14 November 2014
Under Hong Kong law, the courts’ jurisdiction is ordinarily territorial in nature. A plaintiff or applicant has to obtain permission (“leave”) of the court before it can validly serve a writ or other document initiating a legal action on a defendant or respondent located outside Hong Kong. For actions begun by writ, the procedures and criteria for applications for leave in this respect are set out under Order 11 of the Rules of the High Court (“RHC”).
In a recent decision in Re Sunni International Limited1, the Honourable Mr Justice Godfrey Lam of the Court of First Instance held that when applying for leave to serve a winding-up petition out of the jurisdiction on a foreign company unregistered in Hong Kong, an applicant need not satisfy the requirements under paragraphs (a) to (p) of Order 11 rule 1(1) RHC (“Gateway Requirements”). Rather the applicant is required to demonstrate a good arguable case that the company has a sufficient connection to Hong Kong, and that there is a serious issue to be tried on the merits.
Before we analyse further, we should state that for a winding-up petition against a foreign company registered in Hong Kong, section 803 of the Companies Ordinance (Cap 622) allows the petition to be served in Hong Kong on the company’s authorised representative. There is accordingly no need to obtain leave to serve the petition out of the jurisdiction.
Sunni International Limited (the “Company”) is a company incorporated in the British Virgin Islands. A judgment creditor and shareholder of the Company petitioned for its winding-up in Hong Kong on the ground that it is unable to pay its debts within the meaning of section 327(3)(b) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (the “CWUMPO”).
The relevant decision, handed down on 22 September 2014, relates to the petitioner’s application for leave to serve the petition on the Company out of the jurisdiction. Noting the CWUMPO and the Companies (Winding-up) Rules (Cap 32H) (“CWR”) are silent on this issue, his Lordship held that Order 11 RHC was applicable by virtue of rule 210 CWR.
There is, however, an inherent gap in applying Order 11 rule 1(1) RHC to service of winding-up petitions out of jurisdiction. The incongruity arises given that the Gateway Requirements are primarily intended for writ actions and are not apt to cover winding-up petitions. Within the constraint of the legislation in its current form, his Lordship, having considered a number of possible solutions, decided to make use of a proviso in rule 210 CWR (empowering the court to override the usual rules and practice in appropriate circumstances) and direct that the Gateway Requirements be treated as inapplicable for the purpose of winding-up proceedings.
The practical effect is that leave is required for service of a winding-up petition on an unregistered foreign company, and the discretion whether to grant leave is to be exercised generally (in other words, not restricted by the Gateway Requirements) having regard to three established “core requirements” which go to the sufficiency of the connection between the company and Hong Kong. In the words of the Court of Appeal in Kam Kwan Sing v. Kam Kwan Lai & Ors (the case involving the renowned Yung Kee restaurant)2:
- There must be a sufficient connection with Hong Kong, but this does not necessarily have to consist in the presence of assets within the jurisdiction;
- There must be a reasonable possibility that the winding-up order would benefit those applying for it; and
- One or more persons interested in the distribution of the company’s assets must be persons over whom the court is able to exercise jurisdiction.
As noted above, his Lordship concluded that the applicant for leave to serve a winding-up petition out of the jurisdiction must demonstrate: (a) a good arguable case that all three conditions are met, and (b) there is a serious issue to be tried on the merits, for example, as to the existence of the petitioning debt. This decision brings necessary and welcome clarity on the principles to be applied, pending any amendment to our legislation which, as his Lordship pointed out, is the best solution going forward.
1  HKCFI 1724
2  2 HKLRD 313 at paragraph 38; We reported on the Court of First Instance's decision in that case in our Legal Update dated 14 November 2012.