Liao Chen Toh v. Loyal International Enterprises Co Ltd and Others

CACV 591/2020 & CACV 592/2020
(Heard Together)
[2021] HKCA 1148

CACV 591/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 591 OF 2020 &

(ON APPEAL FROM HCA NO. 2302 OF 2014)

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(by original action)

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(by counterclaim)

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BETWEEN

(by counterclaim to counterclaim)

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CACV 592/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 592 OF 2020 &

(ON APPEAL FROM HCMP NO. 1532 OF 2019)

______________________

______________________

______________________

(Heard Together)

______________________

Before : Hon Kwan VP, Cheung and Au JJA in Court

Date of Hearing : 27 July 2021

Date of Judgment : 5 August 2021

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J U D G M E N T

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Hon Cheung JA (giving the Judgment of the Court) :

I. Background

1.The relevant parties for the purpose of this appeal are, first, Liao Chen Toh (‘LCT’) who is the plaintiff in the original claim and the 1^st defendant in the counterclaim in HCA 2302/2014.  He is also the defendant in the contempt proceedings in HCMP 1532/2019. The other relevant parties are the 2^nd, 3^rd and 4^th defendants in the original claim and the 1^st, 2^nd and 3^rd plaintiffs in the counterclaim in HCA 2302/2014.  They are the plaintiffs in the contempt proceedings in HCMP 1532/2019.  I will refer them as to the plaintiffs.

2.LCT is a Taiwan businessman.  Briefly, LCT’s claim in HCA 2302 of 2014 against the plaintiffs was for, inter alia, a declaration that the shares in the plaintiffs are held on trust for LCT.

3.The plaintiffs issued their defence and raised a counterclaim against LCT for the return of shares in certain Mainland subsidiaries, sums in the amount of US$92,850,000 and corporate documents belonging to the plaintiffs.  It is their case that, in anticipation of losing control over the plaintiffs to LCT’s mother and younger brother, LCT effectively pillaged the plaintiffs of all their assets through his corporate vehicles whilst he was effectively the sole director of the plaintiffs. 

4.The plaintiffs had not and did not need to apply for leave to serve the counterclaim on LCT out of jurisdiction because LCT, by suing in Hong Kong, had submitted to the jurisdiction in regard to any counterclaim. 

5.On 20 April 2016, Deputy High Court Judge Yee pursuant to the plaintiffs’ application, granted injunction orders against LCT.  The relevant orders relevant to this appeal are :

‘ 1. [LCT] do within 28 days from the date of this Order return all accounting documents of [Ps] that are within his, his servants or agents’ possession, custody, power or control to [Ps]…

2.  [LCT] do within 28 days from the date of this Order return all confidential corporate commercial information of [Ps], whether in hard copy, electronic form or otherwise, that are within his, his servants or agents’ possession, custody, power or control to [Ps]… including but not limited to:-

(a)  information on the global investments made by [Ps] as of 12 June 2010 and any updates thereafter, including the investment amount, the shareholding of [Ps] in, the name of other shareholders and their respective shareholding in, and the management teams including the lists of the directors of, the invested companies, which include at least the following companies incorporated in the PRC…

(b)  information and/or records received by [Ps] from their global investments, which include at least the companies incorporated in the PRC as set out… above…’

6.LCT did not comply with the injunction order and the plaintiffs on 10 September 2019 applied ex parte and obtained leave from the Deputy High Court Judge M K Liu (‘the Judge’) to commence contempt proceedings against LCT for breach of the injunction orders. 

7.The Judge further made orders for substituted service of the originating summons and other documents of the contempt proceedings on LCT’s Hong Kong lawyers and also for dispensation of the personal service of the originating summons on LCT.

