XCHRX BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION v. LAU YEUNG SANG AND OTHERS

HCCL174/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 174 OF 1999

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REASONS FOR JUDGMENT

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1. By a summons dated 12th April 1999, the 4th Defendant herein, Guangdong Development Bank, applied to the Court for an Order that the proceedings as against the 4th Defendant be stayed in favour of the People's Intermediate Court No.2 of Beijing on the grounds of forum non conveniens and/or lis alibi pendens.

2. That application was heard on Friday, 8th October 1999. At the conclusion of argument this Court dismissed the application, with costs to the Plaintiff, at the same time giving directions for the further conduct of the action.

3. I now give short reasons for the course that I then took.

The Factual Background

4. The facts of this case are unusual, and are of some complexity. I am grateful to both counsel for their efforts in bringing to the attention of the Court the main elements of this case against the background of which this stay application has been mounted.

5. This litigation relates to a letter of credit which the Beijing branch of the 4th Defendant bank opened on 17th July 1998 in favour of the 1st Defendant, an individual who resides in Hong Kong and trades in Hong Kong as Universal Enterprise (HK) Trading Co. ("Universal"). That letter of credit represented the payment mechanism under a contract of sale which was concluded between Universal and the 4th Defendant's customer, one China National Xinliang Storage Transportation and Storage Company ("Xinliang"), and was expressed to be available by negotiation with any bank. It called for drafts at 85 days after bill of lading date, and by the terms of the credit the 4th Defendant bank engaged that it would accept drafts if the requirements of the credit were complied with, and that such drafts would be duly honoured at maturity.

6. The Plaintiff bank, that is Bank of America, was instructed by Universal to act as collecting bank, and to submit documents to the 4th Defendant. This the Plaintiff did on 22nd July 1998 with a request that the 4th Defendant accept the accompanying bill of exchange which was drawn upon it. On 28th July 1998, the 4th Defendant sent a telex to the Plaintiff confirming that it had accepted the bill of exchange, and confirmed that payment would be effected upon maturity of that bill, namely, 14th October 1998. I am told that the 4th Defendant has retained the original bill of exchange.

7. In a nutshell, this litigation has been generated by Universal's attempts to discount this bill of exchange after acceptance by the 4th Defendant bank. On 21st August 1998, the Plaintiff bank sent a telex to the 4th Defendant, notifying it that Universal had assigned to one Finanz A.G. all its right and interest in the letter of credit opened by the 4th Defendant, and requesting that the 4th Defendant confirm that it held the accepted bill on behalf of Finanz A.G. and that upon maturity thereof payment would be made to the account of Finanz A.G. This confirmation was provided by the 4th Defendant on 22nd August 1998.

8. Thereafter that which occurred was somewhat unusual. As appears from the Statement of Claim filed in this action, Universal attempted subsequently to contend that the letter of credit and the bill of exchange which had been accepted by the 4th Defendant bank had never been assigned and, apparently in conjunction with the 4th Defendant's customer, Xinliang, attempted to cancel the letter of credit. Pursuant thereto, the Plaintiff bank, upon the instructions of Universal, sent a telex to the 4th Defendant on 7th October 1998 stating that Finanz A.G. was no longer the holder of the bill of exchange, and stating that Universal had reached agreement with the letter of credit applicant to cancel that credit.

9. Although the Plaintiff subsequently sought to revoke the telex it had so sent to the 4th Defendant on 7th October 1998, the 4th Defendant claimed to have acted upon it and to have cancelled the letter of credit. In consequence, when Finanz A.G. sought payment from the 4th Defendant bank, it declined to pay. It appears that the 4th Defendant claims that the Plaintiff never had authority from Universal to send the telex of 21st August 1998, whereby the Plaintiff asked the 4th Defendant to confirm that it held the accepted bill of exchange on behalf of Finanz A.G., and that in consequence the 4th Defendant was not bound by its telex of 25th August 1998 whereby it had provided the confirmation as sought.

10. What now has happened - and it is this event that provides the crux of the present debate - is that Finanz A.G. has instituted proceedings against the 4th Defendant bank in Beijing. It has also expressly informed the Plaintiff that it holds the Plaintiff liable for any loss which it may suffer by reason of the Plaintiff's telex of 7th October 1998, whereby the 4th Defendant was informed that Finanz A.G. was no longer the bona fide holder of the bill of exchange accepted by the 4th Defendant.

