In the recent case of Balram Chainrai v Kushnir Family (Holdings) [2019] HKCFI 2866, the Hong Kong Court of First Instance (CFI) refused to set aside an ex parte order allowing service out of the jurisdiction on the basis that the defendant had submitted to the jurisdiction.

Background to the dispute

See our previous discussion of this matter here and here. In the most recent developments, the Third Defendant, Mr Israel Sorin Shohat, in proceedings commenced by the Plaintiff, Mr Balram Chainrai, sought to appeal in the CFI an earlier decision of Master Eliza Chang in which it was held that the Third Defendant had submitted to the jurisdiction of the Hong Kong courts in relation to a matter related to an Israeli arbitral award issued in 2013 and had therefore waived his right to challenge jurisdiction.

Issues before the court

The Third Defendant made three principal arguments on appeal to the CFI:

  1. The Third Defendant had not submitted to the jurisdiction of the Hong Kong courts;
  2. The Plaintiff’s ex parte application obtaining permission to serve a writ of summons on the Third Defendant out of the jurisdiction in November 2015 (Ex Parte Order) should be set aside on the basis, amongst other things, that (1) there was no serious issue to be tried against the Third Defendant, (2) there was no good arguable case against the Third Defendant, and (3) Hong Kong was not the most appropriate forum on the basis that all events took place in Israel and all but one of the parties was from Israel; and
  3. 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.

Decision

The CFI dealt first with the question of whether the Third Defendant had submitted to the jurisdiction of the Hong Kong courts. Master Eliza Chang had previously determined that the Third Defendant had submitted to the jurisdiction on the basis of two key events:

  1. His application under Order 3, Rule 5 of the Rules of the High Court dated 11 February 2016, requiring the Plaintiff to file and serve a Statement of Claim within 7 days or otherwise have their claim dismissed (Application for the Unless Order).
  2. His commencement of strike-out proceedings on 3 May 2016 (Application for Strike-Out).

In making its determination, the court cited the decisions in ABN Amro Bank NV v Fortgang [2008] 2 HKLRD 349 and Global Multimedia International Ltd v ARA Media Services & Others [2007] 1 All ER (Comm) 1160, and asked itself 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.

With regard to the Application for the Unless Order, the court took the view that the Third Defendant should be entitled to ask for further details of the claim against him, even if this meant using the procedures of the court. Understanding the nature of the claim was said to be important to various aspects of the test under RHC Order 11 Rule 1(1), and hence consistent with deciding whether to seek to set aside the Ex Parte Order. The court therefore disagreed with the conclusion of the Master, and held that the Application for the Unless Order was insufficient to show submission to the jurisdiction of the Hong Kong courts. Although it would have been advisable for the Third Defendant to reserve his rights when making the application, this was not held to be decisive.

With regard to the Application for Strike-Out, the court agreed with the Third Defendant that such an application did not necessarily amount to a submission to the jurisdiction. However, the issue was said to be very fact-dependent. Although there was no submission where the application was made on the basis of defects apparent in the Plaintiff’s original writ, the court noted that the application in this case had gone much further and asked the court to consider the merits of the case. This, the court said, demonstrated that the Third Defendant had accepted that the court had jurisdiction to do so. Although the Third Defendant had argued that the application had been made subject to a reservation of rights, the court noted that this express reservation was not made until two weeks after the Application for Strike-Out was made and was insufficient.

In these circumstances, the court held that the Third Defendant had submitted to the jurisdiction of the Hong Kong courts and dismissed his appeal.

The court’s conclusion on the issue of submission to jurisdiction made it unnecessary to address the other arguments. Nevertheless, the CFI outlined its views on each issue:

  1. With regard to the Third Defendant’s attempt to set aside the Ex Parte Order, the court indicated that it was in favour of the Third Defendant. It observed that although there was a serious issue to be tried between the Plaintiff and the Third Defendant, there was no good arguable case against the Third Defendant that falls under the Necessary or Proper Party Gateway of RHC Order 11, rule 1(1)(c). The court further noted that the extensive connections to Israel meant that Hong Kong was clearly not the natural forum.
  2. With regard to the Third Defendant’s argument that its submission was partial and only prevented him from challenging the existence of jurisdiction but not its exercise, the court acknowledged that in theory it was able to stay the proceedings on the grounds of forum non conveniens under RHC Order 12 rule 8, however it refused to do so. It stated that on the facts the nature of the submission to the jurisdiction was absolute, and so it was not open to the court to grant a stay. Although the court retained an inherent jurisdiction where circumstances arose subsequent to the time limits in that provision, that jurisdiction could not be exercised where the defendant had effectively debarred himself through submitting to the jurisdiction.

Comment

The case serves as a cautionary tale for any party wishing to challenge the jurisdiction of the Hong Kong courts and a useful reminder that a party wishing to do so should expressly and clearly reserve this right from the outset of the proceedings. The risks of not following this advice is a finding from the Hong Kong courts that the party has submitted to the jurisdiction which in turn will lead to delays in the resolution of the dispute and wasted costs.

It is important to note that this case does not serve to tarnish Hong Kong’s reputation as an arbitration-friendly jurisdiction. The fact that a prior arbitral award had been issued was unrelated to the CFI’s consideration of whether the Third Defendant had submitted to the jurisdiction.

 

May Tai
May Tai
Managing Partner, Greater China
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Simon Chapman
Simon Chapman
Partner, Hong Kong
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Kathryn Sanger
Kathryn Sanger
Partner, Hong Kong
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Madhu Krishnan
Madhu Krishnan
Registered Foreign Lawyer (England & Wales), Hong Kong
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Briana Young
Briana Young
Foreign Legal Consultant (England & Wales)/Profesional Support Lawyer, Hong Kong
+852 2101 4214