KO LAI KUEN v. LI TAK MING AND OTHERS

HCA1731/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1731 OF 2010

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DECISION

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1.  The defendant makes this application by Summons dated 30 December 2010 seeking to stay the present proceedings on the grounds :

(1) that the plaintiff is bound by an exclusive jurisdiction clause in the Customer Agreement giving exclusive jurisdiction to the courts in the Republic of Indonesia to adjudicate all disputes arising from the Agreement; and

(2) that the courts in the Republic of Indonesia is the forum conveniens to deal with the present dispute. 

2.  The application is brought under Order 12 rule 8(1)(a), (1)(g), (2)(b) and (2A)(b) as well as the inherent jurisdiction of the court. 

Background

3.  The plaintiff came to know the 1^st defendant through a friend in the PRC in April 2009. 

4.  The 1^st defendant held himself out to the plaintiff as an experienced investor. 

5.  There were further meetings between the plaintiff and the 1^st defendant in September 2009 in the PRC and again in October 2009 in Hong Kong. 

6.  The 1^st defendant is a director of, controls, manages and operates the 2^nd and 3^rd defendant companies, both of which are BVI companies.  The 1^st defendant is also a director of, controls, manages and operates a Hong Kong company which has exactly the same name as the 3^rd defendant.

7.  Resulting from the discussions between the plaintiff and the 1^st defendant in those meetings, the plaintiff entered into a written Customer Agreement with the 3^rd defendant on 7 October 2009 (“the Customer Agreement”). 

8.  The plaintiff also entered into an Investment Agreement with the 1^st and 2^nd defendants on the same day (“the Investment Agreement”). 

9.  The Investment Agreement was partly oral and partly in writing.  In so far as it was oral, it was the plaintiff’s case that the 1^st and 2^nd defendants agreed to buy gold at US$1,050 per ounce on behalf of the plaintiff and to hold the gold for medium to long term until gold price reached US$1,500 per ounce whereupon the gold would be sold at a profit to the plaintiff.  The 1^st and 2^nd defendants also agreed to report to the plaintiff on her investment on a regular basis and in any event if her trading losses reached 50% or over of her overall investment.

10.  In so far as the Investment Agreement was in writing, it included a written Agency Agreement and a written supplemental Agreement both signed also on 7 October 2009. 

11.  Pursuant to the Customer Agreement and the Investment Agreement, the plaintiff had deposited into the 2^nd defendant’s bank account US$500,000 for investment purposes (“the Investment Sum”). 

12.  Firstly, the plaintiff now claims against all the defendants on the basis that the 1^st defendant had made certain representations to the plaintiff on each of the three occasions when they met in April, September and October 2009 to induce the plaintiff into entering the Customer Agreement and the Investment Agreement with the defendants but which representations were false.  The particulars as to the misrepresentation alleged by the plaintiff has been pleaded in the Statement of Claim.  For present purposes, it will not be necessary to repeat those particulars. 

13.  The plaintiff also claims against all the defendants for breach of the Customer Agreement and the Investment Agreement.  Again the particulars of the breaches alleged by the plaintiff have been pleaded in the Statement of Claim and it will not be necessary for present purposes to repeat in detail the alleged breaches. 

14.  The plaintiff also claims against the defendants for negligence in the handling of the investment for her.  Once again there is no need to go into the details of the negligence alleged against the defendants suffice to say that the particulars relating to the negligence claim have also been pleaded in the Statement of Claim. 

Whether exclusive jurisdiction clause

15.  In making this application, the first and primary ground relied on by the defendants is that there exist an exclusive jurisdiction clause in the Customer Agreement whereby exclusive jurisdiction is given to the courts in Indonesia to litigate all disputes arising from the Customer Agreement. 

16.  In this respects, the defendant rely on clause 11 of the Customer Agreement, the translation of which states :

“ GOVERNING LAW AND JURISDICTION

11.1 This Agreement and each Contract shall be governed by and construed in accordance with the laws of the Republic of Indonesia.