Applicable Legal Principle

11. There is no dispute between Counsel about this element of the case. The relevant principles governing a stay of proceedings on the basis of forum non conveniens are contained in the speech of Lord Goff in Spiliada Maritime Corporation v. Cansulex Ltd. [1987] AC 460. The 4th Defendant bank is registered in Hong Kong as an overseas company pursuant to Part XI of the Companies Ordinance, Cap.32, and accordingly it has been served as of right in accordance with section 338 of that Ordinance. It follows that, jurisdiction thus having been founded as of right, the burden upon the 4th Defendant is that first, it must establish to the satisfaction of the Court that Hong Kong is not the natural or appropriate forum for the trial of this action; and second, it must establish that the People's Intermediate Court No.2 of Beijing is "clearly or distinctly more appropriate" than the Hong Kong forum.

12. At either stage of this enquiry, the Court must attempt to identify the "natural forum", namely, that with which the action has its most real and substantial connection. In this context, Mr Sussex has specifically reminded the Court that in commercial cases it is frequently difficult to identify any forum which may accurately be described as "the natural forum". Indeed, as Lord Goff pointed out in Spiliada, commercial cases may involve factors which point to a number of different jurisdictions, and that in such cases it is often problematic to establish that any one of the forums with which that litigation has connections is indeed "clearly or distinctly" more appropriate than the forum in which the litigation in fact has been commenced.

13. The juridical situation therefore is tolerably clear : if the Court concludes that Hong Kong is the natural forum, the application for a stay will fail; equally, if the conclusion is that Hong Kong is not the natural forum, but that there is no other available forum which is clearly more appropriate for the trial of the action, the Court will ordinarily refuse a stay. As Lord Goff stated in Spiliada (op.cit.) at 478C :-

"... It is difficult to imagine circumstances where, in such a case, a stay may be granted."

14. Identification by the Court of the "natural forum", if any, is the precursor to a further consideration of whether there are circumstances by reason of which justice requires that a stay should nevertheless not be granted. This latter aspect generally involves an examination of suggested personal or juridical disadvantages in the alternative forum. At this stage, of course, the burden of establishing such disadvantages switches to the party opposing the grant of the stay, although it is clear that the ultimate burden of persuasion remains with the Applicant for the stay of proceedings.

15. I approach this case, therefore, with these principles in mind.

The Argument

16. The key element in the argument of Mr Paul Shieh, moving the application on behalf of the 4th Defendant, lay in the existence of the proceedings in Beijing which have been commenced by Finanz A.G. against the 4th Defendant, the subject matter of which involves the rights and liabilities between the 4th Defendant and Finanz A.G., and the issues in which are, he said, reflected in the relief sought by the Plaintiff bank against the 4th Defendant bank in the present Hong Kong proceedings. In this context, Mr Shieh observed that the Plaintiff's claim against the 4th Defendant is entirely "parasitic", in that the Plaintiff seeks declaratory relief and does not assert any substantive right against the 4th Defendant. Mr Shieh submitted that in the search for the most appropriate forum, it is difficult to see what Court other than the Court where the 4th Defendant and Finanz A.G. are going to resolve their substantive dispute (and where proceedings are already on foot) can be a more appropriate forum for deciding the Plaintiff's claim against the 4th Defendant. He said there existed no discernible reasons why the Plaintiff should want to litigate that question in Hong Kong, although he recognised that Finanz A.G. had written letters threatening claims against the Plaintiff bank, and that the Plaintiff bank wished to obtain a ruling that the 4th Defendant is liable to Finanz A.G., thereby absolving itself from liability. Mr Shieh noted, however, that Finanz A.G. had not yet made any claim against the Plaintiff bank, nor had the Plaintiff bank sought to join Finanz A.G. in the present Hong Kong proceedings, observing that such a pre-emptive strike by the Plaintiff, whereby a declaration is sought as to the relationship between the 4th Defendant and Finanz A.G., is analogous to a claim for a negative declaration, and that the Courts have always been sceptical about negative declarations in forum conveniens cases.

17. Mr Shieh further submitted that in the circumstances there was a real risk of both the Hong Kong action and the Beijing action developing separately, thereby leading to inconsistent judgments between the two jurisdictions, and that in the circumstances no res judicata would arise because there was no identity of parties between the Beijing action and the present action. He pointed out that the evidence is to the effect that a procedural mechanism exists in the PRC for joining the Plaintiff as a party to the Finanz A.G. action, and in any event it certainly would be open to the Plaintiff to apply to join itself as a party to the Finanz A.G. proceedings in Beijing : see Article 56 in Chapter V of the Code of Civil Procedure; accordingly if, for its own reasons, it chose not to make such an application for itself to be so joined, or chose to resist the 4th Defendant's application so to join it, then this fact should not be overlooked.

