Changfeng Shipping Holdings Ltd v. Sinoriches Enterprises Co., Ltd

HCCT 59/2019

[2020] HKCFI 2703

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 59 OF 2019

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D E C I S I O N

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INTRODUCTION

1.This is the Applicant’s appeal against the ex parte order of the master made on 14 August 2020, ordered to be determined on paper pursuant to the order of Au-Yeung J.  The master ordered the two directors of the Respondent be examined under Order 48 rule 1 (the examination order), but refused to grant leave under Order 11 rule 9(4) to serve the examination order out of Hong Kong on the two directors in the Mainland.

2.The Applicant and Respondent are companies incorporated in Hong Kong.  The two directors, Ms Wang and Ms Yang, appear to be residents in Dalian in the Mainland.  On 25 February 2017, the Applicant and Respondent entered into a charterparty for the hire of the CF Diamond which provided for arbitration in London.  Dispute arose between the parties.  The Applicant subsequently referred certain disputes under the charterparty to arbitration.  On 16 October 2017, the arbitrator issued an award in favour of the Applicant for US$1,322,535.59 plus certain interest and costs (the “Award”).

3.On 31 October 2019, the Applicant obtained leave under Order 73 rule 10(1) to enforce the Award as a judgment of this court (the “Enforcement Order”).  The Enforcement Order was served on the Respondent on 1 November 2019.  On 12 December 2019, the Applicant served a statutory demand on the Respondent.  Throughout the Respondent ignored the arbitral proceedings and did not satisfy the Award or the statutory demand or took any part in the Hong Kong enforcement proceedings.

4.On 9 March 2020, the Applicant made an ex parte application for leave to examine the two directors of the Respondent pursuant to Order 48 rule 1 of the Rules of the High Court (“RHC”) and for leave to serve the examination order on the two directors out of Hong Kong, pursuant to Order 11 rule 9(4).  The learned master granted the examination order but refused leave to serve the order out of the jurisdiction.  In refusing leave to serve out, he quoted paragraph 11/9/1H of Hong Kong Civil Procedure 2020 (which is re-written in Paragraph 11/9/17 of Hong Kong Civil Procedure 2021)and expressed the view that the fundamental question is whether the foreign directors of the Respondent are so closely connected to the substantive claim that the Hong Kong court is justified in taking jurisdiction over them.  He seemingly followed the Singapore Court of Appeal decision in Burgundy Global Exploration Corp v Transocean Offshore Int’l Ventures Ltd[1] quoted in Hong Kong Civil Procedure 2020 but was not satisfied that the Applicant has shown a close connection between the directors and the claim.

5.The issues raised in this appeal are (1) whether the court has jurisdiction to make examination orders under Order 48 rule 1 against officers of a corporate judgment debtor who is resident outside Hong Kong and is not a party to the action from which the debt arose; and (2) if it has, how the discretion in granting leave to serve such an order out of the jurisdiction under Order 11 rule 9(4) is to be exercised.  The master accepted that the court has jurisdiction under issue (1), but refused to exercise the discretion to order service out.  The court’s jurisdiction under Order 11 rule 9(4) is intricately related to its jurisdiction under Order 48 rule 1.  In order to consider how the discretion under Order 11 rule 9(4) is to be exercised, it would be helpful to understand the court’s jurisdiction under Order 48 rule 1.

Order 48 rule 1

6.Order 48 rule 1 provides as follows:

“(1) Where a person has obtained a judgment or order for the payment by some other person (hereinafter referred to as the judgment debtor) of money, the Court may, on an application made ex parte by the person entitled to enforce the judgment or order, order the judgment debtor or, if the judgment debtor is a body corporate, an officer thereof, to attend before the Registrar or such officer as the Court may appoint and be orally examined on the questions—

(a) whether any and, if so, what debts are owing to the judgment debtor, and

(b) whether the judgment debtor has any and, if so, what other property or means of satisfying the judgment or order,

and the Court may also order the judgment debtor or officer to produce any books or documents in the possession of the judgment debtor relevant to the questions aforesaid at the time and place appointed for the examination.

(2) An order under this rule must be served personally on the judgment debtor and on any officer of a body corporate ordered to attend for examination.”

Order 48 rule 1 expressly provides that an examination order may be served on officers of a corporate debtor who are not parties to the action from which the judgment debt arose.  The operation of this rule involves factual issues and presents little problem, save where the judgment debtor or its officer in the case of a corporate debtor, is out of the jurisdiction.  Under such circumstances, leave to serve the examination order out of the jurisdiction under Order 11 rule 9 may be required.

