NEW LINK CONSULTANTS LTD v. AIR CHINA AND OTHERS

HCA515/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.515 OF 2001

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D E C I S I O N

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APPLICATIONS

1. There are two applications before me. The first application is made by the 1st defendant for (1) an order that the service of the writ be set aside under Order 12, rule 8(1)(a), Rules of the High Court; or alternatively (2) a declaration that the court has no jurisdiction over the 1st defendant in respect of the subject matter of the claim or the relief or remedy sought in the action under Order 12, rule 8(1)(g) on the grounds that :

(a) the writ was not served on the 1st defendant in accordance with Order 10, or Order 11; and/or

(b) no ground exists for service of the writ under Order 11.

I will call this "the Order 12 Application".

2. The second application is made by all the three defendants, seeking a stay of the proceedings on the ground of forum non conveniens in that the Beijing 2nd Intermediate People's Court or the Beijing High People's Court ("the Beijing Courts" collectively) is a clearly and distinctly more appropriate forum for the resolution of the action. I will call this "the Forum Application".

THE PROTAGONISTS

3. The 1st defendant is a state owned enterprise. So were China Southern Airlines and China Eastern Airlines. I will refer to these three Airlines as "the Airlines" collectively in the rest of this judgment. At all material times, each of the Airlines had a wholly-owned subsidiary acting as its own purchasing arm for the supply of aviation parts. They were Air China Group Import and Export Trading Corporation, China Southern Airlines Import and Export Trading Corporation and China Eastern Aviation Import and Export Trading Corporation respectively ("AIE", "SIE", "EIE" individually and "the IE Companies" collectively).

4. In 1994, the IE Companies and the plaintiff entered into a joint venture for the supply of aviation parts to the Airlines. They incorporated in Hong Kong a joint venture vehicle, United Aero-Supplies System of China Limited ("UASSC").

5. In 1995, China Southern Airlines and China Eastern Airlines went through demerger. By a demerger agreement dated 25 March 1995 ("the CSA Demerger Agreement"), China Southern Airlines was spilt into two entities : China Southern Airlines Company Limited, the 2nd defendant herein, and the Southern Airlines (Group). By a demerger agreement dated 14 April 1995 ("the CEA Demerger Agreement"), China Eastern Airlines was likewise spilt into two entities : China Eastern Airlines Corporation Limited, the 3rd defendant herein, and China Eastern Airlines (Holdings) Company (later Eastern Airline Group Limited). It is the plaintiff's case but denied by the 2nd and 3rd defendants that by virtue of the demergers, the 2nd and 3rd defendants had succeeded to the assets and liabilities of China Southern Airlines and China Eastern Airlines respectively.

THE JOINT VENTURE

6. This action arose out of the disputes in connection with the aforesaid joint venture. For present purposes, it is useful to briefly describe the events pertaining to it. For convenience, I will set them out, as far as possible, in a chronological order.

(1) The Letter of Intent

7. In January 1994, the IE Companies and the plaintiff signed a letter of intent for the establishment within the Mainland a consignment warehouse for the supply of aviation parts manufactured by foreign suppliers ("the Letter of Intent"). The main purposes of the intended joint venture can be found in Clause 2 of the Letter of Intent, which read :

"二、合资各方一致认为该寄售仓库的含义为：

在中国境内设立海关监管仓库，将外国厂商所生产的航空器材和设备从其原产国调入监管库寄售。同时，引进外资以及国外先进的管理经验和操作方式，对中国市场(首先是合作方所属的航空公司)所需要的零备件和设备统一库存、统一管理、集中进货、集中供货、以便减少有关方航空公司在航材方面资金的占用，减少不必要的重复备件，缩短订货(特别是AOG订货)的周期，提高飞机的利用率，并可以利用中国政府有关合资的优恵政策及待遇，为合资各方和有关航空公司创造可观的经济效益。"

8. The parties further agreed to set up the consignment warehouse in Beijing first and later in Guangzhou and Shanghai if necessary and that any existing warehouse of the parties could be used for the purpose of setting up the consignment warehouse.

(2) The JV Agreement

9. On 9 April 1994, acting according to the Letter of Intent, the IE Companies and the plaintiff signed in Shanghai a handwritten joint venture agreement. They subsequently signed the typed version of the joint venture agreement in Beijing on 19 April 1994. I will call this "the JV Agreement". Clause 4 of the JV Agreement stated the objectives of the joint venture in these terms :

"4.	合作目的
	4.1	通过寄售的形式帮助航空公司降低现有航材的库存量，从而大大减少航空公司流动资金的积压。
	4.2	减少航空公司AOG和紧急定货。
	4.3	缩短航空公司飞机停场维修周期。
	4.4	提高航空公司的飞机利用率。
	4.5	引进国际标准的航材管理体系(A.I.M.S.)，改善其管理水平的管理效率。"

As can be readily seen, these objectives incorporated the main purposes as expressed in Clause 2 of the Letter of Intent : see paragraph 7 above.