18. An additional consideration upon which Mr Shieh relied was that in terms of the 4th Defendant's liability to Finanz A.G. under the bill of exchange, the relevant applicable law is undoubtedly PRC law, and further, that if the 4th Defendant is held to be liable to pay Finanz A.G. upon the bill, it would seek indemnity from its customer, Xinliang, and that in this regard the 4th Defendant has also mounted a separate action against Xinliang in Beijing. Accordingly, submitted Mr Shieh, the Beijing Court was the only place where the Finanz A.G. action and the Xinliang action could conveniently be dealt with together.

19. I note in passing that during the argument, extensive reference was made on both sides to the various efforts of the 4th Defendant bank to join the present Plaintiff to proceedings in Beijing. In this context, I understand, one Petition has earlier been set aside by the Beijing Court, and currently a further action has been started by the 4th Defendant in Beijing against both the head office of the Plaintiff in America and against the Hong Kong branch of the Plaintiff. However, I am told that thus far service has not been effected in Hong Kong and that if service in fact be achieved, the Plaintiff herein will seek to set it aside. In any event, there is perhaps no necessity to go into greater detail because Mr Shieh specifically eschews reliance on these matters in terms of the present application for a stay of these Hong Kong proceedings.

20. In a nutshell, therefore, Mr Shieh's case comes down to this : that the Beijing Court is the most appropriate forum because a third party, namely, Finanz A.G. has chosen to litigate against the 4th Defendant there. That is the long and the short of it.

21. For his part Mr Sussex on behalf of the Plaintiff bank strongly resisted this application. At the outset he made it crystal clear that there was no question of his client voluntarily commencing an action in Beijing against the 4th Defendant claiming the same relief as that in the present Hong Kong action. Nor, for that matter, did his client have any intention of participation in the proceedings issued against it on behalf of the 4th Defendant in Beijing, and he stressed that if and when such service was effected in the 'new' Beijing proceedings, his client, as formerly, would seek to set such service aside.

22. So there is an impasse here. Mr Sussex's primary submission is that whatever Mr Shieh may say, the present litigation in Hong Kong is primarily concerned with the agency relationship which came into existence when the Plaintiff bank agreed with Universal to act as collecting bank in relation to the letter of credit opened by the 4th Defendant. It was important to note, he said, that that contract of agency, express or implied, was undoubtedly governed by Hong Kong law. And that in the event that it be held that the Plaintiff had acted upon the authority of others claiming to act for Universal, albeit in fact not so authorised, the Plaintiff would clearly be entitled to seek damages from those parties for breach of warranty of authority, and again the relevant law governing any liability for breach of warranty of authority would be Hong Kong law. That the issues as between the Plaintiff and the 4th Defendant essentially required examination of the agency relationship between the Plaintiff and Universal, said Mr Sussex, was in large part because such issues were directed to whether the Plaintiff's telex of 21st August was sent with authority, and had had the effect of completing the assignment or sale of the accepted bill of exchange from Universal to Finanz A.G. Similarly, the declaratory relief sought against the 4th Defendant again called for examination of whether the Plaintiff had had authority to ask the 4th Defendant to cancel the letter of credit and (assuming that Universal had no right to countermand its earlier instruction), whether the telex which it had sent had had any legal effect, and in particular whether it had had the effect of cancelling the bill of exchange.

23. In these circumstances, concluded Mr Sussex, it was abundantly clear that Hong Kong is and was the natural forum for the trial of this litigation, given the fact that everything done by the Plaintiff in relation to this transaction occurred at its Hong Kong branch, and that in terms of the constitution of the present Hong Kong proceedings, both the 1st Defendant (the letter of credit beneficiary) and the 2nd Defendant are residents in Hong Kong, and that the agency relationship, as the central issue in this litigation, will fall to be determined by Hong Kong law. It was thus hardly surprising, said Mr Sussex, that his client took the view that it wanted an evaluation of such agency relationship to take place in proceedings before a Court which was perceived to be best qualified to determine that issue according to Hong Kong law. Moreover, it was plainly desirable that when the issue of the Plaintiff's authority fell to be determined that such should occur in a forum in which the Plaintiff's purported principal, Universal, was also compellable. Indeed, he noted that the 4th Defendant's submissions completely ignored the fact that the Plaintiff acted or purported to act in this transaction solely as collecting bank, and therefore as agent for the beneficiary, and that that relationship is and was central to any liability to which the Plaintiff may be subject.

