DEAK PERERA FAR EAST LTD v. R LESLIE DEAK AND OTHERS

HCA002951/1987

1987, No. A2951

 

_______________

H E A D N O T E

_______________

 

By a settlement approved by the New York Bankruptcy Court between the Plaintiff and The Deak & Co. Inc. and two of its wholly-owned subsidiaries in U.S.A. to which the 2nd Defendant was a director, the Plaintiff settled all claims against these companies and their affiliates. By a judgment from the same Court it was pronounced that the 2nd Defendant was an affiliate at the time of the settlement. The Plaintiff claims against the 2nd Defendant as a director of the Plaintiff that in breach of his duty he had wrongfully transferred accounts the Plaintiff held in various banks to Deak & Co. Inc. and its two subsidiaries. As a result the Plaintiff suffered loss in the sum of US$2.36 million.

The 2nd Defendant relied on the settlement as a defence.

Held: The parties and the issues in the New York Bankruptcy Court and in the present proceedings are the same and that the decision by the New York Court was a decision on merits by a Court of competent jurisdiction, accordingly the claim by the Plaintiff was barred by issue estoppel.

1987, No. A2951

 

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

___________

 

BETWEEN
	DEAK PERERA (FAR EAST) LIMITED (in liquidation)	Plaintiff
	AND
	R. LESLIE DEAK SUED AS THE PERSONAL REPRESENTATIVE OF NICHOLAS LOUIS DEAK (deceased)	1st Defendant
	OTTO EMIL ROETHENMUND	2nd Defendant
	AMERICAN NATIONAL BANK OF NEW YORK FORMERLY KNOWN AS DEAK NATIONAL BANK	3rd Defendant
	CHASE MANHATTAN BANK, N.A.	4th Defendant
	CANADIAN IMPERIAL BANK OF COMMERCE	5th Defendant
	STANDARD CHARTERED BANK	6th Defendant
	UNION BANK	7th Defendant

___________

 

Coram: Deputy Judge W. Wong in Chambers

Date of hearing: 9 June 1993

Date of delivery of judgment:

______________

J U D G M E N T

______________

THE PLAINTIFF'S CLAIM

1. The Plaintiff Deak Perera (Far East) Ltd. ("DPFE") in liquidation claims against the 2nd Defendant that he and/or Mr. Deak (directors of DPFE) on the 5th December 1984 withdrew from various bank accounts DPFE held with the 4th to 7th Defendants i.e. Chase Manhattan Bank, N.A., Canadian Imperial Bank of Commerce, Standard Chartered Bank and Union Bank and other banks totalling US$2,161,191.10 to the Deak National Bank (3rd Defendant) which in turn transferred those funds to Deak & Co. Inc., and its wholly-owned subsidiaries Deak Perera International Banking Corporation and Deak Perera Wall Street Inc. (hereinafter collectively called "the debtors" as in the proceedings in the New York Bankruptcy Court).

2. On the 6th December 1984 the debtors petitioned the United States Bankruptcy Court in New York for relief under the provisions of Chapter 11 of the United States Bankruptcy Code. By those proceedings the United States Bankruptcy Court made orders so that the debtors were protected from suits and executions by creditors for a certain period during which their affairs were re-organised.

3. By ordering the transfer of those funds to the debtors the 2nd Defendant was in breach of his fiduciary duty and breach of trust as a director of DPFE and had acted to the detriment of DPFE. As a result DPFE suffered loss in the sum of US$2,360,000.00 with interests.

4. DPFE now claims against the 2nd Defendant for the sum of US$2,360,000.00 and damages.

THE PROCEEDINGS IN UNITED STATES

5. On the 12th December 1985 DPFE entered into a Stipulation of Settlement in New York with the debtors. The terms of the Stipulation were as follows :-

"WHEREAS:

On December 6, 1984, Deak & Co. Inc. ("Deak"), Deak-Perera Wall Street, Inc. ("Deak Wall Street") and Deak-Perera International Banking Corporation (collectively the "Debtors") each filed a petition for reorganization under chapter 11 of the United States Bankruptcy Code ("Code") in the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court");

Deak-Perera Far East Ltd. ("DPFE") is a wholly owned subsidiary of Wall Street, the former having maintained its principal place of business in Hong Kong;

On February 4, 1985, a Winding-Up Order was made by the Supreme Court of Hong Kong ("Supreme Court") affecting DPFE and the office of the Official Receiver of the Registrar General's Department (the "Official Receiver") was duly appointed as the Official Receiver of DPFE and represents and warrants that the Official Receiver has succeeded to all rights and rights to property of DPFE;

