BALRAM CHAINRAI v. KUSHNIR FAMILY (HOLDINGS) LTD AND OTHERS

HCA 1462/2014

[2021] HKCFI 976

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1462 OF 2014

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D E C I S I O N

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Application before the court and relevant procedural background

1.  By an earlier decision dated 4 January 2018[1] (“Decision”), I dismissed the applications by the 3^rd defendant Mr Israel Sorin Shochat (“Shochat”) by summonses dated 3 May 2016 and 5 October 2016 respectively to strike out this action against him (“Striking Out Application”) and to adduce additional evidence in the form of the transcript (“Transcript”) of the testimony of the plaintiff Mr Balram Chainrai (“Chainrai”) on 29 August 2012 at the hearing of the arbitration proceedings in Israel between Chainrai and Shochat in support of the Striking Out Application (“Additional Evidence Application”). 

2.  I also made an order nisi that Shochat should pay Chainrai’s costs of and occasioned by the Striking Out Application and the Additional Evidence Application (“Applications” collectively), to be taxed on a party and party basis if not agreed, with certificate for two counsel for the hearings on 12 September 2016 and 22 February 2017 (“Costs Order”).  Pursuant to Order 62, rule 9D(1)[2], unless varied, Chainrai’s costs under the Costs Order would have to be taxed at the conclusion of this action.  See Big Boss Investment Limited v So Lai Kei [2010] HKLRD 793 at [11] per Madam Registrar Au-Yeung (as Au-Yeung J then was); and DysonTechnology Limited v German Pool Group Company Limited, HCA 838/2011, unreported, 19 September 2014, at [23] and [24], per To J.

3.  There was no application by either party to vary the Costs Order, which should in the absence of an extension of time become absolute 14 days after the pronouncement of the Decision, i.e. on 18 January 2018.  See Order 42, rule 5B(6) of the Rules of the High Court (Cap 4A) which stipulates, “Where a written judgment is handed down pursuant to this rule the Court may make therein an order nisi as to costs and, unless an application has been made to vary that order, that order shall become absolute 14 days after the decision is pronounced.”

4.  The Costs Order was drawn up by Chainrai’s solicitors WMC Partners (“WMC”) and was sealed on 18 January 2018.  However, the perfected order is defective in that it fails to reflect the provisional nature of the Costs Order.

5.  Now before the court is Chainrai’s application by summons dated 18 April 2019 (“Summons”) for leave to tax the costs awarded to him under the Costs Order forthwith and for the costs of and incidental to this application to be in the cause of the taxation of Chainrai’s bill of costs under the Costs Order.

Chainrai’s grounds in support of the Summons

6.  Mr Henry Wong of WMC contends on behalf of Chainrai that the Summons is not for a variation or amendment of the Costs Order as suggested by Shochat but is a fresh application for an order properly framed under Order 62, rule 9D(2) which provides: “If it appears to the Court when making a costs order that all or any part of the costs ought to be taxed at an earlier stage it may order accordingly.”

7.  The advanced taxation of Chainrai’s costs under the Costs Order is necessitated by the serious delay of the proceedings caused by Shochat’s repeated unmeritorious interlocutory applications.  More particularly:

(1)     The statement of claim was filed on 11 February 2016.  Instead of filing and serving his defence and (if any) counterclaim on or before 10 March 2016, Shochat took out the Striking Out Application on 3 May 2016.

(2)     After the conclusion of the hearing of the Striking Out Application on 12 September 2016, by a letter dated 15 September 2016, Shochat’s solicitors Hoosenally & Neo wrote to the court enclosing, and seeking leave to rely on, pages 292 to 297 of the Transcript in support of the Striking Out Application. 

(3)     On 23 September 2016, this court directed Shochat to issue a summons, and file and serve a supporting affidavit, for leave to adduce the Transcript.  By a summons dated 5 October 2016, Shochat formally made the Additional Evidence Application, which was heard on 22 February 2017. 

(4)     Both the Applications were dismissed by the Decision with costs against Shochat on 4 January 2018.

(5)     Pursuant to an earlier court order dated 20 May 2016, leave had been granted to Shochat to file and serve his defence and counterclaim on or before 1 February 2018.  However, Shochat did not comply with such order.  Instead, he took out a summons on 31 January 2018 to challenge the jurisdiction of the court (“Jurisdiction Application”).  Master Eliza Chang, after hearing the Jurisdiction Application on 13 September 2018, dismissed it on 8 February 2019.

(6)     Up to the date of the hearing of the Summons on 6 May 2019, which was more than 3 years since the filing of the statement of claim by Chainrai, Shochat had still not filed his defence and counterclaim.[3]

8.  Mr Wong further informed this court that Shochat had consented to having the costs order in favour of Chainrai made by Master Eliza Chang on 8 February 2019 in dismissing the Jurisdiction Application to be taxed forthwith.   In the circumstances, it is submitted that it would be highly unfair and inequitable to Chainrai if he has to wait for his costs under the Costs Order to be taxed only after the conclusion of the action, which has been substantially delayed by the Shochat’s series of unmeritorious interlocutory applications.

Grounds of Opposition by Shochat

9.  Mr Albert Chan, counsel for Shochat, opposes the Summons on the ground that this court has become functus officio such that it has no further jurisdiction over this matter once the Costs Order had become absolute and been perfected.  The proper course for Chainrai is to seek leave to appeal against the Costs Order out of time pursuant to s 14(3)(e) of the High Court Ordinance (Cap 4) and Order 59, rule 2B(1)(c). The present application tries to circumvent the procedural requirements of the court under these provisions.

True nature of the application by the Summons

10.  I do not think Chainrai can circumvent Order 42, rule 5B(6) (already set out in [3] above) by framing the present applicant under Order 62, rule 9D(2) (already set out in [6] above).

11.  Order 62, rule 9D(2) gives the court a discretion to direct immediate taxation in making an order relating to the costs of an interlocutory application.  It does not provide the jurisdictional basis for a judge of the Court of First Instance to make a different costs order after he/she has made an order dealing with the costs of an interlocutory application.  This can only be done under Order 42, rule 5B(6) upon an application to vary made within 14 days or such extended time if the interlocutory costs order has been made on a nisi basis.

12.  Calling a spade a spade, the Summons in effect seeks, and I shall dispose of it as an application for, (1) an extension of time to vary the Costs Order and (2) a variation of the Costs Order by allowing immediate taxation of Chainrai’s costs. 

13.  The discretion to extend time is conferred by Order 3, rule 5(1) and (2) which provides as follows:

“(1) The Court may, on such terms as it thinks just, by order extend or abridge the period within which a person is required or authorized by these Rules, or by any judgment, order or direction, to do any act in any proceedings. (emphasis added)

(2)     The Court may extend any such period as is referred to in paragraph (1) although the application for extension is not made until after the expiration of that period.”

14.  That the court may grant an application for an extension of time for an application to vary a costs order nisi made after the expiry of the 14 day period prescribed in Order 42, rule 5B(6) is made clear by MaWan Farming Ltd v Chief Executive in Council [1998] 2 HKLRD 314 (CA).  In that case, the appellant was late in applying to vary the order nisi as to costs made by the Court of Appeal and applied, after the 14 day period under Order 42, rule 5B(6) had expired, for an extension of time, which it contended that the court had a discretion to grant under, inter alia, Order 3, rule 5.  Liu JA said at 317F-I:

“… A judgment clearly takes effect from the date of its pronouncement but when a handed down judgment contains a provisional costs order, the provisional costs order would nevertheless remain tentative, albeit made in a final judgment and the tentative costs order is liable to be re-ventilated as provided for in O.42 r.5B(6) … If an extension were granted for making an application under O.42 r.5B(6), the order nisi would not become absolute because it shall become absolute ‘unless an application has been made to vary’ it within the time prescribed or extended. The order nisi may be made absolute if the application is dismissed or otherwise made final subject to some variation if the application succeeds. The order nisi may be altogether replaced. Time for appeal against costs would run from a final costs order and the procedural predicament postulated by [counsel for the respondent][4] would not arise. In my view, this court has jurisdiction to extend time to the appellant for making an application to vary the order nisi. …” (emphasis and footnote added)

15.  Ma Wan Farming Ltd was followed by the Court of Appeal in Tang Man Kit v Hip Hing Timber Company Limited,CACV 137/2002, unreported, 8 June 2006, in which Cheung JA (with whom Yeung JA agreed)[5] analysed:

“6. In Ma Wan Farming Limited v. the Chief Executive in Council and another(No.2) [1998] 2 HKLRD 314, this Court (Nazareth VP, Liu and Mayo JJA) was of the view that the court has jurisdiction under Order 3, Rule 5 and Order 59, Rule 10 to allow time to be extended for a variation of the costs nisi.

7. …

8. …

9. I am further of the view that Ma Wan Farming Limited was correctly decided. Liu JA held that Rule 5B(6) implicitly authorizes a party to apply to vary an order nisi within 14 days. As the 14 days is a time prescribed by the Rules for the doing of an act in any proceedings, Order 3, Rule 5 and Order 59, Rule 10 (inherent jurisdiction), would allow such a time to be extended.

10. I think the reasoning is sound and supported by the wording of Order 3, Rule 5(1) which provides that

‘5(1) The Court may, on such terms as it thinks just, by order extend or abridge the period within which a person is required or authorized by these rules, or by any judgment, order or direction, to do any act in any proceedings.’ (emphasis added)

As Rule 5B(6) provides for 14 days for a party to vary the order nisi, Order 3 Rule 5(1) is engaged. Once there is jurisdiction to extend time, the application to extend time can be made either before or after the time prescribed by the rules. This is also clear from Order 3, Rule 5(2) which provides that

‘(2) The Court may extend any such period as is referred to in paragraph (1) although the application for extension is not made until after the expiration of that period.’

11.     This reasoning is supported by authorities such as Manley Estates Ltd. v. Benedek [1941] 1 All ER 248 and Regina v. Bloomsbury & Marylebone County Court ex parte Villerwest Ltd [1976] 1 WLR 362.  The fact that Rule 5B(6) provides for an eventual event, namely, the order becoming absolute is not a basis for excluding the jurisdiction[6].  In terms of logic, it is no different from, for example, an order giving judgment or dismissing an action unless a party perform certain acts within a specified period.  In such a case, the court still has jurisdiction to extend time for the act to be done after the period has expired.  While I appreciate the requirement of finality of a decision, the rationale for making a provisional order on costs is that arguments have not been heard and hence the parties are given time to vary the order.  This being the case it is inconceivable that the jurisdiction to vary the costs order can only be exercised if an application is made within the 14-day period but not otherwise.  This being the case, Ma Wan Farming Limited is binding on this Court and hence the Court retains jurisdiction to extend time.”

16.  Lastly, I note that, in a different context, the Court of Final Appeal eschewed a rigid mechanistic approach in Astro Nusantara International BV v PT Ayunda Prima Mitra[7](2018) 21 HKCFAR 12 and emphasised, at [53] and [90], that the discretion to extend time conferred by Order 3, rule 5 is broad and unrestricted, designed to enable justice to be done between the parties, and that the proper test involves looking at all relevant matters and considering the overall justice of the case.  See also Hong Kong Civil Procedure 2021, Volume 1, at §3/5/2.

Whether this court is functus officio

17.  In Lilik Andayani v Chan Oi Ling [2000] 4 HKC 233, relied upon by Shochat, Keith JA said at 237C-G:

“There must, of course, come a time in any proceedings when the court must be regarded as having completed its task. When that time is reached, the court is said to be functus officio. Once that stage has arrived, the court has no further jurisdiction over the case. But when does that stage arrive? The answer given by the common law is when the judge’s order has been drawn up, entered or otherwise perfected. As Slesser LJ said in Millensted v. Grosvenor House (Park Lane) Ltd. [1937] 1 KB 717 at p. 722:

‘It was not sought to be disputed…that it is within the power of a judge at any time before judgment is entered and perfected to alter its terms.  This is the effect of two judgments, the case of In re St. Nazaire Company (1879) 12 Ch D 88, which case it was held, following Inre Australian Direct Stream Navigation Co., Millers’ case (1876) 3 Ch D 661, that a judge can always reconsider his decision until the order has been drawn up, and the case of In re Suffield & Watts ex parte Brown (1888) 20 QBD 693, to the effect that ‘so long as the order has not been perfected the judge has a power of reconsidering the matter, but, when once the order has been completed, the jurisdiction of the judge over it has come to an end’…”

18.  I am of the view that this court has not become functus officio insofar as the Costs Order is concerned. 

19.  In so ruling, I respectfully depart from Mr Justice Anthony Chan’s decision in RTX Products Hong Kong Limited v Li Yiu Fai, HCA 1777/2009, unreported, 12 November 2014, also relied upon by Shochat.  In that case, by a judgment dated 6 September 2011, Anthony Chan J upheld the plaintiff’s claim after trial and made an order nisi that the defendant should bear the costs of the action.  In the absence of any application to vary, the costs order nisi became absolute on 20 September 2011.  The judgment, including the costs order nisi, was sealed on 18 October 2011.  The defendant appealed against the judgment, but not the costs order nisi.  The appeal was dismissed on 8 July 2013 with costs to the plaintiff.  The defendant did out take a summons to vary the costs order of 6 September 2011.  The only explanation for the 3-year delay was that the defendant had recently received pro bono legal advice concerning a sanctioned offer made by his solicitors before the trial in September 2009.  In dismissing the application, Anthony Chan J agreed with the plaintiff’s submission that the court had become functus officio such that it had no further jurisdiction over the case upon the perfection of the judgment on 18 October 2011 and any disagreement would then have to be pursued on appeal.

20.  As observed by Liu JA in Ma Wan Farming Ltd at 317B-C, a party is implicitly authorised by Order 42, rule 5B(6) to apply to have an order nisi as to costs varied within 14 days after the written judgment containing such an order is handed down.  And Ma Wan Farming Ltd and Tang Man Kit are binding authorities that the 14-day period mandated by rule 5B(6) can be extended under, inter alia, Order 3, rule 5.  Let us consider the case where a judgment incorporating an order nisi as to costs is sealed before the expiry of the 14-day period for the making of an application to vary the order, which is certainly possible.  In such a situation, would the early perfection of the order nisi extinguish a party’s built-in right under Order 42, rule 5B(6) to apply to vary the order nisi?  The answer is clearly negative.  And given that the time for an application to vary a costs order nisi can (in an appropriate case) be extended, I fail to see how the timing of the perfection of such an order can take away the court’s jurisdiction, where proper, to extend time under Order 3, rule 5 and to vary the order under Order 42, rule 5B(6).

21.  In this regard, I also find what the Court of Appeal said in Tang Man Kit, supra, at [11] (quoted in [15] above) instructive.

Whether time should be extended

22.  In order to succeed on the Summons, Chainrai has to show that there is justifiable reason for not making the application to vary within time and there are merits in having the Costs Order varied to allow immediate taxation: see Tang Man Kit, supra, at [12] per Cheung JA. 

23.  In my opinion, the Summons should be dismissed for lack of a reasonable explanation for the delay. 

24.  As summarised in [7] above, the Summons was prompted by Chainrai’s concern about the delay in the progress of this action resulting from Shochat’s repeated unmeritorious interlocutory applications. 

25.  I am not persuaded by such justification.  By the time of the Decision, almost 23 months had already lapsed since the filing and service of the statement of claim.  While the making of the failed Jurisdiction Application and the appeal therefrom can be said to strengthen the point, the argument in support of the present application could well have been credibly made within the 14 days permitted under Order 42, rule 5B(6).  Further, it is worthy of note that Chainrai issued the writ of summons in this action on 31July 2014 but did not file the statement of claim until 11 February 2016.  Any delay in the progress and conclusion of these proceedings is certainly partly contributed to by Chainrai himself.

26.  It is unnecessary to consider the merits of immediate taxation under the Costs Order.

Disposition

27.  For the aforesaid reasons, I dismissed the Summons.  I also make a costs order nisi that Chainrai should pay Shochat’s costs of and incidental to the Summons, to be taxed on a party and party basis if not agreed with certificate for counsel.

HCA 1462/2014

[2020] HKCFI 188

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1462 OF 2014

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DECISION ON COSTS

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1.  On 22 November 2019 I handed down judgment in an appeal against a decision of Master Eliza Chang in which she gave leave to the plaintiff to serve a concurrent Writ of Summons out of the jurisdiction on,amongst others, the 3^rd defendant. I dismissed the appeal.

2.  At paragraph 126 of the judgment I ordered, on a nisi basis, that “the 3^rd defendant is to pay the costs of the plaintiff to be taxed if not agreed on a standard basis”.

3.  I gave leave for the parties to apply within 7 days of handing down of the judgment to seek to vary the costs order nisi.

4.  On 29 November 2019 both the plaintiff and the 3^rd defendant made an application:

(1)  The plaintiff applied for an order that the costs be summarily assessed, with further directions for the plaintiff to file a Summary of Costs and the 3^rd defendant to file his objections, or alternatively for the costs to be taxed forthwith.

(2)  The 3^rd defendant applied to change the word “standard” to the phrase “party and party”, on the basis that there is no such thing as a “standard” basis for costs.

5.  I accept the 3^rd defendant’s submission.  My use of the word “standard” was intended to distinguish the basis of taxation from an indemnity cost basis.  I therefore vary the order from a “standard” basis to a “party and party” basis.

6.  As to the plaintiff’s application, I note that the 3^rd defendant has not made any submissions in opposition. 

7.  The basis of the application is essentially that the 3^rd defendant has, through his various procedural steps, delayed the progress of this action for nearly four years, and that it is, in the circumstances unfair that the plaintiff should be required to bear the costs of the unsuccessful appeal until conclusion of the case.

8.  The power to make a summary assessment is set out in Order 62, rule 9A of the Rules of the High Court.  There is little guidance contained within Hong Kong Civil Procedure as to the circumstances in which a summary assessment should be made, and the plaintiff has not produced any authorities which persist.  Hong Kong Civil Procedure quotes Recommendation 88 of the Working Party on Civil Justice Reform as follows:

“ The court should, whenever appropriate (whether as a response to an unwarranted application or unwarranted resistance to an application, with a view to saving costs or otherwise), make a summary assessment of costs when disposing of interlocutory applications.”

9.  If that were taken to be the only guidance available it would indicate that a summary assessment should only be made in response to an unwarranted application.  Whilst I have dismissed this application, I do not consider that it was unwarranted.  As will be clear from my judgment, I took the view that the Master was not correct in various aspects, and I decided the matter on a different basis.  It is also correct that many of the propositions which were advanced by the plaintiff have been rejected in my judgment.

10.  In addition the application was a complex application, with multifaceted arguments from both sides.  It lasted for a full day and involved four counsel.  I do not expect that the costs incurred are small, and I am, in all the circumstances, not convinced that this is an appropriate case for a summary assessment.

11.  Insofar as the timing of the taxation is concerned, that is addressed in Order 62, rule 9D of the Rules of the High Court.  Absent an order for an immediate taxation and payment the costs are to be taxed at the conclusion of the action.

12.  I think that there is some merit in the argument that the applications brought by the 3^rd defendant have delayed the swift resolution of this case.  The history is fully set out in my judgment and I do not repeat it.  In my view it is an appropriate case for an order that taxation is to occur forthwith.

13.  Therefore I vary my costs order nisi such that it shall read: “the 3^rd defendant is to pay the costs of the plaintiff on a party and party basis to be taxed forthwith if not agreed.”

HCA 1462/2014

[2019] HKCFI 2866

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1462 OF 2014

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J U D G M E N T

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1.  This hearing is on appeal by the 3^rd defendant against the decision of Master Eliza Chang dated 8 February 2019 in which she dismissed the 3^rd defendant’s summons dated 31 January 2018 in which the 3^rd defendant sought:

(1)  an order that the ex parte order of Master K Lo (dated 16 November 2015) giving leave to the plaintiff to serve the concurrent Writ of Summons out of the jurisdiction on, amongst others, the 3^rd defendant be set aside;

(2)  a declaration that in the circumstances of the case, the court had no jurisdiction over the 3^rd defendant in respect of the subject matter of the claim or the relief or remedy sought in this action; and

(3)  alternatively, an order that all further proceedings in this action be stayed on the ground of forum non conveniens.

A.  THE UNDERLYING DISPUTE

2.  The plaintiff is a Hong Kong businessman and the 3^rd defendant is an ethnic Hebrew resident in Israel.  They were business partners from the 1990s until mid-2007, during which time the 3^rd defendant introduced to the plaintiff business ventures in Israel that were transacted in the Hebrew language.