7.In Hong Kong, the courts have accepted that Order 48 rule 1 has extra-territorial effect; see for example, Navig8 Chemical Pools Inc v Inder Sharma[2]. The master in this case also proceeded on the basis that the court has jurisdiction over officers of the judgment debtor resident abroad.  Whether Order 48 rule 1 has extra-territorial effect is a matter of construction of the rule. In my view, it has.  There is nothing in the wording of the rule to suggest that the rule is applicable only to officers of the judgment debtor within the jurisdiction.  However, it is trite principle of statutory interpretation that there is a presumption against extra-territoriality: see Masri v Consolidated Contractors Int’l (UK) Ltd and others (No.4)[3]. Under section 19 of the Interpretation and General Clauses Ordinance (Cap 1), an Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit.  Order 48 rule 1 is invoked when a judgment debtor failed to pay a debt which is adjudged to be paid after due process and the judgment creditor has no information as to the debtor’s assets which could be made available to satisfy judgment.  The underlying purpose of the rule is to enable judgment creditors to obtain information about a judgment debtor’s finances.  This purpose could only be served against a corporate judgment debtor by extending the application of the rule to its officers within as well as outside the jurisdiction.  Hong Kong is an international commercial centre.  There are many foreign or international corporations carrying on business in Hong Kong with officers resident outside Hong Kong.  The underlying purpose of the rule and Hong Kong’s background as an international commercial centre are, in my view, strong enough to displace the presumption against extra-territoriality.  Having regard to the circumstances in Hong Kong and applying the fair, large and liberal construction and interpretation, I am satisfied that the purpose of the rule would be best served if it is construed to have extra-territorial effect and applicable to officers of corporate debtors resident inside as well as outside Hong Kong.  On issue (1), I find that the court has jurisdiction to issue examination order against officers of a corporate debtor who are resident inside as well as outside Hong Kong, despite they are not parties to the action from which the debt arose.

Personal jurisdiction and substantive jurisdiction

8.Before investigating issue (2), it would be useful to point out the distinction between personal jurisdiction and subject-matter or substantive jurisdiction which is relevant to the issue of service.  In Mackinnon v Donaldson, Lufkin and Jenrette Securities Corporation [4], Hoffmann J (as he then was) pointed out this distinction and quoted with approval the opinion of Dr Mann in his article, “The Doctrine of Jurisdiction in International Law” in Studies in International Law[5]. He said[6]:

“I think that this argument confuses personal jurisdiction, i.e., who can be brought before the court, with subject matter jurisdiction, i.e., to what extent the court can claim to regulate the conduct of those persons.  It does not follow from the fact that a person is within the jurisdiction and liable to be served with process that there is no territorial limit to the matters upon which the court may properly apply its own rules or the things which it can order such a person to do.  As Dr. Mann observed in a leading article, “The Doctrine of Jurisdiction in International Law”, (1964) 111 Recueil des cours 146:

‘The mere fact that a state’s judicial or administrative agencies are internationally entitled to subject a person to their personal or ‘curial’ jurisdiction, does not by any means permit them to regulate by their orders such person’s conduct abroad.  This they may do only if the state of the forum also has substantive jurisdiction to regulate conduct in the manner defined in the order.  In other words, for the purpose of justifying, even in the territory of the forum, the international validity of an order, not only its making, but also its content must be authorized by substantive rules of legislative jurisdiction.’

…   In principle and on authority it seems to me that the court should not, save in exceptional circumstances, impose such a requirement upon a foreigner, and, in particular, upon a foreign bank.  The principle is that a state should refrain from demanding obedience to its sovereign authority by foreigners in respect of their conduct outside the jurisdiction.”

9.Thus, personal jurisdiction referred to the question of whether a person was amenable to the jurisdiction of the court and could be brought before it.  Substantive jurisdiction referred to what a court was permitted to do in terms of regulating the conduct in another country of someone over whom it had personal jurisdiction.  Substantive jurisdiction is therefore concerned with giving effect to the presumption against extra-territoriality.  On the other hand, the principle quoted by Hoffmann J in the above passage that a state should refrain from demanding obedience to its sovereign authority by foreigners in respect of their conduct outside the jurisdiction is a rule of practice arising out of comity in the field of international law and international relations rather than a principle of statutory construction. 

Order 11 rule 9(4)

10.Service of examination orders is governed by Order 11 rule 9(4) which provides as follows:

“(4) Subject to paragraph (4A) and Order 73, rule 7, service out of the jurisdiction of any summons, notice or order issued, given or made in any proceedings is permissible with the leave of the Court, but leave shall not be required for such service in any proceedings in which the writ, originating summons, motion or petition may by these rules or under any written law be served out of the jurisdiction without leave.”

11.This rule requires that service out of jurisdiction of any summons is only permissible with leave of the court unless in proceedings in which the writ, originating summons, motion or petition may be served out of the jurisdiction without leave.  Thus, if judgment was obtained in an action commenced against a personal debtor within jurisdiction and the debtor has subsequently gone out of the jurisdiction, leave to serve out is not required as the debtor is already subject to jurisdiction.  But this exception does not apply to officers of a corporate judgment debtor because they have a separate legal personality from the company and have never subjected to jurisdiction: see Masri[7].  Leave to serve out of the jurisdiction on them is required.  This is the situation in the present case.

12.There are few authorities on the principles applicable to service out of such examination orders on officers of corporate debtors.  Paragraph 11/9/17 of Hong Kong Civil Procedure 2021 quoted the decision of the House of Lords in the United Kingdom (the “UK”) in Masri and the Singapore Court of Appeal decision in Burgundy Global.

Masri

13.In Masri, the creditor obtained judgment in English proceedings against, inter alios, a Lebanon company domiciled in Greece which had submitted to jurisdiction but failed to satisfy the judgment debt.  The creditor sought an order under CPR rule 71.2 for an officer of the company domiciled in Greece, to be examined in England in respect of the company’s foreign assets.  The English CPR rule 71.2 is different from the equivalent pre-CPR provisions applicable to Hong Kong, namely our Order 48 rule 1 and Order 11 rule 9(4). Under CPR rule 71.2, examination orders are virtually granted automatically rather than by way of judicial analysis and exercise of judicial discretion; and despite a close connection between the subject matter of the action against the corporate debtor and its officer, there is no jurisdiction at all to order service of such orders on officers of the company out of the jurisdiction.  As the scheme for examination and service out in the UK is different from that in Hong Kong, the result of Masri has no bearing to the present case, but its exposition of the common law, which I shall refer to, is, nevertheless, relevant.