The Official Receiver has asserted various claims of DPFE against the Debtors aggregating in excess of U.S.$13 million and has alleged that portions of the claim are secured and other portions thereof are entitled to administrative priority;

The Debtors and the official committee of unsecured creditors appointed in the chapter 11 cases (the "Creditors' Committee") have advised the Official Receiver that they dispute numerous defenses, offsets and counterclaims in connection therewith;

The Debtors, the Creditors' Committee and the Official Receiver desire to settle all claims of DPFE and the Official Receiver against the Debtors and their affiliates (as defined in S.101(2) of the Code and all subsidiaries thereof, hereinafter "Affiliates") including, but not necessarily limited to, Deak-Perera U.S. Inc. and its subsidiaries ("Deak U.S.") and Deak-Perera Finance Ltd. ("Deak Finance");

NOW, THEREFORE, in consideration of the premises, it is Stipulated, Consented to and Agreed by and among respective counsel for the Debtors, the Creditors' Committee and the Official Receiver:

1 The Debtors shall pay to the Official Receiver the sum of U.S. $2,360,000 in full settlement, release and discharge of all claims of every kind, nature and description, whether known or unknown, which DPFE or the Official Receiver may have against the Debtors and all Affiliates thereof including, but not necessarily limited to, Deak U.S. and Deak Finance, except as hereinafter provided.

2 The Official Receiver hereby waives and relinquishes any and all security interests, pledges, liens or other encumbrances affecting any of the property of the Debtors and all their Affiliates including, but not necessarily limited to, the pledge by Deak of 8000 shares of Foreign Commerce Bank.

3 In consideration of the Official Receiver's settlement and release of claims as herein set forth, the Debtors and the Creditors' Committee hereby waive and relinquish any and all claims defenses, offsets and counterclaims of every kind, nature and description, whether known or unknown, which the Debtors or the Creditors' Committee may have against DPFE or the Official Receiver.

4 Nothing contained herein shall be deemed to affect the rights of DPFE or the Official Receiver to pursue claims, if any, with respect to: (a) bank account balances maintained at American National Bank f/k/a Deak National Bank which do not exceed U.S. $25,000; (b) amounts due and owing from Deak-Perera Washington, Inc. which do not exceed $25,000; (c) any directly or indirectly owned subsidiaries of DPFE; and (d) Deak & Co. (Macau), Ltd.

5 The Debtors and the Creditors' Committee shall promptly apply to the Bankruptcy Court and the Official Receiver shall promptly apply to the Supreme Court for respective orders approving this Stipulation and authorizing implementation thereof. All parties hereto shall use their best efforts to obtain the necessary approvals in the respective courts.

6 The Official Receiver shall withdraw any proofs of claim heretofore filed, and agrees not to file any other proofs of claim, in the Bankruptcy Court.

7 The terms and provisions of this Stipulation shall become effective when orders approving this Stipulation entered by the Bankruptcy Court and the Supreme Court shall have become final and non appealable.

Dated:

New York, New York December 12, 1985 LEVIN & WEINTRAUB & CRAMES Attorneys for the Debtors By: Herbert Stephen Edelman, P.C.

By:	Signed

Herbert Stephen Edelman, Pres.

ANDERSON RUSSELL KILL & OLICK, P.C.

Attorneys for the Creditors' Committee

By:

Signed Arthur S. Olick

BOTEIN, HAYS & SKLAR Attorneys for the Official Receiver

By:

Signed Sheldon Lowe

Official Receiver as Liquidator of DPFE

By:

Signed Nicholas Clement-Jones"

6. The Debtors on 13th December 1985 applied to the United States Bankruptcy Court for the Southern District of New York for the Court's approval of the Stipulation.

7. On the 26th December 1985 an order approving the Stipulation of Settlement was made by Judge Lifland of the United States Bankruptcy Court.

8. By the Stipulation of Settlement DPFE and the Official Receiver settled all claims against the Debtors and their affiliates as defined in S.101(2) of the United States Bankruptcy Code. "Affiliate" means "an entity that directly or indirectly owns, controls or holds with power to vote, 20% or more of the outstanding voting securities of the debtor" and the term "entity" as defined in S.101(14) of the Code includes "persons".

9. On the 21st August 1991 the 2nd Defendant filed a complaint for Declaratory Judgment and Permanent Injunctive Relief in the United States Bankruptcy Court, Southern District of New York. The purpose was to seek the New York Court's direction that the terms of the Stipulation extended to him since he was an "affiliate" within the meaning and contemplation of the Stipulation.

10. On 8th November 1991 the Official Receiver took out a notice of motion in the same Court to dismiss the complaint by the 2nd Defendant.

