Hong Kong Courts Made Landmark Decision On Principals Applicable To Service Out Of Examination Orders

• Published date: 09 December 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Directors and Officers, Trials & Appeals & Compensation
• Law Firm: Hill Dickinson
• Author: Mr Edward Liu and Maggie Lee

In Changfeng Shipping Holdings Limited -v- Sinoriches Enterprises Co., Limited HCCT 59/2019; [2020] HKCFI 2703, Edward Liu and Maggie Lee of Hill Dickinson Hong Kong, together with Edward Alder of Prince's Chambers, on the instruction of Hill Dickinson Hong Kong, acted for the successful applicant for an examination order against two directors of a chartering company as judgment debtor for a London arbitral award, which had been recognised and enforced in Hong Kong. More importantly, by refusing to follow the Singaporean case of Burgundy Global Exploration Corp -v- Transocean Offshore International Ventures [2014] SGCA 24, the judge granted the leave to serve the examination order out of jurisdiction by holding that the discretion should be exercised with extreme caution, instead of sparingly, but there should be no bias against service out.

The fact

The applicant and respondent were companies incorporated in Hong Kong. In particular for the respondent, its paid up and authorised share capital was HK$10,000. There were three shareholders, namely Royalship Maritime Inc, which was a company incorporated in BVI, Ms. Wang and Ms. Yang, each holding 8,400, 800 and 800 shares respectively. They were also directors of the respondent. The respondent had an office address in Hong Kong.

The respondent's business was mainly carried out in the mainland China. The address of the respondent as stated in the charterparty at dispute was an office building in Dalian.

On 25 February 2017, the applicant as owners and respondent as charterers entered into the charterparty for the hire of MV "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 more than USD$1 million plus certain interest and costs.

On 31 October 2019, the applicant obtained leave under O.73 r.10(1) to enforce the award as a judgment of the Hong Kong court. 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.

On 9 March 2020, the applicant made an ex parte application for leave to examine the two directors of the respondent, whom appeared to be residents in Dalian, mainland China, pursuant to O.48 r.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 O.11 r.9(4).

On 14 August 2020, the master granted the examination order but refused leave to serve the order out of the jurisdiction. In refusing leave to serve out, the master quoted para.11/9/1H of Hong Kong Civil Procedure 2020 (which was rewritten in apra.11/9/17 of Hong Kong Civil Procedure 2021) and expressed the view that the fundamental question was whether the foreign directors of the respondent are so closely connected to the substantive claim that the Hong Kong court ws justified in taking jurisdiction over then. The master followed the Singapore Court of Appeal decision in Burgundy Global Exploration Corp -v- Transocean Offshore Int'l Ventures Ltd [2014] SGCA 24 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.

The applicant subsequently decided to appeal against the ex parte order of the master. The issues raised in the appeal were (1) whether the court has jurisdiction to make examination orders under O.48 r.1 against officers of a corporate judgment debtor who was resident outside Hong Kong and was 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 O.11 r.9(4) was to be exercised.

The law

Deputy High Court Judge To heard the applicant's submissions and decided to allow the appeal by setting aside the master's order. The judge granted leave to serve the examination orders by the master pursuant to O.48 against the two directors out of the jurisdiction at their addresses in Dalian. Having regard to the COVID-19 pandemic and the impractically of personal service, the judge also granted leave to serve the said order by substituted service by the post to the said addresses and to the respondent's address in Hong Kong.

Issue (1): Whether O.48 r.1 has extra-territorial effect

In order to consider how the discretion under O.11 r.9(4) was to be exercised, the judge considered the court's jurisdiction under O.48 r.1. As the judge noted, O.48 r.1 expressly provided that an examination order may be served on officers of a corporate debtor who were not parties to the action from which the judgment debt arose. The operation of this rule involved factual issues and presented little problem, save where the judgment debtor or its officer in the case of a corporate debtor, was out of the jurisdiction. Under such circumstances, leave to serve the examination order out of the jurisdiction under O.11 r.9 may be required.

In Hong Kong, the courts have accepted that O.48 r.1 has extra-territorial effect (see eg Navig8 Chemical Pools Inc -v- Inder Sharma HCMP 2885/2016, (unreported) 14 February 2017). From the judge's point of view, there was nothing in the wording of the rule...