Burgundy Global

14.The statutory regime in Singapore in relation to debtor examination orders and service out is very similar to that in Hong Kong.  Order 48 rule 1 under the Singapore Rules of Court (“ROC”) is virtually similar to our Order 48 rule 1 of the RHC.  The format of Order 11 of ROC which sets out rules for service of legal process out of Singapore is different from our Order 11, but the relevant provisions are in essence similar.  Order 11 rule 8(1) of ROC does not allow service of examination orders out of Singapore without first obtaining leave.  Burgundy Global is a decision about service of an examination order out of jurisdiction under a similar regime from the highest court in Singapore.  It is a persuasive authority for the present case.

15.In Burgundy Global, the plaintiff was of unstated incorporation but was publicly listed in New York.  The defendant was a Philippines company and its directors and intended examinees were residents in the Philippines.  All the parties were foreign.  The dispute involved two related contracts, a drilling contract which was the ‘main’ contract with an arbitration clause; and a related escrow agreement which contained a Singapore non-exclusive jurisdiction clause.  It is not clear where the drilling was to take place, but it seems unlikely to have been within Singapore given its small geographic size and absence of natural resources.  It is also not clear from the judgment where any arbitration was to be seated. For understandable reasons, the parties carved the escrow arrangement out from the drilling contract and chose Singapore as the location for depositing the escrow sum.  The two contracts had a cross-termination arrangement so that any ground to terminate one also permitted termination of the other.  The escrow funds were never deposited.  Thus, the defendant was in breach of the escrow agreement, entitling the plaintiff to terminate both that agreement and the drilling contract.  The plaintiff terminated both contracts and sought to litigate all resulting disputes in Singapore under the cross-termination arrangement and the Singapore non-exclusive jurisdiction clause.

16.The plaintiff failed on jurisdictional grounds in its main claim to recover significant damages for breach of the drilling contract in the guise of a breach of the escrow contract.  Judgment was however entered for minor losses incurred in connection with the escrow agreement.  Thus, the judgment sum obtained was small and the connections with Singapore were few, the only one connection being that the parties decided a small part of their overall arrangement, ie only the escrow arrangement, should be in Singapore.  The drilling contract disputes were not to be litigated in Singapore.  The plaintiff and the defendant were not Singapore companies.  The directors of the defendant, ie the intended examinees, had no connection to Singapore and were not in Singapore.

17.The Singapore Court of Appeal distinguished Masri because the regime under CPR rule 71.2 is different from the Singapore regime.  It also held that Order 48 rule 1 has extra-territorial effect.  The question for the court was whether it should impose limits on its application and if so, how[8].  As service of the examination order is the crucial act that engages the court’s jurisdiction over a foreign person, it formulated the close connection test as the means to limit the application of the rule.

18.The close connection test appears to have originated from an older case of National Justice Cia Naviera SA v Prudential Assurance Co Ltd, The Ikarian Reefer (No 2)[9] quoted before the House of Lords in Masri.  The issue in The Ikarian Reefer (No 2) was whether the court has jurisdiction to order costs against a non-party and to serve process on that non-party out of the jurisdiction.   Walker LJ held that Order 11 rule 9(4) allowed leave to be granted for service of the summons out of jurisdiction on a director of a party even though the director was not a party to the proceedings.  He started with the proposition that the court had jurisdiction over a non-party who committed contempt of the English court despite the non-party was outside the jurisdiction. Then, by analogy, he held that “the English court has jurisdiction to decide the issue whether a non-party has taken such steps in relation to an action as should render that person liable to pay the costs of that action.”  As the non-party director had control of the ship-owning company and caused and financed it to institute a false claim, the Court of Appeal held it had jurisdiction to order the director to pay the costs of the false claim.  Thus, what gave the court jurisdiction was the close connection between what the non-party did in relation to the action and the subject matter of the action over which the court had jurisdiction. 

19.In Masri, Lord Mance held that a corporate judgment debtor has a separate legal personality and is not to be equated with its officers who have not submitted to the jurisdiction.  Hence the presumption against extra-territoriality has a potential application to the officer which it does not have to the corporate judgment debtor[10].  Lord Mance accepted that this close connection was a factor which the court should consider in the exercise of its substantive jurisdiction and in displacing the presumption against extra-territoriality.  However, in the end, his Lordship discounted this close connection because on the true construction of CPR rule 71.2, the court has no jurisdiction to order service of such orders out of the jurisdiction.  Lord Mance said[11]:

“18. In Mr Rabinowitz's submission the key to the scope of CPR Pt 71 lies in a recognition of the English court’s jurisdiction over the subject matter of the action (including the judgment) against CCIC and the close connection between that subject matter and Mr Khoury, who was CCIC's chairman, general manager and director. In The Ikarian Reefer (No 2) [2000] 1 WLR 603 it was the existence of substantive proceedings over which the court had jurisdiction and of “a substantial connection with those proceedings by a non-party” that Waller LJ stressed in his judgment as the key to understanding the circumstances in which orders for costs would be made against such a non-party: pp 611b-612b. Mr Rabinowitz took this as a useful analogy and found direct support for his submission in Professor Brownlie’s identification in Principles of Public International Law, 7^th ed (2008), p 311 of one criterion of jurisdiction as “a substantial and bona fide connection between the subject matter and the source of the jurisdiction” (to which however Professor Brownlie added, at p 312, that “the principle of non-intervention in the domestic or territorial jurisdiction of other states should be observed"). Mr Rabinowitz also relied on the statement by Sir Robert Jennings and Sir Arthur Watts in Oppenheim's International Law, 9^th ed (1992) vol 1, pp 457-458 that there must be “a sufficiently close connection to justify th[e] state in regulating the matter and perhaps also to override any competing rights of other states”.