3.  In 2005 and 2006, upon the 3^rd defendant’s introduction, the plaintiff extended a loan (“the Loan”) of New Israeli Shekel (“NIS”) 29,500,000 to the 1^st defendant, a company owned and controlled by the 2^nd defendant, to finance the 1^st defendant’s purchase of 35% of the shares in Nechushtan Investment Company Limited, a company registered under the laws of Israel and then listed on the Tel Aviv Stock Exchange.  The Loan was paid in three tranches and was repayable on 20 June 2008 with an agreed sum for interest.  It was secured by a Share Pledge over the shares.  It has not been repaid.

4.  Although the plaintiff was registered as the sole lender, the 3^rd defendant in fact contributed half of the Loan.  In around mid-2007 the plaintiff and the 3^rd defendant fell into dispute over a different transaction and they ceased any direct communication between themselves from November 2007 onwards.  On 30 October 2007 the plaintiff purported to assign all the rights under the Loan and the Share Pledge to his brother-in- law, thereby disregarding the 3^rd defendant’s contribution to the Loan and his rights in respect of it.

5.  The 3^rd defendant commenced proceedings in Israel in December 2007 against the plaintiff in which he sought declarations and other relief related to his interests under the Loan (in fact they were originally brought against the brother-in-law and against the 1^st and 2^nd defendants as well, but the proceedings were struck out against those parties due to the lack of a cause of action).  The plaintiff counterclaimed against the 3^rd defendant in Israel for approximately NIS 32,000,000 arising from alleged breaches of fiduciary duty as a trustee of the plaintiff’s funds and investments regarding other joint ventures between them.

6.  In 2011 those proceedings were converted into an arbitration seated in Israel (“the Israeli Arbitration”).

7.  During the course of the Israeli Arbitration the Loan matured and, at the request of the 2^nd defendant, the plaintiff twice extended the term of the Loan without requiring further interest and without reference to the 3^rd defendant.  The second extension was apparently for an indefinite period.

8.  Nechushtan was wound up on 7 January 2013.

9.  The Israeli Arbitration gave rise to an award dated 31 October 2013 in which the 3^rd defendant’s claims were upheld and the counterclaims which had been brought by the plaintiff were dismissed.  It was held that the 3^rd defendant was entitled to receive from the plaintiff his share of the Loan, together with interest. 

10.  The plaintiff appealed against the award to the Israeli Courts but:

(1)  on 18 May 2014 the Tel Aviv-Jaffa District Court (sitting as a court of appeal) dismissed the plaintiff’s application for leave to appeal against the award and to set it aside;

(2)  on 13 July 2015 the Supreme Court dismissed the plaintiff’s application for leave to appeal against the decision of the Tel Aviv-Jaffa District Court;

(3)  on 26 August 2015 the Supreme Court dismissed the plaintiff’s application for a further hearing against its decision dated 13 July 2015;

(4)  on 20 September 2015 the Tel Aviv-Jaffa District Court made a decree approving the award.

11.  On 31 July 2014 the plaintiff issued the writ in the present proceedings.  The general endorsement of the claim is in the following terms:

“ The plaintiff claims against the 1^st, 2^nd, 3^rd and 4^th defendants for a total outstanding sum of Israeli New shekel NIS$29,500,000 (approximately Hong Kong dollar 66,670,000 based on an exchange rate of NIS$1=HK$2.26) plus interest thereon at a rate or rates and for a period or periods this court shall deem fit up to the date of judgement and thereafter at the judgement rate upon payment, in relation to or resulting from the loan agreement arranged by the 3^rd defendant and executed between the plaintiff and the 1^st defendant in between about June 2005 and about February 2006, with the 2^nd defendant as the guarantor for the respective loans, when during all material times the 4^th defendant was a core legal adviser to the plaintiff, for the 1^st, 2^nd, 3^rd and/or 4^th defendants’, and/or their agents’ or servants’, conduct amounting to breach of contract, negligence, breach of fiduciary duties, collusion or conspiracies to defraud the plaintiff, breach of professional codes of conduct and/or in the capacity as guarantor to the loans, as the case(s) may be, which in turn caused the loss and damage now suffered by the plaintiff.”

12.  The nature of the action has been expanded upon by the statement of claim, although that was not served until 11 February 2016. 

13.  Insofar as the 3^rd defendant is concerned, the Statement of Claim pleads an oral contract entered into between the plaintiff and the 3^rd defendant in or around 2004 under which the 3^rd defendant became the plaintiff’s investment adviser.  It is said that the 3^rd defendant owed “general duties under the law and also fiduciary duties to the plaintiff as the plaintiff’s adviser and lead investment partner”.  In relation to the Loan, it is alleged that it was procured by the 3^rd defendant, including by reference to assurances given by the 3^rd defendant, in breach of contract, negligently and in breach of fiduciary duty, as to the ability of the 1^st defendant to repay the Loan despite the fact that he knew or ought to have known that the Nachushtan companies were in trading and financial difficulties.   

14.  Insofar as the 2^nd defendant is concerned, the Statement of Claim alleges that he was the controlling head of the 1^st defendant and repeatedly gave assurances to the plaintiff as to the ability of the 1^st defendant to repay the Loan.  One of the purposes of him being introduced to the plaintiff was, it is alleged, so that he and the plaintiff could become business partners together with the 3^rd defendant, so that further fruitful investments could be made together.  It is alleged that the 2^nd defendant breached fiduciary duties owed to the plaintiff and was negligent in the respects pleaded at paragraph 35 of the Statement of Claim, which relate essentially to withholding information concerning the trading and financial difficulties of the Nachushtan companies, and failing to cause repayment of the Loan.

15.  It is unnecessary to address the case against the 4^th defendant, as the plaintiff has subsequently discontinued the proceedings against him.

B.  PROCEDURAL HISTORY OF THE ACTION

16.  The Writ, which was issued on 31 July 2014, was not served within its 12-month validity period, but, on 24 July 2015, was extended for 12 months.

17.  On 17 July 2015 the plaintiff made an ex parte application for leave to serve a concurrent Writ out of the jurisdiction.  That application was supported by the 1^st affidavit of Wong Ho Cheong Henry dated 16 July 2015.  The application, and the affidavit in support, was clearly defective in that the affidavit purported to rely upon Order 11, rule 1(1)(c) (“the Necessary or Proper Party Gateway”) of the Rules of the High Court (“RHC”), but failed to identify an anchor defendant (ie one that had already been served) and failed to identify any real issue to be tried by the Hong Kong court against that anchor defendant.  Therefore the application did not fall within the Necessary or Proper Party Gateway, and the affidavit failed to comply with the requirements of RHC Order 11, rule 4(1). As a result the master returned requisitions to the plaintiff.

18.  By an affirmation of the plaintiff dated 15 September 2015 the plaintiff purported to answer the requisitions made by the master.  He set out some background information, including that he and the 3^rd defendant became good friends whilst they were trading in New York in the 1990s and that over time the 3^rd defendant had proposed various investments to him which he would invest in if he was convinced.  He identified how the 3^rd defendant had persuaded him to invest in the Nachushtan Transaction, and he contended that he did so on the basis of information or advice he received from the 1^st, 2^nd and 3^rd defendants on the “well-being” of Nachushtan from time to time.  He says that he would not have invested had he known of the financial or trading difficulties of Nachushtan, and he entirely relied upon the 1^st, 2^nd and 3^rd defendants for their local knowledge, information and advice in this respect.  He contended that they all owed contractual and tortious duties to him and that he has a good cause of action against each of them which he had been advised he could reasonably ask the court to try.

19.  That affirmation too was defective in that it did not identify an anchor defendant.  As a result the Master issued a second set of requisitions identifying that there must be a defendant who has already been served within, or out of, the jurisdiction.  The Master also required that all the documents pleaded should be exhibited.

20.  By a 2^nd affidavit dated 3 November 2015 Mr Wong purported to correct the errors in the application.  In that affidavit Mr Wong produced the documents which had been pleaded, and addressed the service of an anchor defendant by informing the court that a sealed copy of the Writ had been served on solicitors for the 2^nd defendant on 2 November 2015.  He therefore asserted that the plaintiff’s application fell within the ambit of RHC Order 11, rule 1(1)(c).

21.  On the basis of that 2^nd affidavit, on 16 November 2015 the Master gave leave to serve a concurrent writ of summons against the 1^st, 3^rd, and 4^th defendants out of the jurisdiction.

22.  On 11 February 2016 the 3^rd defendant took out an inter partes summons under RHC Order 3, rule 5 seeking an unless order against the plaintiff that unless he serve his statement of claim within seven days from the date of the order the plaintiff’s claim be dismissed.  On the same day, the statement of claim was served and the summons issued by the 3^rd defendant was “wholly withdrawn” by way of consent summons dated 18 February 2016.

23.  By summons dated 9 March 2016 the 3^rd defendant applied for an extension of time for service and filing of a defence and counterclaim and “to make such application as may be appropriate pursuant to Order 12, rule 8 of the Rules of High Court (Cap 4A)”.  In response to that summons, solicitors for the plaintiff wrote to solicitors for the 3^rd defendant and referred to the inter partes summons dated 11 February 2016 to compel the service of the statement of claim and a further consent summons dated 18 February 2016 to deal with the application for the unless order.  They contended that the 3^rd defendant had submitted to the jurisdiction and therefore objected to any reference to an extension of time to make applications under RHC Order 12, rule 8.  In response by letter of 14 March 2016 solicitors for the 3^rd defendant stated:

“ Your proposition that our client has submitted the jurisdiction is strenuously denied. Your attempt to forbid our client from relying on the court’s mechanism is totally misconceived. It is your client’s duty to file the statement of claim so that our client could know what yours is claiming and decide how to respond to such claims.”

24.  By order dated 15 March 2016 Master R Lai extended time for the 3^rd defendant to file and serve his defence and counterclaim and adjourned the 3^rd defendant’s application for time extension to take out applications under RHC Order 12, rule 8 sine die, with liberty to restore.

25.  There were then various further extensions of time granted and on 3 May 2016 the 3^rd defendant applied to strike out the plaintiff’s claim on the grounds that:

“ a. It is an abuse of process of the court, or res judicata, for the plaintiff to re-litigate the same issues and subject matter which has been adjudicated in an arbitration between the parties in Israeli [sic], and the ensued appeals to the Israeli courts; or

b.  It is scandalous, frivolous or vexatious; or

c.  It may prejudice, embarrass or delay the fair trial of the action.”

26.  By order dated 20 May 2016 the 3^rd defendant obtained leave to file and serve a defence and counterclaim within 28 days from the date of the disposal of the 3^rd defendant’s strike out application.

27.  On 4 January 2018 Lisa Wong J dismissed the 3^rd defendant’s strike out application in a detailed judgement that runs to some 27 pages.

28.  On 31 January 2018, which was within the 28 days allowed for service of the defence and counterclaim, the 3^rd defendant took out the summons which is the subject of this appeal.  The summons was not served with a supporting affidavit, as is required by RHC Order 12, rule 8(4), but the supporting affidavit was served on 12 March 2018.  At the hearing of the summons before the Master she dismissed the Summons essentially on the ground that by the steps that the 3^rd defendant had taken he had submitted to the jurisdiction of the court.

C.  THE ISSUES FOR RESOLUTION

29.  The issues for resolution in this appeal are multifaceted.  Some are substantive and some are procedural. 

30.  In summary the 3^rd defendant contends that:

(1)  the ex parte order should be set aside on a number of different grounds:

(a)  The plaintiff is unable to show a serious issue to be tried as against the 3^rd defendant.

(b)  The plaintiff cannot show a good arguable case against the 3^rd defendant that falls under the Necessary or Proper Party Gateway of RHC Order 11, rule 1(1)(c) because:

(i)  There is no good arguable case against the 2^nd defendant, who is the anchor defendant.

(ii)  There is ample material to draw a proper inference that the claim against the 2^nd defendant, who the plaintiff contends is the anchor defendant, is not a genuine bona fide claim and the 2^nd defendant has only been joined to the proceedings as a device in an attempt to bring the matter within the Necessary or Proper Party Gateway.

(c)  The plaintiff has failed to show that Hong Kong is clearly the most appropriate forum.

(d)  The plaintiff’s application for leave to serve out of the jurisdiction is tainted with material non-disclosure, should be set aside and should not be re-granted as a result.

(2)  All material events in these proceedings took place in Israel and, with the exception of the plaintiff, all persons involved are resident in Israel.  Hong Kong is plainly not the appropriate forum for determining the plaintiff’s claims.  The only connection to Hong Kong is the plaintiff’s presence in Hong Kong.

(3)  On a proper analysis of the facts, and applying the appropriate test having regard to the facts, there has been no submission to the jurisdiction by the 3^rd defendant.

(4)  Even if there has been a submission to the jurisdiction that submission is limited in nature and amounts only to an acceptance of jurisdiction and not acceptance of the exercise by the court of that jurisdiction.  Consequently it is appropriate now to stay these proceedings on the grounds of forum non conveniens.  This point was not dealt with by the Master at all.

31.  The plaintiff takes a root and branch rebuttal of the points made by the 3^rd defendant. He contends that:

(1)  There has been a complete submission to the jurisdiction such that it is now not open to the 3^rd defendant to contest jurisdiction.  That submission is a submission both to the existence of the jurisdiction and the exercise of it.

(2)  In any event, the application to set aside was made out of time, in that it was not made within 28 days of the service of the statement of claim, because that in the time in which the rules require the defence to be served.  There is no jurisdiction by which that time can be extended as RHC Order 12, rule 8 constitutes a complete statutory code which cannot be altered by any decision of the court.  Consequently the 3^rd defendant’s Acknowledgment of Service is deemed to be a submission to the jurisdiction.

(3)  The application should be dismissed as a result of the non- compliance with RHC Order 12, rule 8(4), and the failure to serve the supporting affidavit with the summons.

(4)  The plaintiff has demonstrated a serious issue to be tried both as against the 2^nd and the 3^rd defendants.

(5)  The Necessary or Proper Party Gateway is not the only gateway that was used.  The case falls not only under RHC Order 11, rule 1(1)(c), but also rules 1(1)(b) and 1(1)(f).  The plaintiff has demonstrated a good arguable case that it falls within one or more of those gateways.

(6)  The forum conveniens is Hong Kong, not Israel.  The 3^rd defendant has failed to show that Hong Kong is not the natural forum, and has not shown that Israel is clearly or distinctly more appropriate than this court for the trial of the action.  The plaintiff has distinct disadvantages in Israel because he is not an Israeli citizen and has previously been ruled against by that Israeli court on all relevant occasions.

(7)  There was no material non-disclosure.  If there was any non- disclosure, it has now been corrected, and the court should address the matter in the light of the evidence currently before it, which would inevitably lead to a re-grant of the leave to serve out.

D.  THE PROCEDURAL POINTS

32.  I address first the three procedural points raised by the parties, namely:

(1)  that the time for any application under RHC Order 12, rule 8 expired on 10 March 2016;

(2)  that the plaintiff is entitled to rely upon gateways other than the Necessary or Proper Party Gateway; and

(3)  that the application is defective due to non-service of an affidavit with the summons.

D.1  Time for making the application

33.  The plaintiff contends that RHC Order 12, rule 8 constitutes a single code and covers all applications howsoever based for any of the orders enumerated within it (citing Fuad VP (as he then was) in Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346 at 351C–G and Mason NPJ in Re Resource 1 (2000) 3 HKCFAR 187 at 211G and 213E–F and G–I). 

34.  He says that all time limits must be complied with, and there is no inherent jurisdiction within the court to allow for any extension.  If the correct application is not taken out within the time limit specified, then the Acknowledgement of Service is a complete submission to the jurisdiction as a result of RHC Order 12, rule 8(7).

35.  RHC Order 12, rule 8(2) states:

“ A defendant who wishes to argue that the court should not exercise its jurisdiction in the proceedings on one or more of the grounds specified in paragraph (2A) or on any other ground shall also give notice of intention to defend the proceedings and shall, within the time limited for service of a defence, applied to the court for …”

36.  RHC Order 12, rule 8(1) is in materially similar terms insofar as the time limits are concerned, and so the point is the same in respect of a challenge made under RHC Order 12, rule 8(1) as well.

37.  The plaintiff says that under RHC Order 18, rule 2 a defence has to be served within 28 days after the statement of claim is served.  Therefore, he says, that because the statement of claim was served on 11 February 2016 any application to challenge the jurisdiction of the court had to be served on or before 10 March 2016 (being within 28 days of the service of the statement of claim).

38.  The plaintiff contends that an extension of time for service of the defence does not operate so as to extend time for a challenge to the jurisdiction because the court has no inherent power to extend time for a challenge to the jurisdiction under RHC Order 12 rule 8.  Hence, he says the application to set aside service out, and the application for a stay, has been made out of time.

39.  I do not agree with the plaintiff’s analysis.  In my view the rules are worded to limit the time for making the application to the time granted for service of a defence.  If that time is legitimately extended under the rules, then there is an automatic extension of time for making an application to set aside service.  This is not contrary to the proposition that RHC Order 12, rule 8 is a complete code and leaves no inherent jurisdiction to extend time (which is a different point, and which I address further below), but is simply an integral part of what that complete code states.  The code itself anticipates that time may be extended by virtue of an extension of time being granted for the service of the defence.

40.  It is not legitimate to read the words of RHC Order 12, rule 8 as incorporating the requirements of Order 18, rule 2 for the service of the defence to be 28 days from the statement of claim, in the way that the plaintiff does.  Indeed, time for service of the statement of claim could itself be extended, thereby extending the date from which the plaintiff’s 28-day period could run. So even on the plaintiff’s own construction, time can be automatically extended under RHC Order 12, rule 8.  It is illogical to allow for an extension by reference to the time for service of the statement of claim, but not to allow for one by reference to the defence.  That is particularly so when RHC Order 12, rule 8 expressly does not limit time by reference to a specific period of time (as it used to), but rather limits time by reference to a particular event (namely service of the defence).  Therefore, in my view it is anticipating that the time for making an application will vary according to the time which is allowed for the service of the defence.

41.  I note that the notes to Hong Kong Civil Procedure make a similar point at Note 12/8/3, by reference to RHC Order 3 and Lawson v Midland Travellers Ltd [1993] 1 WLR 735.  Mr Barlow SC, on behalf of the plaintiff, suggested that Hong Kong Civil Procedure was wrong in this context, but I disagree.  In Lawson v Midland Travellers Ltd the English Court of Appeal unanimously held that an application for an extension of time for service of the defence automatically carried with it an extension for time to apply to set aside the jurisdiction.  Lord Bingham MR was slightly uneasy about the conclusion because of the possibility of such an application allowing limitation periods to expire, but ultimately he agreed with the analysis of Stuart-Smith and Simon Brown LJJ, which reached the conclusion that I have referred to.  In my view that is the correct position under Hong Kong law as well.

42.  A similar argument was also addressed by the Court of Final Appeal in Re Resource 1 (2000) 3 HKCFAR 187 at 202-203.  The Court held that the power to extend time in respect of RHC Order 12 rule 8(7) was conferred in very wide terms.  It went on:

“ Its purpose is to ensure that the legal consequences which ordinarily flow from non-compliance with time limits fixed by the rules do not apply in cases where an extension is appropriate. And in the context of an extension of time, there is no reason to differentiate between a deemed submission to the jurisdiction and other legal consequences. ”

43.  In my view that passage supports the conclusion that I have reached.

44.  For completeness I note that this point was also discussed in Texan Management Ltd v Pacific Electric Wire & Cable Co Ltd [2009] UKPC 46 at [81] – [86]. The court there referred to other decisions in England which decided the same point differently to Lawson v Midland Travellers Ltd, but doubted their correctness.  In Texan Management, the issue was addressed under the BVI civil procedure, and I have not made any attempt to correlate those rules to the rules in Hong Kong for this purpose, so have not relied upon that case as authority for this proposition.

45.  In light of the above, the time-bar point taken by the plaintiff is misplaced.  The application to set aside service was taken within the time provided by the rules.

46.  I address the question of whether RHC Order 12, rule 8 excludes the inherent jurisdiction to stay a case on the basis of forum non conveniens at the appropriate section below.

D.2  The gateway

47.  As to the gateway, I do not accept that the plaintiff is entitled now to argue that the case is properly brought under any gateway other than RHC Order 11, rule 1(1)(c).  It is trite that an applicant for leave to serve out of the jurisdiction must choose which of the gateways he applies under.  The gateways are generally to be read disjunctively and the application must make it clear which gateway is relied upon.  He is not permitted subsequently to take a different course, and rely upon a different gateway at a later stage.  That this is the law of Hong Kong has been confirmed by the Court of Final Appeal in Kayden Ltd v Securities and Futures Commission (2010) 13 HKCFAR 696 at 715, [35] – [39], quoting Slade LJ in Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, 436 as follows:

“ … if the draftsman of a pleading intended to be served out of the jurisdiction under Ord. 11, r. 1(1)(f) (or indeed under any other sub-paragraph) can be reasonably understood as presenting a particular head of claim on one specific legal basis only, the plaintiff cannot thereafter, for the purpose of justifying his application under Ord. 11 r. 1(1)(f), be permitted to contend that that head of claim can also be justified on another legal basis (unless, perhaps, the alternative basis has been specifically referred to in his affidavit evidence, which it was not in the present case). With this possible exception, if he specifically states in his pleading the legal result of what he has pleaded, he is in our judgment limited to what he has pleaded, for the purpose of an Order 11 application. To permit him to take a different course would be to encourage circumvention of the Order 11 procedure, which is designed to ensure that both the court is fully and clearly apprised as to the nature of the legal claim with which it is invited to deal on the ex parte application, and the defendant is likewise apprised as to the nature of the claim which he has to meet, if and when he seeks to discharge an order for service out of the jurisdiction.”