11.2 The Customer [i.e. plaintiff] irrevocably waives, to the fullest extent permitted by the applicable law, with respect to itself and its revenue and assets, all immunity on the grounds of sovereignty or other similar grounds from suit, jurisdiction of any court, relief by way of injunction order for specific performance or for recovery of property, attachment of its assets (whether before or after judgment) and executions or enforcement of any judgment to which it or its revenue or assets might otherwise be entitled in any legal proceedings in the courts of any jurisdiction and irrevocably agrees that it will not claim any such immunity.

11.3   The Customer irrevocably and unconditionally submits to the jurisdiction of the courts of Indonesia to settle any dispute arising out of or in connection with this Agreement, and hereby agrees that any legal action or proceedings arising out of or in connection with this Agreement may be brought in those courts.  Nothing in the foregoing shall however limit the Company [i.e.3^rd defendant].”

17.  In particular, the defendants rely on 11.3 to submit that exclusive jurisdiction is conferred on the courts of Indonesia.  In so submitting, the defendants rely on the words “irrevocably and unconditionally submits to the jurisdiction of the courts of Indonesia” and also the later words “hereby agrees that any legal action or proceedings arising out of or in connection with this Agreement may be brought in those courts”. 

18.  The defendants therefore say that a combination of those words relied on show clearly, on the proper construction of clause 11.3, that exclusive jurisdiction has been conferred on the courts of Indonesia. 

19.  I do not accept that submission by the defendants.  

20.  In determining whether a particular clause in a contract tantamounts to an exclusive jurisdiction clause is a matter of construction of the clause in question.  In this case that would be clause 11.3 of the Customer Agreement relied on by the defendants.  In construing the relevant clause, the wording of the particular clause is to be looked at and all discussions or negotiations between the parties leading up to the Customer Agreement is irrelevant and should be ignored. 

21.  It is also generally accepted that the word “exclusive” need not be used in an exclusive jurisdiction clause to make it such.  The test however, is whether the particular clause, when properly construed on its wording, obliges a plaintiff to bring the action in the relevant jurisdiction, in this case the courts of Indonesia. 

22.  On a proper construction of clause 11.3, I am of the view that all clause 11.3 says is that the plaintiff irrevocably and unconditionally submits to the jurisdiction of the courts of Indonesia to settle any disputes arising from or in connection with the Customer Agreement.  The effect of that would be that if the 3^rd defendant chooses to bring litigation against the plaintiff in the courts of Indonesia on the Customer Agreement, then the plaintiff would not be able to dispute the jurisdiction of the Indonesian courts since the plaintiff has already submitted irrevocably and unconditionally to that jurisdiction by reason of clause 11.3. 

23.  However, the following words “may be brought in those courts”, being permissive, make it quite clear that exclusive jurisdiction is not conferred on the courts of Indonesia. 

24.  The last sentence in clause 11.3 where it says “Nothing in the foregoing shall however limit the Company” further amplifies the fact that the 3^rd defendant may litigate in some other jurisdiction other than the courts of Indonesia. 

25.  In my view, clause 11.3 is very limited in scope and it is limited to only where the plaintiff is being sued by the 3^rd defendant on the Customer Agreement in the Indonesian courts. 

26.  There is nothing in the wording of clause 11.3 which would oblige the plaintiff to bring or start litigation in the courts of Indonesia on the Customer Agreement. 

27.  In reaching this conclusion on the interpretation of the wording of clause 11.3, I have not lost sight of the fact that the applicable law to the Customer Agreement is Indonesian law and therefore clause 11.3 ought to be interpreted in accordance with Indonesian law.  However, the defendants have not adduced any evidence of Indonesian law relevant to the interpretation of clause 11.3.  In the circumstances, I must presume that Indonesian law as to interpretation is no different from Hong Kong law on the matter (see Koninklijke Philips Electronics N.V. v Laser Media International Ltd HCA19408/1999 Hartmann J citing and applying the Parchim [1918] AC 157 at 161). 