19. I accept that the existence of a close connection between a subject matter over which this country and its courts have jurisdiction and another person or subject over which it is suggested that they have taken jurisdiction will be relevant in determining whether the further jurisdiction has been taken. It will be a factor in construing, or ascertaining the grasp and intendment of, the relevant legislation or rule.”

(Emphasis highlighted in bold and italic prints)

20.These dicta were quoted in paragraph 83 of Burgundy Global and seemingly formed the basis of the close connection test developed by the Singapore Court of Appeal after distinguishing Masri.  That test is whether the foreign officer is so closely connected to the substantive claim that the Singapore court is justified in taking jurisdiction over him.  It said in paragraphs 111 and 112:

“111. In our judgment, however, the discretion to grant leave to serve an EJD order out of jurisdiction is one that must be exercised sparingly. … the predominant purpose of an EJD order is to obtain information to assist the judgment creditor in executing his judgment. In this respect it is very similar to a subpoena – both are orders directed at persons who might not necessarily be parties to the suit requiring them to provide relevant information to the court. Both are equally intrusive in that they generally require the person against whom the order is made to attend court personally. … even though the application for leave might appear to be one that is directed at invoking the court’s personal jurisdiction over the non-party in question, that is only anterior to the further question of whether this will ultimately entail the exercise of exorbitant substantive jurisdiction to an impermissible degree.

112. Having said that, we do not think it would be appropriate to lay down strict or exhaustive rules as to when a court may exercise its discretion to allow service abroad of an EJD order.  The fundamental question is whether the foreign officer is so closely connected to the substantive claim that the Singapore court is justified in taking jurisdiction over him.  We nevertheless make two tentative points.  First, as the whole point of an EJD order is to obtain information about the judgment debtor’s finances, the extent of the foreign officer’s knowledge of his company’s financial affairs will be an important threshold consideration.  …  But even if a foreign officer has relevant information, that fact alone would generally be insufficient; after all, the same could be said about any individual sought to be subpoenaed to give evidence.  Something more would be required.  For example, the court might wish to consider the extent of the foreign officer’s involvement in the matters relating to the claim.  It might be easier to justify invoking the court’s jurisdiction over a foreign officer who has played a key role in the events giving rise to the judgment creditor’s successful claim.”

(Emphasis highlighted in bold and italic prints)

21.The principles applicable to service out of such examination orders as formulated by the Singapore Court of Appeal in Burgundy Global may be summarised as follows:

(1)  The fundamental question is whether the foreign officer is so closely connected to the substantive claim that the Singapore court is justified in taking jurisdiction over him;

(2)  There should be no strict or exhaustive rules as to when leave should be granted but the officer’s knowledge of the finance of the judgment debtor is the basic threshold; and

(3)  Leave should be granted sparingly.

The applicable principles in Hong Kong

22.On the true construction of Order 48 rule 1 and Order 11 rule 9(4), the Hong Kong court has jurisdiction to issue examination orders against officers of corporate judgment debtor resident inside and outside Hong Kong and to grant leave to serve such orders on the officers out of the jurisdiction.  The Hong Kong regime of issuing examination orders and serving out is very similar to that in Singapore.  I respectfully adopt the reasoning of Lord Mance in Masri and the approach of the Singapore Court of Appeal in Burgundy Global, in the exercise of the court’s discretion in granting leave to issue examination order out of the jurisdiction against officers of a judgment debtor.   The fundamental questions are whether the foreign officer has knowledge of the corporate debtor’s finance and is so closely connected to the substantive claim that the court is justified in taking jurisdiction.

23.I agree with the Singapore Court of Appeal that the officer’s knowledge of the finance of the judgment debtor is a prerequisite for invoking the court’s jurisdiction.  If the officer has no knowledge of the finance of the debtor or if the extent of his knowledge is not even of marginal utility, the question of service out does not even arise.  That knowledge is information in the possession of the officer.  It is a prerequisite rather than part of the close connection as could justify overriding the jurisdiction of the foreign state over its own nationals within its geographical jurisdiction.   As the knowledge is something personally known to the officer and not to the applicant, what the applicant has to prove is its subjective belief on reasonable grounds that the officer has knowledge of the finance of the corporate debtor.  This threshold is not a particularly high one, particularly at the ex parte stage.

24.As for the close connection test, I prefer to formulate the test along the lines of the dicta in The Ikarian Reefer (No 2) which is more definitive.  In my view, the discretion is exercisable where there is a close connection between the officer’s conduct in relation to the action from which the judgment debt arose and the subject matter of that action which makes it unjust not to exercise the jurisdiction.  What constitutes close connection depends on the factual circumstances of the case.  It is an abstract concept difficult to define.  In the context of the court’s discretion to order service out of an examination order requiring an officer of a corporate debtor who is resident outside Hong Kong and not a party to the litigation to submit himself to jurisdiction by coming to Hong Kong to provide information to the judgment creditor for the purpose of enforcing the judgment debt, the officer’s conduct which created this nexus must be such as to make it unjust not to lift the corporate veil of the judgment debtor or not to bypass the principle of corporate personality and to allow the corporate debtor to withhold information about its finance so as to frustrate the execution of the judgment debt.  In The Ikarian Reefer (No 2), the director who was ordered to pay costs was involved instigating a false claim.  It seems some elements of culpability or blameworthiness on the part of the non-party director was required to make him liable for costs.  But, as the officer under an examination order will not attract any personal liability for the judgment debt, I do not think fault or negligence or blameworthiness are at all relevant.  If there are such features in the conduct, it is all the more appropriate for the discretion to be exercised.