48.  In this case it is clear that the only gateway relied upon was the Necessary or Proper Party Gateway:

(1)  In Mr Wong’s 1^st affidavit at paragraph 11(a) he expressly identified that:

“ The plaintiff seeks leave to serve the writ out of the jurisdiction pursuant to Order 11, rule 1 on the basis that:

a)  The person sought to be served is a proper party to the action pursuant to Order 11, rule 1(1)(c).”

(2)  No other gateways were identified in Mr Wong’s 1^st affidavit.

(3)  The affirmation of the plaintiff himself stated at paragraph 5(a) is that:

“ My application for concurrent writs for service out of the jurisdiction is made pursuant to paragraph 1(1)(c) under code 11.1 [sic].”

(4)  The second set of requisitions issued by the Master clearly demonstrate that the court understood, perfectly reasonably in my view, that the application was made under RHC Order 11, rule 1(1)(c).

(5)  The 2^nd affidavit of Mr Wong confirmed that position by identifying, at paragraph 9 under a heading of “Order 11 r. 1(1)(c)” that an anchor defendant had been served within the jurisdiction, and at paragraph 10 that:

“ Given that the writ has now been served on the 2^nd defendant, the plaintiff’s application filed on 22 September 2015 fall within the ambit of Order 11 rule 1(1)(c) of the Rules of High Court, Cap 4A.”

49.  It is not sufficient simply to point to passages within the writ of summons and other areas of the affidavit which could, had they been relied upon for this purpose, have created an alternative route for service out of the jurisdiction through a different gateway.  It is not for the court on an ex parte application to seek to formulate the case which it is being presented with.  The obligation rests on the plaintiff to identify precisely and clearly which of the provisions of RHC Order 11, rule 1 are being relied upon for the purposes of service out.  In this case the application was made expressly under only the Necessary or Proper Party Gateway.

50.  In the circumstances it is not open to the plaintiff now to rely upon any other gateway.

D.3  Failure to serve the supporting affidavit

51.  As to the failure to serve the supporting affidavit with the summons, I accept the submission of Mr Burns SC appearing for the 3^rd defendant, that this is an irregularity which can be, and should be, corrected under RHC Order 2, rule 1.  Hence I do not find in favour of the plaintiff on this point.

52.  Again, for completeness I note that this point was also taken in the Texan Management case referred to above.  The Privy Council rejected it between paragraphs 78 and 80.  The reasoning in that case, albeit by reference to the BVI procedural rules, is equally applicable to the Hong Kong rules.

E.  SUBMISSION TO THE JURISDICTION

53.  Logically the next issue to deal with is whether there has been a submission to the jurisdiction.  If there has, as rightly accepted by Mr Burns SC, then the 3^rd defendant’s application to set aside the service out falls away, although his application to stay on the grounds of forum non conveniens does not.

54.  The Master was of the view that the 3^rd defendant had submitted to the jurisdiction by reference to two events:

(1)  the application for an unless order for service of the statement of claim, and the following consent summons once the statement of claim had been served; and

(2)  the strike out application.

55.  The plaintiff relies upon more than those two matters, and sets out various conduct which he says amounts to the 3^rd defendant invoking the court’s jurisdiction independently of the application to set aside service out.  Hence he contends that the 3^rd defendant has submitted to the jurisdiction.

56.  There is no dispute as to the law, and both parties have told me that it is adequately set out in ABN Amro Bank NV v Fortgang [2008] 2 HKLRD 349 at 353 – 355, quoting Global Multimedia International Ltd v ARA Media Services & Others [2007] 1 All ER (Comm) 1160 at [26] and [27]:

“ 27. The test to be applied in determining whether any particular conduct amounts to a submission to the jurisdiction was considered by Colman J in Spargos Mining NL v Atlantic Capital Corp reported only in (1995) Times, 11 December, but quoted in full by Patten J in SMAY Investments Ltd v Sachdev [2003] EWHC 474 (Ch) at [41], [2003] 1 WLR 1973 at [41]. I reproduce the whole of the quote as set out in that para [41] from the judgment of Patten J:

‘In approaching the question of submission, I have in mind the following authorities. In Astro Exito NavagacionSA v WT Hsu, otherwise known, more pronounceably, as The Messiniaki Tolmi [1984] 1 Lloyds Reports 266, Goff LJ said at p 270, ‘Now a person voluntarily submits to the jurisdiction of the court if he voluntarily recognises, or has voluntarily recognised, that the court has jurisdiction to hear and determine the claim which is the subject matter of the relevant proceedings. In particular, he makes a voluntary submission to the jurisdiction if he takes a step in the proceedings which in all the circumstances amounts to a recognition of the court’s jurisdiction in respect of the claim which is the subject matter of those proceedings. The effect of a party’s submission to the jurisdiction is that he is precluded thereafter from objecting to the court exercising its jurisdiction in respect of such claim. Whether any particular matter, for example an application to the court, amounts to a voluntary submission to the jurisdiction must depend upon the circumstances of the particular case.’ In [Sage v Double A Hydraulics Ltd [1992] The Times, 2 April 1992, TLR 165], Farquharson LJ said (and this is a report of the judgment which is not reported in oratio recta): ‘A useful test was whether a disinterested bystander with knowledge of the case would have regarded the acts of the defendant, or his solicitors, as inconsistent with the making and maintaining of his challenge’. In arriving at the view to be imputed to the disinterested bystander, it seems to me that one has to bear in mind that there will be an effective waiver, or a submission to the jurisdiction, only where the step relied upon as a waiver, or a submission to the jurisdiction, cannot be explained, except on the assumption that the party in question accepts that the court should be given jurisdiction. If the step relied upon, although consistent with the acceptance of jurisdiction, is a step which can be explained also because it was necessary or useful for some purpose other than acceptance of the jurisdiction, there will, on the authorities, be no submission … If the well- informed bystander had been left in doubt because what the defendants had done was equivocal, in the sense that it was explicable on other grounds in addition to agreement to accept the jurisdiction of the court, then the conclusion must be, on the authorities, that there would have been no submission to the jurisdiction. The representation derived from the conduct of the party said to have submitted must be capable of only one meaning.

28.  Thus the test to be applied is an objective one and what must be determined is whether the only possible explanation for the conduct relied on is an intention on the part of the defendant to have the case tried in England. …”

57.  The 3^rd defendant contends that it could not be said that the only possible explanation for his conduct was an intention on his part to have the case tried in Hong Kong.  At worst his conduct was equivocal in that respect.

58.  I shall address the two aspects of conduct addressed by the Master as those matters are the most obvious candidates for a submission and waiver.  The other conduct relied upon by the plaintiff does not, in my view amount to a submission to the jurisdiction.

E.1  Application for service of the Statement of Claim

59.  The 3^rd defendant says that the application requiring the plaintiff to file and serve a statement of claim would not be seen by a bystander as an act of submission to the jurisdiction.  The summons is explicable as being necessary or useful to ascertain the basis of the plaintiff’s claim against the 3^rd defendant, and as against the 2^nd defendant (as the anchor defendant) so that the 3^rd defendant might make an assessment of whether or not it was appropriate to be tried in Hong Kong.

60.  In this context he relies upon Ives & Barker v Willans [1894] 2 Ch 478 at 484, where, in the context of a stay for arbitration, the court said:

“ He had received a writ and the writ shewed him that there was a claim for breach of contract. That he knew what the contract was I do not doubt, but he did not know from the writ what the particular breaches were in respect of which the Plaintiffs were suing him, and, until he did know that, at all events, how was he to form an opinion as to whether it would be desirable to apply for an order or not? He had not the materials before him to enable him to exercise his judgment in the matter, and it appears to me, therefore, that we should be doing an injustice to a defendant if we said that he must apply under the section for an order to refer before he knows what the plaintiff is suing him for. Quite apart from the case not being within the words, therefore, it is not within the spirit or the sense of the Act. Before a man can make up his mind as to which of the alternatives he will take, he ought to know what the alternatives are, and ought to be in a position to exercise some kind of judgment in the matter, and if we were to hold that the Defendant ought to have applied before, we should be saying that he should make his application in ignorance of material facts.”

61.  Although that case deals with a somewhat different regime, namely that of a stay to arbitration under the Arbitration Act 1889, in my view the sentiments which are expressed remain apt to the question of a submission to the jurisdiction for the purposes of RHC Order 12, rule 8.

62.  It seems to me that if a defendant is unable to ascertain the nature of the claim which is made against him he should be entitled to ask for further details of that claim, if necessary using the procedures of court available for that purpose, before he is put to his election as to whether to submit to the jurisdiction or not.  Asking for service of the statement of claim in the context of the generally endorsed writ that was served in this case, particularly having regard to what the 3^rd defendant describes as the dubious nature of the claim against him even having seen the statement of claim, does not, in my view inevitably result in a submission to the jurisdiction.

63.  A proper understanding of the claim being brought is relevant to various aspects of the test under RHC Order 11, rule 1(1).  For example:

(1)  it is relevant to which gateway might be applicable.  As set out above, the only gateway which had been relied upon was the Necessary or Proper Party Gateway, and in order to make any assessment as to whether there was a good arguable case that the claim against the 3^rd defendant fell within that gateway in my view it was highly material to understand both the claim against the 3^rd defendant and as against the 2^nd defendant (the anchor defendant).  In my view the generally endorsed writ which was served was inadequate to give any proper understanding for that purpose.

(2)  A proper understanding of the way in which the claim is brought is important in order to assess whether there is a serious issue to be tried as between the plaintiff and the 3^rd defendant.  That is particularly so upon the facts of this case given that the real issues between the plaintiff and the 3^rd defendant appear to have been previously resolved by way of the Israeli Arbitration.  From the general endorsement it was clear that the plaintiff was seeking a judgment in the full amount of the Loan that had been made.  However, other than broad allegations of breach of contract, breach of fiduciary duty and negligence, there was no identification of the way in which that claim would be articulated or the extent to which it may or may not be affected by the prior resolution of the Israeli Arbitration.

(3)  It would be important to ascertain the nature of the allegations in order to determine whether Hong Kong was the appropriate forum.

64.  For these reasons, in my view the application to force service of the statement of claim was equally consistent with an attempt properly to understand the claim so that a decision could be made about whether to seek to set aside service out of the jurisdiction as it was with an acceptance of the jurisdiction of Hong Kong Court.  Consequently, on the facts of this case, I do not believe that the application for an unless order, or the consequential consent summons once the statement of claim was served are sufficient to demonstrate an acceptance of the jurisdiction of the Hong Kong Courts.

65.  I recognise that in this respect I am differing from the view taken by the Master.  This is a hearing de novo and is not incumbent upon me to identify errors that she has made in order to justify a different view. However in my view the Master has fallen into error in paragraph 46 of her judgment where she held that:

“ The 3^rd Defendant must consistently avoid waving his challenges by invoking the jurisdiction that he challenges, i.e. by taking a step that is not part of his Order 12 r 8 challenges.”

66.  The first part of that sentence is correct, but what she has said after the letters “i.e.” is not a correct description of the appropriate test.  The mere fact of taking a step that is not part of an RHC Order 12, rule 8 challenge does not of itself necessarily amount to a submission to the jurisdiction.  I have set out in detail the test earlier in this judgment.  It is clear that it is possible to take a step that is not part of an RHC Order 12, rule 8 challenge without submitting to the jurisdiction.  In my view, for the reasons that I have articulated, forcing service of the statement of claim in the light of the difficulties of ascertaining the nature of the claim being brought by way of the general endorsement on the writ is a legitimate step which is not consistent only with a submission to the jurisdiction.

67.  I am also conscious that the service of the application to force the plaintiff to serve a statement of claim was not accompanied by any reservation of rights as to jurisdiction, other than a previous application for an extension of time to serve the defence and to make applications under RHC Order 12, rule 8.  That is a factor which I bear in mind because in my view the most sensible thing to have done would be to have required service but at the same time reserved all rights as to jurisdiction.

68.  I also note that it may have been possible to issue an application for service of the statement of claim other than on an “unless” basis.  On one view the addition of the “unless” provision within the application may take the application too far.  As noted by the Master in paragraphs 47 and 48 of her decision by requiring an “unless” provision the plaintiff was asking the court to strike out the claim if the statement of claim was not provided. For reasons which I will set out in the context of the strike out application that was actually made, I do not think that a strike out application in itself is necessarily a submission to the jurisdiction. 

69.  However, the lack of any reservation of rights and the invocation of the “unless” powers of the court have the effect of moving the application that the 3^rd defendant made closer to being a submission to the jurisdiction than would have been the case if a clear reservation of rights had been made, or an “unless” provision not been sought.  Inevitably these matters are highly factually dependent, and whilst I have taken into account both points, I remain of the view that when objectively assessed overall in the context of the case as a whole, the conduct of the 3^rd defendant in this respect was equivocal as to acceptance of the jurisdiction of the court, and hence did not amount to a submission.

E.2  The strike out application

70.  As set out in paragraph 25 above, the grounds for the strike out application were:

“ a.  It is an abuse of process of the court, or res judicata, for the plaintiff to re-litigate the same issues and subject matter which has been adjudicated in an arbitration between the parties in Israeli [sic], and the ensued appeals to the Israeli courts; or

      b.  It is scandalous, frivolous or vexatious; or

      c.  It may prejudice, embarrass or delay the fair trial of the action.”

71.  The issues raised in the strike out summons are shortly summarised in the decision of L Wong J at [25] – [27]:

“ 25. [The 3^rd defendant’s] ground for striking out as stated in his summons was based on an abuse of process arising from the re-litigation of the ‘same issues and subject matter’ in the Israeli Arbitration, which would be understood as a reference to the doctrine of res judicata in the narrower sense.

26.  However, it is clear that the issues raised by [the plaintiff] against [the 3^rd defendant] in this action were not litigated or adjudicated in the Israeli Arbitration. [The 3^rd defendant] expressly conceded as much in paragraph 9 of his 2^nd affirmation dated 31 August 2016.

27.  The submissions before me on behalf of [the 3^rd defendant] were grounded primarily on the doctrine of res judicata in the wider sense, i.e. that [the plaintiff’s] claims against [the 3^rd defendant] in this action could and should have been raised in the earlier proceedings between the parties in Israel.”

72.  It is therefore clear, and indeed made further clear through the reasoning of L Wong J which I shall not set out, that the strike out application required an analysis of the allegations which were brought in the Israeli Arbitration, an analysis of those that were brought in these proceedings, and assessment based on the evidence available to the court as to whether the allegations in these proceedings could or should have been brought in the Israeli Arbitration.  It was not a strike out based upon only alleged defects within the four corners of the writ or statement of claim, but it required some assessment (even if only for the purposes of determining whether the action was subject to res judicata in the wider sense) of the underlying matters in dispute, both in these proceedings and the Israeli Arbitration.

73.  Mr Burns has referred me to Hong Kong Civil Procedure 2019 to suggest that as a matter of principle an application to strike out proceedings is not a submission to the court.  He said that one could not look to Hong Kong Civil Procedure 2020 for this purpose because it relied upon the Master’s decision in this case for the alternative proposition.  He also referred me to the decision of Lord Denning MR in Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd’s Rep 357 at 361 where Lord Denning stated:

“ On those authorities, it seems to me that in order to deprive a defendant of his recourse to arbitration a ‘step in the proceedings’ must be one which impliedly affirms the correctness of the proceedings and the willingness of the defendant to go along with a determination by the Courts of law instead of arbitration.

Applying this principle, the defendants here were presented with a writ indorsed with a statement of claim which was very defective.  They applied, quite properly, to strike it out.  That was not an affirmation of the correctness of the proceedings.  Quite the contrary. It was a disaffirmation of them.  It was not a ‘step in the proceedings’ such as to debar the defendants from applying for a stay.”

74.  The general endorsement on the writ in that case was commented upon by Lord Denning at page 360:

“ That indorsement was very defective. There were several contracts of reinsurance in 1967. It does not specify which is the contract that is sued upon. It claims damages at large without giving the slightest indication of the nature of the breach or of the way in which the damages arise.”

75.  I accept that, as a matter of principle, an application to strike out a writ or a statement of claim may not amount to a submission to the jurisdiction.  But, it seems to me that the question is factually dependent. If, as in the case of Eagle Star, the application is made simply on the basis of defects apparent within the document itself then I can understand why such an application would not be consistent only with an affirmation of the jurisdiction of the court.  The court is not being asked to look in any sense at the merits of the case or the underlying matters.  All that it is asked to do is to make an assessment, based entirely upon the document which has been served, as to whether that is one which can properly, on its own terms, be the foundation of an action in Hong Kong.  Thus, if an application is made to strike out a statement of claim for disclosing no reasonable cause of action it seems to me that it may well be that such an application would not amount to a submission to the jurisdiction court.  The applicant simply would be contending that, irrespective of whether jurisdiction exists over him, or should be exercised over him, the foundation of the claim, namely the document sought to be struck out, when looked at in isolation did not disclose any basis upon which the Hong Kong court could or should proceed.

76.  That position can, and should, be contrasted with an application to strike out a claim where the basis of the strike out requires the court to look at and consider the underlying issues.  The very fact that the applicant is asking the court to make some assessment of the matters in dispute demonstrates, on an objective basis, that the applicant accepts that the court has a jurisdiction to do so.  Hence, it seems to me that a strike out application in which the applicant deploys the underlying facts for any purpose is most likely to amount to a submission to the jurisdiction.  It does not make any difference to this proposition that the purpose for which the court is being asked to make an assessment of the underlying facts and matters is so as to decide whether they are abusive or not.  The mere fact that the applicant has asked the court to make that assessment unequivocally demonstrates that the applicant accepts the court’s jurisdiction to do so.

77.  I have looked at Graeme Johnson and Paul Harris SC, The Conflict of Laws in Hong Kong (3^rd edition) at paragraph 3.023, and the cases referred to therein, and do not think that they indicate that any different conclusion should be made.  In Winnitex Investment Co Ltd v Oxford Products (International) Ltd [2005] HKEC 44, DCCJ 3690/2004, 20 December 2004, HH Judge Marlene Ng (as she then was) concluded that an application to strike out was a submission to the court.  But when one considers the facts of that case it is clear that the application to strike out required the court to make an assessment of the underlying facts in dispute.  It was not a case in which the strike out was made simply on the basis of the writ or statement of claim alone.  As the authors of the book have recognised, the decision of Deputy District Judge Tsui in Huang Ping Owen v Burswood Ltd [2009] HKEC 1581, DCCJ 5239/2008, unreported, 9 September 2009 may well have been wrongly decided, but is in any event not binding upon me and I do not consider that it adds to my analysis of the proper position in law.

78.  In this case, the 3^rd defendant clearly asked the court to make an assessment of whether the matters raised in the action either had been, or could and should have been, raised in the Israeli Arbitration.  In order to do that, as is made clear by the decision of L Wong J, it was necessary for the court to consider affidavit evidence identifying the issues in the Israeli Arbitration, the underlying issues being raised in these proceedings and the time when the plaintiff became aware of the matters which he says gave rise to his knowledge such that he was able to bring these proceedings.  Based upon that the court was then asked to make an assessment of whether the matters raised in these proceedings could and/or should have been brought in the Israeli Arbitration. 

79.  Inevitably, therefore, the 3^rd defendant has “deployed” the underlying facts and matters in an attempt to persuade the court that it should not proceed and should strike out the claim.  In my view it can only have done that by accepting that the court has a jurisdiction to consider those matters, and hence objectively speaking it has submitted to the jurisdiction.

80.  The 3^rd defendant contends that his application to strike out was made subject to a reservation of rights.  In this context he relies upon three matters:

(1)  his application dated 9 March 2016 for an extension of time to make such applications as may be appropriate pursuant to RHC Order 12, rule 8.

(2)  His letter dated 14 March 2016 in which he denied that he had submitted to the jurisdiction by virtue of his application to force the service of the statement of claim.

(3)  His letter dated 17 May 2016 in which it is stated:

“ In respect of our client’s position as to whether an application is to be taken out under Order 12 Rule 8 of the Rules of the High Court, you should be well aware that the Court has already ordered on 15 March 2016 that our application for a time extension to make such application has been adjourned sine die with liberty to restore.

