (a) posting the Writ to the defendant by registered mail to his addresses on the Mainland; (b) delivering the Writ to the defendant care of Messrs Reed Smith Richards Butler (“RB”) in Hong Kong; and (c) emailing the Writ to the defendant at his icbc.com.cn address, and further ordered that such service “shall be deemed to be good and sufficient service of the Court Documents upon the defendant on the day of completing such posting, delivering and emailing as aforesaid”.

5.By summons issued on 11 September 2015, the defendant applies to set aside the 1^st Order and the 2^nd Order, and for orders that the service of the Concurrent Writ be set aside.

6.There is no ground for setting aside the 1^st Order.  The plaintiff has established a good arguable case that the plaintiff’s claims fall within one of the sub rules of O 11 r1(1) (d) (the relevant contract relied upon by the plaintiff being governed expressly by Hong Kong law), and/or r1(1)(f) (the claim founded on a tort and the damage was sustained or resulted from an act committed within Hong Kong), and/or r1 (1) (p) (the claim being brought for relief against the defendant as constructive trustee arising out of acts committed within Hong Kong).  A serious triable issue has been established and the case is a proper case for the exercise of the discretionary power to grant leave for service out of Hong Kong.  The 1^st Order only granted leave to issue a Concurrent Writ for service on the defendant in the Mainland.  It does not specify how the Writ is to be served.  The arguments raised by the defendant under Article 277, the Arrangement and the Basic Law do not apply to the 1^st Order.

7.Whereas the dispute between the parties turned on whether O 11 r5 and O 65 (which provides for substituted service) can apply to service of the Concurrent Writ in this case, the dispute appears to have become academic.  The inescapable fact is that whatever irregularity there might have been in the service of the Concurrent Writ on the defendant in this case, and despite the fact that such service was effected pursuant to the 2^nd Order giving leave for substituted service, the Writ was indeed brought to the attention of the defendant, who filed Acknowledgement of Service (“AS”) of the Concurrent Writ on 2 July 2015, and he has never sought to set that AS aside. 

8.Under O 2 r1 RHC:

“(1) Where, in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of anything done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein.

(2) Subject to paragraph (3), the Court may, on the ground that there has been such a failure as is mentioned in paragraph (1), and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings or any document, judgment or order therein or exercise its powers under these rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit.

(3)     The Court shall not wholly set aside any proceedings or the writ or other originating process by which they were begun on the ground that the proceedings ought to have been begun by an originating process other than the one employed, but shall instead get directions for the continuation of the proceedings in an appropriate manner.”

9.Mr Coleman SC, on behalf of the plaintiff, does not even seek to uphold service on the defendant by post and email to the defendant’s addresses on the Mainland.  He only relies on the fact of service on RB in Hong Kong, and the AS filed by RB on behalf of the defendant thereafter. Despite the defendant’s assertions (made through his current solicitors) that he had not instructed RB to accept service of the Writ at the time the Writ was issued in 2014, the AS was filed by RB on 2 July 2015.  Such acknowledgment by RB constitutes an implied warranty that they have authority to do so (Yonge v Toynbee [1910] 1 KB 215, CA at 226, 231, 234, cited in Jingjin Shipping Co Ltd v The Owners of the Ship or Vessel “Tian Xiang 2 Hao”, unreported, CACV 327/2003, 2 March 2004).  The defendant has not even expressly denied such implied authority with regard to the AS (as elaborated below).

10.In the case of Transamerica Occidental Life Insurance Co (Hong Kong Branch) v King Sound Industry Co Ltd [2005] 1 HKLRD 125, arguments were raised by the defendants that they had not been personally served in Taiwan and America, and that the purported service of the concurrent writ should be set aside.  The defendants disputed whether there was good service in the USA, but the order granting leave to serve out of Hong Kong permitted service on the defendants at their addresses in Taiwan.  In refusing to set aside the service of the concurrent writ, and rejecting the arguments raised as being “manifestly devoid of merit”, Stone J succinctly observed:

“These proceedings have come to the notice of the defendants, and indeed the existence of this action has been the subject of debate by lawyers instructed by both sides in the courts of 2 competent jurisdictions.

... In any event, if any in so far as there is some technical failure, that falls to be cured under the provisions of O2 r1: see, for example, Golden Ocean Assurance and World Mariner Shipping SA v Martin (The Golden Mariner) [1990] 2 Lloyd’s Rep 215, Boocock v Hilton International Co [1993] 1 WLR 1065, Leond Maritime Inc v MC Amethyst Shipping Ltd (The Anna L) [1994] 2 Lloyd’s Rep 379, and if and insofar as such be necessary in this regard I exercise my discretion in favor of the plaintiff.

The object of service of process upon a party is to bring the process to the notice of the party to be served, and such manifestly has occurred.  The manner in which service has been inflicted has caused no prejudice, and none is alleged.”