25.Prima facie, a close connection is created by the conduct of the sole or substantial shareholder; the sole director or officer who is the alter ego or controlling mind of the corporate debtor or has instituted, controlled or financed the litigation.  This is because his conduct is effectively the conduct of the corporate debtor.  It would be unjust not to require him to provide information about the finance of the corporate debtor.  These people may be interested in the debt not being enforceable against the corporate debtor.  If a debt is owed, it is just that it should be repaid.  The corollary is that it is unjust that those responsible for its creation and interested in its non-payment be allowed to hide behind the corporate veil of the corporate debtor.  Thus, despite they are not parties to the claim from which the debt arose, their connection with the debt is close enough to make it unjust not to require them to disclose information about finance of the corporate debtor.  For the same reason, it is also just that officers who have played a key role in the events giving rise to the judgment creditor’s successful claim should be required to provide such information.

26.The process is all about disclosure of financial information which the corporate debtor is obliged to provide, albeit through its officers.  Compelling a non-party to give information against a corporate debtor does not offend the principle of corporate personality.  The corporate debtor may suffer loss in that its safely concealed assets may be exposed and subjected to execution; but the officers do not suffer loss for making the disclosure.  The loss, if any, suffered by an officer who is also a shareholder is just reflective loss, which he cannot claim as a matter law because of the principle of corporate personality.  Thus, the liability of the judgment debtor and its officers remain separate and unaffected.  The corporate personality of the corporate debtor and the personal liability of the officer are preserved.

27.There may be many reasons why an officer has, in the ordinary course of his employment, possession of information and documents about the finance of its employer.  The above formulation of close connection would not catch the accountants and junior employees whose involvement is no more than arranging movement of funds or assets and keeping records at the direction of the controlling mind of the company, even though they may have information about the company’s finances.  I think such a formulation would represent a fair balance between the interest of the judgment creditor and the interest of the officer of the corporate debtor. Those officers are not required to be examined not because they are protected by the principle of corporate personality, but because their connection with the claim is not close enough as to justify the local court to override the competing rights of the foreign state in exercising jurisdiction over its own nationals within its own geographical jurisdiction.

28.I respectfully differ from the Singapore Court of Appeal that this discretion should be sparingly exercised.  It is a very well established legal principle that a state should refrain from demanding obedience to its sovereign authority by foreigners in respect of their conduct outside the jurisdiction. The exercise of such jurisdiction may offend comity in the field of international law and international relations.  The Court of Final Appeal has time and again reminded the courts of the need for special care given the extraordinary nature of this long-arm jurisdiction asserted under Order 11.  Hence, the discretion to grant leave to serve such order out of jurisdiction should be exercised with extreme caution.  But this qualitative restraint should not be translated into a quantitative restraint.  It is unduly restrictive and contrary to the very robust approach which has all along been adopted by the Hong Kong Court of Appeal in this type of cases.  In Re B + B Construction Co Ltd (In Liq)[12], for example, which was about private examination of foreign directors of a Hong Kong company under similar provisions of section 286B/286C (formerly, section 221) of Companies (Winding Up & Miscellaneous Proceedings) Ordinance (Cap 32) for the purpose of asset investigation and recovery, Rogers VP held that since a person becomes an officer of a Hong Kong company by his own choice he must abide by Hong Kong company law.  Hence, to suggest that a court should refrain from making an order for examination of such an officer under section 221 in circumstances where it otherwise would be appropriate to do so, simply on the basis that he is resident abroad flies in the face of any concept of corporate governance. Although the issue in that case was examination under the companies winding up regime, the rationale is equally relevant to an Order 48 examination.

29.I think the cautious approach of the Singapore Court of Appeal arose out of its concern about the “intrusive” effect of an examination order and “the exercise of exorbitant substantive jurisdiction to an impermissible degree” caused by service out as expressed in paragraph 111 of its judgment quoted in paragraph 20 above.  Not all cases of service out offend international law or comity.  In Masri, Sir Anthony Clark MR held in the Court of Appeal that it is not a breach of international law or comity to order the examination of a foreign director of a company which has submitted to the jurisdiction, defended the case on the merits and failed to pay the judgment debt[13].  In these days and age, the discretion properly exercised does not offend international law or comity.