28.  For these reasons I do not accept the submission of the defendants that clause 11.3 is an exclusive jurisdiction clause conferring exclusive jurisdiction on the courts of Indonesia in respect of any dispute on the Customer Agreement. 

Forum conveniens

29.   Having come to the conclusion above that clause 11.3 of the Customer Agreement does not amount to an exclusive jurisdiction clause, I now turn to consider whether I should exercise my discretion to order a stay of proceedings on the second ground put forward by the defendants, namely, that the Indonesian courts, rather than the Hong Kong courts, is the forum conveniens. 

30.  Since the defendant has failed to establish an exclusive jurisdiction clause to the Customer Agreement, and it follows therefrom that jurisdiction of the Hong Kong courts has been established as of right, the onus is upon the defendant to show that there should be granted a stay of proceedings in favour of some other jurisdiction. 

31.  The applicable test (see Dicey and Morris on The Conflict of Laws 13^th ed. Vol. 1 para. 12-117) whether a court should or should not exercise its discretion to order a stay, is that the court should consider all the circumstances of the case, and to take into account the following particular matters :

(1) in which country the evidence is available, and the effect of that on the relative convenience and expense of a trial in England or abroad;

(2) whether the contract is governed by the law of the foreign country in question, and if so, whether it differs from English law in any material respect;

(3) with what country either party is connected, and how closely;

(4) whether the defendants genuinely desire trial in a foreign country, or are only seeking procedural advantages;

(5) whether the plaintiffs would be prejudiced by having to sue in the foreign court because they would be deprived of security for their claim, or be unable to enforce the judgment in their favour, or be faced with a time-bar not applicable in England, or for political, racial, religious or other reasons be unlikely to get a fair trial. 

32.  In that respect, the defendants invite the following matters to be taken into account. 

33.  Firstly, the governing law of the Customer Agreement was expressly agreed to be Indonesian law.  It was submitted by the defendants that the Customer Agreement was so inextricably linked with the Investment Agreement as well as with the Agency Agreement and the Supplemental Agreement that they should all be looked at as part and parcel of the same agreement even though, strictly speaking, the parties are not the same. 

34.  Secondly, the defendant says that the acts of investment were not done solely in Hong Kong but by a team of traders and assistants located in Indonesia, Hong Kong, Thailand and Taiwan utilizing an internet platform. 

35.  Thirdly, it is said that the 2^nd and 3^rd defendants are BVI companies and a director of the 3^rd defendant is an Indonesian company called Victory Halm. 

36.  Fourthly, it is said that service upon the 1^st and 3^rd defendants could be effected within Indonesia if Indonesian proceedings are issued. 

37.  On the other hand, these matters highlighted by the defendants need to be weighed and balanced against the following factors. 

38.  Both the plaintiff and the 1^st defendant are permanent residents in Hong Kong with the 1^st defendant holding himself out to be an experienced investor in Hong Kong. 

39.  The representations, the subject matter of the plaintiff’s claim in misrepresentation, were made in either Hong Kong or the PRC. 

40.  Negotiations and discussions leading up to the Customer Agreement and the Investment Agreement were conducted in Cantonese between the plaintiff and the 1^st defendant. 

41.  The 2^nd defendant, although a BVI company, has a place of business in Hong Kong. 

42.  The 1^st defendant is a shareholder and director of the 3^rd defendant, and although the 3^rd defendant is a BVI company, it has a business address, telephone and fax numbers in Hong Kong. 

43.  The Customer Agreement, the Investment Agreement, the Agency Agreement and the supplemental Agreement were all entered into in Hong Kong at the office of the 1^st defendant in Wanchai.  All the aforesaid agreements were written in simplified Chinese. 

44.  The Investment Sum was deposited by the plaintiff into the bank account of the 2^nd defendant in Hong Kong. 

45.  The plaintiff’s witnesses as well as the 1^st defendant are all Cantonese speakers which is likely the language in which the evidence will be given by them. 