11. On the 11th March 1992 the motion was heard by the same Judge Lifland who approved the Stipulation.

12. The Court ruled that "the settlement was calculated to and did by its terms released the Deak debtors and their "affiliates" from all further liability to a major creditor DPFE" and dismissed the Official Receiver's motion to dismiss the 2nd Defendant's complaint for a declaration.

13. The New York Court ruled that the Official Receiver must file an answer to 2nd Defendant's declaratory judgment by 26th March 1992.

14. The Official Receiver filed a memorandum instead of an answer. In the memorandum the Official Receiver indicated to the New York Court that he has decided to limit himself to one jurisdiction and did not intend to have further participation in the United States Court.

15. As a result on the 20th April 1992 a default declaratory judgment was obtained by the 2nd Defendant to the effect that:

(1) The 2nd Defendant was an affiliate at the time of the Stipulation of Settlement and

(2) DPFE had released and discharged all claims which DPFE or the Official Receiver have or may have against the 2nd Defendant.

DEFENDANT'S CASE

16. The 2nd Defendant now applies to strike out the Plaintiff's claim against him under O.18 r.19.

17. Mr. Faulkner for the 2nd Defendant relied on the fact that the Plaintiff's claim had been resolved by a compromise validity of which had not been challenged. Even though the applicability of the compromise to the 2nd Defendant had been challenged, that point had been decided upon by a New York Court and that point is now res judicata.

PLAINTIFF'S ARGUMENT

18. The Plaintiff, by Mr. Lewis, on the other hand argued that:

(1) The 2nd Defendant is not released from his fiduciary liabilities as director.

(2) The Official Receiver did not intend to include the 1st and 2nd Defendants in the Stipulation and that the term "affiliate" can include an individual is not known in this jurisdiction nor was "third party beneficiary" status known to the local law.

(3) Court of Appeal had considered the defence put up by the 2nd Defendant when granting leave to Plaintiff to issue concurrent unit.

(4) Court of Appeal had found an arguable case.

(5) 2nd Defendant never raised nor claimed to be an affiliate as a defence until now.

(6) 2nd Defendant is the subject of 3rd party proceedings.

(7) The New York Court's decision was by default.

ISSUE ESTOPPEL

19. In Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No.2) [1967] AC 853 at p.855 per Lord Reid, Lord Hodson, Lord Upjohn and Lord Wilberforce "Issue estoppel can be on a foreign judgment, although in such a case the doctrine should be applied with caution because of the uncertainties arising from the differences of procedure in foreign countries".

20. In order to create an issue estoppel Lord Brandon of Oakbrook in The Sennar (No. 2) [1985] 1 WLR 490 at p.499 said that the three requirements have to be satisfied namely :-

"The first requirement is that the judgment in the earlier action relied on as creating an estoppel must be (a) of a Court of competent jurisdiction, (b) final and conclusive and (c) on the merits. The second requirement is that the parties (or privies) in the earlier action relied on as creating an estoppel and those in the later action in which that estoppel is raised as a bar must be the same. The third requirement is that the issue in the later action, in which the estoppel is raised as a bar, must be the same issue as that decided by the judgment in the earlier action."

In the same judgment on the same page he went on,

"a decision on the merits is a decision which establishes certain facts as proved or not in dispute; states what are the relevant principles of law applicable to such facts; and expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned."

21. On the same point per Lord Diplock at p. 494:

"What it means in the context of judgments delivered by Courts of Justice is that the Court has held that it has jurisdiction to adjudicate upon an issue raised in the cause of action to which the particular set of facts give rise; and that its judgment on that cause of action is one that cannot be varied, re-opened or set aside by the Court that delivered it or any other Court of co-ordinate jurisdiction although it may be subject to appeal to a Court of higher jurisdiction."

22. In SCF Finance Co. Ltd. v. Masri (No. 3) [1987] QB 1028 it was held that:

"an order of the Court dismissing proceedings gave rise to issue estoppel even though the Court had not heard argument or evidence on the merits."

23. In the present case the 2nd Defendant alleges that by reason of the proceedings and the decision in the New York Bankruptcy Court it gave rise to issue estoppel and the claim by the Plaintiff is now res judicata.

24. The crux of the matter is whether the 2nd Defendant was an "affiliate" and whether the claim by the Plaintiff has been resolved by the Stipulation of Settlement.

25. The 2nd Defendant sought a declaration from the New York Court that he was an "affiliate" within the meaning and contemplation of the stipulation. The Plaintiff sought to set aside or dismiss the 2nd Defendant's claim. After hearing argument from both sides, Judge Lifland ordered the Plaintiff to file answer which the Plaintiff failed to do. As a result a judgment declaring that the 2nd Defendant was an "affiliate" and DPFE had released all claims against 2nd Defendant.

