Changfeng Shipping Holdings Ltd v Sinoriches Enterprises Co. Ltd.
Deputy Judge Anthony To in Chambers
1 December 2020

Background

The respondent was a company incorporated in Hong Kong with three directors, one BVI company and two natural persons, namely Ms. Wang and Ms. Yang. The two directors, Ms. Wang and Ms. Yang, appeared to be residents in Dalian, Mainland China (“the Directors”).

While the respondent had an office address in Hong Kong, its business was mainly carried out in Mainland China. The respondent’s address stated in the charterparty at dispute was in Dalian.

On 31 October 2019, the applicant obtained leave to enforce a London arbitral award for more than USD1 million plus interest and costs against the respondent in connection to a charterparty dispute as judgment in Hong Kong.

The applicant then made an ex parte application for oral examination of the Directors under O.48, r.1, Rules of High Court (Cap.4A) and leave to serve the oral examination order out of Hong Kong on the Directors under O.11, r.9(4).

While the Master granted the oral examination order, leave was refused to serve the said order out of Hong Kong. The applicant then applied for an appeal against the Master’s decision.

Issues

Upon appeal, the court considered the following two issues:-

1. whether the court had 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 so, 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.

Decision

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

The Hong Kong courts have accepted that O.48 has an extra-territorial effect (see Navig8 Chemical Pools Inc v Inder Sharma HCMP 2885/2016, (unreported) 14 February 2017). There was nothing in the wording of O.48 to suggest that it was applicable only to officers within the jurisdiction.

The purpose of O.48 is to allow the 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 had 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 were 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, the judge was 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 both inside and outside Hong Kong.

Issue (2): Whether service out of jurisdiction should be granted

There were few authorities on the principles applicable to service out of such examination orders on officers of corporate debtors.

In Masri v Consolidated Contractors Int’l (UK) Ltd and others (No.4) [2010] 1 AC 90, the House of Lords found that in the case of a corporate judgment debtor, the court did not have the power to compel the attendance of officers of that corporation who were located abroad. Given the equivalent procedure under the English CPR r.71.2 is different from the equivalent pre-CPR provisions applicable to Hong Kong, the judge considered that the result of Masri had no bearing to the present case, but its exposition of the common law was nevertheless relevant.

On the other hand, the Singaporean statutory regime regarding the debtor examination orders and service out was similar to that in Hong Kong. In Burgundy Global Exploration Corp v Transocean Offshore Int’l Ventures Ltd [2014] SGCA 24, the Singapore Court of Appeal distinguished Masri because the regime under CPR r.71.2 was different from the Singapore regime and held that O.48, r.1 had extra-territorial effect.

The principles on granting leave to serve examination order are (a) whether the foreign officer was so closely connected to the substantive claim that the Singapore court was justified in taking jurisdiction over him; (b) there should be no strict or exhaustive rule as to when leave should be granted but the officer’s knowledge of the finance of the judgment debtor was the basic threshold; and (c) leave should be granted sparingly.

Hong Kong principles

The applicable principles to service out of examination orders are summarised at paragraph 35 of the judgment:

1. The court had jurisdiction under O.48 to issue examination order against individual judgment debtors and officers of corporate judgment debtors, and to issue such examination order out of the jurisdiction.
2. The officer’s knowledge of the finance of the corporate debtor was a prerequisite for leave to serve out.
3. 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.
4. A close connection was created by the conduct of the sole or substantial shareholder; the sole director or officer who was the alter ego or controlling mind of the corporate debtor or had instituted, controlled or financed the litigation; and officers who had played a key role in the events giving rise to the judgment creditor’s successful claim should be required to provide such information.
5. Fault, negligence or blameworthiness were not relevant. However, where there were such features in the officer’s conduct, it was more appropriate to exercise the discretion to order service out.
6. The burden of proof of close connection and knowledge was on the applicant. As the existence of a close connection and knowledge were matters solely within the knowledge of the corporate debtor, direct evidence is normally not available to the judgment creditor. In the majority of cases, the court had to draw inference with a sense of realism appropriate to the circumstances.
7. The court would take a broad brush approach and grant leave to serve out unless there was a serious or obvious flaw in the application. If not satisfied that the officer has knowledge of the finance of the judgment debtor and that the close connection test is met, then the ex parte leave will be set aside.

Comments

The purpose of O.48 is to enable the judgement creditor to obtain necessary information from the judgment debtor and ascertain the assets and liabilities of the judgment debtor so as to determine what steps to enforce the judgment. It is fair that persons from other parts of China or foreign countries chose to become directors of Hong Kong companies, they should expect to be subject to Hong Kong law and procedure in that regard.

Hong Kong is a physically small but economically important jurisdiction in the world. Given the economic integration of Hong Kong and Mainland China as two jurisdictions in the same country, many Hong Kong companies have directors in Mainland China. As the judge emphasised, an unduly restrictive approach would frustrate 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.

Jurisdictions: 

Legal Director, Hill Dickinson Hong Kong

Edward is qualified as a solicitor in England & Wales as well as a lawyer in P.R. China.  His main area of practice is in commercial and shipping litigation and arbitration. He is extensively experienced in advising and handling international commercial disputes covering areas such as sale of goods/trade and commodities, energy and offshore projects, shareholder and equity-related disputes, and international investment (particularly connected with Belt & Road projects), commercial fraud, worldwide enforcement of judgments and arbitration awards etc.  Edward has been appointed as members of a number of advisory bodies to the Hong Kong government, including Advisory Committee on Promotion of Arbitration, Steering Committee on Mediation, Aviation Development and Three-Runway Advisory Committee, Hong Kong Maritime and Port Board, and an adjudicator of the Registration of Persons Tribunal.  He is also the principal representative of the International Chamber of Shipping (China) Liaison Office.

Associate, Hill Dickinson Hong Kong

Maggie is experienced in handling insurance claims for the insurance companies and the insured, including personal injury, employees’ compensation, traf c accident and public liability claims. She also acts for the injured persons. For shipping matters, she has been involved in crew personal injury claims for insurers and P&I clubs and charterparty disputes. Maggie also has experience in the applications for injunctions and disclosure orders in the context of fraud and asset-tracing matters, enforcement of judgements and arbitral awards, oral examination of judgment debtor, as well as winding up proceedings.