46.  One of the witness to be called by the plaintiff is only prepared to come to Hong Kong to give evidence in this matter. 

47.  Given the above matters, it would appear that this case has a far greater and real connection with Hong Kong than with Indonesia.  The one real connection with Indonesia would be the fact that the Customer Agreement is to be governed by Indonesian law. 

48.  However, there are other matters which I need also to take into account before coming to a final decision whether or not my discretion should be exercised. 

49.  The plaintiff’s claim for breach of the Customer Agreement is put on the basis of breach of an implied term, namely, that it was an implied term of the Customer Agreement that the 3^rd defendant would report the investment activities and transactions of the Investment Account whenever such investment transactions were entered into by the 3^rd defendant on behalf of the plaintiff, but that the 3^rd defendant failed to do so and was therefore in breach of such implied term. 

50.  As already stated, there was no evidence produced to show what is the law in Indonesia on implied terms and whether such law would be different from Hong Kong law on the subject. 

51.  However, the issue as to implied terms is not an issue which has to be adjudicated here and now, but is a matter for trial.  If the trial takes place in Indonesia, the Indonesian courts will be able to apply Indonesian law.  If the trial takes place in Hong Kong, it is still possible for expert evidence as to what the Indonesian law is on the issue of implied terms to be adduced by the parties and for the Hong Kong courts then to apply that law. 

52.  On the other hand, one of the plaintiff’s claim is a claim for breach of section 108 of the Securities and Futures Ordinance (“the Ordinance”) in that the gold bullion trading proposed to the plaintiff by the 3^rd defendant comes within the definition of “regulated investment agreement” as defined in the Ordinance and that there has been a breach of section 108 of the Ordinance by the 3^rd defendant because section 108 of the Ordinance provides as follows :

“(1) Where a person makes any fraudulent misrepresentation, reckless misrepresentation or negligent misrepresentation by which another person is induced-

(a) to enter into or offer to enter into-

(i) …

(ii) a regulated investment agreement;

…

the first-mentioned person shall, whether or not he also incurs any other liability (whether under this Part of otherwise), be liable to pay compensation by way of damages to the other person for any pecuniary loss that the other person has sustained as a result of the reliance by the other person on the misrepresentation.”

53.  The Ordinance defines “regulated investment agreement” as meaning “an agreement the purpose or effect, or pretended purpose or effect, of which is to provide, whether conditionally or unconditionally, to any party to the agreement a profit, income or other returns calculated by reference to changes in the value of any property, but does not include an interest in a collective investment scheme.”

54.  The plaintiff makes the point that this cause of action under section 108 of the Ordinance would require interpretation of Hong Kong law, namely the Ordinance, and for this to be litigated in Indonesia would require expert evidence on Hong Kong statutes and would lead to unnecessary expenses and inconvenience. 

55.  A further point taken by the plaintiff is that under the Foreign Judgment (Reciprocal Enforcement) Ordinance, Indonesia is not listed in either Schedule 1 or Schedule 2 thereof, which means there is no reciprocal treatment in the enforcement of orders in Hong Kong of any order made or damages awarded in an Indonesian court against the defendants. 

56.  In the circumstances, if this dispute is to be litigated in the Hong Kong courts it will be necessary for expert evidence on Indonesian law to be adduced.  On the other hand, if it is to be litigated in the Indonesian courts, it will also require expert evidence of Hong Kong law to be adduced in those courts. 

57.  In this sense, that factor requiring evidence of foreign law to be adduced cancels out each other whether the forum should properly be Hong Kong or Indonesia. 

58.  Given all the other factors present in this case I come to the conclusion that Hong Kong must be the forum conveniens for the parties to litigate this dispute. 

Conclusion

59.  For the reasons given above, the application of the defendants made by Summons dated 30 December 2010 is dismissed with costs to the plaintiff (order nisi) to be taxed and paid forthwith if not agreed.