Given that our client has taken out a striking out application against yours, we would reserve our client’s right to make such application under Order 12 rule 8 if our striking out application is dismissed by the Court.”

81.  In my view none of those matters adequately reserve the 3^rd defendant’s right to challenge the jurisdiction of the court in the light of the strike out application.  The application for an extension of time is not a reservation of rights.  All it does is preserve an ability to make an application under RHC Order 12, rule 8 to the extent that there is no subsequent submission to the jurisdiction.  If there is a subsequent submission to the jurisdiction the extended time available becomes irrelevant.  The letter dated 14 March 2016 is also irrelevant in this context.  All it does is deny that the application to force service of the statement of claim was itself a submission to the jurisdiction.  It has no relevance to the subsequent strike out application.

82.  The letter of 17 May 2016 does not assist either.  First it was issued four days after the strike out application was issued and hence cannot be construed as affecting the submission to the jurisdiction which the prior strike out application constituted. 

83.  Secondly in my view it is not possible to reserve a right which does not exist.  If an act is an unequivocal submission to the jurisdiction then a reservation of rights to apply to set aside service out does not alter that position.  The act retains its character irrespective of any reservation that may surround it.

84.  Of course, a reservation may be relevant in the overall balancing and weighing exercise when making an assessment as to whether the act was, of itself, a submission to the jurisdiction.  It would be relevant, for example, when the act was capable of constituting a submission or not, depending upon how it was interpreted.  In such a case a reservation of rights would make it clear that the party who had reserved the right was well aware that he was required ultimately to make an election, but that he was not making the election by reference to the act.  In those circumstances a reservation of rights would not only be sensible, but would also likely demonstrate that the act did not in fact constitute a submission to the jurisdiction.

85.  But that is very different to the situation in this case.  In this case by asking the court to consider the underlying matters in dispute the 3^rd defendant has confirmed that he accepts the court as having jurisdiction to do so.  Effectively he has made his election by taking out the strike out summons.  It is not possible for him to have taken out that summons and, at the same time, reserve a right to challenge jurisdiction.  Once the summons was taken out the right to challenge jurisdiction was lost.

F.  THE SET ASIDE APPLICATION

86.  In the light of my conclusions on the submission to the jurisdiction strictly it is not necessary for me to consider the application to set aside leave to serve out.  However, in case I am wrong on the submission to the jurisdiction and given that the points have been fully argued before me, I shall deal with the set aside application, albeit perhaps slightly more briefly than I would have done had it been central to my decision.

F.1  The principles

87.  The correct approach to whether permission should be given to serve a defendant out of the jurisdiction has been summarised by Lord Collins in Nilon Ltd v Royal Westminster Investments SA [2015] BCC 521 at [13] and Gloster LJ in Erste Group Bank AG v VMZ Red October [2015] 1 CLC 706 at [25] as follows:

“ (i) the claimant must satisfy the court that in relation to the foreign defendant there is a serious issue to be tried on the merits;

     (ii) the claimant must satisfy the court that there is a good arguable case that the claim falls within one or more classes of case in which permission to serve out may be given, which in this context connotes that one side has ‘much the better of the argument’ than the other on that point;

     (iii) the claimant must satisfy the court that in all the circumstances, [Hong Kong] is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.”

88.  The principles applicable to the first of those questions are not difficult and do not give rise to anything other than an assessment (similar to that which would arise on a summary judgment application) of the merits of the case against the 3^rd defendant.

89.  In relation to the second of those questions, the principles were discussed in Nilon Ltd v Royal Westminster Investments SA.  That case concerned the proper approach to the Civil Practice Rules in the BVI in relation to a necessary or proper party.  The BVI Rules were materially identical to those in the United Kingdom, but different to the RHC in Hong Kong, particularly in relation to the Necessary or Proper Party Gateway. The real difference between those jurisdictions and Hong Kong is that the BVI and UK wording expressly required that there was a “real issue” between the claimant and the anchor defendant, whereas that wording is absent from the Hong Kong RHC Order 11, rule 1(1)(c).  However, that difference is addressed in Hong Kong through RHC Order 11, rule 4(1)(d), which expressly requires that any application made under RHC Order 11, rule 1(1)(c) is to be supported by an affidavit stating the deponent’s grounds for belief that there is, between the plaintiff and the person on whom a writ has been served (ie the anchor defendant), a real issue which the plaintiff may reasonably ask the court to try.  As a result, I do not believe that the wording difference between the RHC and the CPR of the BVI or UK makes any difference to the approach which should be taken to the Necessary or Proper Party Gateway.  The proper approach is as set out in Nilon Ltd.

90.  Lord Collins confirmed at [15] the principles applicable to the Necessary or Proper Party Gateway:

“ (1) The necessary or proper party head of jurisdiction was anomalous, in that, by contrast with the other heads, it was not founded upon any territorial connection between the claim, the subject matter of the relevant action and the jurisdiction of the English courts.

(2) Caution must always be exercised in bringing foreign defendants within the jurisdiction under that head, and in particular it should never become the practice to bring in foreign defendants as a matter of course, on the ground that the only alternative requires more than one suit in more than one different jurisdiction.

(3) The fact that the defendant within the jurisdiction (D1 or the ‘anchor defendant’) is sued only for the purpose of bringing in the party outside the jurisdiction (D2) is not fatal to the application for permission to serve D2 out of the jurisdiction, but it is a factor in the exercise of the discretion.

(4) The action is not properly brought against Dl if it is bound to fail.

(5) If a question of law arises on the application which goes to the existence of jurisdiction, the court will normally decide it, rather than treating it as a question of whether there is a good arguable case.

(6) The question of the merits of the claim is relevant to the question of whether the claim against D1 is ‘bound to fail’ and to the question whether there is a ‘serious issue to be tried’ in relation to the claim against D2; and there is no practical difference between the two tests, and they in turn are the same as the test for summary judgment.

(7) In considering the merits of the claim, whether the claim against D1 is bound to fail on a question of law should be decided on the application for permission to serve D2 (or to discharge the order), but it would not normally be appropriate to decide a controversial question of law in a developing area, particularly because it is desirable that the facts should be found so that any further development of the law should be on the basis of actual and not hypothetical facts.

(8) The question whether D2 is a proper party is answered by asking:

‘supposing both parties had been within the jurisdiction would they both have been proper parties to the action?’

91.  Thus determining whether there is a good arguable case that the plaintiff has brought his claim within the Necessary or Proper Party Gateway (ie the 2^nd question identified in paragraph 85 above) involves a two-stage enquiry, which must be undertaken having regard to the principles set out by Lord Collins:

(1)  establishing that genuine proceedings are properly commenced within the jurisdiction and served on an anchor defendant (either in or outside Hong Kong). 

(2)  determining whether the proposed defendant is a “necessary” or “proper” party thereto.

92.  When assessing the last of the questions identified in paragraph 85 above, normal forum non conveniens principles will apply. Without setting those principles out in detail, the burden under RHC Order 11 is on the plaintiff in this context (but on the defendant in the context of an application for a stay under RHC Order 12, rule 8), and ultimately the question comes down to which forum has the most real and substantial connection to the action having regard to the issues which may be required to be canvassed at trial.  The court should conduct a balancing exercise, but not simply one of listing out, and adding up, the various factors each way.  The court will, for example, take account of matters such as the international nature of business, location of witnesses, the governing law, language issues, where torts (if relevant) were committed.  There are many and varied factors and I do not attempt to list them all out here.

F.2  Application

(a)  Serious issue to be tried

93.  The 3^rd defendant does not really make any submissions in relation to his proposition that the plaintiff has not established a serious issue to be tried against him other than making a bare assertion to that effect.  The background to the case against the 3^rd defendant is set out in the 1^st affirmation of the plaintiff, which was before the Master when she gave leave to serve out of the jurisdiction.  He identifies in paragraph 4 of that affirmation that the 3^rd defendant would often introduce him to investments, and that the plaintiff would issue the 3^rd defendant with his power of attorney to complete transaction because all documents were usually in Hebrew, which he could not understand.  He set out the nature of the transaction involving Nachushtan, and stated that the deal was negotiated, and signed, by the 3^rd defendant on his behalf.  He also confirmed that he relied upon the 3^rd defendant to advise him as to the risks associated with the transaction.  He confirmed his belief that the 3^rd defendant knew of the trading difficulties of Nachushtan, but did not inform the plaintiff of them.  Had the plaintiff been informed he confirmed that he would not have lent the money.  He confirmed in paragraph 5 that he had been advised that there were real issues between himself and the 1^st, 2^nd, 3^rd and 4^th defendants that he could reasonably ask the court to try.

94.  In the circumstances, I am prepared to accept that the plaintiff has satisfied the 1^st hurdle, and has established that there is a serious issue to be tried as between him and the 3^rd defendant.

(b)  Good arguable case on the gateway

95.  In this regard the 3^rd defendant really makes two points:

(1)  The plaintiff has not established that there is a serious issue to be tried as against the 2^nd defendant;

(2)  The claim against the 2^nd defendant is not brought bona fide.

96.  Insofar as the serious issue to be tried is concerned, the starting point is the general endorsement in the writ.  In the writ (quoted in paragraph 11 above) it is clear that the 2^nd defendant is sued only in his capacity as the guarantor of the Loan.  In that capacity there is said to be breach of contract, negligence, breach of fiduciary duty, collusion or conspiracy to defraud, and breach of professional codes of conduct.  No further particulars are given and it does not at all explain how, as a guarantor of the Loan, the 2^nd defendant either owed any relevant duties or was in breach of them.  The only obvious basis for a claim against the 2^nd defendant would be a claim under the alleged guarantee, or possibly for breach of that alleged guarantee by not paying when called on.

97.  In the affirmation of the plaintiff which explained the factual background, the only relevant references to the 2^nd defendant were:

(1)  At paragraph 4(f) that he was the head of the family (which held the shares in 1^st defendant) and was a controller of the 1^st defendant.

(2)  At paragraph 4(p), without further introduction, that “From the information and/or advice I received from the 1^st, 2^nd and 3^rd defendants on the well being of Nachshtan from time to time, there was no sign of trading or financial difficulty ….” 

(3)  At paragraph 4(t) that “Had I been warned of the trading and/or financial difficulties of Nachushtan and/or its subsidiaries by the 1^st, 2^nd and/or 3^rd defendants at the appropriate times, I would not have invested in the Nachushtan Transaction, let alone extending the repayment of loan by the 1^st defendant in about June 2008 and would have requested the 1^st, 2^nd and 3^rd defendants to sell the shares purchased from Ordal Ltd. and/or taken other steps to recover/secure the loan to the 1^st defendant.  I relied totally on their local knowledge information and advice.”

(4)  At paragraph 4(u) that “At all material times before the liquidation of the Nachushtan group of companies, as no orno sufficient information regarding the true state of the companies was made known to me by the 1^st, 2^nd and/or 3^rd defendants, I did not have the opportunity to take any or any appropriate step to secure or recover the investments in the Nachushtan Transaction when I possibly still could, at least to minimise the loss.”

(5)  At paragraph 5 he then affirmed the advice given to him that 2^nd defendant owed him contractual and tortious duties and that he had a good cause of action against, amongst others the 2^nd defendant which he could reasonably ask the Hong Kong court to try.

98.  Despite having been required by the requisitions of the Master to produce all relevant documents, neither the plaintiff, nor Mr Wong in his 2^nd affidavit, produced a copy of the alleged guarantee agreement.  From the loan agreements that are contained in the bundle there is no reference to the guarantee given by the 2^nd defendant.

99.  In the light of these affirmations, in my view the plaintiff has failed to show that there is a serious issue to be tried as between him and the 2^nd defendant.

100.  The very least that would be required would be either some description of the circumstances in which the alleged guarantee was provided, if it was provided orally, or the production of a copy of the written guarantee agreement.  But there is neither.  There is no allegation contained in either the writ or the affirmations that the guarantee was oral and Mr Wong in his 1^st affidavit refers to the “business contracts signed among the plaintiff, the 1^st, 2^nd and/or 3^rd defendants”.  That would appear to be a reference to contracts including the alleged guarantee but no such document has been produced.  The plaintiff was under an obligation to demonstrate a serious issue to be tried, and in my view mere assertion of a guarantee in such circumstances is not sufficient.

101.  The statement of claim which was served on 11 February 2016 does not improve the plaintiff’s position:

(1)  Paragraph 1(3) asserts that the 2^nd defendant repeatedly provided assurances on the “ability of the 1^st defendant”.  Even assuming that refers to an ability to repay, this does not amount to a guarantee, which is the basis on which the 2^nd defendant was sued in the writ.

(2)  A similar point is made in paragraphs 5, 28, and 33, but again those paragraphs do not set out any details of any guarantee given by the 2^nd defendant.

(3)  At paragraph 35 there is a bare assertion of breach of contract, negligence, breach of fiduciary duty and breach of professional code of conduct by the 2^nd defendant.  Again, no details are given as to the nature of the contract of guarantee (or how it was formed) or the basis on which the duties alleged were owed to the plaintiff.  In the context of the wider duties, it must be recognised that the 2^nd defendant was a counterparty under the alleged guarantee, and was the controller of the counterparty under the loan agreements.  It is not at all clear how it is alleged by the plaintiff that such a counterparty owed duties of care, and fiduciary duties to the plaintiff in the consummation, or execution, of the very transactions to which he was a counterparty.

(4)  Paragraph 35 goes on to particularise the breaches alleged.  None of the particulars take the matter any further, and in reality they are not particulars, but merely bare assertions.

102.  In all of the circumstances, I am satisfied that the plaintiff has not shown a serious issue to be tried in relation to the 2^nd defendant.  Therefore it becomes impossible for the plaintiff to bring the 3^rd defendant into the Necessary or Proper Party Gateway when the anchor defendant is the 2^nd defendant.

103.  In my view the further procedural history of the matter confirms that the claim against the 2^nd defendant is not brought on a bona fide basis.  I recognise that this is not necessarily fatal to the application (See point (3) as set out in paragraph 88 above), but it is certainly something that falls into the discretionary mix when assessing, amongst other things, whether the plaintiff has demonstrated a serious issue to be tried as between him and the 2^nd defendant.

104.  Whilst not accepting all of the points made by the 3^rd defendant in this context, I have accepted the following as relevant:

(1)  The fact that having been required by the Master on 5 October 2015 to have an anchor defendant, the 2^nd defendant was very quickly served within the jurisdiction in circumstances where leave had originally been sought to serve him out of the jurisdiction and he has no apparent relationship with Hong Kong.  In this respect it is relevant to note that there is clearly a relationship between the 2^nd defendant and the plaintiff because the history of the Loan suggests the existence of one.

(2)  There is no immediately obvious connection between the claim against the 2^nd defendant as guarantor and the claims against the 3^rd defendant for breach of a duty as advisor or fiduciary.  As a result there would be no apparent reason to wait before suing the 2^nd defendant.  He could have been sued in his alleged capacity as guarantor when the 1^st defendant defaulted on the Loan back in 2008.  However, rather than doing that, apparently the Loan has been extended indefinitely, at the request of the 2^nd defendant. 

(3)  The action against the 1^st and 2^nd defendants has not progressed at all, despite the 2^nd defendant having been served in 2015.  One would have expected some action to have been taken either by the plaintiff or by the 2^nd defendant (consistent with the underlying objective, defendants are now under an obligation to be proactive in the resolution of disputes rather than letting “sleeping dogs lie”).  The fact that it has not is consistent with a proposition that the case against the 2^nd defendant is merely a ruse in an attempt to bring the action into Hong Kong.

(c)  Failure to show that Hong Kong is clearly the appropriate forum

105.  In this context the 3^rd defendant contends that the natural forum for resolution of any dispute between the plaintiff and the 2^nd defendant is Israel and not Hong Kong.  It follows, he says, that as a result Israel is also the natural forum for the resolution of any dispute between the plaintiff and the 3^rd defendant.

106.  Various factors are relied upon.  In summary:

(1)  Both the 2^nd defendant and the 3^rd defendant are Israeli citizens and both reside in Israel.  The 3^rd defendant has no connection to Hong Kong, nor any investments or assets in Hong Kong against which Judgment could be enforced.

(2)  The 2^nd and 3^rd defendants are likely to give evidence in Hebrew.

(3)  The only connection with Hong Kong is that the plaintiff resides here.  But he too has, or had, substantial investments and numerous business ventures in Israel.

(4)  Most, if not all, relevant witnesses are located in Israel.

(5)  Most, if not all, documents are in Hebrew and are located in Israel.  The Loan related to an Israeli Company, and was made in Israel, from an Israeli bank.

107.  As against that, the plaintiff relies upon:

(1)  the plaintiff lives in Hong Kong and has no current connections to Israel;

(2)  the plaintiff sues in both contract and in tort;

(3)  the contract was negotiated and concluded mainly in Hong Kong, and therefore it is impliedly governed by Hong Kong law. This proposition is in fact not correct.  The contracts relied upon are the three loan agreements pursuant to which the Loan was made, and according to the plaintiff’s own case those were negotiated on his behalf by the 3^rd defendant.  All that the evidence says is that the contracts were “negotiated, concluded and all concluded mainly when [the plaintiff] was physically in Hong Kong”.  That is a very different proposition and does not support the suggestion that the contract was negotiated and concluded mainly in Hong Kong; and

(4)  the claims are based upon breaches by the 3^rd defendant of fiduciary duty or negligence that were partly committed in Hong Kong, and partly outside of Hong Kong.  The plaintiff’s loss was incurred in Hong Kong.

108.  I am satisfied that Hong Kong is not clearly the natural forum. The Loan transaction, and all of the underlying companies are all based in Israel and it is fairly clear from the evidence that the entire foundation of the relationship between the plaintiff and the 3^rd defendant involved transactions concerning Israel.  Indeed as the plaintiff himself states in paragraph 4(d) of his 1^st affirmation “I would provide the investment funds for [the 3^rd defendant] to complete the transactions, usually with my power of attorney to him to sign the necessary documents on my behalf, as usually all documents were in a foreign language, e.g. Hebrew, which was beyond my comprehension.”

109.  Whilst it may be that the plaintiff was physically present in Hong Kong during the times when the contract was negotiated, and even advice may have been given to him by the 3^rd defendant whilst the plaintiff was in Hong Kong, that does not make Hong Kong clearly the natural forum.  I have little doubt that Israel is clearly the natural forum for the resolution of this dispute.

F.3  Material non-disclosure

110.  The 3^rd defendant contends that the application for service out is tainted by material non-disclosure because:

(1)  it failed to disclose the Israeli Arbitration and the attempted appeals;

(2)  it failed to disclose that all the Nechushtan documents are in Hebrew;

(3)  Mr Wong’s 1^st affidavit was vague, and was not full and frank; and

(4)  it failed to disclose the breakdown of the relationship in 2007.

111.  As against these propositions the plaintiff suggests that there was no material non-disclosure, and in any event the allegations are to be considered against all the materials now before the court and there is nothing which will demonstrate an oversight of detail that would bar the more or less inevitable re-grant of service out.

112.  In my view the only matter which would justify setting aside service out is the failure to disclose the Israeli Arbitration.  It seems to me that the existence of the arbitration, and its result, are highly relevant to the question of whether Hong Kong is or is not the proper forum for the resolution of this dispute.  The only possible reference to the Israeli Arbitration is in paragraph 5 of Mr Wong’s 1^st affidavit where he says “Since the issue of the writ of summons herein, the plaintiff, both personally or through Israeli lawyers engaged by him, had attempted alternative means of resolution and the use of legal proceedings in Tel Aviv to try resolving his differences with the 1^st, 2^nd, 3^rd and/or 4^th defendants and therefore had instructed my firm not to proceed with these proceedings pending the outcome of the alternative means of resolution or of the legal proceedings in Tel Aviv.”  In my view that is a woefully inadequate disclosure of the nature and effect of the Israeli Arbitration and the ensuing court proceedings.  I am satisfied that it was a material non-disclosure.

113.  Given the importance of that point, and the relevance of the Israeli Arbitration to the proposition that Hong Kong is clearly the most natural forum for the resolution of the dispute, and in the light of the other serious doubts which have been raised and dealt with above, in my view it would be appropriate to set aside service out of the jurisdiction for this reason as well, and it would not be appropriate to make a re-grant of service out.

114.  However, the submission to the jurisdiction by the 3^rd defendant overrides these points.  The fact that I would have set aside service absent a submission is of no assistance to the 3^rd defendant.