30.The Singapore Court of Appeal was probably not aware of the UK Supreme Court decision in Abela and others v Baadarani and another[14] announced a year earlier.  In that case, when disapproving the UK Court of Appeal describing service of process out of the jurisdiction as an “exorbitant” jurisdiction, Lord Sumption JSC said:

“53.   In his judgment in the Court of Appeal, Longmore LJ described the service of the English court’s process out of the jurisdiction as an “exorbitant” jurisdiction, which would be made even more exorbitant by retrospectively authorising the mode of service adopted in this case.  This characterisation of the jurisdiction to allow service out is traditional, and was originally based on the notion that the service of proceedings abroad was an assertion of sovereign power over the defendant and a corresponding interference with the sovereignty of the state in which process was served. This is no longer a realistic view of the situation.  The adoption in English law of the doctrine of forum non conveniens and the accession by the United Kingdom to a number of conventions regulating the international jurisdiction of national courts, means that in the overwhelming majority of cases where service out is authorised there will have been either a contractual submission to the jurisdiction of the English court or else a substantial connection between the dispute and this country.  Moreover, there is now a far greater measure of practical reciprocity than there once was.  Litigation between residents of different states is a routine incident of modern commercial life.  A jurisdiction similar to that exercised by the English court is now exercised by the courts of many other countries.  The basic principles on which the jurisdiction is exercisable by the English courts are similar to those underlying a number of international jurisdictional conventions, notably the Brussels Convention (of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters (OJ 1978 L304, p 36)) (and corresponding Regulation (EC) No 44/2001 (OJ 2001 L12, p 1)) and the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters of 30 October 2007 (OJ 2009 L147, p 5).  The characterisation of the service of process abroad as an assertion of sovereignty may have been superficially plausible under the old form of writ (“We command you …”).  But it is, and probably always was, in reality no more than notice of the commencement of proceedings which was necessary to enable the defendant to decide whether and if so how to respond in his own interest.  It should no longer be necessary to resort to the kind of muscular presumptions against service out which are implicit in adjectives like “exorbitant”. The decision is generally a pragmatic one in the interests of the efficient conduct of litigation in an appropriate forum.”

(Emphasis highlighted in bold and italic prints)

31.I think there is more realism expressed in the dicta of Lord Sumption JSC. The court should adopt a pragmatic instead of unnecessarily restrictive approach. As commercial activities move from the domestic arena to the international arena, the differences or inequalities between foreign and domestic litigation are reduced.  Yesterday’s concern about exorbitant jurisdiction simply disappeared with increase in commercial activities in the international arena, both in scope and volume.  The process of the law should reach as far as the reaches of corresponding commercial activities.  On the other hand, there is a large measure of internationalisation of commercial law and practice.  In the international arena, if a judgment debt is proved against a debtor and the debt remains unsatisfied, the machinery available for enforcement of judgment should not be any different depending on whether the judgment debtor is abroad or within the jurisdiction.  There should be no predilection or presumption against service out of the jurisdiction.  A judgment debtor, which is an individual, should be made to answer his or her debts and be examined as to where his or her assets are located, even if he or she is out of the jurisdiction.  The same principle should be applicable to a corporate judgment debtor.  Such examination should be extended to its officers if there is a close connection between the officers and the debt.  If the prerequisite requirement of knowledge and close connection are satisfied, the examination order should be issued without any bias against service out.  An unduly restrictive approach would be frustrating the reasonable expectation of the international commercial communities towards Hong Kong as an international commercial centre and damaging to Hong Kong’s image as such. 

32.Lastly, the burden of proof is on the applicant.  As the existence or otherwise of a close connection is a matter solely within the knowledge of the corporate debtor, direct evidence and documentary evidence may not be available to the judgment creditor.  In the majority of cases, proof has to be by inference.  The court has to draw inference with a sense of realism having regard to the circumstances.   As I shall explain in the subsection below, this burden is not a heavy one at the ex parte stage.  It may be a heavy one, should the service be challenged at the inter parte stage.

Procedure: ex parte and inter parte stage

33.In Singapore as well as in Hong Kong, service out is a two stage process.  It generally begins with the judgment creditor making an ex parte application before a master in chambers for leave to serve out under Order 11 rule 9.  If leave is granted and the party served with the order is minded to challenge it, he may do so on the inter parte return date of the applicant’s original ex parte application for leave to serve out.  At the inter parte stage, the court has power to set aside an order made ex parte under Order 32 rule 6:  see Hong Kong Civil Procedure 2021[15]. The court will reconsider afresh by way of rehearing whether leave to served out should have been granted.

34.Mr Alder submits that at the ex parte stage of an application for service out of an examination order on officers of a corporate debtor, the court should adopt the same approach as in the ex parte stage of an application for leave to serve a writ out of jurisdiction under the substantive gateways under Order 11 rule 1(1).  The burden on the applicant is only to make out a good arguable case on jurisdiction.  The applicant need not make out a ‘cast iron’ case.   The court will almost always grant leave unless there is a serious flaw in the application.  The basis of his submission is the following quotation from Briggs, Civil Jurisdiction and Judgments[16]:

“The application is made without the opponent’s being notified that it is being made; the court will almost always grant permission unless there is a very obvious flaw in the application. If permission is granted, as in practice it almost always is, and service is effected in accordance with it, the defendant may dispute the jurisdiction by challenging the order which granted permission, and the service which was made pursuant to it, by applying under CPR Part 11. The inter partes procedure which then follows marks the point in the process at which the court will investigate whether permission to serve should have been granted. The fact that permission was granted to the claimant in the first place is largely irrelevant at this point: it leaves no footprint; no onus is placed upon the defendant who applies to have the permission set aside; the application is in effect a rehearing of an application for permission, with the onus lying on the party who needed the permission in the first place. The court is not inhibited from discharging or varying the order, and for which the claimant now in substance (if not in form) reapplies, by reason of the fact that it has already been made.”

