May 30 2017
A previous update highlighted the risks of inadvertently submitting to the jurisdiction of the Hong Kong courts in civil proceedings.(1) The recent decision of the Court of First Instance in Shenzhen CTS International Logistics Co Ltd v Dajiang International Investment Co Ltd underlines the need for caution on the part of defendants and their legal advisers when considering a jurisdictional challenge.(2) In particular, prior to the determination of a challenge to jurisdiction, defendants should think carefully before making any application to the court for relief, to ensure that in doing so they are not invoking the court's jurisdiction. While defendants may seek to reserve their rights to challenge jurisdiction, their conduct could suggest otherwise.
Under the relevant High Court rules, defendants wishing to dispute the jurisdiction of the Hong Kong courts must make their application within the time limit for serving their defence.(3) This prevents the claimant from seeking judgment in default in the meantime. As a general rule, the defendant should take no additional steps to defend the proceedings or to seek substantive relief from the court – in doing so, the defendant may be deemed to have submitted to the jurisdiction.
While there is some common law authority in Hong Kong for the proposition that such additional steps may be taken on a qualified basis (eg, filing a defence which is expressed to be without prejudice to the right to make a jurisdictional challenge),(4) it is generally good practice in these circumstances to do nothing that might prejudice a defendant's position.
In the event that the courts have to consider whether a defendant has submitted to the jurisdiction, the test to be satisfied is an objective one.(5) The question that the court will ask is whether a well-informed bystander (with knowledge of the case) would consider a defendant's actions to be clearly inconsistent with a jurisdictional challenge.
In Shenzhen CTS International Logistics Co Ltd the claimants (companies incorporated in mainland China) commenced proceedings in the Hong Kong courts against the defendant (a Hong Kong company). The claim arose from the delivery of goods by sea to China. The claimants alleged that the defendant had breached the conditions of carriage in failing to provide particulars and take delivery of the goods. As a result, the goods had been detained in transit ports in Shenzhen and Hong Kong, and the claimants sought damages and an indemnity from the defendant for the loss and damage that they had allegedly suffered.
On September 30 2016, following service of the proceedings in Hong Kong, the defendant made an application to the court for security for its costs in the sum of HK$800,000. In the same summons, the defendant also applied for an extension of time to file (at court) and serve (on the claimants) its defence. The application for an extension was expressed to be without prejudice to the defendant's right to apply to stay the proceedings.
The defendant subsequently applied for a further extension of time for its defence and, on December 7 2016, eventually applied for a stay of the proceedings on the grounds that Hong Kong was not the appropriate forum for the case. Interestingly, just prior to the commencement of the claimants' proceedings in Hong Kong (in July 2016), the defendant had commenced proceedings against one of the claimants in the Guangzhou Maritime Court.
At the same time as its application for a stay, the defendant also applied to strike out the claimants' claim on the basis that it was frivolous, vexatious or otherwise an abuse of process. This was sought as alternative relief should the stay not be granted.
The court dismissed the defendant's application (with costs to the claimants) on various grounds, including that the defendant had submitted to the jurisdiction of the Hong Kong courts.
In reaching its decision on submission to the jurisdiction, the court applied the objective test of the 'well-informed bystander'.
The court found that by applying to strike out the claim and seeking security for costs (to include the period after the hearing of the stay application), the defendant had invoked the jurisdiction of the Hong Kong courts. The court acknowledged the defendant's attempt to reserve its right to make a jurisdictional challenge in its application, but this was rejected as being inadequate because the reservation related to the defendant's application to extend time for filing its defence – it did not apply to the application for security for costs.
The court was not convinced by the argument that the defendant was only seeking security for costs incurred up to the hearing of the stay application. The amount of security sought and the description of the work covered extended beyond the stay application and, on that basis, did not support the defendant's argument.
Ultimately, the court found that the defendant's conduct was "more than a defensive action" and the defendant had "not made it clear and unequivocal that it was not accepting the jurisdiction of the Hong Kong court".(6)
It appears that the defendant has not appealed the decision.
Disputes as to jurisdiction in the first-instance courts are common in Hong Kong and are usually fact specific (and therefore fairly unremarkable).
However, this decision is important in emphasising a need to tread carefully when considering a jurisdictional challenge. Defendants wishing to challenge the jurisdiction of the Hong Kong courts would be better served by acknowledging service of the claimant's action and making an application (to challenge jurisdiction) within the time limited for serving a defence. Any positive action on a defendant's behalf that involves more than simply maintaining the status quo (in this case, making a strike-out or security for costs application) may complicate matters and work against a challenge to jurisdiction.
Although it is usually good practice to apply for security for costs at an early stage, this can normally wait until after the determination of any jurisdictional challenge.
Similarly, while defendants in particular cases may be able to take certain steps, provided that they are couched within a clear reservation of rights, this should not be seen as a catch-all safety net. Acting under a reservation of rights requires careful consideration and drafting to ensure that there is no room for doubt as to a defendant's intentions.
In this case, the defendant appears to have gone too far for the court's liking by seeking the security for costs that it did and an application for strike-out, while also going on to challenge the court's jurisdiction. For good measure, the court also found that even if the defendant had not been taken to have submitted to the jurisdiction, it had failed to show that the Hong Kong court was not the appropriate forum for the dispute between the parties. Indeed, as is not uncommon, the court appears to have been quite protective of its jurisdiction, given the overall nature of the dispute and the parties concerned.(7)
For further information on this topic please contact David Smyth or Hannah Fletcher at RPC by telephone (+852 2216 7000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
(1) For further details please see "Defend and submit: challenging the court's jurisdiction".
(7) Sight should also not be lost of the fact that the defendant is a Hong Kong company and the dispute has many of the characteristics of being a local dispute. The judge (well versed in disputes as to jurisdiction) also noted that the jurisdiction clause in the bill of lading did not seek to prevent claims by the claimants being commenced outside mainland China. The choice of law clause (laws of mainland China) also had little bearing on the matter because, given the flow of trade between both jurisdictions, the Hong Kong courts regularly receive expert evidence on such laws in disputes between mainland and Hong Kong parties.
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