26. On the facts which were not disputed it is clear that the 2nd Defendant has satisfied the three requirements (set out by Lord Brandon of Oakbrook in The Sennar (No. 2)) to create an issue estoppel in that the parties are the same, this issue is the same, the judgment was conclusive and on merits and that it was pronounced by a Court of competent jurisdiction. Since the Plaintiff has submitted to the jurisdiction of the New York Court and the judgments were final decisions on merits, they are binding on the Plaintiff. Carl Zeiss Stiftung v. Ravner & Keeler (No. 2) [1967] 1 AC 853 and The Sennar (No. 2) [1985] 1 WLR 490.

27. Even if the Plaintiff elected not to argue or file answer to the 2nd Defendant's complaint for declaration by reason of the decision in SCF Finance Co. Ltd. v. Masri & Another (No. 3) [1987] QB 1028 the Plaintiff is likewise estopped.

28. By reason of the Plaintiff's submission to the New York Court's jurisdiction it is not open for the Official Receiver now to say that he did not intend to include the 2nd Defendant in the Stipulation nor can he challenge the defence based on the settlement.

THE PLAINTIFF'S OTHER POINTS

29. When the Court of Appeal in Hong Kong say that the Plaintiff has a good arguable case when applying for service outside jurisdiction in December 1990 the 2nd Defendant has not yet obtained the judgment in the New York Court. In any event the fact that the 2nd Defendant never raised nor claim to be an affiliate until now does not bar him from raising this by way of defence bearing in mind that the declaratory judgment was obtained in April 1992.

30. The fact that the 2nd Defendant is the subject of 3rd party proceedings is not something I should consider in deciding whether the Plaintiff's claim should be struck out under O.18 r.19.

31. Finally, the Official Receiver argued that the 2nd Defendant is not released from his fiduciary liabilities as directors. The wrongful acts complained of were set out in paragraph 13 of the Statement of Claim which are as follows :-

"13. On the previous day, that is the 5th day December 1984, on the instructions of Mr. Deak and/or the 2nd Defendant, withdrawals were made from various DPFE bank accounts held with the 4th to 7th Defendants and other banks, and the said funds were transferred to the 3rd Defendant, the Deak National Bank, who thereupon transferred those funds (together with the sum of US$198,808.90 by which the Deak National Bank was indebted to DPFE) to some or all of the three petitioning companies in the Chapter 11 proceedings.

Particulars of the transfers to the Deak National Bank

and the alleged "Directors' Liability" were set out from paragraph 14 to paragraph 18 of the Statement of Claim which are as follows :-

"THE DIRECTORS' LIABILITY

14. At all material times Mr. Deak and/or the 2nd Defendant were directors of DPFE and therefore owed fiduciary duties to DPFE. The fiduciary duties obliged the said directors to faithfully serve DPFE and in particular to observe the following duties :-

(a) To act in the best interests of DPFE and not to act in a manner prejudicial to DPFE's interests; and

(b) to ensure that the funds of DPFE were not misapplied.

15. The said transfers of funds were made without consideration flowing to DPFE and were not made in the ordinary course of business, nor for the benefit of DPFE. In truth and in fact these transfers were made to augment the protected assets held by the companies protected by the said Chapter it proceedings to the detriment of DPFE.

16. The said transfers were made on the instructions of Mr. Deak and/or the 2nd Defendant acting in breach of the fiduciary duty they owed to DPFE by virtue of their office as directors.

Particulars of breaches of fiduciary duty

The transfers were made, without consideration flowing to DPFE, in order to enrich those companies in the Deak Group (and in particular Deak and Co. Inc.) protected by the Chapter 11 proceedings at a time when those companies were insolvent and at a time when, to the knowledge of Mr. Deak and the 2nd Defendant, the United States Companies in the Deak Group were preparing to seek or had sought Chapter 11 bankruptcy protection. To the knowledge of Mr. Deak and the 2nd Defendant the said transfers were not made in the interests of DPFE, but against the interests of DPFE, when it was known that the transfers would cause the insolvency and liquidation of DPFE. Alternatively the transfers constituted fraudulent preferences by the directors of DPFE contrary to Section 266 of the Companies Ordinance, Cap. 32.

17. By transferring those funds of DPFE, without consideration, in the manner aforesaid, Mr. Deak and/or the 2nd Defendant acted in breach of trust, and are accountable to DPFE as Constructive trustees for the funds or their monies equivalent.