(Emphasis highlighted in bold and italic print)

The Hong Kong equivalents of CPR Part 11 are Order 12 rule 8 of the Rules of the High Court for challenging the jurisdiction of the court by reason of any irregularity in the writ or service or Order 32 rule 6 for setting aside an ex parte order made in chambers.  If such a broad brush approach is appropriate for service out of a writ which extends the court’s jurisdiction to a foreign defendant, a fortiori, it is appropriate for service out of an examination order on an officer of a defendant who is already subject to jurisdiction.  The above statement in Briggs represents the approach adopted by the courts in dealing with challenges to ex parte orders, made in chambers whether by masters or judges.  I agree with Mr Alder that the same broad brush approach should be adopted at the ex parte stage of an application for leave to serve an examination order out of jurisdiction on an officer of a corporate debtor resident abroad. Subject to the need for caution in the exercise of this long arm jurisdiction, the court will take a broad brush approach and will almost always grant leave to serve out unless there is a serious or obvious flaw in the application. When the service is challenged at the inter parte stage, the court will re-consider the matter afresh and weigh the evidence of both parties.  If not satisfied that the officer has knowledge of the finance of the judgment debtor and that the close connection test is met, the ex parte leave will be set aside.

Summary of the applicable legal principles

35.In summary, the principles applicable to service out of examination orders under Order 11 rule 9(4) are as follows:

(1)  The court has jurisdiction under Order 48 rule 1 to issue examination order against individual judgment debtors as well as officers of corporate judgment debtors and to issue such examination order out of the jurisdiction.

(2)  If a judgment debtor is already subject to jurisdiction, leave to serve the examination order on him out of the jurisdiction is not required.  However, leave for service out of examination order against officers of a corporate judgment debtor is required because the officers are not parties to the original proceedings from which the judgment debt arose and have not submitted themselves to jurisdiction.

(3)  The officer’s knowledge of the finance of the corporate debtor is a prerequisite for leave to serve out under Order 11 rule 9.

(4)  The discretion to order service out may be exercised if there is a close connection between the officer’s conduct in relation to the action from which the judgment debt arose and the subject matter of that action which makes it unjust not to exercise the jurisdiction.  A close connection is created if the officer’s conduct is such as to make it unjust not to lift the corporate veil of the judgment debtor or not to bypass the principle of corporate personality and to allow the corporate debtor to withhold information about its finance so as to frustrate the execution of the judgment debt.  Prima facie, a close connection is created by the conduct of the sole or substantial shareholder; the sole director or officer who is the alter ego or controlling mind of the corporate debtor or has instituted, controlled or financed the litigation; and officers who have played a key role in the events giving rise to the judgment creditor’s successful claim should be required to provide such information.

(5)  I do not think fault or negligence or blameworthiness are at all relevant.  If there are such features in the conduct of the officer, it is all the more appropriate for the discretion to be exercised.

(6)  The burden of proof of close connection and knowledge is on the applicant.  As the existence or otherwise of a close connection and knowledge are matters solely within the knowledge of the corporate debtor, direct evidence and documentary evidence may not be available to the judgment creditor.  In the majority of cases, proof has to be by inference.  The court has to draw inference with a sense of realism appropriate to the circumstances.

(7)  The discretion to order service out should be exercised with extreme caution but there should be no bias against service out.

(8)  The application for leave to serve out consists of a two stage process.  The burden on the applicant at the ex parte stage is only to make out a good arguable case on jurisdiction.  The applicant need not make out a ‘cast iron’ case.   Subject to the need for caution in the exercise of this long arm jurisdiction, the court will take a broad brush approach and will almost always grant leave to serve out unless there is a serious or obvious flaw in the application.  When the service is challenged at the inter parte stage, the court will re-consider the matter afresh and weigh the evidence of both parties.  If not satisfied that the officer has knowledge of the finance of the judgment debtor and that the close connection test is met, the ex parte leave will be set aside.

The present case

36.The Respondent is a company incorporated in Hong Kong with a paid up and authorised share capital of $10,000.  There are three shareholders, namely Royalship Maritime Inc (“Royalship”), Ms Wang and Ms Yang, each holding 8,400, 800 and 800 shares respectively.   They are also directors of the Respondent.  Royalship is a company incorporated in the British Virgin Islands (“BVI”).  The Respondent has an office address in Easey Commercial Building in Wanchai in Hong Kong.

37.The Respondent’s business was mainly carried out in the Mainland.  The address of the Respondent as stated in the charterparty was Room 3104-06, 31/F, GangXing Road, ZhongShan District in Dalian (the “Dalian address”).  In November 2017, a staff of the Applicant went to the Dalian address to meet with Ms Wang to demand payment of the arbitration award.  The doorplate at the address indicated that it was the office of Zhongfu Jiayi Int’l Trading Co., Ltd （大連中富嘉益國際貿易有限公司）(“Zhongfu Jiayi”).   The staff met Ms Wang there.  Ms Wang told him that she was only a shareholder of the Respondent and referred him to the actual controller, Mr Wang Dechuan.  Mr Wang Dechuan told the staff that he was not concerned as the Respondent was bankrupt.  That assertion was probably untrue.  If it were true, all proceedings against the Respondent would have been stayed.  Mr Wang Dechuan was just ignoring the Applicant’s demand.  Though the Respondent has a Hong Kong address, I am satisfied that it operates from the Dalian address where its directors and controller were stationed.

38.The Applicant adduced information extracted from the National Enterprise Credit Information Publicity System （國家企業信用信息公示系統）showing Ms Wang and Ms Yang were investors of Zhongfu Jiayi at the material time in December 2017.  In addition, Ms Wang was its shareholder, Ms Yang was its supervisor and Mr Wang Dechuan was its executive director.  They formed the senior management of Zhongfu Jiayi.  However, the Respondent and Zhongfu Jiayi are different companies carrying on different businesses.  At the highest, the Applicant could argue that these two companies share the same management.  I do not consider the information of any use for the purpose of proving close connection.