11.I agree with these observations made by Stone J in Transamerica Occidental Life, and Mr Liao SC has not raised any argument that O2 is not applicable to this case, or as to why the Court should not exercise its discretion under O 2. 

12.In this case, the proceedings have clearly and manifestly been brought to the attention of the defendant.  He and his solicitors have engaged in prolonged correspondence over the Concurrent Writ served on him through his solicitors in Hong Kong.  RB may not have had the defendant’s instructions initially to accept service of proceedings for the defendant in this action, but they were obviously able to notify the defendant of the issue and subsequent service of the Concurrent Writ.  The defendant has never explained with candor how RB came to file the AS on his behalf.  He has never asserted that the AS was filed against his instructions in July 2015 and without his authority.  It would have been a simple matter for the defendant’s current solicitors to seek an explanation from RB as to how, or why, the AS had been filed, if the defendant had never authorized its filing by RB.  No explanation has been given.  The defendant never applied to set aside the AS.  In these circumstances, I can only conclude that RB must have been acting with the defendant’s instructions at the time when they filed the AS on the defendant’s behalf on 2 July 2015, stating that “service of the Concurrent Writ is acknowledged accordingly”, and that the defendant intended to contest the proceedings. 

13.The defendant has been able to engage experts to produce evidence on PRC law, and to instruct solicitors and counsel to appear in Court in these proceedings, and to file evidence on his behalf.  It was only on 29 July 2015 that the defendant filed notice of change of solicitors, from RB to those now on the Court record as his solicitors.  The defendant has not, at any time, asserted any prejudice which he has suffered as a result of the service of the Concurrent Writ on RB on his behalf, or how such service on him through RB in Hong Kong has affected his defence in any way in these proceedings.

14.For these reasons, I have no hesitation in making an order under O 2 r1 that the service of the Concurrent Writ on RB in Hong Kong, as acknowledged by RB on behalf of the defendant on 2 July 2015, do stand as good and effective service.

15.As Mr Liao very reasonably accepted, O 11 r5A (1) and the Arrangement only apply to a case where “a writ is to be served on a person to be served in the Mainland of China”[1], and Article 277 applies only to service of process “within the territory of the PRC”.  Under Article 277, “no foreign authority or individual shall … serve process … within the territory of the PRC”.  There is no question of contravention of, or non-compliance with, the law of the Mainland when the Concurrent Writ is served on the defendant in Hong Kong.  For these reasons, I do not regard any order for substituted service on the defendant in Hong Kong as a “device” to “evade” the Arrangement reflected in O 11 r5A.  Perhaps for that same reason, Mr Liao has not invoked non-compliance with the law of the Mainland as a ground for the Court not to exercise its discretion under O 2 r1.

16.It is therefore not necessary for me to decide whether substituted service can ever be ordered in respect of a defendant who is in the Mainland.  Based on the arguments made before me, I do not agree that O 11 r5 and O 64 r4, to which reference is made in O 11 r5(1), can have no application at all to service on defendants in the Mainland.   O 11 r5 (2) and (5) refer to r5A, and I do not agree that the provisions of r5 cannot apply to service of writs outside Hong Kong, in the Mainland. 

17.Mr Liao referred to O 11 r5 as the general provision for service out of Hong Kong, and O 11 r5A as the specific provision for service in the Mainland.  This only means that where there is conflict, the specific provision applies, the specificality being where the writ is to be served in the Mainland (by the express wording used in O 11 r5A (1)). In a proper case, substituted service of the writ in Hong Kong may still be ordered upon a defendant who is normally resident in the Mainland, provided that the plaintiff can demonstrate that the case falls within O 11 r1(1) for service out of the jurisdiction (Tillemont Shipping Corp SA v Taitexma Enterprise Corp [1993] 2 HKC 129, CA), and further, that it is an appropriate case for substituted service to be ordered by the Court in the exercise of its discretion: eg by showing that genuine efforts to serve have been made under r5A, but have failed, that other modes of service are “impracticable”, and that the method of substituted service asked for by the plaintiff is one which in all reasonable probability will be effective to bring notice or knowledge of the writ to that defendant (para 65/4/8, Hong Kong Civil Procedure 2016).  It may still be open to a defendant, in a proper case, to argue that the manner of service actually effected under the order of substituted service made is contrary to the law of the Mainland, by reference to O 11 r5 (2).

Orders made

18.For the reasons set out above, the only order I make on the defendant’s summons is that service of the Concurrent Writ on RB in Hong Kong do stand as good and effective service on the defendant.

19.In the circumstances of this case, the fair order as to costs (including the costs reserved on 9 November 2015) will be in the cause, and I will make such an order nisi.

Mr Russell Coleman SC, instructed by Allen & Overy, for the plaintiff

Mr Andrew Liao SC, Mr Nigel Aiken SC, Mr Kenneth Chow, Ms Grace Tam and Mr William Tse, instructed by Waller Ma Huang & Yeung, for the defendant