INTRODUCTION
Zhang Rui Kang & Anor v Tunghsu Group Co., Ltd [2024] HKCA 361 is a recent Court of Appeal decision in the global notes context that sheds light on the boundaries of Order 11, rule 1(1)(m) of the Rules of the High Court (Cap 4A) (“Gateway (m)”), i.e., the gateway for service out of jurisdiction of originating processes aimed at enforcing judgments and arbitral awards.
In Zhang Rui Kang, certain ultimate beneficial holders of global notes brought a common law enforcement claim in the Hong Kong Courts against the guarantor of the global notes, to enforce a default judgment obtained against the guarantor in New York.
The central issue revolved around whether the requirements of Gateway (m) were met. Both parties did not seriously dispute that, in determining whether to grant leave under Gateway (m), Courts have customarily required the plaintiff to prove a real prospect that the proceedings will constitute a legitimate benefit to the plaintiffs. The guarantor, however, argued that Gateway (m) was not satisfied in the present case because it lacked assets, presence, or business operations in Hong Kong.
At first instance, DHCJ MK Liu, rejected this argument and held that Gateway (m) was satisfied based on the facts of the case. His Lordship also denied leave for the guarantor to appeal. Subsequently, the guarantor sought renewed leave to appeal to the Court of Appeal.
THE COURT OF APPEAL’S DECISION
The Court of Appeal upheld the decision at first instance and rejected the leave to appeal application. In the judgment, G Lam JA (giving the judgment of the Court of Appeal) held that, in determining whether a real prospect of legitimate benefit exists for the purposes of Gateway (m), the same pragmatic approach utilized by the Courts in determining whether or not to seize jurisdiction to wind-up foreign companies should apply (in particular, the 2nd core requirement in such scenarios – see Re Shandong Chenming Paper Holdings Limited (2022) 25 HKCFAR 98). Following CFA’s dicta in this regard, the Court of Appeal made it clear that this pragmatic legitimate benefit need not be strictly monetary or tangible; it varies depending on the specific facts of each case. Gateway (m) is satisfied if there exists “some useful purpose serving the legitimate interest of a party”.
The said threshold evinces a pro-enforcement attitude of the Hong Kong Courts. Examples of such qualifying benefits include:
- Investigating and Locating Relevant Assets: The possibility of investigating and locating relevant assets of a defendant through oral examination of its directors can constitute a legitimate benefit. Having said that, G Lam JA rejected the argument that the mere prospect of discovering where the defendant’s assets are located (in the absence of fraud or dissipation) would invariably satisfy Gateway (m). Instead, it depends on the context and evidence of each case.
- Creation of “Commercial Leverage”: The Court of Appeal further held that “commercial leverage” could also suffice as a legitimate benefit. Whether such leverage exists depends on the practical impact of enforcement steps taken in Hong Kong. In the context of the present case, enforcement steps such as examination orders of the defendant’s directors (and the potential liability for contempt upon failure to comply with such orders) may impact the ability of the defendant and its directors to use Hong Kong’s legal and financial services, and therefore constituted a legitimate benefit.
KEY TAKEAWAYS
The Court of Appeal decision in Zhang Rui Kang underscores the flexible and pragmatic role of the Court in determining whether Gateway (m) is satisfied. The Court of Appeal emphasised that the question of whether there is a legitimate benefit to justify service out is to be determined on a case-by-case basis. Even if a judgment debtor had no assets, presence or business operations, the possibility of oral examination or creation of commercial leverage could constitute a legitimate benefit in appropriate cases.
In Zhang Rui Kang, the Court of Appeal placed significant weight on the status of Hong Kong as an international financial centre, in holding that there is a real possibility of the guarantor’s assets being in Hong Kong, whether now or in the future. This may be a significant consideration in enforcement proceedings brought against Mainland entities which utilise the Hong Kong financial system in the future, even if there is otherwise no evidence of assets, presence or business operations in Hong Kong.
The full judgment is available at https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=159634&QS=%28%7Bzhang+rui+kang%7D+%25parties%29&TP=JU&currpage=T.
The first instance judgment is available at https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=153963&QS=%28%7Bzhang+rui+kang%7D+%25parties%29&TP=JU&currpage=T.
Mr Chua Guan Hock SC, Mr Alexander Tang & Mr Joshua Yeung acted for the 1st and 2nd Plaintiffs
Mr William Wong SC, Mr Lai Chun Ho & Mr Sim Jing En acted for the Defendant