39.According to the Applicant, Ms Yang is the Respondent’s Deputy General Manager.  It exhibited the business card of Ms Yang showing that she is the Deputy General Manager of Sinoriches Enterprises Co. Ltd, Dalian (“Sinoriches Dalian”) with an address in Gangwan Street, Zhongshan District in Dalian.  The name of that company is similar to the name of the Respondent, but for the additional word “Dalian”.  The address is also different, not being at the Dalian address.  Sinoriches Dalian is a separate entity.  As the name card suggests, it may be an agent of the Respondent performing the charterparty functions on behalf of the Respondent.

40.However, there is evidence of Ms Yang’s involvement in the Respondent and the charterparty.  On 22 March 2017, Ms Yang issued an announcement on behalf of the Respondent “to all concerned parties” informing them of an impending fund injection of US$15 million from Jin Ma Capital to ease their concerns about the Respondent’s financial position.

41.On 11 April 2017, Ms Yang issued a notice about an agreement with the Applicant concerning the title and property in all the bunkers on board the chartered vessel.  In the notice, Ms Yang declared on behalf of the Respondent that it had purported to deduct from the hire value of the estimated bunkers on board on redelivery of the vessel; that the title and property in all the bunkers on board were transferred to the Applicant; and that any future bunkers supplied by the Applicant would be solely owned by the Applicant.  More importantly, in the notice, the Respondent requested the Applicant to take step to release the vessel from the arrest, without prejudice to the Applicant’s right to claim against the Respondent. The notice was particularly addressed to the Applicant and was relevant to the disputed claim.  It is blatantly clear that Ms Yang’s involvement was inseparable from and closely connected to the substantive claim.

42.The Applicant have not adduced any evidence about Ms Wang’s involvement in the charterparty.  Ms Wang is one of the three directors and a founding member of the Respondent since 2002.  She was at the operation address of the Respondent during the Applicant’s visit in November 2017.  I am conscious of the possibility that she was at that address performing the function of Zhongfu Jiayi.

43.The Respondent is a small private company with a small paid up capital of $10,000 and three shareholders who are also its only directors.  Ms Wang and Ms Yang are minor shareholders, each holding only 8% of the shareholding in the Respondent.  Ms Wang told the Applicant’s staff that Mr Wang Dechuan was the controller of the Respondent.  The majority shareholder is a BVI corporate shareholder which is also a corporate director. It may well be that Mr Wang Dechuan is the person behind the corporate shareholder and director as well as the person in control as asserted by Ms Wang.  Despite Ms Wang and Ms Yang are minor shareholders, they are two of the three directors of the Respondent. Under the articles of association of the company, they have equal voting power in the board of directors.  Ms Wang was actually discharging the function of the Respondent at the Respondent’s operation address during the visit by the Applicant’s staff in November 2017.  As for Ms Yang, she was obviously closely involved in the charterparty.  She was in some way involved in the Respondent’s finance as well.

44.Close connection is a matter solely within the knowledge of the company.  The judgment creditor could have little direct evidence and has to resort to inference.  The court has to draw inference with realism appropriate to the circumstances.  It is important to note that the Respondent is a three-person company.  For a company with only $10,000 authorised capital carrying on a very substantial business of a charterer, the inference could be readily drawn that the three directors constitute the controlling mind of the company; are the financial backers of the company; and they have knowledge of the finance of the company.  This is particularly the case for the only two natural person directors.  I note that the evidence of involvement against Ms Wang is very flimsy.  This does not matter as the Respondent is a three-person company and Ms Wang is part of its controlling mind and one of its financial backers.  Also, I cannot ignore the fact that the business of the Respondent is to carry on the business of a charterer and there are only two natural person directors carrying on such a substantial business.  Viewing the circumstances with realism, I am able to draw from the available evidence of Ms Wang’s and Ms Yang’s involvements, the only reasonable inference that there is a close connection between their conducts and the judgment debtor.  The person whom Ms Wang suggested was the controller and presumably the person behind the majority shareholder, ie Mr Wang Dechuan, just simply ignored the Applicant’s demand saying that the Respondent was bankrupt.  If a debt is owed, it is just that it should be repaid and unjust that the Respondent should hide behind the corporate veil and ignore the demand to pay without disclosing its assets to justify its inability to pay. 

45.This is an ex parte application for leave to serve out.  I cannot find any serious or obvious flaw.  Taking a broad brush approach, I am satisfied that the prerequisite knowledge of the Respondent’s finance and close connection of their conducts with the judgment debt are proved against both Ms Wang and Ms Yang.  Having warned myself of the need for caution, I am satisfied that leave to serve out should be granted.

Conclusion

46.For the above reasons, the appeal is allowed and the master’s order made on 14 August 2020 to the extent of refusing leave to serve the examination orders out of the jurisdiction is set aside.  I grant leave to serve the examination orders made by the master pursuant to Order 48 against Ms Wang Chunjin and Ms Yang Baozhen out of the jurisdiction at their addresses in Dalian.  Having regard to the COVID-19 pandemic and the impracticality of personal service, I also grant leave to serve the said Order by substituted service by post to the said addresses and to the Respondent’s address in Hong Kong.  Costs of this application be in the cause.

Mr. Edward Alder, instructed by Messrs. Hill Dickinson Hong Kong, for the Applicant