8.The originating summons dated 20 September 2019 to commit LCT for contempt proceedings was issued and served on LCT’s Hong Kong lawyers.  On 3 December 2019, LCT issued two summonses.  In HCA 2302/2014, he asked to set aside the Judge’s order of 10 September 2019.  In HCMP 1532/2019, LCT asked 1) to set aside the originating summons dated 20 September 2019 and the substituted service thereof on LCT on the ground that the 10 September 2019 order is to be set aside, and 2) the contempt proceedings be dismissed.

9.The Judge dismissed the two summonses.  The argument before the Judge was that LCT who is a foreigner had not been properly served with the originating summons out of jurisdiction.

10.The Judge held that service of the originating summons out of jurisdiction on LCT is unnecessary because he had submitted to the jurisdiction of the Hong Kong Court by commencing HCA 2302/2014 in Hong Kong.  The Judge followed the approach of Anthony Chan J in Saif Partners II LP v Joe Zhixiong Zhou [2020] HKCFI 987, who dealt with the issue of serving contempt proceedings on a foreign contemnor who was before the court in that case. Anthony Chan J observed that there was no apparent gateway under Order 11, rule 1 for the service out of contempt proceedings brought to enforce procedural orders as opposed to judgments.  After reviewing Marketmaker Technology Ltd & Ors v CMC Group Plc & Ors [2008] EWHC 1556 (QB), Deutsche Bank AG v Sebastian Holdings Inc [2017] 1 WLR 1842 and Deutsche Bank AG v Sebastian Holdings Inc (No 2) [2017] 1 WLR 3056 (upheld on appeal in Deutsche Bank AG v. Sebastian Holdings Inc (Nos 1 and 2) [2019] 1 WLR 1737), Anthony Chan J said :

‘ 16. In summary, these English authorities stand for the following propositions. In a case where (a) the court had already established jurisdiction over a party to proceedings due to his submission to jurisdiction (Marketmaker) or (b) the court had already established jurisdiction over a party to proceedings, whether by way of service within jurisdiction or by service out properly authorised (Deutsche Bank), and the contempt complained of arose out of and is incidental to an order made in those proceedings, permission to serve out against the contemnor is not required, and it is possible to obtain an order dispensing with personal service and for alternative service.

17. With respect, I fully agree.  The analysis of Teare J resonates with common sense. Once a party is under the jurisdiction of the court, it would not be necessary to invoke O 11, which provides for the extension of the court’s jurisdiction (to parties situated aboard), against him.  In this case, Zhou brought proceedings against the Plaintiffs in HCCL 16 of 2016.  He had submitted to the jurisdiction of the court, and it is unnecessary to invoke O 11 for the service of the contempt proceedings on him.’ 

11.Pursuant to leave granted by the Judge, LCT now appeals.  The appeal is confined to the issue of jurisdiction. 

II.     Jurisdiction

12.The issue in this appeal is a narrow one in that LCT submits that the Hong Kong Court has no jurisdiction over him who is a resident out of jurisdiction in relation to the contempt proceedings.  In particular, the plaintiffs failed to obtain leave to serve the originating summons out of jurisdiction in accordance with Order 11, rule 1 of the Rules of the High Court (‘RHC’).

13.Mr. Chan SC (together with Mr. Wong SC and Mr. Kok) for LCT referred to Order 52, rule 3(1) of RHC which provides that when leave has been granted to make an application for an order of committal, the application ‘shall be made by originating summons to a judge’. Order 11, rule 9(1) of RHC in turn provides that Order 11, rule 1 of RHC ‘shall apply to the service out of an originating summons… as it applies to service of a writ’.  Mr. Chan submitted that Order 11, rule 1 sets out the entire and mandatory code for the service of an originating summons out of jurisdiction.  He referred to the following well‑established principles :

1)  Under Order 11, rule 1 of RHC, service out of jurisdiction is only ‘permissible’ if the claim falls under one of the ‘gateways’ set out there.  Order 11 is regarded as an entire code for the jurisdiction to grant leave to serve out, in that any gaps in it cannot be filled by the Court’s inherent powers : Re Sunni International Ltd [2014] 5 HKLRD 558, [62] to [63], per G Lam J (as he then was) applying Union Bank of Finland Ltd v. Lelakis [1997] 1 WLR 590, at 593H, per Henry LJ.  The established principle is that for leave to be granted, a case must fall within the spirit as well as the letter of Order 11 : Mercedes‑Benz AG v. Leiduck [1996] AC 284.

