Long-Arm Jurisdiction – Time for Hong Kong to Play Catch Up?

Introduction

Dispute resolution is big business. The leading financial centres of the world vie to attract both arbitration and litigation work. London has enjoyed a large volume of international commercial arbitration and litigation for over a century, much to the benefit of its legal profession. Other centres have looked on enviously. The last decade has seen the rise of the English-language “international commercial court” in places such as Singapore, Dubai and more recently Paris and Amsterdam in the hope of wresting business from London.

International disputes come before such courts either by the choice of the parties or because the jurisdictional rules of the courts provide for jurisdiction over the category of dispute in question on the basis of a factual connection to the jurisdiction. Some sources of jurisdiction are long standing, eg physical presence in the jurisdiction in common law countries or citizenship in civil jurisdictions. Other sources, particularly the so-called “long-arm” types of jurisdiction, are newer.

Lord Sumption in Abela v Baadarani [2013] UKSC 44 remarked that litigation between residents of different jurisdictions is now routine and facilitated by conventions and much reciprocity and old attitudes viewing long arm jurisdiction over foreigners as “exorbitant” (or even an invasion of sovereignty) are out-dated (cited in 管中國山水投資有限公司 v 張才奎 (China Shansui) (HCA 1661/2014, 13 May 2015) [54]).

Long-arm jurisdiction is matter of policy. Some jurisdictions, exercise wide long arm jurisdiction on a common law ‘minimum contacts’ approach. Others, particularly in the Commonwealth, adopt a statutory category-by-category approach.

In Hong Kong, as is other common law jurisdictions, the courts have jurisdiction in two ways. First, where the defendant is susceptible to service here through presence, residence or business establishment. Second, where the claimant can obtain leave to serve out under RHC O. 11.

Order 11 provides a list of “gateways” providing for jurisdiction for certain types of claims with a factual link to Hong Kong where it is thought reasonable and practicable for the Hong Kong courts to exercise jurisdiction. Hong Kong’s O. 11 is based on the pre-1999 English O. 11. Our O. 11 today has changed little from that first introduced in England in 1852 and revised into modern form in 1925 (The Siskina [1979] AC 210, 236).

For an expansive modern dispute resolution policy to succeed, it is necessary for the court to have the widest possible jurisdiction, free from pointless technicalities and historical anomalies that inconvenience litigants for no good reason. To these ends, other common law jurisdictions like England, Singapore and the British Virgin Islands (BVI) have modernised their heads of long-arm jurisdiction.

Hong Kong underwent its civil jurisdiction reform (CJR) in 2008. During that exercise O. 11 was amended but only to add specific gateways that arose out of the general CJR exercise (certain claims for costs and applications for local relief in connection with proceedings abroad). In a missed opportunity, there was no general overhaul of O. 11. Hong Kong is now falling behind other common law centres and Hong Kong’s O. 11 is now in much need of modernisation. Some needed reforms arise from deficiencies in O. 11 itself. Others are new gateways that exist elsewhere but not yet here. This article hopes to initiate a debate about updating of O. 11 to make it “fit for purpose” in the modern marketplace.

Modernisation of Existing Gateways

A long overdue modernisation is the updating of pre-reunification references to the UK. It is inappropriate that two decades after 1997 O. 11 contains outdated references to “British consular authorities”.

The contract gateway, r. 1(1)(d), is much used by commercial litigators and could benefit from several reforms. Under Brussels Regulation (EU) 1215/2012 where there is an English jurisdiction agreement, the claimant no longer needs leave to serve out. The proceedings can be served out in the usual way, subject to a right (similar to O. 12, r. 8) to apply to set aside if that basis of jurisdiction is disputed. This would be useful in Hong Kong and alleviate pointless workload on the High Court Masters.