18. As a result of Mr. Deak's and/or the 2nd Defendant's aforesaid breaches of fiduciary duty and breaches of trust, the Plaintiff has suffered loss in the sum of US$2,360,000.00 together with interest accruing thereon from the date of the transfers."

The acts by the 2nd Defendant, the subject matter of the Plaintiff's complaint were the acts of transferring DPFE's bank accounts held with the 4th to 7th Defendants totalling US$2,161,191.10 to the "debtors" and as stated in paragraph 18 the breaches of fiduciary duty and trusts resulted in the Plaintiff suffering loss in the sum of US$2,360,000 with interests.

32. Since the Plaintiff has reached a settlement with the debtors in the sum of US$2.36 million, the Plaintiff has suffered no loss.

33. The Plaintiff has attempted to file a Reply to the 2nd Defendant's defence. As the present application concerns the striking out of the Plaintiff's claim, I am concerned with the Plaintiff's claim only. If it is the Plaintiff's case as stated in his written submission that "the Reply makes it clear that liability is alleged against the 2nd Defendant whatever the status of the Stipulation now relied upon by the 2nd Defendant, and whatever the outcome of the proceeding in New York" counsel should have applied to amend the Statement of Claim. Since he has chosen not to amend then I am bound by what was pleaded.

34. In view of the fact that the decision of the New York Court that the 2nd Defendant was an affiliate was a decision on merit, and that the issues here are the same as the issues in the New York Court, accordingly the Plaintiff's claim against the 2nd Defendant is barred by issue estoppel and the Plaintiff's claim is struck out with costs.

Representation:

Raymond Faulkner inst'd by Haldane Midgley & Booth for 2nd Defendant.

Kevin Lewis inst'd by Official Receiver for Plaintiff.

HCA002951A/1987

 

1987, No. A2951

 

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_______________

 

BETWEEN

 

	DEAK PERERA FAR EAST LIMITED	Plaintiff
	(In liquidation)
	and
	R. LESLIE DEAK sued as the Personal Representative of Nicholas Louis Deak (deceased)	1st Defendant
	OTTO EMIL ROETHENMUND AMERICAN NATIONAL BANK OF NEW YORK, formerly known as DEAK	2nd Defendant
	NATIONAL BANK	3rd Defendant
	CHASE MANHATTAN BANK, N.A.	4th Defendant
	CANADIAN IMPERIAL BANK OF COMMERCE	5th Defendant
	STANDARD CHARTERED BANK	6th Defendant
	UNION BANK	7th Defendant

_______________

 

Coram: Hon. Barnes, J. in Chambers

Date of Hearing: 25th January 1988

Date of Delivery of Judgment: 5th February 1988

 

__________

JUDGMENT

__________

 

1. This is an appeal against a Master's decision dismissing an application which sought the setting aside of an order granting leave to issue a concurrent writ of summons and serve it out of the jurisdiction.

2. The original writ was issued on 20th May, 1987. The Statement of Claim avers that the Plaintiff company was incorporated in Hong Kong and was wound up by an order of this Court on 4th February, 1985 and that the Official Receiver was appointed liquidator.

3. The nature of the claims pleaded against the Defendants is set out, as follows, in the written outline of his submissions handed in by Mr. Fok, Counsel for the Appellant, the 7th Defendant:-

The action is brought against seven defendants on the basis of a number of different causes of action, arising from different factual situations.

The claim against the 1st and 2nd Defendants is based on their alleged breaches of fiduciary duty and breaches of trust.

The claim against the 3rd Defendant is based on its alleged knowing assistance in breaches of fiduciary duty by the 1st and 2nd Defendants and/or its own breach of fiduciary duty.

The claim against the 7th Defendant is based on its alleged wrongful transfer of funds from the Plaintiff's account with it, and/or its assistance in breaches of fiduciary duty/trust by the 1st and/or 2nd Defendants.

The claim against the 5th Defendant is based on its alleged unauthorised transfer on telex instructions of funds from the Plaintiff's account with it.

The claim against the 6th Defendant is based on its alleged unauthorised transfer on instructions by letter of funds from the Plaintiff's account with it.

The claim against the 7th; Defendant is based on its alleged unauthorised transfer on verbal and telex instructions of funds from the Plaintiff's account with it.

4. The 1st and 2nd Defendants are citizens of and reside in the United States of America. The 3rd and 7th Defendants are incorporated in the United States of America, carry on business there and are outside the jurisdiction. The 4th, 5th and 6th Defendants have addresses within the jurisdiction and have been served here.

5. The application for leave to serve the 1st, 2nd, 3rd and 7th Defendants outside the jurisdiction was lodged on 29th May, 1987. According to the affidavit filed in support of the application :

"the plaintiff's claim against the 4th, 5th and 6th Defendants is against companies served within the jurisdiction and the 1st, 2nd, 3rd and 7th Defendants are persons and companies out of the jurisdiction who are necessary and proper parties to the action."