2)  ‘The Court has no power to make orders against persons outside its territorial jurisdiction unless authorised by statute; there is no inherent extra-territorial jurisdiction… there must be some means, authorised by statute, to bring the person affected before the Court.  For present purposes the only relevant means are those empowered by Order 11, rule 1(1) read (in the case of proceedings begun by originating summons) together with Order 11, rule 9’ : Mercedes‑Benz, per Lord Mustill, at page 296H‑297B.  Absent a claim based on a legal right which the defendant can be called upon to answer, of a kind falling within O.11 r.1(1), the Court has no right to authorise the service of the document on the foreigner, or to invest it with any power to compel him to take part in proceedings against his will (Lord Mustill at page 301G).  In Kayden Ltd v. SFC (2010) 13 HKCFAR 696, [27], Ribeiro PJ adopted this view.

3)  The Court’s general inherent jurisdiction cannot be used to lay down procedure inconsistent with the rules : Raja v. Van Hoogstraten [2009] 1 WLR 1143, [74], per Mummery LJ.  In Wo Fung Paper Making Factory Ltd v. Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346, the Court of Appeal (reversing the judge below) held that in the light of the then Order 12; rule 8(2) which excluded the power to extend time under Order 3 after time had expired, the Court could not extend time for making application to set aside a service out order out of time under its inherent jurisdiction, including on the ground of material non‑disclosure. 

4)  ‘[I]t has long been held that where there is any room for doubt as to their meaning the provisions of the sub-rules [under O.11] are to be strictly construed in favour of the foreigner…  And it is in my view equally well settled now that it is not permissible in any action commenced by service of process on a person out of the jurisdiction to litigate any claim that does not fall within one or other of sub‑rules (a) to (o)’ : Siskina v. Distos [1979] AC 210, at 254H‑255B, per Lord Diplock.

14.Mr. Chan submitted that in this case, the plaintiffs could not identify any applicable ‘gateway’ for service out of the contempt proceedings under Order 11, rule 1 of RHC.  On this basis alone, the Judge ought to have set aside the order and dismissed the contempt proceedings. 

15.Mr. Chan then submitted that the Judge was wrong to follow Saif Partners which opted to follow English decisions after the introduction of the English Civil Procedure Rules (‘CPR’), which have no relevance or applicability to the Hong Kong position.  These decisions were decided in the context of the English CPR, under which contempt proceedings are commenced within the same proceedings in which the original order was granted.  In Deutsche Bank, a decision referred to in Saif Partners, the then rule 81.10(1) states that ‘[a] committal application is made by an application notice under Part 23 in the proceedings in which the judgment or order was made or the undertaking was given’.  The English position is in stark contrast with the Hong Kong regime, under which 1) it is necessary for contempt proceedings to be commenced by way of a fresh originating summons, and 2) it is also necessary for leave to serve out to be obtained under Order 11, rule 1 of RHC. 

16.Mr. Chan further submitted that Order 11 of the Singapore Rules of Court is closely aligned with the Hong Kong rules.  The Singapore Court of Appeal decision of Li Shengwu v. AG [2019] SGCA 20 supported his submission.  In Li Shengwu at [115] and [120], the Singapore Court held that ‘it is proper service that establishes jurisdiction over a foreign contemnor’, and that ‘it is easy to understand why compliance with Order 11 is required if the appellant’s case that service establishes jurisdiction is accepted.  Taking jurisdiction over a person outside the territorial boundaries of a state is considered an ‘exorbitant’ one, and considerations of international comity have to be taken into account, which requires the limbs of Order 11 to be carefully delimited and defined…  Thus, compliance with Order 11 serves that purpose of supporting comity between Singapore and other countries’.