Gateway (d)(i) provides for jurisdiction where the claim involves a contract “made within jurisdiction”. That seems straightforward, but where a contract is “made” depends on underlying common law rules and can lead to much dispute and anomalous results. A contract is made where the acceptance comes to the attention of the offeror. By exception, the “postal acceptance rule” provides that a contract by post is made where the acceptance letter is posted. The UK Supreme Court in Four Seasons Hldgs Inc v Brownlie [2017] UKSC 80 said that those rules were functional for deciding whether a contract exists at all but are “not at all satisfactory” when used under gateway (d)(i) because they can lead to artificiality. Modification of the common law rules themselves would be a major legislative exercise. For O. 11 purposes, a new approach could be taken to avoid reliance on the common law rules. For example, the gateway could refer to contracts where one party was in Hong Kong when the contract was made.

Gateway (e) (breach within the jurisdiction) could be expanded to cover cases where damage is sustained within the jurisdiction. This would make it consistent with tort claims under gateway (f). There seems little logic behind this being a head of jurisdiction in tort but in contract, except perhaps that contract is a voluntary relationship whereas victimhood of tort is not. A counterargument to such an expansion is that it would be tantamount to providing jurisdiction where any Hong Kong person is party to any contract. However, first, that is not necessarily so because the tort case law makes clear that one does not always feel a monetary loss where one is based or keeps accounts and it depends on the facts. Second, even if that were the case, it would not necessarily be a bad thing. In some jurisdictions any citizen of that jurisdiction may always sue in the local courts.

Finally on contract, gateway (d) could be reformed to reverse the principle in Finnish Marine Insurance v Protective National Insurance Co [1990] 1 QB 1078 that where a plaintiff seeks a declaration that an alleged contract does not exist the claim does not fall within contract gateways (d) or (e). This rule has been reversed in England. Applications for declarations of non-liability are increasingly used in modern litigation, especially insurance litigation.

Also much used is the “necessary and proper party” gateway under r. 1(1)(c) and the related r. 4(1)(d). There is a trap for the unwary in that r. 4(1)(d) impliedly requires the “anchor defendant” in Hong Kong to have been served by the time of the application for leave to serve the foreign defendant abroad. This is not required by r. 1(1)(c) itself which only requires the anchor defendant to be have been served by the time of service on the defendant. There seems little common sense behind the requirement. This rule has been modernised in England where leave itself can be granted at any time simply by satisfying the “necessary and proper” test.

The law of restitution has flourished over the 100 years. The restitution gateway at r. 1(1)(p) has not kept up. This needs to be modernised to remove the narrow and outdated reference to the “money had and received” form of action so that it refers to restitutionary or unjust enrichment claims generally that are based on acts committed or loss or enrichment occurring within the jurisdiction and claims governed by Hong Kong law.

On trusts, gateway (p) mentioned above also refers to “constructive trustees”. This could usefully be expanded to cover resulting trustees. In England, the jurisdiction over trusts now includes trusts in respect of which jurisdiction is conferred on English courts, not just those governed by English law. This makes the gateway consistent with the contract approach.

Procedural Reforms

Order 11, r. 9 addresses service out of documents subsequent to originating process. The Singapore equivalent contains
additional words “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 in any
proceedings in which leave for service of the originating process has already been granted”. This, with express extension to pleadings, would be useful in Hong Kong and avoid much uncertainty and repeat applications to the court.

Service continues to give rise to much confusion and litigation. Generally, it is not necessary to resort to the Hague Convention and the Writ may be served abroad by ordinary Hong Kong style personal service by any private citizen, so long as that is not unlawful by the law of the foreign place. The Singapore equivalent of O. 11, r. 6(3) provides an additional mode of service abroad ie “by a method of service authorised by the law of that country for service of any originating process issued by that country”, that is to say any domestic method of service in the foreign jurisdiction may be adopted (again so long as that is not unlawful). This seems reasonable and fair and would reduce scope for dispute.