G.  THE STAY APPLICATION

115.  The 3^rd defendant maintains his application for a stay on the basis of forum non conveniens even in the event that I was to find that he had submitted to the jurisdiction.  The basis for that position is set out in IMS SA & Others v Capital Oil and Gas Industries Ltd [2016] EWHC 1956 (Comm) per Popplewell J at [27] and [28]:

“ 27. However this is not an application for the same or substantially the same belief as the first jurisdiction challenge. It is well known that in the context of challenges to jurisdiction, reference to the court’s jurisdiction can be a shorthand for two different concepts: one is the court’s jurisdiction to try the claim on its merits; the other is the court’s exercise of its jurisdiction to try the claim (see, for example Hoddinott v Persimmon Homes (Wessex) Ltd [2007] EWCA Civ 1203; [2008] 1 WLR 806 at [28]). Leaving aside cases covered by the Lugano Convention and recast Brussels 1 Regulation, service of process is the foundation of the court’s jurisdiction to entertain a claim in personam, and accordingly the court has such jurisdiction only where the defendant is served, in England or abroad, in the circumstances authorised by, and in the manner prescribed by, statute or statutory order (typically the Civil Procedure Rules): see Dicey Morris and Collins, The Conflict of Laws 15th Ed (2012). Rule 29. Where there has been no such service, the court does not have jurisdiction. Where such jurisdiction has been established by service of process, the court may nevertheless decline to exercise its jurisdiction, for example on grounds of forum non conveniens or lis alibi pendens.

28.  The two types of challenge are logically and juridically separate and distinct. Moreover they typically involve different forms of relief.  Where there has been no valid service necessary to found in personam jurisdiction, the court will set aside service and set aside the claim form.  On the other hand where the challenge is to the exercise of jurisdiction on grounds of forum non conveniens, the appropriate relief is usually a stay of proceedings, which is capable of being lifted, if appropriate, in the light of subsequent events.”

116.  A similar point is made in The Conflict of Laws in Hong Kong (3^rd edition) at paragraph 3.009:

“ A party may be precluded from objecting to the Hong Kong court’s jurisdiction by an agreement or conduct deemed to amount to a voluntary submission to that jurisdiction. The submission may be partial (preventing the submitting party from challenging the existence of jurisdiction, whilst not barring a challenge to its exercise) or complete (precluding the questioning of both the existence and exercise of jurisdiction);”

117.  Given the nature of the submission to the jurisdiction that I have found occurred, I cannot see that the submission to the jurisdiction is anything other than a submission both to the jurisdiction itself and the exercise by the court of that jurisdiction.  Mr Burns contends that the reservations of rights that he has referred to, and in particular those set out in paragraph 78 above, have the effect of rendering the submission only a partial submission and not a complete submission to the exercise of the jurisdiction as well.  For the reasons that I have identified in paragraphs 79 – 83 above I do not agree.  In my view the submission is a complete submission and includes a submission to the exercise of the jurisdiction as well.

118.  In those circumstances, irrespective of what might otherwise be the merits of an application to stay made under the RHC Order 12, rule 8, I do not believe that it is open to me to grant a stay under the rules.

119.  The final question is whether there remains any inherent jurisdiction to grant a stay that might be exercised irrespective of the fact that an application does not fall within the provisions of RHC Order 12, rule 8(2).  Mr Barlow suggests that there is no such inherent jurisdiction (because RHC Order 12, rule 8(2) constitutes a complete code) but Mr Burns relies upon the inherent jurisdiction.

120.  This question was raised in the Privy Council sitting on appeal from the BVI in Texan Management Ltd v Pacific Electric Wire & Cable Co Ltd [2009] UKPC 46.  That case concerned the BVI Civil Procedure Rules, but the principles discussed are equally applicable to the RHC in Hong Kong given the wording of RHC Order 12, rules 8(2) and (2A) (which was introduced in Hong Kong in 2008 after the civil justice reforms), which now provides expressly for challenges to the exercise of the jurisdiction (ie a stay on the grounds of forum non conveniens).

121.  Having analysed the position under the EC CPR (Eastern Caribbean Civil Practice Rules) between paragraphs 58 and 76 the court in Texan Management summarised the position as follows:

“ To summarise, the overall position is this: (1) if at the time the proceedings are first served, there are circumstances which would justify a stay, the application should be made promptly under EC CPR r.9.7 / English CPR Part 11; (2) any failure to comply strictly with time-limits may be dealt with by an extension of the time-limits, and any formal defect in the application may be cured by the court; (3) if circumstances arise subsequently which would justify an application for a stay, the application would be made under the inherent jurisdiction or EC CPR r.26.2(q) / English CPR r.3.1(2)(f).”

122.  Hence, there remains an inherent jurisdiction to stay proceedings on the grounds of forum non conveniens, but it would normally only be exercised if circumstances arise subsequent to the time when RHC Order 12, rule 8(2) would otherwise allow an application under that rule.  To reach any different conclusion would be to allow the inherent jurisdiction to circumvent the express requirements of the rules and that would be inappropriate.

123.  In the context of this case it seems to me that the relevant time to make the assessment is the time of the submission to the jurisdiction. By submitting to the jurisdiction the 3^rd defendant has effectively debarred himself from successfully applying under RHC Order 12 rule 8.  Therefore he is only entitled to apply under the inherent jurisdiction in the event that something has occurred since the date of his submission to the jurisdiction which would itself justify a stay. 

124.  Nothing of that sort has happened in this case and therefore it is not appropriate to exercise the inherent jurisdiction of the court.

H.  CONCLUSIONS

125.  In all the circumstances:

(1)  I dismiss the 3^rd defendant’s appeal against the decision of the Master.

(2)  I decline to set aside service of the writ of summons out of the jurisdiction.

(3)  I dismiss the application for a stay on the grounds of forum non conveniens.

I.  COSTS

126.  I order on a nisi basis that the 3^rd defendant is to pay the costs of the plaintiff to be taxed if not agreed on a standard basis. 

127.  If the parties wish to vary this order they should make written submissions within 7 days of handing down of this judgment. The other party will then have 7 days to reply and I shall make a final decision on costs based upon those submissions.

Mr Barrie Barlow SC, instructed by WMC Partners, for the plaintiff

Mr Ashley Burns SC, leading Mr Lawrence Cheung and Mr Albert Chan, instructed by Hoosenally & Neo, for the 3^rd defendant

HCA 1462/2014

[2019] HKCFI 234

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1462 OF 2014

________________________

________________________

________________________

D E C I S I O N

________________________

APPLICATION

1.  On 13^th September 2018, I heard the application by the 3rd defendant by Inter Partes Summons dated 31^st January 2018 under Order 11 and Order 12 Rule 8(1) and (2) of the Rules of the High Court and Order of Master Lai dated 15^th March 2016 and inherent jurisdiction of the Court for orders that:-

(1)  The ex parte Order of Master K. Lo dated 16^th November 2015 giving leave to the Plaintiff to serve the concurrent Writ of Summons out of jurisdiction on the 3^rd Defendant be set aside;

(2)  A declaration that in the circumstances of the case, the Court has no jurisdiction over the 3^rd Defendant in respect of the subject matter of the claim or the relief or remedy sought in this action;

(3)  Alternatively, all further proceedings in this action be stayed on the ground of forum non conveniens;

(4)  The Plaintiff do pay to the 3rd Defendant the costs of and occasioned by these proceedings and/or the application be set out in paragraphs 1, 2 and 3 above to be paid forthwith and taxed if not agreed;

(5)  Without prejudice to the above applications, the time for filing and serving of the 3^rd Defendant’s Defence be extended to after the determination of the above applications; and

(6)  Without prejudice to the above applications, should the above applications be declined by the Court, the 3^rd Defendant do have leave to file and serve his Defence within 56 days from the date of the Order to be made herein.

2.  In the said Summons, it is stated that the grounds of the applications are that:-

(1)  The Plaintiff has committed material non-disclosure;

(2)  Hong Kong is not clearly or distinctly the most appropriate forum of the trial of this action; and

(3)  The Plaintiff cannot rely on any of the jurisdictional gateways under Order 11 rule 1 of the Rules of the High Court.

RELEVANT BACKGROUND

3.  The Plaintiff is a Hong Kong businessman. The 3rd Defendant is an ethnic Hebrew resident in Israel. They were business partners since the 1990s. Since 2004, the 3^rd Defendant started to introduce to the Plaintiff business ventures in Israel that were transacted in Hebrew.

4.  In 2005 and 2006, upon the 3rd Defendant's introduction and investment advice, the Plaintiff extended a loan of NIS29,500,000 ("Loan") to the 1^st Defendant, a company owned and controlled by the 2^nd Defendant to finance the 1^st Defendant's purchase of 35% of the shareholding ("Shares") in Nechushtan Investment Company Limited ("Nechushtan"), a company registered under the laws of Israel and then listed on the Tel Aviv Stock Exchange. The transaction was negotiated, and the loan documentation executed in Israel, for the Plaintiff by the 3^rd Defendant as the Plaintiff's authorised agent ("Nechushtan Transaction").

5.  The Loan was repayable with interest with an agreed sum of NIS3,000,000 on 20^th June 2008. It was secured by a pledge of the Shares by the 1^st Defendant to the Plaintiff ("Share Pledge").

6.  The relationship between the Plaintiff and the 3^rd Defendant broke down in about mid-2007 over another transaction in which they were involved. The Plaintiff and the 3^rd Defendant ceased to have any direct communication with each other from November 2007 onwards. On 30^th October 2007, the Plaintiff assigned all the rights under the Loan and the Share Pledge to his brother-in-law ("Assignment") without the consent of the 3^rd Defendant.

7.  In response, the 3^rd Defendant commenced proceedings in Israel in December 2007 against inter alia the Plaintiff for various relief premised upon the 3^rd Defendant being entitled to half of the creditor’s interest in the Loan and the security of the Shares. On 17^th May 2011, these proceedings were converted into an arbitration in Israel ("Israeli Arbitration"). After the commencement of proceedings, the Assignment was cancelled.

8.  On 20^th June 2008, during the pendency of the Israeli Arbitration, the Loan matured. Upon the 2nd Defendant's requests, the Plaintiff twice extended the term of the Loan without requiring further interest, initially to 20^th June 2009 and then to an indefinite date which was linked to the conclusion of certain legal proceedings in which the 2^nd Defendant was involved. Such extensions were given without reference to the 3^rd Defendant.

9.  The hearing of the Israeli Arbitration took place in August and December 2012. On 31^st October 2013, the Award was delivered, upholding the 3^rd Defendant’s claims against the Plaintiff and dismissing the Plaintiff’s counterclaims against the 3^rd Defendant regarding other joint ventures between them. Its main findings were as follows:

(1)  The Loan was a joint investment by the Plaintiff and the 3^rd Defendant. Although the Plaintiff was registered as the sole lender of the Loan, the Plaintiff was the 3^rd Defendant's trustee in respect of one half of the Loan.

(2)  The Plaintiff had twice extended the date of repayment by the 1^st Defendant without the 3^rd Defendant’s knowledge or consent. By reason of such extensions, repayment of the Loan was deferred for long years without any additional interest and no real steps whatsoever for repayment of the Loan had been taken by the Plaintiff.

(3)  The Plaintiff not only failed to preserve the trust property in the sense of striving to enforce the repayment of the Loan, the Plaintiff used the rights of the Loan as he wished, unrecognizably modified them and severely harmed the 3^rd Defendant's rights in the Loan. The Plaintiff had breached the duty of good faith owed to the 3^rd Defendant.

(4)  The 3^rd Defendant could not have demanded repayment of one half of the Loan directly from the 1^st Defendant for want of privity as a result of the Plaintiff's denial of the 3^rd Defendant's half interest.

(5)  The 3^rd Defendant was entitled to receive from the Plaintiff his share of the Loan together with interest in light of the facts that:

(a)  the Plaintiff had treated the Loan as if it were his own and gave many extensions for years without interest;

(b)  the Plaintiff had denied 3^rd Defendant's rights in the Loan throughout the whole time;

(c)  a long period of time had elapsed since the maturity date of the Loan without any steps being taken by the Plaintiff for repayment of the Loan.

10.  Nechushtan was eventually subject to liquidation proceedings and wound up on 7^th January 2013.

11.  The Plaintiff lodged successive challenges to the Award in the Israeli Court. The Tel Aviv-Jaffa District Court finally made a decree approving the Award on 20^th September 2015.

12.  The Writ in these proceedings were issued on 31^st July 2014 and the Statement of Claim was filed on 11^th February 2016. The Plaintiff now claims against the 3^rd Defendant in negligence and/or breach of fiduciary duties, in the 3^rd Defendant inter alia withheld or concealed from the Plaintiff the fact that the Nechushtan group of companies were having financial difficulties, which the 3^rd Defendant knew or should have known, both when the Loan was originally made and when the extensions were granted, thereby preventing the Plaintiff from minimising his damage or exposure. The Plaintiff also claims that the 3^rd Defendant was in reality the person in effective control of Nechushtan and its companies by reason of the Share Pledge (and its incidental rights) and the power of attorney given by the Plaintiff to the 3^rd Defendant, and was negligent in failing to safeguard the ongoing concerns and financial well-being of the same. Thus, the 3^rd Defendant had failed to assess and/or suppress the possible risk of loss of the Plaintiff's investment in the Nechushtan Transaction. The Plaintiff seeks NIS29,500,000 plus interest, in addition to any damage, costs or other relief that the court deems fit in these proceedings. 

13.  The 3^rd Defendant has not yet filed any Defence in these proceedings. According to the affirmations filed by the 3^rd Defendant and the submission made by the 3^rd Defendant’s Counsel, the 3^rd Defendant's denies the Plaintiff's claims. In gist, the 3^rd Defendant denies owing any duty to advise the Plaintiff in relation to the Loan and denies any negligence in failing to safeguard the ongoing concerns and financial well-being of Nechushtan and its companies.

PROCEDURAL HISTORY

14.  It is necessary to set out the procedural history in order to understand the 3^rd Defendant’s present application and the parties’ contentions.

15.  I set out the procedural chronology as follows:-

Date	Event
Aug & Dec 2012	Hearing of the Israeli Arbitration
31 Oct 2013	The Arbitrator delivered the Award in the Israeli Arbitration.
18 May 2014	Plaintiff's application before the Tel Aviv-Jaffa District Court sitting as a Court of Appeal for leave to appeal against the Award and to set aside the same was dismissed.
31 July 2014	The Writ was issued.
13 July 2015	Plaintiff’s application before the Supreme Court of Israel for leave to appeal against the Tel Aviv-Jaffa Court's decision dated 18 May 2014 was dismissed.
15 July 2015	Plaintiff's solicitors received instructions from Plaintiff that "various attempts of alternative means of resolution and the legal proceedings in Tel Aviv did not assist"
17 July 2015	Plaintiff's Ex-Parte Summons for leave to issue a concurrent writ and serve the same out of jurisdiction on Defendants.
24 July 2015	HK Court Order renewing the Writ for 12 months from the date of its expiry
26 Aug 2015	Plaintiff's application before the Supreme Court to hold a further hearing before the Supreme Court was dismissed
20 Sept 2015	Decree rendered by the Tel Aviv-Jaffa District Court approving the Award
2 Nov 2015	Plaintiff served the Writ on D2's solicitors in HK
16 Nov 2015	Plaintiff obtained leave to serve out of jurisdiction.
15 Jan  2016	The concurrent Writ was served on the 3rd Defendant on 15th January 2016 and the 3rd Defendant filed his Acknowledgment of Service on 15th January 2016.
11 Feb 2016	D3 applied for P to file his SOC within 7 days on an unless basis.
11 Feb 2016	Plaintiff filed the SOC
18 Feb 2016	Consent Summons between Plaintiff and D3 allowing Plaintiff to file his SOC on 11 Feb 2016 and for D3's 11 Feb 2016 Summons to be withdrawn.
9 Mar 2016	D3 applied for an Order that the time for filing and service of its D&CC and/or to make an application under O.12r.8 be extended for 56 days
15 Mar 2016	Time for D3 to file and serve his D&CC was extended for 28 days. D3’s application for extension of time to apply under O.12r.8 be adjourned sine dine with liberty to restore.
12 Apr 2016	D3 applied for leave to file and serve its D&CC within 28 days.
18 Apr 2016	Hearing of the 12 Apr 2016 Summons be adjourned to 9 May 2016 (1st adjournment)
3 May 2016	D3's Summons to strike out Plaintiff's claim for abuse of process.
9 May 2016	Hearing of the 12 April 2016 Summons be adjourned to 20 May 2016 (2nd Adjournment)
20 May 2016	D3 to have leave to file and serve his D&CC within 28 days from the date of disposal of D3's application to strike out P's claim.
1 Sept 2016	Consent Order between P and D4 staying all further proceedings between them.
1 Sept 2016	Plaintiff's Notice of Discontinuance against D4
12 Sept 2016	Hearing of D3 's application to strike out Plaintiff's claim
5 Oct 2016	D3's Summons to adduce additional evidence for the purposes of the Strike-Out Summons
22 Feb 2017	Hearing of D3's application to adduce further evidence in support of its application to strike out P's claim.
4 Jan 2018	Delivery of the Strike-Out Judgment
31Jan 2018	D3's application to set aside Plaintiff's Order for service out and declaration for forum non conveniens.

THE 3^RD DEFENDANT’S APPLICATION AND CONTENTIONS

16.  Firstly, the 3^rd Defendant contends that there was material non-disclosure in the Plaintiff’s Order 11 application for service out. The Plaintiff has failed to disclose the Israeli Arbitration and his attempted appeals and that all Nechushtan documents are in Hebrew. The Plaintiff has failed to disclose the breakdown of the relationship in mid-2007. The Plaintiff’s solicitor’s first affirmation in support of such application was vague and not full and frank and failed to show that the materials events in relation to the Nechushtan Transaction took place in Israel. The 3^rd Defendant contends that the Plaintiff’s material non-disclosure of these matters has affected the court’s judgement as to whether the present claim is a proper one for service out of the jurisdiction. Given the extent of the Plaintiff’s material non-disclosure, the Order for service out ought to be discharged.

17.  Secondly, the 3^rd Defendant contends that the action against the 2^nd Defendant, the Anchor Defendant, is not properly brought and is susceptible to being stayed on ground of forum non conveniens and that the Plaintiff’s action against the 2^nd Defendant has not been progressed. The Plaintiff bears the burden of proof under Order 11 of demonstrating clearly or distinctly that Hong Kong is the natural forum and has failed to meet such burden. All the Defendants reside and carry on business in Israel and the subject matter and material events all took place in Israel. Save the Plaintiff, most if not all the witnesses are from Israel and this raised severe complications to the trial and the 3^rd Defendant would be prejudiced. All the documents are in Hebrew and they are located in Israel and such documents must be translated for use in Hong Kong courts and the discovery process is complicated by the language barrier. Thus the various factors all point to suggest that Israel is the natural forum.

18.  Further, the 3^rd Defendant contends that the 3^rd Defendant has not submitted to the jurisdiction of the Hong Kong Courts and there has been no unequivocal indication by the 3^rd Defendant to have the case tried in Hong Kong.

19.  In short, the 3^rd Defendant submits that there was material non-disclosure and the Order for service out ought to be set aside. Further, the Court's discretion should not be exercised to re-grant leave to serve the Writ out of the jurisdiction as the appropriate forum for the trial is in Israel. Even if Court is minded to re-grant leave to serve out, in light of the Plaintiff's material non-disclosure, the Plaintiff must bear the costs of the present application.

THE PLAINTIFF’S CONTENTIONS

20.  The Plaintiff opposes the 3^rd Defendant’s application and all contentions. In gist, the Plaintiff’s oppositions are that:-

(a)  this Court has no jurisdiction to entertain the 3^rd Defendant’s application for the 3^rd Defendant has failed to comply with Order 12 Rule 8 of the Rules of the High Court to take out application to challenge the jurisdiction issue within the prescribed deadline, namely within the time limited for service of a defence;

(b)  the 3^rd Defendant has taken multiple steps in the proceedings whereby he has invoked or engaged this Court’s jurisdiction independently of his belated and invalid Order 12 rule 8 Summons;

(c)  Hong Kong is forum conveniens and the 3^rd Defendant has failed to make out a stay on the forum non conveniens ground;

(d)  The Plaintiff has demonstrated that he has a good arguable case that his claims come within Order 11 rule 1(1)(c) and (d) gateways and the Plaintiff’s case raises serious substantive issues to be tried;

(e)  There was no material non-disclosure in the Plaintiff’s Order 11 application in the first place.

THE ISSUES IN THIS APPLICATION

21.  Having gone through the parties’ documents filed herein and having heard the submissions made by the parties’ Counsel, there are four major issues in this application, namely:-

(1)  whether this Court has jurisdiction to entertain the 3^rd Defendant’s present application in views of the contentions made by the Plaintiff that the 3^rd Defendant has failed to comply with Order 12 Rule 8 of the Rules of the High Court to take out the application to challenge the jurisdiction issue within the prescribed deadline, namely within the time limited for service of a defence;

(2)  whether the 3^rd Defendant has taken multiple steps in these proceedings whereby he has invoked or engaged this Court’s jurisdiction and thereby he has submitted to the jurisdiction to the Court of Hong Kong;

(3)  if there was no submission to the jurisdiction to the Court of Hong Kong by the 3^rd Defendant, whether there was material non-disclosure by the Plaintiff in his Order 11 ex-parte application for service out;

(4)  whether Hong Kong is the forum conveniens and that the 3^rd Defendant has failed to make out a stay on the forum non conveniens ground. 