17.Mr. Chan also submitted that the Judge was wrong to find that LCT had already submitted to the Hong Kong jurisdiction by bringing his claim in Hong Kong when what is relevant is LCT’s submission to the contempt proceedings which he had never done.  He referred to Briggs, Private International Law in English Courts :

‘ [4.426] ...... jurisdiction depends on service, and on service alone... service depends on presence or on the permission of the court’

18.Further, according to Johnston, The Conflict of Laws in Hong Kong (3^rd ed) :

‘ [3.024] ...... If a defendant submits to the jurisdiction prior to actual or purported service, service must still be effected upon the defendant in the ordinary ways prescribed by Rules of the High Court. Moreover, if service cannot be effected in Hong Kong, the requirements of prior leave under RHC O 11 apply as usual in such a case, .......’

19.Mr. Chan then argued that the Judge was wrong to rely on a policy argument that, if LCT’s argument is correct, that would mean that ‘a foreign party, after submitting himself to the jurisdiction of the Hong Kong Court in the original proceedings, may disobey the orders made by the Hong Kong Court in those proceedings without any consequence, for no contempt proceedings against that foreign party can possibly be pursued’.  The policy argument cannot be a basis for rewriting or ignoring the rules conferring jurisdiction and in respect of service.  The mandatory code under Order 11, rule 1 of RHC should be complied with both in the spirit and the letter, and it cannot simply be avoided based on the Court’s policy preference. 

20.Finally, Mr. Chan submitted that since LCT could not be served under the mandatory Order 11 regime, there was no basis for the Court to grant the order for substituted service or dispensed with personal service.  As a matter of law, the Court would not dispense with service of an originating process on a party who was ‘not amenable to the jurisdiction of the Hong Kong Court unless there was leave to serve out under Order 11, rule 1’ : Bank of China (Hong Kong) v. Regal Link [2009] 3 HKLRD 203, per Yuen JA, [31]‑[38]. Similarly, an order for substituted service should be ‘refused unless it is demonstrated that the case falls clearly within one of the sub‑paragraphs of Order 11, rule 1(1)’ : Re Sunni, [62], citing Tillemont Shipping v. Taitexma Enterprise [1993] 2 HKC 129, 132H‑133B, per Bokhary JA (as he then was). 

III.     Our view

21.The starting point is that the Hong Kong Courts do not have inherent extra‑territorial jurisdiction over a litigant who is not residing in Hong Kong.  Order 11, rule 1 of RHC provides the mechanism for obtaining leave to serve the Hong Kong proceedings on a foreign litigant if the gateway requirements as set out in Order 11 are satisfied.  This jurisdiction has been variously described as the long‑arm jurisdiction or exorbitant jurisdiction and great caution must be exercised when a court is faced with an application to serve out. 

22.It is, however, essential to recognize two other equally important principles.  First, an exception for requiring leave to serve out is where the foreign litigant has already submitted to the jurisdiction of Hong Kong by, for example, commencing an action in our Courts.  In Liberia v Gulf Oceanic Inc [1985] 1 Lloyd’s Rep 539 at 544 col 2, Oliver LJ stated :

‘ ...... by becoming a litigant within the jurisdiction, a plaintiff submits himself to the incidents of such litigation, including liability to a counterclaim.’

See also Marketmaker Technology Limited at [26].  A foreign party may also submit to our jurisdiction by voluntarily taking steps in the proceedings that had commenced against him in Hong Kong : Astro Exito Navegacion S.A. v W.T. Hsu [1948] 1 Lloyd’s Rep 266 at p270 and Chan Hon v. Bayer Healthcare Ltd [2020] HKCA 1090 at [44].  Another situation is where the defendant is already physically in Hong Kong and the originating process is served on him in Hong Kong : Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454.