The test for substituted service within or outside Hong Kong under O. 65, r. 4 is that ordinary service is “impracticable for any reason”. In England this has been replaced with a “good reason” test. In service out cases, one can often anticipate from the outset long and costly problems with formal service abroad while at the same time being completely confident that one has an avenue of communication, eg a lawyer’s email address, that would enable the originating process to come to the defendant’s attention fairly, quickly and cheaply. This reform would be welcome in Hong Kong, at least for service out cases, and avoid the need to prove actual “impracticality” which may entail much delay by requiring proof of unsuccessful attempts at service.

Finally, there should be a requirement that where the court makes a r. 1(1) order it must state specifically the gateway under which it is made. At present, this is not a requirement, so where a plaintiff seeks leave under several gateways and the court grants blanket leave, it is not clear to the defendant which gateway the Master found to be satisfied. Such a requirement would assist defendants in knowing where they stand and in assessing whether challenge the leave and what issues need to be addressed.

New Gateways

There is much company and insolvency litigation in Hong Kong, much of it involving foreign (eg BVI and Cayman) companies or involving parties outside Hong Kong. This raises two matters requiring urgent reform. First, O. 11 should make appropriate provision for service of winding up proceedings out of Hong Kong as recommended in Re Sunni International Ltd [2014] 5 HKLRD 558. A related matter is service of unfair prejudice petitions out of the jurisdiction. Re Sunni has provided a temporary patch for winding up petitions but the situation regarding unfair prejudice petitions remains needlessly uncertain.

There is a similar lacuna in the rules for originating summonses for committal for contempt. In this case the problem arose as a sidewind to CJR reforms. Previously an application to commit for contempt was by notice of motion within existing proceedings, so O. 11, r. 9(4) applied which provides for granting leave but does not require the plaintiff to establish an applicable O. 11, r. 1(1) gateway. Under O. 52, r. 3 committal now proceeds via a stand-alone originating summons which must, unless the court orders otherwise, be served personally. Thus, it appears from O. 11, r. 9(1) that where the alleged contemnor is abroad, O. 11, r. 1(1) applies to the originating summons and the applicant must obtain leave, which requires identification of an applicable gateway. This is problematic because unless, fortuitously, gateway (a) or (c) apply, there is no obviously applicable gateway. This problem has been overcome in England and Singapore and should be eliminated here.

In June 2015 the following reforms were made in England: (1) A gateway to allow service where a claim is made based on similar facts to certain heads of claim for which leave has already been granted. (2) Expansion of the restitution / constructive trust gateway (p) as above. (3) Expansion of the equivalent of Hong Kong gateway (g) to cover claims where the property is wholly “or principally” in the jurisdiction. (4) Expansion of gateway (a) to include any case where there are assets in the jurisdiction. (5) Addition of a gateway or expansion of the tort gateway for claims for breach of confidence and misuse of private information with detriment within the jurisdiction or an act within the jurisdiction. (6) Expansion of the tort gateway to include cases where damage will be suffered or acts committed in the jurisdiction in future. As to gateway (a), the Singapore version extends to defendants with assets or carrying on business in the jurisdiction. As to assets, if foreign judgments can be enforced over assets here by service out, there is no reason why Hong Kong judgments should be not be enforceable over assets here by service out. These useful reforms eliminate anomalous gaps that exist for no good reason, or channel all disputes arising from a particular matter to one jurisdiction. All seem suitable for Hong Kong.

In the Eastern Caribbean CPR (BVI), there is a gateway for claims relating to “(a) the constitution, administration, management or conduct of the affairs, or (b) the ownership or control of a company incorporated within the jurisdiction”. This covers unfair prejudice petitions and other matters and so would address the concern discussed above. Hong Kong is a geographically small but international business focused jurisdiction, and the Government encourages the use of Hong Kong as a regional business base. As noted above, this has the consequence that many disputes involving Hong Kong companies involve parties abroad. This reform would allow disputes concerning Hong Kong companies to be served on all necessary participants abroad.

These reforms would make O. 11 fit for purpose in the modern competitive dispute resolution environment and bring additional business to Hong Kong.

Jurisdictions: 

Practising Barrister and Arbitrator