An Order granting leave was made on 5th June, 1987.

6. On 26th October, 1987 the 7th Defendant filed the summons initiating the application which was subsequently dismissed by the Master who heard it on 1st December, 1987.

7. In the meantime, the solicitors for the 7th Defendant wrote on 17th November 1987 to the Official Receiver as follows :-

"We act, as you know, for both the 6th and 7th Defendants. The pleading as against the 7th Defendant ..... makes reference to telex instructions to the 7th Defendant and to a bank mandate.

Pursuant to Order 24 Rule 10 we give you notice to produce the telex or telexes and bank mandate referred to for our inspection ....."

8. R.S.C., 0.11, insofar as it is relevant to this appeal, provides as follows :-

"	1.	(1)     ...... [S] ervice of a writ out of the jurisdiction is permissible with the leave of the court if in the action begun by the writ
		...........
			(c)    the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto.
		..............
	4.	(2)     No such leave shall be granted unless it shall be made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction under this Order."

9. The Plaintiff concedes that the 7th Defendant is not a necessary party but contends that it is a proper party within the meaning of Rule 1(c).

10. The test for determining who is a proper party within the meaning of the Rule has long been held to be any party who could have been properly joined in the action had that party been within the jurisdiction ⁽¹⁾.  Mr. Fok concedes that the 7th Defendant would have been a proper party to the action if it had an address within the jurisdiction but submits that 19th century interpretations of the Rule have been corrupted by the development of the law concerning the forum non conveniens principle. Mr. Barlow's response to this, on behalf of the Plaintiff, is that the only point is whether service out of the jurisdiction should be allowed, that the forum argument should not be entertained without a prior application seeking leave to introduce it and that, if that had been done and heave granted, he would then have explained why it was necessary to proceed in Hong Kong.

11. In my view, the answer to the contending submissions is provided by Lord Goff's speech in Spiliada Maritime Corporation v. Cansulex Ltd. (The "Spiliada")⁽²⁾. In his speech, with which all other members of the House expressed their approval, he said, at page 9 :-

"[T]he law on this subject is still in a state of development; and it is perhaps opportune to review the position at this stage, and in particular to give further consideration to the relationship between cases where jurisdiction has been founded as of right by service of proceedings on the defendant within the jurisdiction, but the defendant seeks a stay of the proceedings on the ground of forum non conveniens, and cases where the Court is invited to exercise its discretion, under R.S.C., 0.11, to give leave for service on the defendant out of the jurisdiction."

12. In this consideration of the relationship between the two types of cases Lord Goff identified a fundamental principle applicable to both. Although that principle had hitherto borne the label "forum non conveniens" only when applied in cases of stay of proceedings, Lord Goff indicated that it was the identical principle, whether it bore that forum label or not, which was also applicable when the Court exercised its discretionary power under R.S.C., 0.11. Later in his speech he used the heading :

How the principle is applied in cases where the Court exercises its discretionary power under R.S.C., 0.11