24. The battle lines in this particular application are therefore clear, and indeed hove into view at an early stage, given Mr Shieh's fundamental reliance upon the existing Beijing litigation between Finanz A.G. and the 4th Defendant; in fact, it is probably not unfair to say that the success or otherwise of this application depended upon the mileage that Mr Shieh was able to extract from the existence of such proceedings in Beijing. However, as I think became obvious during argument, the Court did not share his enthusiasm for the point.

25. For my own part, it was and is not clear why proceedings started by a third party, namely Finanz A.G., in another jurisdiction, should have the effect of rendering that jurisdiction forum conveniens when it was equally clear in the circumstances that such jurisdiction would not otherwise be so. In this regard, Mr Shieh submitted that the existence of proceedings in a foreign country can, in appropriate circumstances, have a decisive effect on determining the most appropriate forum, citing in this context the case of Kara Mara Shipping Company Limited v. World Tankers Carriers Corporation & another [1996] 2 HKLR 8. This is a decision of Yam J, and I confess is a decision which had not previously come to my attention. Suffice to say, whilst that decision naturally is entitled to due respect, I do not think that it assists greatly in the present proceedings. That case involved a collision in Portuguese waters between two vessels, tragically causing the death of eight crew members and injuries to many others. Part of the cargo on board the two vessels was also lost, and the vessels themselves were damaged. In that case, the learned judge was faced with an application for a stay of proceedings in a situation where a multiplicity of actions involving nearly all parties (such as bareboat charterers, owners, cargo interests, crew members and managers), had been commenced in the Court in New Orleans, and in what the learned judge described as a "unique case", he determined in those particular circumstances that New Orleans was clearly a more appropriate forum to dispose of the matter in a consolidated action involving disputes among such a large number of parties arising out of the same incident.

26. I regard that case as a case turning on its own very particular facts, and not as supportive of the proposition either that the commencement by a third party of proceedings in another jurisdiction should have the effect of rendering such jurisdiction forum conveniens, or, as Mr Shieh put it, that such necessarily provides "a decisive effect" on the determination of the most appropriate forum. In my view the highest that the point can be put is that such third party proceedings represent but a factor within the general discretionary balance which the Court is obliged to effect in considering a stay application of this nature.

The Decision to Dismiss the Application

27. After reflecting on the arguments, in my view Mr Sussex was correct in his submission that the 4th Defendant was unable to satisfy the burden of demonstrating that the Beijing Court was "clearly or distinctly" more appropriate for the trial of this action. To the contrary. In terms of the issues arising in the present action now sought to be stayed in favour of the action in Beijing, Hong Kong is probably the forum with which this action has the most real and substantial connection, given the link between Hong Kong and the events giving rise to the litigation, the focus therein being the agency relationship between the Plaintiff and Universal and others acting or purporting to act for Universal. So that, in terms of the Spiliada test, it seemed to me the Defendant had failed both at the first stage, namely an inability to demonstrate that Hong Kong is not the natural forum for the trial of this litigation, and also at the second stage, that is the establishment of the proposition that Beijing is "clearly or distinctly" more appropriate. In fact, absent the Finanz A.G. litigation, there does not seem to me to be any substantial connection with Beijing, save that the 4th Defendant issued the letter of credit from its branch there. As I understand the situation, everything else done by the Plaintiff in relation to this transaction appears to have occurred at its Hong Kong branch.

28. It should be appreciated that a perception on the part of one of the parties as to the convenience of another forum does not a forum conveniens make. Like a good deal of commercial litigation, the present litigation appears to have connections not only with Hong Kong, but also with Singapore, as well as tangential connections with Beijing. In the circumstances, it is not easy to see why Beijing should be considered the natural forum, particularly in the context of an established action constituted as of right against the 4th Defendant in Hong Kong and also involving three other Defendants.

29. Given that I have held that the Applicant has failed to discharge the burden placed upon it in terms of the Spiliada benchmarks, in my view there is no need further to consider the "juridical disadvantages" argument, wherein the Plaintiff asserted that there was no discovery obligation akin to that which obtains in Hong Kong upon any party to litigation in Beijing, and further that it was common for judges in Beijing proceedings to meet with parties to litigation or their lawyers in the absence of the other party. Complaints were also made in terms of the recovery of legal costs. However, I express no opinion in this regard since, as I have made clear, in my judgment this case turns upon primary Spiliada analysis and not upon any consideration of juridical advantage or disadvantage.

30. The foregoing constitute the reasons for the dismissal of this application with costs to the Plaintiff, such costs to be taxed if not agreed. It remains only to thank both Counsel for their assistance, and in particular for their excellent skeleton arguments, which made it possible to decide this application in a far shorter time than otherwise would have been the case.