ORDER 12 RULE 8 –PRESCRIBED TIME FOR MAKING APPLICATION TO CHALLENGE THE JURISDICTION ISSUE

22.  The concurrent Writ was served on the 3^rd Defendant on 15^th January 2016 and the 3^rd Defendant filed his Acknowledgment of Service on 15^th January 2016. The Plaintiff filed his statement of claim and served it on the 3^rd Defendant on 11^th February 2016.

The Plaintiff’s contentions

23.  The Plaintiff’s Counsel contends that pursuant to RHC Order 12 Rule 8, the 3^rd Defendant, if he wishes to contest the jurisdiction and service issue, he was entitled and obliged to file and serve a Summons with supporting affirmation challenging the jurisdiction of this Court and/or the service upon him within 28 days  from 12^th February 2016 and failing which RHC O.12 R.8(7) would deem the 3^rd Defendant’s Acknowledgment of Service to be the 3^rd Defendant’s irrevocable submission to the jurisdiction of this Court.

24.  However after taking multiple steps in this action, on 31^st January 2018, the 3^rd Defendant filed and served the present Summons without any supporting affirmation (as so required by RHC O.12 R.8(4)) purportedly pursuant to RHC O.12 R.8, asserting challenges to the jurisdiction of this Court and the service upon him. The reference in his Summons was misdirected, since the extended time within which the 3^rd Defendant was required to file and serve his Defence had expired almost 2 years earlier, in mid March 2016, whereupon RHC O.12 R.8(7) took effect.

25.  Thus, since mid-March 2016, RHC O.12 R.8(7) deemed that the 3^rd Defendant had filed his notice of intention to defend and submitted to the jurisdiction of this Court and the 3^rd Defendant had lost his previous entitlements to challenge this Court's jurisdiction and/or the service upon him and/or this forum (RHC O.12 R.8(2A)) and the 3^rd Defendant's Defence was due.

26.  In gist, the Plaintiff’s Counsel contends that RHC O.12 R.8 is a code defining the Court's statutory jurisdiction which binds the Court and the parties. There was no application being made under Order 12, Rule 8 within the prescribed time and there has been no agreement or a valid court order to extend the time limit for the 3^rd Defendant to file his Defence and as such there was no jurisdiction for the court to revive the time limit. It is because the day after the time limit has expired, the 3^rd Defendant is deemed to have accepted the jurisdiction because of the deeming provisions at paragraphs 6 and 7 of O.12 R.8.  In other words, because of the interregnum (the period between the expiry of 28 days and the time of filing of the O.12 R.8 Summons), during which there was no agreement and no order extending time, the deeming provisions took effect.

27.  As such, if the 3^rd Defendant allowed the 28 day period within which he was required to file his defence to expire, without filing a Order 12 Rule 8 summons, then he was deemed by paragraphs 6 and 7 to have submitted to the jurisdiction of this Court.

28.  Consequently, the Plaintiff submits that both the 3^rd Defendant's summons and his applications therefore are invalid and cannot proceed.

29.  I do not agree with the contentions put forward by the Plaintiff’s Counsel on this point.

30.  It is trite that the rule relating to the timeline within which one is able to make an Order 12 rule 8 challenges to jurisdiction is within the time for filing the defence. The rule as it applies in this case, is that the time within which to file any challenge to jurisdiction is the time within which one may file his defence.

31.  In this case there were various extensions of time to the Defence made by the 3^rd Defendant. Reading from the chronology and timeline, I accept that clearly throughout the process, the 3^rd Defendant was delaying the time for filing a defence and getting the extension of time until after the Strike-Out application.  The Order of Master K Lo dated 20^th May 2016 extended the time within which the 3rd defendant could file his defence and counterclaim, if any, to 28 days after the disposal of the Strike-Out application. Ultimately the order for filing the Defence was 28 days after the striking out application was disposed of.  The striking out Summons was disposed of by the order made by Madam Lisa Wong J on 4^th January 2018, and within the 28 day period, the present Summons was taken out on 31^st January 2018 by the 3^rd Defendant.  I consider that if one applies to extend time for the Defence, then one should get the time within which to make an Order 12 rule 8 challenges, and the 3^rd Defendant has done that.

32.  The time for the filing of the Defence for the 3^rd Defendant in this case had not yet expired. The expiry of the time for filing the defence is the cut‑off point for any Order 12 rule 8 out of time challenge. Under Order 12 rule 8, as long as the Defence time is extended, the Order 12 rule 8time is extended.  Here, the 3^rd Defendant is within time when his took out the present application.  As such, I rule that there is no out of time issue and the contentions put forward by the Plaintiff regarding this particular threshold jurisdictional out of time ground are not accepted. I rule that the Court has jurisdiction to deal with the 3^rd Defendant’s present application.

WHETHER THERE WAS SUBMISSION TO THE JURISDICTION OF THIS COURT BY THE 3^RD DEFENDANT

33.  The Plaintiff contends that the 3^rd Defendant has taken multiple steps in the proceedings whereby he has invoked or engaged this Court’s jurisdiction independently of his belated and invalid Order 12 Rule 8 Summons.

Legal Principles Applicable to Submission to Jurisdiction

34.  The proper test is set out in the judgment in Global Multimedia International Ltd v Ara Media Services and another (Abu-Aljadail and others, Part 20 defendants) [2007] 1 All ER (Comm) 1160, at paragraphs 27 and 28:-

“[27] The test to be applied in determining whether any particular conduct amounts to a submission to the jurisdiction was considered by Colman J in Spargos Mining NL v Atlantic Capital Corp reported only in (1995) Times, 11 December, but quoted in full by Patten J in SMAY Investments Ltd v Sachdev [2003] EWHC 474 (Ch) at [41], [2003] 1 WLR 1973 at [41]. I reproduce the whole of the quote as set out in that para [41] from the judgment of Patten J:-

‘In approaching the question of submission, I have in mind the following authorities. In Astro Exito Navagacion SA v WT Hsu, otherwise know, more pronounceably, as The Messiniaki Tolmi [1984] 1 Lloyds Reports, 266, Goff LJ said at p 270, “Now a person voluntarily submits to the jurisdiction of the court if he voluntarily recognises, or has voluntarily recognised, that the court has jurisdiction to hear and determine the claim which is the subject matter of the relevant proceedings. In particular, he makes a voluntary submission to the jurisdiction if he takes a step in the proceedings which in all the circumstances amounts to a recognition of the court’s jurisdiction in respect of the claim which is the subject matter of those proceedings. The effect of a party’s submission to the jurisdiction is that he is precluded thereafter from objecting to the court exercising its jurisdiction in respect of such claim. Whether any particular matter, for example an application to the court, amounts to a voluntary submission to the jurisdiction must depend upon the circumstances of the particular case.” In [Sage v Double A Hydraulics Ltd [1992] The Times, 2 April 1992, TLR 165], Farquharson LJ said (and this is a report of the judgment which is not reported in oratio recta): “A useful test was whether a disinterested bystander with knowledge of the case would have regarded the acts of the defendant, or his solicitors, as inconsistent with the making and maintaining of his challenge”. In arriving at the view to be imputed to the disinterested bystander, it seems to me that one has to bear in mind that there will be an effective waiver, or a submission to the jurisdiction, only where the step relied upon as a waiver, or a submission to the jurisdiction, cannot be explained, except on the assumption that the party in question accepts that the court should be given jurisdiction. If the step relied upon, although consistent with the acceptance of jurisdiction, is a step which can be explained also because it was necessary or useful for some purpose other than acceptance of the jurisdiction, there will, on the authorities, be no submission ... If the well-informed bystander had been left in doubt because what the defendants had done was equivocal, in the sense that it was explicable on other grounds in addition to agreement to accept the jurisdiction of the court, then the conclusion must be, on the authorities, that there would have been no submission to the jurisdiction. The representation derived from the conduct of the party said to have submitted must be capable of only one meaning.’

[28] Thus the test to be applied is an objective one and what must be determined is whether the only possible explanation for the conduct relied on is an intention on the part of the defendant to have the case tried in England.”

35.  The same test was applied by the Court of Appeal in Miruvor Ltd v Panama-Globe Steamer Lines SA [2007] 1 HKLDR 804 where it was held that there was no submission to the jurisdiction of the court by the third defendant. In that case the defendant made plain in the defences which commenced with a first paragraph which read:-

“For the avoidance of doubt, this defence is made strictly without prejudice to be third defendant’s applications (i) to have the writ served against it set aside; and/or (ii) to have the plaintiff’s claim dismissed for want of prosecution.”

After citing the relevant authorities, Rogers VP said at page 809:-

  The question which appears to me to be relevant, therefore, is whether looked at fairly and sensibly has what the defendant has done constituted a submission to jurisdiction.  In my view, when the defences are considered it is abundantly clear from the first paragraph that the third defendant intended to challenge the jurisdiction and was to make an application to that effect.”

36.  It was held by Sakhrani J in ABN Amro Bank NV v Fortgang [2008] 2 HKLRD 349 that if a step, although consistent with the acceptance of jurisdiction, could also be explained as necessary or useful for some purpose other than acceptance of jurisdiction, then there would not be an effective waiver or a submission to the jurisdiction.  In that case, the defendant’s service of the unqualified defence was held to be an unequivocal act of his submission to the jurisdiction of the Hong Kong court.  The step of service of the unqualified defence could not be explained as necessary or useful or for some purpose other than acceptance of the jurisdiction.  Contrary to the defendant’s submission, there was no evidence that the defence was filed and served purely as a precaution to protect its rights, but with no intention to submit to the jurisdiction.

37.  On the same principles, it was held by the Court of Appeal in SJH v RJH (CACV 280/2011) that the husband’s stay summons on the grounds of, inter alia, forum non-conveniens was justifiably refused in the court below for reasons that he had filed an answer to the petition and an answer (by way of Form E) to the ancillary relief application. The Court of Appeal found that the husband having filed his answer, was clearly too late to challenge the jurisdiction of the Hong Kong court. The time limitation provision in respect of jurisdictional challenge provided under Order 12 rule 8(2) alone clearly justified dismissal of his stay summons without the need to deal with the submission to jurisdiction point raised by the wife, though the filing of the answer must be construed as a submission to jurisdiction.

38.  The applicable objective test in ABN Amro Bank NV v. Fortgang [2008] 2 HKLRD to determine whether any particular conduct amounts to a submission to the jurisdiction of the court is as follows:-

"Whether a disinterested bystander with knowledge of the case would have regarded the acts of the defendant, or his solicitors, as inconsistent with the making and maintaining his challenge."

39.  Submission to jurisdiction must depend on the circumstances of the particular case and so it is case-specific and fact-specific.

40.  What must be determined is whether the only possible explanation for the conduct relied on is an intention on the part of the defendant to have the case tried in Hong Kong :-

(1)  There will be a submission to the jurisdiction only where the step relied upon as constituting the submission to jurisdiction cannot be explained except on the assumption that the party in question accepts the court's jurisdiction.

(2)  Where the step relied upon is consistent with the acceptance of jurisdiction but can be explained also because it was necessary or useful for some purpose other than acceptance of the jurisdiction, there will be no submission.

(3)  Where the well-informed bystander is left in doubt, there would have been no submission to the jurisdiction of the court.

41.  As the conduct must demonstrate an intention on the part of the defendant to have the case tried in Hong Kong, such conduct must relate to the merits/substance of the proceedings and engage the Court on this basis. This is shown from the following passages cited in ABN Amro Bank:

(1)  "First, it seems to me clear beyond argument that the service of a defence is inconsistent with objecting the court continuing to have jurisdiction over the merits....But the unqualified service of a defence seems to me almost a paradigm example of conduct which indicates a willingness that the court should consider the merits of the matter" at§ 46, citing Evans UJ in Ngcobo v Thor Chemicals Holdings Ltd.

(2)  ‘If [the solicitor] genuinely wishes to preserve his client 's ability to contest the jurisdiction of the court he will refrain from entering on the merits of the claim or at least only do so on a clear and express without prejudice basis" at§ 47, citing Sir Andrew Morrit t C in Global Multimedia International Ltd v. ARA Media Services.

42.  In ABN Amro Bank, the Court noted the following matters in coming to the conclusion that the defendant had submitted to its jurisdiction:

(1)  The defendant had applied under O.12 r.8 after the Plaintiff had effected service of the concurrent writ on him for the first time. Thereafter, the Plaintiff effected service of the concurrent writ on the defendant for the second time:§ 29-32, 41.

(2)  The stance taken by the defendant in the correspondence showed that subject to costs, the defendant was prepared to consent to the withdrawal of its O.12 r.8 summons:§ 44.

(3)  Following the above, the defence was filed and served without any cover letter indicating that it was made without prejudice to the defendant's pending application under O.12 r.8:§ 34.

CONDUCTS OF THE 3^rd DEFENDANT

43.  On this material point, I need to examine if the 3^rd Defendant had done anything by which he waived the ability to challenge the jurisdiction.

Summons issued on 11^th February 2016 compelling the Plaintiff to file Statement of Claim on an unless basis

44.  The 3^rd Defendant filed a Summons on 11^th February 2016 and it invoked Order 3, Rule 5 for an unless order that the Plaintiff do file and serve his Statement of Claim within 7 days otherwise the Plaintiff’s claim be dismissed.

45.  The 3^rd Defendant’s Counsel submits that the 3^rd Defendant has not submitted to the jurisdiction of the Hong Kong courts. The 3^rd Defendant’s application by Summons dated 11^th February 2016 requiring the Plaintiff to file and serve the Statement of Claim would not be seen by a bystander as an act of submission to the jurisdiction of the Court because the same is explicable as necessary or useful for a purpose other than acceptance of the jurisdiction, namely to ascertain the basis of Plaintiff's claims against him.  Moreover, the nature of a Plaintiff's claim is clearly a relevant consideration in whether an application under O.12 r.8 could and should be made. O.12 r.8 specifically allows an application to be made within the time for service of a defence.  The Summons issued on 11^th February 2016 could not be said to be an unequivocal intention on the 3^rd Defendant’s part to have the case tried in Hong Kong, when the basis for the Plaintiff’s claim is yet to be ascertained. It is clear there are other explanations.

46.  With greatest respect to the submission and explanations put forward by the 3^rd Defendant’s Counsel, I hold a different view. The 3^rd Defendant must consistently avoid waiving his challenges by invoking the jurisdiction that he challenges, i.e. by taking a step that is not part of his Order 12 r 8 challenges. I take the view that the 3^rd Defendant has taken steps which made him submitted to the jurisdiction to this Court.

47.  In respect of the Summons issued on 11^th February 2016, it made no reference to Order 12, Rule 8 and it did not seek any relief for the purposes of Order 12, Rule 8.  The Plaintiff’s Counsel submitted that such Summons was invoking the general jurisdiction of this court under Order 3, Rule 5 which I agreed. What was sought was the court’s general jurisdiction under Order 3, Rule 5, and the relief that was sought was an order that the Plaintiff file and serve a Statement of Claim within 7 days and unless he filed and served within 7 days, the Plaintiff’s claim be dismissed.  In other words, the 3^rd Defendant was asking for these proceedings be terminated in reliance upon this court’s general jurisdiction if the Plaintiff failed to comply with the rules of court to file the Statement of Claim within the prescribed time. The 3^rd Defendant had invoked the court’s power to dismiss the Plaintiff’s action.  The 3^rd Defendant took out a Consent Summons to deal with that said 11^th February 2016 Summons by allowing the Plaintiff to file his Statement of Claim on 11^th February 2016 and the Summons was withdrawn with costs.

48.  The 3^rd Defendant tries to contend that he had expressly reserved his right under O.12. r. 8 in respect of this Summons. However, I am not aware of any parallel letter issued by the 3^rd Defendant preserving his right to challenge the jurisdiction of the Court under Order 12 r 8 or otherwise before or at the time of issuance of the Summons dated 11^th February 2016. In the letter dated 14^th March 2016 issued by WMC Partners to Messrs. Hoosenally & Neo, in response to the 3^rd Defendant’s Summons dated 9^th March 2016, the Plaintiff contended that the 3^rd Defendant’s submission to jurisdiction was eminent because the 3^rd Defendant had already issued the Summons on 11^th February 2016 to compel the Plaintiff to file his Statement of Claim or to have the Plaintiff’s claim dismissed and the 3^rd Defendant further took out a Consent Summons on 18^th February 2016 to deal with that Summons. As far as I can discern from the available documents, in a letter issued by  Messrs. Hoosenally & Neo to WMC Partners dated 14^th March 2016, it was the first time that the 3^rd Defendant wrote to the Plaintiff denying the proposition that he had submitted to the jurisdiction but at such point of time, the Summons dated 11^th February 2016 and the Consent Summons dated 18^th February 2016 were already issued and dealt with without any prior express reservation to preserve the Order 12 rule 8 challenge.

49.  Insofar as the Summons dated 11^th February 2016 is concerned, I am not aware of any effective indication or parallel letter from the 3^rd Defendant to indicate the reservation of his right to contend the jurisdiction point before or at the time when he issued that Summons and the subsequent Consent Summons.  Clearly, the 3^rd Defendant had taken steps to invoke the Court’s jurisdiction without reservation or any intention to challenge the jurisdiction and those conducts taken by the 3^rd Defendant could be viewed as an unequivocal indication or intention by the 3^rd Defendant to have the case tried in Hong Kong. 

Strike-Out Summons issued on 3^rd May 2016

50.  On 3^rd May 2016, the 3^rd Defendant took out an Inter-Partes Summons based on Order 18, Rule 19 of the Rules of the High Court and the inherent jurisdiction of the Court which was heard with full argument for one day before Hon. Lisa Wong J on 12^th September 2016. This has nothing to do with Order 12, Rule 8. The 3^rd Defendant sought an order that the Plaintiff’s claims in these proceedings against the 3rd defendant be dismissed or struck out on the grounds that:-

(a)  It is an abuse of process of the Court, or res judicata, for the Plaintiff to re-litigate the same issues and subject matter which has been adjudicated in an arbitration between the parties in Israeli, and the ensued appeals to the Israeli courts; or

(b)  It is scandalous, frivolous or vexatious; or

(c)  It may prejudice, embarrass or delay the fair trial of the action.

51.  Again, I consider that there is no clear and sufficient evidence to show that the 3^rd Defendant had taken steps to reserve his right to contend the jurisdiction point before or at the time when the 3^rd Defendant issued the Strike-Out Summons for the following reasons:-

(a)  I am not aware of any indication or parallel letter from the 3^rd Defendant to indicate specifically that he would reserve his right to contend the jurisdiction point before or at the time when he issued the Strike-Out Summons on 3^rd May 2016. There was also no indication in the Strike-Out Summons that the Strike-Out application was taken out by the 3^rd Defendant without prejudice to his right to contend the jurisdiction point;

(b)  As far as I can discern from the documents, it was only until 17^th May 2019, that the 3^rd Defendant through Messrs Hoosenally & Neo wrote to the Plaintiff to say that: “given that our client had taken out a striking out application against yours, we would reserve our client’s right to make such application under Order 12 rule 8 if our striking out application is dismissed by the Court.” Obviously I can see that such indication of stance in respect of the Order 12 rule 8 application was not expressed before or at the time of issuance of Strike-Out Summons. This letter was only sent 2 weeks after the Strike-Out Summons was issued.

(c)  Further, from my reading of these wordings, the 3rd Defendant was not stating clearly that the Strike-Out Summons was made without prejudice to the Order 12 Rule 8 application. The 3rd Defendant only indicated that he would make an application under Order 12 Rule 8 if the Strike-Out Summons is dismissed by the Court.

(d)  After the Plaintiff filed his Statement of Claim on 11th February 2016, the 3rd Defendant took out a Summons dated 9th March 20l6 for an Order that "The time for filing and service of the 3rd Defendant’s Defence and Counterclaim, if any, and/or to make such application as may be appropriate pursuant to Order 12, rule 8 …be extended….” The 3rd Defendant tries to contend that by applying for further time to apply under O.12 r.8 RHC, the 3rd Defendant’s intention to challenge the jurisdiction of the court was made clear. With greatest respect, I do not agree with such contention. I do not agree that the 3rd Defendant’s application for an extension of time under Order 12 rule 8 itself would exonerate the 3rd Defendant’s need to expressly and clearly reserving the right to challenge the court jurisdiction and to clearly indicate that the Strike-Out Summons was made without prejudice to the 3^rd Defendant’s stance under Order 12 rule 8. I consider that such reservation has to be expressly spelt out clearly before or at the time of the issuance of the Strike-Out Summons not after its issuance.