23.Second, when the jurisdiction has been established against a person, the jurisdiction must include matters which are incidental to the claim or order, examples of matters which are incidental to the claim in which the Court has jurisdiction over the defendant are those relating to the enforcement of court orders like contempt of court proceedings and other orders like orders for costs.  In Crest Homes Plc v Marks [1987] AC 829, 860E – G, Lord Oliver held :

‘ ... The proper policing and enforcement or observance of orders made and undertakings given to the court in an action are, in my judgment, as much an integral part of the action as any other step taken by a plaintiff in the proper prosecution of his claim. The normal procedure where the contempt complained of is that of a party to the action is to apply for committal by motion in that action as an incidental step in the action.’

24.This principle is recently restated by Gross LJ of the English Court of Appeal in Deutsche Bank AG (Nos. 1 and 2) which affirmed the first instance decision of Teare J in Deutsche Bank AG (No. 2). 

‘ [55] ...... To my mind, the judge’s reasoning was impeccable: (i) an order of a court must carry with it the means to enforce that order; (ii) the means to enforce an order are therefore a necessary incident of that order; (iii) an order for committal is one of the means of enforcing court orders; (iv) accordingly, the committal application is incidental to the CPR Pt 71 order. On this view, it would follow that DB does not require permission to serve the committal application out of the jurisdiction.’

In that case the person cited for contempt was at the time physically within the jurisdiction.  Teare J held :

‘ 12 Mr Matthews rightly submits that there is a public interest in ensuring that the English court does not overstep its territorial reach. However, in this case the court had jurisdiction to make the Part 71 order against Mr Vik because he was physically within the jurisdiction: see the judgment of Cooke J in Deutsche Bank AG v Sebastian Holdings Inc [2016] CP Rep 2. Thus the territorial reach of the English court was not overstepped. In my judgment, when an application incidental to the Part 71 order is issued DB does not need to establish jurisdiction again simply because Mr Vik is now outside the jurisdiction. The matter is no different from the case where permission is obtained to serve a claim out of the jurisdiction and thereafter the claimant wishes to make an application against the defendant which is incidental to the claim in respect of which he obtained permission to serve out. The claimant does not need to establish jurisdiction a second time.’

25.Teare J in his earlier decision of Marketmaker Technology Ltd stated :

‘ 27. The order for costs, and the ensuing application to commit for contempt, are ordinary incidents of the claim brought by the fourth claimant in this court against the defendant. There is, in my judgment, no need for the defendants to obtain permission to serve the application out of the jurisdiction and so establish this court’s jurisdiction over the fourth claimant in the matter of the application to commit for contempt, because he has already submitted to the jurisdiction of the court in respect of that application, since it is an ordinary incident of the claim which he has brought against the defendants. Counsel’s submission would have had force had this been a case where permission to serve out was required in order to establish jurisdiction over the fourth claimant, but it is not such a case.’

26.It is recognised that under Order 52, rule 3 of RHC, the party after obtaining leave to issue contempt proceedings must issue an originating summons against the party who is in contempt and service of the originating summons must be effected in the ordinary way under the rules.  But, in my view, the submission of Mr Wong SC (together with Mr Lam) for the plaintiffs is correct that the principles in the English authorities that I have discussed do not depend on the procedural feature that contempt proceedings are issued within the original proceedings.  To the contrary, they are based upon the consideration of the substantive nature of contempt proceedings.  Gross LJ in Deutsche Bank AG (Nos. 1 and 2) held :

‘ [70] ...... Thirdly, like Teare J (in the passage at para 11, already set out), I can see no reason why committal applications cannot both be “new” or “separate” but yet still incidental to “an order ... validly made against a person whilst he was within the jurisdiction of the court and in respect of which it is said that he has acted in contempt”. All must depend on the factual context.’

27.In my view, the contempt proceedings are clearly incidental and an integral part of the action following the granting of the injunctions against LCT. 