and went on to say, at pp.13-4 :-

"	It seems to me inevitable that the question in both groups of cases must be, at bottom, that expressed by Lord Kinnear in Sim v. Robinow, (1892) 19 R. 665 at p. 668, viz. to identify the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice. That being said, it is desirable to identify the distinctions between the two groups of cases. These, as I see it, are threefold. The first is, as Lord Wilberforce indicated, in the 0.11 cases the burden of proof rests on the plaintiff, whereas in the forum non conveniens cases that burden rests on the defendant. A second, and more fundamental, point of distinction (from which the first point of distinction in fact flows) is that in the 0.11 cases the plaintiff is seeking to persuade the Court to exercise its discretionary power to permit service on the defendant outside the jurisdiction. Statutory authority has specified the particular circumstances in which that power may be exercised, but leaves it to the Court to decide whether to exercise its discretionary power in a particular case ...... Third, it is at this point that special regard must be had for the fact stressed by Lord Diplock in the Amin Rasheed Case, [1984] A.C. 50 at p.65, that the jurisdiction exercised under 0.11 may be 'exorbitant'. This has long been the law. In Societe Generale de Paris v. Dreyfus Brothers, (1885) 29 Ch. D. 239 at pp.242243, Mr. Justice Pearson said:
	'	It becomes a very serious question ...... whether this court ought to put a foreigner, who owes no allegiance here, to the inconvenience and annoyance of being brought to contest his rights in this country, and I for one say, most distinctly, that I think this court ought to be exceedingly careful before it allows a writ to be served out of the jurisdiction.'
	That statement was subsequently approved on many occasions, notably by Lord Justice Farwell in The Hagen, [1908] P. 189 at p.201, and by Lord Simonds in your Lordships' House in Tyne Improvement Commissioners v. Armement Anversois S.A. (The Brabo), [1949] A.C. 326 at 350. The effect is, not merely that the burden of proof rests on the plaintiff to persuade the Court that England is the appropriate forum for the trial of the action, but that he has to show that this is clearly so. In other words, the burden is, quite simply, the obverse of that applicable where a stay is sought of proceedings started in this country as of right.Even so, a word of caution is necessary. I myself feel that the word 'exorbitant' is, as used in the present context, an old fashioned word which perhaps carries unfortunate overtones: it means no more than that the exercise of the jurisdiction is extraordinary in the sense explained by Lord Diplock in the Amin Rasheed case, [1984]A.C. 50 at 65. Furthermore, in 0.11 cases, the defendant's place of residence may be no more than a tax haven to which no great importance should be attached. It is also significant to observe that the circumstances specified in 0.11, r.1(1), as those in which the Court may exercise its discretion to grant leave to serve proceedings on the defendant outside the jurisdiction, are of great variety, ranging from cases where, one would have thought, the discretion would normally be exercised in favour of granting leave (e.g., where the relief sought is an injunction ordering the defendant to do or refrain from doing something within the jurisdiction) to cases where the grant of leave is far more problematical. In addition, the importance to be attached to any particular ground invoked by the plaintiff may vary from case to case. For example, the fact that English law is the putative proper law of the contract may be of very great importance (as in BP Exploration Co. (Libya) Ltd. v. Hung, [1976] 1 Lloyd's Rep. 471 .....); or it may be of little importance as seen in the context of the whole case. In these circumstances, it is, in my judgment, necessary to include both the residence or place of business of the defendant and the relevant ground involved by the plaintiff as factors to be considered by the Court when deciding whether to exercise its discretion to grant leave; but, in so doing, the Court should give to such factors the weight which, in all the circumstances of the case, it considers to be appropriate."

13. Under 0.11 the Court is faced with two issues a "jurisdictional issue" as to whether the applicant's claim falls within any of the "permissible" categories mentioned in r.1(1), and the "discretion issue" raised by r.4(2). Spiliada was concerned, almost exclusively, with the discretion issue. It affects Massey only to the extent of saying that, in one case, ground r.1(c) may tip the scales so that the discretion favours the applicant and yet, in another case, be of little importance when seen in the context of the whole case.

14. On the jurisdiction issue I accept Mr. Barlow's submission that Massey provides a sound basis for holding that the 7th Defendant is a proper party to the action and reject Mr. Fok's submission that Spiliada has pushed Massey towards irrelevance. On the discretion issue, however, I accept Mr. Fok's submission that Spiliada does require the Court to apply the forum non conveniens principle when considering that issue and reject Mr. Barlow's submission that there is no onus on him to show, ab initio, that the home forum is "conveniens".

15. In the affidavit filed by the Plaintiff in support of the application the deponent swore as follows:

"

I believe that the banks may have had notice that the withdrawals were improperly made and may be liable to the Plaintiff as constructive trustees for the amounts withdrawn.

The Plaintiff was incorporated in Hong Kong and is being wound up by the Official Receiver. The Plaintiff's witnesses in the action reside in Hong Kong. It is probable that there will be witnesses of some or all of the Defendants from the United States of America or Canada. I believe that the 1st Defendant and the grid Defendant are reasonably wealthy and certainly not impecunious and to attend trial of the action in Hong Kong should not be of any serious handicap to them. However, the 2nd Defendant may be reluctant to come to Hong Kong because of fear of prosecution in respect of certain of his activities while a director of the Plaintiff. The 3rd and 7th Defendants are banks and to send their representatives to Hong Kong for trial of the action should not be of any serious hardship to them. The Plaintiff's claims against the Defendants will have to be decided according to Hong Kong law."

16. Mr. Fok submits that that affidavit is misleading in two important respects. Firstly, it suggests that the 7th Defendant might be liable as a constructive trustee whereas the claim against that Defendant specifically alleges breach of contract. Secondly, it implies that the Plaintiff' claim against the 7th Defendant will have to be decided according to Hong Kong law.

17. Mr. Barlow agrees that the Plaintiff's claim against the 7th Defendant in respect of a sum of $30,000 is based on a different cause of action from that relied on in respect of the claims against the 1st, 2nd and 3rd Defendants but he submits that, since it is the same sum which the Plaintiff seeks to recover from each of those Defendants, leave to serve outside the jurisdiction should be granted.