(e)  Accordingly, I do not accept that the 3rd Defendant had expressly reserved his rights to take out application pursuant to Order 12 Rule 8 of the Rules of the High Court before or at the time his striking out application was taken out.

52.  Further, I accept the submission from the Plaintiff’s Counsel that the Strike-Out application in this case was an application under the general jurisdiction of the court to have the action conclusively determined by dismissal. Order 18, Rule 19 expressly provides that the Court’s power on an application at any stage of the proceedings ordered to be struck out or amended any pleading or endorsement upon the grounds which it sets out. The Court may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.  In the present Strike-Out Summons, what was sought by the 3^rd Defendant was an order for dismissal. When it comes to the question of challenging the merits of the case, I take the view that in the Strike-Out Summons, the 3^rd Defendant was invoking the court’s general jurisdiction in the present case.

53.  The 3^rd Defendant submits that the Strike-Out Summons was based on the ground of abuse of process and it did not touch upon the merits and/or substance of the Plaintiff's claim in the Statement of Claim, which can be contrasted with the filing of a defence.  The Strike-Out Summons did not engage in a consideration of the merits and/or the substance of the Plaintiff's claims at all.  The 3^rd Defendant explains that the Strike-Out Summons was purely procedural in nature, grounded primarily on the doctrine of Res Judicata in the wider sense, i.e. that it was an abuse of the Hong Kong court process for the Plaintiff to raise the present claims against the 3^rd Defendant when the Plaintiff could and should have been raised the same in the Israeli Arbitration.  As such, it did not evince any intention or willingness on the 3^rd Defendant’s part for the Plaintiff’s claim tobe tried in Hong Kong. 

54.  With respect, I do not agree with the submissions put forward by the 3^rd Defendant. One of the crucial questions in the Strike-Out Summons was whether the Plaintiff, against the background of the Israeli Arbitration, was misusing or abusing the process of the court. It is however clear from reading the Strike-Out Judgement that the court was not only engaged at a procedural level to rule on the Res Judicata point, the Court was also required to consider, inter alia, the Plaintiff’s pleaded claim, evidence and substance of the Plaintiff’s claims or its merits. It is clear from reading the said Judgment that the 3^rd Defendant did not just confine his submission and contentions on the Res Judicata point, see paragraphs 72 -75 of the said Judgement. The 3^rd Defendant gave specific reasons as to why the Statement of Claim in its then present form should be struck off and a number of other reasons on top of the  Res Judicata issues were contended.

55.  Judge Liza Wong had dealt with and set out her views regarding the contentions put forward by the 3^rd Defendant in respect of the Plaintiff’s causes of action in negligence and breach of fiduciary duties. As such, I do not agree that the Strike-Out Summons was purely procedural without touching on the substance or merits of the Plaintiff’s claim. The 3^rd Defendant had seen fit to proceed with the Striking out Summons before the Order 12 rule 8 application and without effective or proper reservation as to his right to challenge the jurisdiction. I consider that it did evince an unequivocal intention or willingness on the 3^rd Defendant’s part for the Plaintiff’s claim to be tried in Hong Kong in the Striking out Summons and hearing. 

56.  In relation to Order 18, Rule 19, where jurisdiction is successfully invoked by a defendant and an action is dismissed, the outcome is the same as if there had been a full trial of the action, after discovery and exchange of witness statements and cross-examination. It is the jurisdiction of the court to finally determine, on its merits, the proceedings.  The term “merits” embraces everything that goes into the question of how proceedings should be finally determined.  Whether by summary determination under Order 18, Rule 19, or by determination following trial. It is the same jurisdiction that is being invoked. And then in the present proceedings, having failed in his attempts to invoke the general jurisdiction of the court under the Strike-Out Summons, the 3^rd Defendant proceeded to bring on a summons seeking to claim that the court has no general jurisdiction. This is not the right approach. One should either make his challenge at the threshold of the proceedings or he gets on with defending them. I consider that the steps relied upon by the 3^rd Defendant is consistent with the acceptance of jurisdiction.

Conclusion

57.  As for the submission to jurisdiction, by applying the objective test, I consider that a disinterested bystander with knowledge of the case would not be left in doubt but would have regarded the acts of the 3^rd Defendant as inconsistent with the making and maintaining of his challenge of the jurisdiction of this court.

58.  In respect of the Summons issued on 11^th February 2016,I consider that there has been an effective waiver and voluntary submission to the jurisdiction of this Court. I consider that by invoking this Court’s general jurisdiction to order the Plaintiff to file the Statement of Claim on “unless” basis could not be explained as necessary or useful for some purposes other than acceptance of jurisdiction. The effect of a party’s submission to the jurisdiction is that the 3^rd Defendant is precluded thereafter from objecting to the court exercising its jurisdiction in respect of such claim.

59.  In respect of the Strike-out Summons, I consider that there is no evidence that such steps taken in striking out the Plaintiff’s claim in these proceedings could be explained as necessary or useful for some purposes other than acceptance of jurisdiction. Again, the effect of a party’s submission to the jurisdiction is that the 3^rd Defendant is precluded thereafter from objecting to the court exercising its jurisdiction in respect of such claim.

60.  Since February 2016, the 3^rd Defendant has taken multiple steps in the action whereby he has invoked this Court’s jurisdiction independently of his O.12 R.8 Summons.

61.  I find in the circumstances that there is an effective waiver on the part of the 3^rd defendant and a voluntary submission to the jurisdiction of this Court. The 3^rd Defendant hasthereby waived any entitlement he might have had to invoke this Court's RHC O.12 R.8 jurisdiction. My decision on Issue (2) alone is sufficient to dispose of the matter. Issues (3) and (4) do not arise.It is not necessary for me to deal with Issues (3) and (4) as set out in paragraph 22 above. For the reasons stated above, I dismiss the 3^rd Defendant’s Summons dated 31^st January 2018.

62.  I order that the 3^rd Defendant do have leave to file and serve his Defence within 56 days from the date of this Decision.

63.  I also make an order nisi that the 3^rd Defendant should pay the Plaintiff’s costs of and occasioned by the 3^rd Defendant’s Summons dated 31^st January 2018 (including all costs reserved and the hearing on 13^th September 2018), to be taxed on a party and party basis if not agreed, with certificate for Senior Counsel for the hearing on 13^th September 2018.

64.  I am most grateful to Mr Russell Coleman, SC and Mr Barrie Barlow, SC for their very able and helpful assistance.

HCA 1462/2014

[2018] HKCFI 17

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1462 OF 2014

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D E C I S I O N

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Applications

1.  On 12 September 2016, I heard the application by the 3^rd defendant Mr Israel Sorin Shochat (“Shochat”) by summons dated 3 May 2016 to strike out this action against him (“Striking Out Application”).  I reserved my decision.

2.  Before I handed down my decision on the Striking Out Application, by a letter dated 15 September 2016, Shochat’s solicitors wrote to the court enclosing, and seeking leave to rely on, pages 292 to 297 of the transcript of the testimony of the plaintiff Mr Balram Chainrai (“Chainrai”) on 29 August 2012 at the hearing of the arbitration proceedings in Israel between Chainrai and Shochat (“Transcript”), in support of the Striking Out Application.

3.  On 23 September 2016, I directed Shochat to issue a summons, and file and serve a supporting affidavit, for leave to adduce the Transcript.

4.  By a summons dated 5 October 2016, Shochat formally applied for leave to adduce the whole of the Transcript in support of the Striking Out Application (“Additional Evidence Application”).  I heard the application on 22 February 2017.  I shall deal with the admission or otherwise of the Transcript for the purposes of the Striking Out Application when I come to the issue to which such evidence relates.

Relevant background

5.  Chainrai is a Hong Kong businessman.  Shochat is an ethnic Hebrew businessman resident in Israel.  They were business partners since the 1990’s.  Since 2004, Shochat started to introduce to Chainrai business ventures in Israel that were transacted in Hebrew.  It is Chainrai’s case that since he does not know Hebrew, he relied on the local business knowledge and investment advice given by Shochat in deciding whether to enter into those business ventures, and if so, upon what terms.  He reposed trust and confidence in Shochat in his investment advice and the business ventures referred by him.

6.  In 2005 and 2006, upon Shochat’s introduction and investment advice, Chainrai extended a loan of NIS 29,500,000 (“Loan”) to the 1^st defendant Kushnir Family (Holdings) Limited (“Kushnir Company”), a company owned and controlled by the 2^nd defendant Mr Levi Kushnir (“Kushnir”), to finance its purchase of 35% of the shareholding (“Shares”) in Nachushtan Investment Company Limited (“Nachushtan”), a company registered under the laws of Israel and then listed on the Tel Aviv Stock Exchange.  The transaction was negotiated, and the loan documentation executed, for Chainrai by Shochat as Chainrai’s authorised agent.

7.  The Loan was advanced in 3 tranches (i.e. NIS 25,000,000 on 20 June 2005; NIS 3,000,000 on 20 December 2005 and NIS 1,500,000 on 22 February 2006).  It was repayable with interest (agreed in the sum of NIS 3,000,000) on 20 June 2008.  It was secured by a pledge of the Shares by the Kushnir Company to Chainrai (“Share Pledge”).  It is Chainrai’s case that, according to the financial advice given to him by Shochat, the Share Pledge would minimise any risks associated with the provision of the Loan.

8.  The relationship between Chainrai and Shochat broke down in about mid 2007 over another transaction in which they were involved.  The 2 gentlemen ceased to have any direct communication with each other from November 2007.

9.  In December 2007, Shochat commenced an action in the Tel Aviv-Jaffa District Court against (1) Chainrai; (2) Chainrai’s brother-in-law (who was assigned,[i] and later reneged,[ii] the Shares); (3) the Kushnir Company; and (4) Kushnir for various relief premised upon Shochat being entitled to half of the creditor’s interest in the repayment of the principal and interest of the Loan and in the security of the Shares under the Share Pledge (“Israeli Action”). 

10.  Shochat’s claims in the Israeli Action were derived from his payment of NIS 14,648,779 (which was just a little short of half of the total amount of the Loan) into a joint exchequer account maintained by Chainrai and Shochat at around the same time when the Loan was made.  It was Shochat’s case that such payment was his contribution to a half share of the Loan, which gave him a half share in the principal and interest to be repaid by the Kushnir Company and in the security of the Shares under the Share Pledge.

11.  During the pendency of the Israeli Action, the Loan matured on 20 June 2008.  Upon Kushnir’s requests, Chainrai twice extended the term of the Loan without requiring further interest, initially to 20 June 2009 and then to an indefinite date which was linked to the conclusion of certain legal proceedings in which Kushnir was involved, one set of which was brought by inter alia Kushnir against Shochat.

12.  Chainrai did so without reference to Shochat.  Shochat alleged in the Israeli Action that Chainrai agreed to these extensions for a personal motive only because he needed Kushnir’s assistance in the collection of a debt due to both of them from a third party.  Shochat argued that as the extensions granted by Chainrai to the Kushnir Company were not agreeable to him, the Kushnir Company was obliged to repay the Loan with the agreed interest on the first maturity date (i.e. 20 June 2008).

13.  As Shochat was not a registered party to the Loan, his claims against Chainrai’s brother-in-law, the Kushnir Company and Kushnir were struck out for want of a cause of action, leaving Chainrai the only defendant to the Israeli Action.

14.  As between Shochat and Chainrai, while it is tolerably clear from paragraph 20 of the statement of claim herein (“SOC”), as confirmed by paragraphs 7 and 27 of the skeleton argument of counsel for Chainrai, that Chainrai now accepts that Shochat had contributed half of the Loan, that had not always been Chainrai’s position.  In the Israeli Action, Chainrai denied that Shochat had financed half of the Loan out of his own pocket; that Shochat was an equal partner to the rights arising from the Loan; or that Shochat was entitled to repayment of half of the principal and interest of the Loan.  It was Chainrai’s defence therein that Shochat paid into their joint exchequer account on account of other transactions between them.  In addition to defending Shochat’s claims to the Loan, Chainrai also counterclaimed over NIS 32,000,000 against Shochat for breach of fiduciary duties as a trustee of Chainrai’s funds and investments regarding other joint ventures between them.

15.  On 17 May 2011, upon Chainrai and Shochat’ joint application, the Israeli Action was converted into an arbitration (“Israeli Arbitration”).  It was agreed inter alia that:

(1) The pleadings and affidavits filed in the Israeli Action would be the parties’ pleadings and affidavits in the Israeli Arbitration.

(2) The parties would not request to amend the pleadings they had filed in a manner that increased the amounts claimed by each other from the other and the causes of action of the parties would remain unchanged.

16.  The hearing of the Israeli Arbitration took place before a sole arbitrator (“Arbitrator”) in August and December 2012.  On 31 October 2013, the Arbitrator delivered a 48-page award (“Award”), upholding Shochat’s claims against Chainrai and dismissing Chainrai’s counterclaims against Shochat.

17.  Insofar as Shochat’s claims and Chainrai’s defence in respect of the Loan are concerned, the Arbitrator made the following findings and rulings:

(1) The Loan was a joint investment by Chainrai and Shochat. Although Chainrai was registered as the sole lender of the Loan, he was Shochat’s trustee in respect of one half of the Loan. See paragraph 66 of the Award.

(2) Chainrai twice extended the date of repayment of the Loan by the Kushnir Company as aforesaid without Shochat’s knowledge or consent.  See paragraphs 72 and 81 of the Award.

(3) By reason of such extensions, repayment of the Loan was deferred for long years without any additional interest and no real steps whatsoever for the repayment of the Loan had been taken by Chainrai.  See paragraph 74 of the Award.

(4) Not only did Chainrai fail to preserve the trust property in the sense of striving to enforce the repayment of the Loan, he used the rights of the Loan as he wished, unrecognizably modified them and severely harmed Shochat’s rights in the Loan. Chainrai therefore breached the duty of good faith he owed to Shochat.  See paragraph 88 of the Award.

(5) Shochat could not have demanded repayment of one half of the Loan directly from the Kushnir Company for want of privity as a result of Chainrai’s denial of his half interest in the Loan.  See paragraph 87 of the Award.

(6) “In light of the fact that [Chainrai] treated the Loan as if it were his own and gave many extensions for years, without interest, in light of the fact that throughout the whole time he denied [Shochat]’s rights in the Loan, and in light of the long period of time that elapsed from the maturity date without any steps being taken for repayment of the Loan, there is a basis for the claim that in such accumulative circumstances, [Shochat] is entitled to receive from [Chainrai] his share of the Loan, together with interest.”  See paragraph 89 of the Award.

(7) Shochat having proved that he contributed NIS 14,648,779 of the Loan, Chainrai was liable to pay Shochat this sum plus one half of the agreed interest in the amount of NIS 1,500,000. Chainrai must therefore pay Shochat the total sum of NIS 16,148,779, plus interest and indexation differentials as from 20 June 2008, which was the original maturity date of the Loan, until the date of actual payment.  See paragraphs 96 to 98 of the Award.

18.  Chainrai lodged successive challenges to the Award in the Israeli courts.  The Tel Aviv-Jaffa District Court dismissed his application for leave to appeal against, and to set aside, the Award on 18 May 2014.  The Supreme Court of Israel dismissed his application for leave to appeal against the judgment of the Tel Aviv-Jaffa District Court on 13 July 2015.  The Supreme Court further dismissed Chainrai’s application to hold a further hearing on its decision dated 13 July 2015 on 26 August 2015.  The Tel Aviv-Jaffa District Court finally made a decree approving the Award on 20 September 2015.

Chainrai’s claim against Shochat in this action

19.  This action was commenced by Chainrai by a generally indorsed writ of summons on 31 July 2014, i.e. during the pendency of Chainrai’s application to the Supreme Court of Israel for leave to appeal against the Tel Aviv-Jaffa District Court’s dismissal of his application for leave to appeal against, and to set aside, the Award. 

20.  The writ was not served within 12 months.  Its validity was renewed for another 12 months on 24 July 2015.  After serving Kushnir in Hong Kong on 2 November 2015, on 16 November 2015, Chainrai obtained leave to issue a concurrent writ against the other defendants including Shochat and to serve the same on them out of the jurisdiction in Israel under Order 11 rule 1(1)(c) of the Rules of the High Court (Cap 4A).  The SOC was filed and served out of time on 11 February 2016.

21.  As to what prompted this action, it is Chainrai’s case that in November 2013, he instructed his Israeli lawyers to make arrangements for the sale of the Shares to satisfy the Award in case his attempts to challenge the Award in the Israeli courts should fail.  And it was during this process that he discovered through his Israeli lawyers that the Shares were already valueless because, unbeknownst to him, Nachushtan:

(1) had already been in trading and financial difficulties before Shochat introduced the transaction to him;

(2) suffered losses as a result of the temporary liquidation proceedings and receivership of its principal subsidiary, Ampa Consumer Products Ltd (“Ampa”);

(3) was itself put under receivership by reason of insolvency on 8 March 2009, delisted from the Tel Aviv Stock Exchange and became a private company later in 2009; and

(4) was subject to liquidation proceedings on 7 January 2013.

22.  Insofar as it is material, Chainrai claims against Shochat in negligence and/or breach of fiduciary duties, in that Shochat inter alia withheld or concealed from Chainrai the fact that the Nachushtan group of companies were having financial difficulties, which Shochat knew or should have known, both when the Loan was originally made and when the extensions were granted, thereby preventing Chainrai from minimising his damage or exposure.  Such information would have put in doubt the wisdom of the Loan to enable the Kushnir Company to purchase a substantial shareholding in Nachushtan as well as the adequacy of the Share Pledge alone as security for the repayment of the Loan.

23.  Chainrai seeks NIS 29,500,000 (i.e. the amount of the Loan) plus interest, in addition to any damages, costs or other relief that the court deems fit in these proceedings.

Shochat’s ground for striking out

24.  The summons for the Striking Out Application, taken out pursuant to Order 18 rule 19 and the inherent jurisdiction of the court, identified the following specific grounds:

“(a) It is an abuse of process of the Court, or res judicata, for the Plaintiff to re-litigate the same issues and subject matter which has been adjudicated in an arbitration between the parties in Israel, and the ensued appeals to the Israeli courts;

(b) It is scandalous, frivolous or vexatious; or

(c) It may prejudice, embarrass or delay the fair trial of the action”.

25.  Shochat’s ground for striking out as stated in his summons was based on an abuse of process arising from the re-litigation of the “same issues and subject matter” in the Israeli Arbitration, which would be understood as a reference to the doctrine of res judicata in the narrower sense.[iii]

26.  However, it is clear that the issues raised by Chainrai against Shochat in this action were not litigated or adjudicated in the Israeli Arbitration.  Shochat expressly conceded as much in paragraph 9 of his 2^nd affirmation dated 31 August 2016.

27.  The submissions before me on behalf of Shochat were grounded primarily on the doctrine of res judicata in the wider sense, i.e. that Chainrai’s claims against Shochat in this action could and should have been raised in the earlier proceedings between the parties in Israel.  While Mr Eugene Fung SC (leading Miss Kay Seto) for Chainrai drew my attention to the discrepancy between Shochat’s summons and submissions for striking out, leading counsel proceeded to deal with Shochat’s case as advanced in submissions.

Principles for striking out based on res judicata in wider sense

28.  The burden is on the party seeking to strike out to demonstrate that it is plain and obvious that the other party’s claim is bound to fail.  There should be no trial upon affidavit.  Disputed facts are to be taken in favour of the party sought to be struck out.  If the court does not think the matter to be clear beyond doubt, there should be no striking out.  One must be careful not to drive a plaintiff from the judgment seat.  See Hong Kong Civil Procedure 2018, Volume 1, paragraph 18/19/4.

29.  The expression “frivolous or vexatious” includes proceedings that are an abuse of the process of the court: Hong Kong Civil Procedure 2018, Volume 1, paragraph 18/19/8.  The process of the court must be used bona fide and properly and must not be abused.  The court will prevent the improper use of its machinery and will, in a proper case, summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation: Hong Kong Civil Procedure 2018, Volume 1, paragraph 18/19/10.

30.  It may be an abuse of the process of the court to raise a claim (or a defence or an issue) in later proceedings that could and should have been raised in earlier proceedings.  This is sometimes called the Henderson v Henderson abuse[iv] or res judicata in the wider sense.

31.  It is unnecessary for present purposes to conduct a full review of the principles.  It is sufficient to restate the following which are not controversial:

(1) The doctrine of res judicata in the wider sense is founded on an abuse of process.  See Ko Hon Yuev Chiu Pik Yuk (2012) 15 HKCFAR 72 at [83(1)] (Ma CJ).