28.Mr. Chan stressed that contempt proceedings must now be commenced by an originating summons which like a writ of summons is an originating process.  Accordingly, the service of the originating summons on a defendant not within the jurisdiction must satisfy the gateway requirements of Order 11, rule 1.  I see no conflict between the nature of an originating summons and dispensing with the need to satisfy the gateway requirements in order to serve it on a foreign defendant when that defendant is already brought into the jurisdiction of the Court by his own submission.  This is because our Court already has jurisdiction over him in respect of the subject matter of the action and of which contempt proceedings arising from the action is an integral and incidental part.  There is no issue of the Court overstepping its long‑arm or exorbitant jurisdiction because it does not as LCT has already submitted to the jurisdiction of our Court.

29.The Singapore case of Li Shengwu does not assist LCT.  The relevant Singapore rule for service out of jurisdiction is Order 11, rule 1(n) :

‘ (n) the claim is made under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A), the Terrorism (Suppression of Financing) Act (Cap. 325) or any other written law;’ (emphasis added)

The appellant there published a post on his Facebook page, the material part stated that ‘the Singapore government is very litigious and has a pliant court system.  This constrains what the international media can usually report’.  The Attorney General of Singapore wrote to inform the appellant that he considered the appellant’s post to have been made in contempt of court.  The Attorney General asked the appellant to purge his contempt by, inter alia, deleting and removing the material from his Facebook page and other social media accounts and to make a written apology and undertaking not to republish the material.  As the appellant had not complied with the Attorney General’s request, the Attorney General commenced proceedings for leave to apply for an order of committal against the appellant.  The Singapore Court granted leave and the papers were duly served personally on the appellant at his United States address.  The appellant applied to set aside the service of the committal papers.  The first instance judge dismissed the application. Pursuant to leave granted by the Singapore Court of Appeal, the appellant appealed.  The Singapore Court of Appeal held that the Order 11, rule 1(n) requirement is satisfied in that the relevant ‘written law’ is section 7(1) of the Supreme Court of Judicature Act (Cap. 323) :

‘ The High Court and the Court of Appeal shall have power to punish for contempt of court.’

30.Again, the Singapore case is only concerned with how its courts could grant leave to serve a party out of jurisdiction under the Singaporean Order 11.  It does not address the position of a party who has already submitted to the jurisdiction of the court, specifically by commencing an action in the same court. 

31.Mr. Chan referred to the works by Briggs and Johnston.  As Mr Wong submitted, the reference to Briggs was out of context because that passage was addressing a completely different issue, namely the effect of jurisdiction clauses and how they do not per se give jurisdiction to the Court.  It has nothing to do with any of the issues raised in this appeal on submission to jurisdiction.  The part of the extract which has not been quoted by LCT specifically dealt with jurisdiction clauses. 

32.In respect of Johnston, our view is that in the first paragraph, the author is simply referring to the usual modes of service in accordance with Order 10 (service of originating process) and Order 65 (service of documents) of RHC if the defendant is already under the Hong Kong jurisdiction.  The second paragraph does not advance the matter further.

33.It is not necessary to discuss the issue of policy consideration raised by Mr. Chan as it does not affect the correctness of the decision of the Judge. 

34.As service out was not required, the Judge was clearly entitled to make the order on substituted service as LCT had been avoiding personal service of court documents on him.

IV.     Conclusion

35.Accordingly, the appeal is dismissed with costs to the plaintiffs.  Certificate for two counsel is granted.

Mr Edward Chan SC, Mr Anson Wong SC and Mr Martin Kok, instructed by King & Wood Mallesons, for the Plaintiff by Original Action and 1^st Defendant by Counterclaim in HCA 2302/2014 and the Defendant in HCMP 1532/2019

Mr William Wong SC and Mr Justin Lam, instructed by Robin Bridge & John Liu, for the 2^nd to 4^th Defendants by Original Action and the 1^st to 3^rd Plaintiffs by Counterclaim in HCA 2302/2014 and the 1^st to 3^rd Plaintiffs in HCMP 1532/2019