18. The claim is based upon an alleged breach of a banker-customer contract entered into in California between a bank with no address outside the United States of America and a customer incorporated in Hong Kong but then conducting business in the United States of America. The usual form of such a contract provides that the law of the banker's place of business must govern the interpretation of the contract's terms and that that same place of business must be the forum within which rights enforceable under the contract are to be litigated. The Plaintiff pleads no facts to show that this was an unusual banker-customer relationship but relies on a sweeping assertion that the claims against all "Defendants will have to be decided according to Hong Kong law". Given the likelihood that the Plaintiff agreed to litigate in a foreign forum and bearing in mind that the 7th Defendant has no place of business other than in the United States of America; that the person who constituted the Plaintiff's physical presence when the contract was entered into still resides in that country; and that the alleged breach occurred there, it seems to me that it would be exorbitant to require the 7th Defendant to litigate here -- exorbitant within Lord Diplock's meaning ⁽³⁾ because the appropriate forum, when one leaves aside for the moment the effect of r.1(c), is a Court in a foreign country whose jurisdiction is recognised under our conflict rules.

19. The only factor in the Plaintiff's favour that I can see in trying to comply with Lord Goff's "word of caution" is the ground invoked in support of the application. If that ground operated so as to give the Plaintiff some "legitimate personal or juridical advantage" which it would lose if forced to litigate elsewhere then that factor would have some weight in mitigating the exorbitancy situation just mentioned. Mr. Barlow submitted that if all claims were litigated here and the Plaintiff obtained judgment against more than one Defendant in respect of the $30,000 claim, then it would have an election as regards enforcing the judgment and the Defendants would be provided with an opportunity to claim contribution amongst themselves. It is difficult to see why the opportunity of making such an election would not still be available to the Plaintiff it if proceeded separately against the 7th Defendant in the United States. The other factor offers no advantage and causes no disadvantage to either the Plaintiff or the 7th Defendant. There was certainly no hint, in any of Mr. Barlow's submissions, of any injustice likely to be suffered by the Plaintiff in pursuing its remedy against the 7th Defendant in the United States. Even if I were persuaded to give some weight to the considerations advanced I still do not see how they could, in the circumstances of this case, tip the scales in favour of Hong Kong being adjudged the forum best suited to serve the interests of the parties and meet the ends of justice. The discretion issue must, therefore, be decided in the 7th Defendant's favour.

 

20. The Plaintiff submits that the 7th Defendant by its solicitors' letter of 17th November, 1987 took a step in the proceedings and thereby nullified the jurisdiction of the Court to set aside the Order granting leave to serve outside the jurisdiction.

21. The authorities to which counsel referred me for guidance as to what constitutes a "step" for this purpose were Eagle Star Insurance Co. v. Yuval Insurance Co.⁽⁴⁾, Ives and Barker v. Willans⁽⁵⁾ and Musti11 and Boyd, Commercial Arbitration, p.421. From those authorities it appears that the 7th Defendant's conduct did not constitute "a step" unless it (a) demonstrated an election to abandon its right to have the service order set aside and (b) had the effect of invoking the jurisdiction of this Court.

 

22. The solicitors' letter was written after the filing of the summons applying for the order to be set aside. What the 7th Defendant sought was inspection of the bank mandate and the telexes referred to in the Plaintiff's claim. A key question on the 7th Defendant's application was the proper law of the contract alleged by the Plaintiff to have been breached. The documents in respect of which the 7th Defendant requested inspection were relevant to that question : inspection was not requested in respect of any document relevant to the merits of the Plaintiff's claim beyond the proper law of the contract issue. The 7th Defendant's conduct was, therefore, completely consistent with an intention to pursue its application to set aside : it was not conduct evincing an election to abandon its right. The 7th Defendant did not, therefore, nullify the Court's jurisdiction to set aside the Order.

23. I allow the appeal, set aside the Order granting leave to serve the 7th Defendant outside the jurisdiction and order the Plaintiff to pay the 7th Defendant's costs both here and before the Master. I grant liberty to apply.

 

 

 

 

(E. C. Barnes) Judge of the High Court

(1)    Massey v. Heynes, (1888) 21 QBD 330

(2)    [1987] 1 Lloyd's Rep.1

(3)    Amin Rasheed, at 65-66

(4)   [1978] 1 Lloyd's Rep.357

(5)   [1894]2 Ch.478

 

 

Representation:

Mr. Barrie Barlow inst'd by Official Receiver for the Plaintiff.

Mr. J. Fok inst'd by Messrs. Deacons for the 7th Defendant.