(2) It is thus essential when striking out a claim on this basis that the bringing of the claim is in all the circumstances an abuse sufficiently serious to justify preventing the plaintiff from proceeding.  This abuse will usually take the form of the other party being “vexed” (or in some cases, the terms “oppressed”, “unjustly harassed” or “unjustly hounded” are used), or the administration of justice being put into disrepute, by the subsequent set of proceedings.  See Ko Hon Yue, supra at [83(3)]-[83(4)] (Ma CJ).

(3) In deciding whether there is an abuse of process, it is wrong to adopt a dogmatic approach and hold that because a matter could have been raised in earlier proceedings it should have been, so that raising it in later proceedings is necessarily abusive.  The question whether an action is an abuse of process as offending against the public interest in the finality of litigation and in a defendant not being vexed twice in the same matter should be judged broadly on the merits taking account of all the public and private interests involved and all the facts of the case.  The crucial question is whether the plaintiff is in all the circumstances misusing or abusing the process of the court.  Otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation.  See Johnson v Gore Wood & Co [2002] 2 AC 1 (HL) at 31C-E (Lord Bingham), followed by the Hong Kong Court of Appeal in Total Lubricants HK Ltd v De Chanterac (No 2) [2013] 2 HKLRD 838 at [30] (Kwan JA).

Whether abuse of process by Chainrai on existing evidence

32.  In support of the Striking Out Application, it was argued by Mr Russell Coleman SC (leading Mr Lawrence Cheung) for Shochat that:

(1) The issues raised by Chainrai’s claims against Shochat in this action could, and should, have been raised in the Israeli Arbitration because they arise out of the same factual matrix or the same factual “root” that was the subject of the Israeli Arbitration namely, the Loan to the Kushnir Company to purchase the Shares in Nachushtan. 

(2) Chainrai should have made enquiries in relation to the value of the Shares earlier (i.e. before November 2013).  Nachushtan was a publicly listed company.  There was no reason why Chainrai could not have discovered its receivership in March 2009 and liquidation in January 2013, which was still before the making of the Award on 31 October 2013.

(3) He also had ample opportunity to conduct discovery in the Israeli Arbitration.  

(4) Chainrai could have amended his pleadings in the Israeli Arbitration before its hearing was concluded or the Award was made.

(5) Indeed, Chainrai filed a notice of revised causes and amounts of his counterclaim in the Israeli Arbitration as late as December 2012.

(6) Chainrai’s present action against Shochat and its late pursuit only after the doors were finally closed on him in Israel is merely an attempt to avoid the consequences of the Award, which is impermissible.

33.  I am not sure the last-mentioned point would take the Striking Out Application any further for Shochat if he fails to prove that it is plain and obvious that Chainrai’s present action against him constitutes an abuse of process in the wider sense of the res judicata doctrine because Chainrai could and should have raised his claims against Shochat herein in the Israeli Arbitration.

34.  With regard to whether Chainrai’s pleadings in the Israeli Arbitration could have been amended to add his present claims against Shochat, Chainrai placed reliance on the agreed directions mentioned in paragraph 15 above and further clarified that the amendments in December 2012 was to give effect to the abandonment of part of his counterclaim in the Israeli Arbitration.  This side issue is a red herring and need not be ruled on.  It is not Chainrai’s case that he did not advance his present claims against Shochat in the Israeli Arbitration because he was prevented, or thought he would be prevented, from doing so by the said agreed directions.

35.  Chainrai’s explanation for not making his current claims against Shochat in the earlier proceedings in Israel was, as summarised in paragraph 21 above, that he only discovered the inadequacy of the Share Pledge as security for the repayment of the Loan due to Nachushstan’s receivership and liquidation in November 2013. By then, the Israeli Arbitration had already concluded.

36.  On this, there was some suggestion by Shochat in paragraph 3 of his 3^rd affirmation that paragraph 26 of the SOC was to the effect that Chainrai knew about the share value of Nachushtan in January 2013.  Paragraph 26 of the SOC pleaded: “It was not until after the liquidation of Nachushtan in about January 2013, to the surprise of [Chainrai], Nachushtan was already in both trading and financial difficulties …”.  I agree with Mr Fung that, on a proper reading of this averment, the reference to January 2013 was plainly to the date of liquidation of Nachushtan, and not to the date when Chainrai acquired knowledge of such event.

37.  The exact time at which Chainrai made the relevant discovery was not pleaded in the SOC but deposed to in paragraphs 19, 21 and 24 of Chainrai’s 2^nd affirmation dated 5 August 2016.  Mr Coleman invited me to examine only the averments in the SOC and not “the expanded version of Chainrai’s case contained in his 2^nd affirmation” that he only came to know about the financial difficulties of Nachushtan, and hence Shochat’s alleged breach of fiduciary duties and negligence, in November 2013. 

38.  I cannot do so.  Although the margin of the summons for the Striking Out Application cited Order 18 rule 19, reliance was obviously not placed on rule 19(1)(a) (no reasonable cause of action).  Evidence is admissible. 

39.  And given that the question whether this action against Shochat is an abuse of process is one to be answered after taking into account all the facts of the case, I cannot see how the court could ignore Chainrai’s evidence that he discovered the fact pivotal to such action only after the conclusion of the earlier Israeli Arbitration.

40.  This is so because if a party can show that at the time of the former proceedings he was excusably ignorant of some matter, which would have altered the whole aspect of the case, he is entitled to claim that no issue estoppel (whether in the narrower or wider sense) shall take effect against him.  However, the estoppel stands if, inter alia, the party had actual knowledge of the fact or might with reasonable diligence have acquired such knowledge.  See China North Industries Investment Ltd v Chum [2010] 5 HKLRD 1 at [68]-[69] (Stock JA), citing Spencer Bower, Turner and Handley, The Doctrine of Res Judicata (3^rd ed, 1996), paragraph 196.

41.  Leaving aside whether Chainrai did in fact discover the financial predicament of Nachushstan only in November 2013 as he claimed (which is the issue to which the Additional Evidence Application relates), it is not plain or obvious to me that Chainrai should have made enquiries about the financial position of Nachushstan before November 2013.

42.  First, Chainrai was (and still is) based in Hong Kong.  He does not know Hebrew. Apart from the business ventures in Israel in which he was involved, the evidence before me does not point to his having any or any other connection with Israel.  Nachushstan was registered and listed in Israel.  It was put under receivership, delisted and liquidated in Israel.  The public records relevant to these processes would be available in Israel.  Chainrai was a pledgee of shares in Nachushstan.  Shochat did not point to any matter, other than the litigation on foot between him and Chainrai in Israel, that should and would put Chainrai on enquiries in relation to the value of shares in Nachushstan.

43.  The mere fact that Shochat had instituted proceedings against Chainrai in respect of the Loan would not in my view, without more, prompt Chainrai to look into the value of the Shares.  In this regard, in the Israeli Action and Arbitration:

(1) The issues in Shochat’s claims were the nature, purpose and consequence of the payment of NIS 14,648,779 by Shochat into his and Chainrai’s joint exchequer account; whether such payment gave Shochat a 50% interest in the repayment of the principal and interest of the Loan and in the Shares under the Share Pledge; and how Shochat should be compensated for being denied such interest by Chainrai.

(2) The issues in Chainrai’s counterclaims were whether Shochat was in breach of fiduciary duties as a trustee of Chainrain’s funds and investments regarding other joint ventures between them. 

There was no issue in the proceedings in Israel as to the value of the Shares at any material time. 

44.  For this reason, I also imagine there would not have been any discovery pertaining to the value of the Shares in the Israeli Arbitration.

45.  In any event, whether Chainrai should have made enquiries about the value of the Shares earlier appears to me to be a dispute that I cannot and should not resolve on affidavit evidence in a striking out application.

The Additional Evidence Application

Point sought to be established by adducing Transcript

46.  It would be apparent from the above discussion that, at the hearing on 12 September 2016, Shochat dealt with the timing of Chainrai’s discovery of Nachushtan’s financial predicament along the line that “[Chainrai]’s failure to discover the inadequacy of his security was purely the result of his ignorance and carelessness”.

47.  The position that Shochat sought to advance by the Additional Evidence Application was that Chainrai did in fact have knowledge of the financial difficulties of Nachushtan well before November 2013. 

48.  Shochat felt able to advance such position in light of the following line of cross-examination of Chainrai at the hearing of the Arbitration on 29 August 2012, as recorded at pages 293 and 294 of the Transcript:

“Q: Do you know that Nehoushtan, the company that its shares were secure in this debenture, was under receivership?

  A: Excuse me?

  Q: Do you know that the company, Nehoushtan, was under receivership?

  A: Today?

  Q: Do you know that it was under receivership?

  A: Today if I know?  Yes.

  Q: Yes. When did you receive the first hint or I don’t know what, that put you under, that made you understand that this company is under receivership?

  A: I don’t recall the date.  I don’t recall the date but I was vey suspicious, not about the receivership, but about the company, a long time ago.

  Q: I see.  But the fact that the company was put under receivership, can you recall when you first understood that this is the situation?

  A: I learnt of this I think a couple of years ago.”

49.  Further, at the hearing on 22 February 2017, Mr Coleman directed my attention to Chainrai’s answers at 2 more places and made the following points:

(1) Chainrai accepted that his brother-in-law to whom he transferred the Shares on 30 October 2007 knew about the value of the Shares at the time of the transfer. The court was invited to infer the same knowledge on the part of Chainrai.

(2) Chainrai’s Israeli lawyer clearly knew about the receivership of Nachushtan at the time of the Israeli Arbitration.  The court was invited to infer that the lawyer must have been told by, or told this to, his client Chainrai.

50.  Mr Fung objected to these 2 further points.  I think he was right to do so.  The first time they were raised was in paragraphs 15(1) and (2) of the supplemental skeleton argument of counsel for Shochat which was filed and served on 17 February 2017.  Chainrai had simply not had the opportunity to deal with them in evidence.

51.  I will therefore only consider whether Shochat should have leave to adduce the cross-examination of Chainrai as set out in paragraph 48 above.

Principles governing admission of new evidence after hearing and before judgment

52.  The parties were divided as to the applicability to the current situation of the 3 conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 at 1491 (Denning LJ):

(1) that the evidence could not have been obtained with reasonable diligence for use at the trial;

(2) that the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(3) that the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.

53.  Mr Coleman took the stance that the Ladd v Marshall conditions do not apply to the Additional Evidence Application as it is not related to an appeal.

54.  Although Ladd v Marshall was concerned with an application for leave to adduce further evidence on appeal and the 3 conditions have become the established test for the admission of fresh evidence on appeal, they have also been applied where new evidence is sought to be introduced between judgment and the drawing up of the order.  See Charlesworth v Relay Roads Ltd [2000] 1 WLR 230, in which Neuberger J, after stating that it was germane to consider the approach to the admission of new evidence on appeal laid down in Ladd v Marshall, said at 237D-F:

“While I think that these three factors should be in the forefront of the mind of the court when considering an application to admit new evidence after judgment has been handed down, but before the order has been drawn up, I incline to the view that the court is entitled to be somewhat more flexible, and not to proceed on the strict basis that each of these three conditions always has to be fully satisfied before fresh evidence can be admitted before judgment. Of course, in many ways, an applicant seeking to persuade the judge to receive fresh evidence and/or argument on a new point is in a very similar position to an appellant seeking similar relief from the Court of Appeal. He has had a full opportunity to collect his evidence and to marshall his arguments, and there must be a strong presumption against letting him have a second chance, particularly after he has seen in detail from the judgment why he has lost.”

And at 238E-H:

“… the following principles apply where a party is seeking to call fresh evidence on a new point after judgment has been given but before the order has been drawn up: (1) the court has jurisdiction to grant an application to amend the pleadings to raise new points and/or to call fresh evidence and/or to hear fresh argument; (2) the court must clearly exercise its discretion in relation to such an application in a way best designed to achieve justice; (3) the general rules relating to amendment apply so that: (a) while it is no doubt desirable in general that litigants should be permitted to take any reasonably arguable point, it should by no means be assumed that the court will accede to an application merely because the other party can, in financial terms, be compensated in costs; (b) as with any other application for leave to amend, consideration must be given to anxieties and legitimate expectations of the other party, the efficient conduct of litigation, and the inconvenience caused to other litigants; (4) quite apart from, and over and above, those principles, because it is inherently contrary to the public interest and unfair on the other side that an unsuccessful party should be able to raise new points or call fresh evidence after a full and final judgment has been given against him, it would generally require an exceptional case before the court was prepared to accede to an application where the applicant could not satisfy the three requirements in Ladd v Marshall; (5) almost inevitably, each case will have particular features which the court will think it right to take into account when deciding how to dispose of the application before it; (6) the court should be astute to discourage applications which involve parties seeking to put in late evidence, but cases when new evidence is found after judgment is given and before the order is drawn up will be comparatively rare.”

55.  The approach of applying Ladd v Marshall but with flexibility was extended to the introduction of new evidence after the close of the parties’ case but before judgment was handed down in Mak Kit Ching Kitty and Fu Mee Yuk Shirley, administratrices of the estate of Fu Kwok Kai, Daniel (deceased) v Tsang Yiu Wing, HCPI 811/1999, 18 October 2006.  In that case, Deputy High Court Judge Carlson held at [9] that the plaintiff needed to show “exceptional circumstances” to justify the calling of additional evidence at such a late stage.

56.  I agree.  It was not contended by Shochat that he did not require the court’s leave to adduce the Transcript after the hearing on 12 September 2016 while judgment was reserved.  The admission of new evidence at a late stage of proceedings is always a matter of discretion that must be justified, balancing the competing interests of the parties and the court.  To my mind, the 3 questions asked in Ladd v Marshall would always be relevant if such discretion is to be exercised in a principled manner.

First condition

57.  It appears to me, from reading paragraphs 11 and 12 of Shochat’s 3^rd affirmation dated 26 October 2016, that the Transcript was prepared and delivered to the respective Israeli legal teams for Shochat and Chainrai shortly after Chainrai’s testimony.  In any event, it would have come into the possession of Shochat’s lawyers in Israel long before the hearing of the Striking Out Application on 12 September 2016.

58.  According to Shochat, after the hearing on 12 September 2016, it was reported to him that I expressed concern or queried “whether the share value of [Nachushtan] was mentioned or known by Chainrai during the Israeli Arbitration hearing”.  He consulted his Israeli lawyers who found the relevant part of Chainrai’s testimony quoted in paragraph 48 above.

59.  However, Chainrai had made clear, in his 2^nd affirmation dated 5 August 2016, that he opposed the Striking Out Application on the premise that he could not have advanced his present claims against Shochat in the Israeli Arbitration because he did not know that the Shares had become valueless until November 2013 after those proceedings had concluded.

60.  The timing of Chainrai’s knowledge of Nachushtan’s receivership and liquidation was thus not a new question at all but had emerged as the crucial issue from the early dates of the Striking Out Application.

61.  I agree with Mr Fung that the Transcript could, with reasonable diligence, have been produced for use at the hearing on 12 September 2016.  Hence, the first condition of Ladd v Marshall is clearly not satisfied.

Second condition

62.  The cross-examination reproduced in paragraph 48 above, on its face, contained an admission by Chainrai that he learnt of the Nachushtan receivership “a couple of years ago” before Chainrai’s testimony at the arbitration hearing.

63.  Chainrai sought to explain such testimony as follows:

(1) In around May 2007, he was told by Shochat that Ampa, a subsidiary of Nachushtan, had been put under receivership.  When he was asked at the arbitration hearing if he knew that Nachushtan was under receivership, he confused the receivership of Nachushtan with that of Ampa.

(2) When he testified at the arbitration hearing, he was under the influence of medication for his heart condition and depression, which affected his memory and understanding of the questions asked of him.

64.  Mr Coleman retorted that:

(1) The line of cross-examination was clear, with no room for Chainran’s claim that he was referring to Ampa and not Nachushtan when he gave his answers.

(2) Chainrai was legally represented throughout the hearing of the Israeli Arbitration. Neither he nor his lawyers asked for an adjournment to accommodate his physical or mental condition in the middle of cross-examination.  Nor was he re-examined to clarify the confused answers.

(3) Chainrai’s explanation contradicted his own earlier allegations that he only discovered the Ampa receivership in November 2013.

65.  These points are not invalid or without merits.

66.  However, the date on which Chainrai became aware of the Nachushtan receivership goes to whether the present action against Shochat should be struck out as offending the doctrine of res judicata in the wider sense and therefore an abuse of process.  It would thus have to be plainly and obviously established by Shochat.  The benefit of any doubt would have to be given to Chainrai.

67.  In this regard, I do not regard Chainrai’s explanations for the testimony relied upon by Shochat to be inherently implausible.

68.  Indeed, the following may tend to lend credence to such explanations:

(1) First, Chainrai agreed to extend the Loan for a further term of an indefinite duration in June 2009, i.e. 3 months after Nachushtan had been put under receivership by reason of insolvency.  Had he known that the Share Pledge was no longer adequate as security for the Loan, it would have made no commercial sense for him to have held onto valueless security without taking any action to protect his interests as a creditor of the Loan, and a fortiori, agreed to extend the Loan term at the same time.

(2) Second, Chainrai was sued by Shochat for half of the principal and interest of the Loan.  Such claim was implicitly premised upon the Loan being recoverable.  Had Chainrai discovered the Nachushtan receivership a couple of years before he gave live evidence in the Israeli Arbitration hearing, one would have expected him to raise it against Shochat in the Israeli Arbitration to support the argument that the enforcement of the Loan through the realisation of the security of the Share Pledge had become impossible or at least questionable.

69.  Chainrai’s testimony under cross-examination in the Israeli Arbitration hearing, as reproduced in paragraph 48 above, is relevant to when exactly he became aware of the Nachushtan receivership.  However, given the high threshold facing Shochat, for the reasons mentioned in paragraphs 66 to 68 above, the introduction of such evidence in the Striking Out Application would, I fear, only serve to highlight the fact that it is impossible to resolve the dispute on this issue on affidavit evidence.  For this reason, the evidence, even if given, would probably not have an important influence on the outcome of the Striking Out Application.

Conclusion on Additional Evidence Application

70.  I do not need to go on to consider the third Ladd v Marshall condition.  With the non-fulfilment of the first and second conditions, even bearing in mind the need for flexibility, I am not inclined to exercise my discretion in favour of admission of the new evidence.

71.  In any event, as stated under the discussion on the second condition, the admission of the new evidence would not have altered the outcome of the Striking Out Application.

Other points raised by Shochat

72.  In paragraph 29 of his skeleton argument on the Striking Out Application, Mr Coleman gave specific reasons why the SOC in its present form should be struck off.  A number of them have nothing to do with res judicata in the wider sense.  For the sake of completeness, I shall briefly deal with these points.

73.  First, it was suggested in paragraph 29(1) (as well as paragraph 17) that Chainrai’s claim against Shochat for NIS 29,500,000 with interest clearly shows that he has not accepted and is unwilling to accept the findings by the Arbitrator that Shochat had contributed half of the Loan to the Kushnir Company.  Chainrai in fact acknowledges in paragraph 20 of the SOC that Shochat agreed to contribute half of the Loan.  Mr Fung also confirmed on behalf of Chainrai that if he succeeds in these proceedings against Shochat, Chainrai, in his capacity as the proprietor of the rights in the Loan, would be able to claim compensation for the entirety of the Loan, but subject to his giving credit for one-half of the amount contributed by Shochat.

74.  Second, it was suggested in paragraphs 29(4), (6) to (9) that Chainrai’s causes of action in negligence and breach of fiduciary duties are defective.  For example, Shochat argued that as Nachushtan and its subsidiaries became insolvent in 2009, Chainrai’s claim that he procured him to invest in Nachushtan whilst concealing its financial difficulties are bound to fail.  He also contended that the complete breakdown of their relationship of trust and confidence since November 2007 and/or the unauthorised extensions of the term of the Loan by Chainrai in June 2008 and June 2009 would have terminated any agency relationship between the parties or any fiduciary duty or duty of care owed by Shochat to Chainrai regarding the financial status of the Nachushtan group of companies. 

75.  I agree with Mr Fung that these criticisms are matters for Shochat’s defence in these proceedings, and do not support a striking out application.  They also raise disputes in fact and/or law of a nature that cannot and should not be resolved in a striking out application.

Orders

76.  For the reasons stated above, I dismiss both the Additional Evidence Application and the Striking Out Application.

77.  I also make an order nisi that Shochat should pay Chainrai’s costs of and occasioned by these applications, to be taxed on a party and party basis if not agreed, with certificate for two counsel for the hearings on 12 September 2016 and 22 February 2017.

78.  Last but not least, I am grateful to counsel for their able assistance.

Mr Eugene Fung SC and Miss Kay Seto, instructed by Messrs WMC Partners, for the plaintiff

Mr Russell Coleman SC and Mr Lawrence Cheung, instructed by Messrs

Hoosenally & Neo, for the 3^rd defendant