10. The JV Agreement further provided that it should be governed by Hong Kong law.

(3) Setting up UASSC

11. Pursuant to the JV Agreement, the IE Companies and the plaintiff incorporated UASSC in Hong Kong with a share capital of HK$1 million, holding 250,000 shares each.

(4) The Beijing Office

12. On 18 July 1994, UASSC opened a representative office in Beijing ("the Beijing Office"). On 6 December 1994, UASSC obtained a Registration Certificate of Foreign Enterprises Permanent Office in China for the Beijing Office. According to this certificate, the scope of business of the Beijing Office was communication work relating to import and export of aviation parts and equipments. On 4 January 1995, UASSC obtained a tax registration certificate for the Beijing Office.

(5) The General Agreements

13. By a letter dated 26 July 1994, a Mr Peter Lam of the plaintiff wrote to the 1st defendant, eliciting support for UASSC. Presumably upon such approach, each of the Airlines signed a general agreement with UASSC dated 18 August 1994 in identical terms ("the General Agreements"). The General Agreements re-iterated the objectives of establishing UASCC thus :

"The principle objective for establishing UASSC is to provide an aviation parts consignment warehouse and management system for the Member Airlines (i.e. Air China, China Eastern Airlines, China Southern Airlines) and to provide services intended to minimize operational cost and maximize economic efficiency. As a secondary objective, UASSC will provide parts and services to the Non-Member Airlines on a charge basis which will increase revenue and profit for the Member Airlines on a non-interference basis."

14. The Airlines also agreed to fully support UASSC by :

"1)	Procuring from or utilizing on a priority basis of all aviation parts and equipment needed from consigned, supplied or warehoused parts provided under the UASSC joint partner agreement before considering any other sources.
2)	Release to UASSC all data and information relevant to aviation parts and equipment usage in order to help UASSC to maintain high competitiveness in the market.
3)	Assist UASSC in providing consignment warehouse spaces, obtaining licenses, certificates, or other relevant documents (with or without signature depending on the requirement), from related parties / authorities as necessary for the consignment and handling of aviation parts.
4)	Authorize UASSC to act on Air China's behalf, in managing, marketing and selling of the surplus aviation materials and stocks."

15. The General Agreements were silent on the choice of law.

(6) The Appointment Letter

16. At the same time, the Airlines also signed an appointment letter ("the Appointment Letter"), appointing UASSC, inter alia, to (1) act as their exclusive representative for the handling and management of all aviation parts consignment operations for them; and (2) to act and negotiate on behalf of the Airlines with all aviation parts manufacturers/producers, suppliers and other relevant parties regarding any matter related to aviation part consignment operations. The Airlines also agreed to first procure from or utilise aviation parts consigned to UASCC before procuring from the other sources.

(7) The Consignment Agreements and consignment warehouses

17. UASSC and AIE entered into a consignment agreement on 12 December 1994. According to this agreement, AIE would set up a consignment warehouse in the Beijing International Airport area ("the Beijing Warehouse"). UASSC would deliver aviation parts and equipments according to the need of China Airlines to the Beijing Warehouse and such goods were to be stored in the bonded area therein. The Beijing Warehouse was opened on 25 May 1995.

18. On 5 May 1995, UASSC entered into a similar consignment agreement with SIE. Under this agreement, SIE would set up a consignment warehouse in Guangzhou ("the Guangzhou Warehouse"). UASSC would deliver to the Guangzhou Warehouse aviation parts and equipments required by Southern China Airlines. It is the 2nd defendant's case that the Guangzhou authority gave formal approval for the operation of the Guangzhou Warehouse on 28 October 1996 but by then the plaintiff had already indicated its intention to withdraw from UASSC.

19. UASSC also entered into a similar consignment agreement with EIE on 30 May 1996. This agreement contained similar provisions for EIE's setting up a consignment warehouse in the Shanghai International Airport area ("the Shanghai Warehouse") and UASSC's delivering to the Shanghai Warehouse aviation parts and equipments required by Southern China Airlines. The Shanghai Warehouse was opened on 8 April 1996. It is the 3rd defendant's case that UASSC had not delivered any goods to the Shanghai Warehouse at all.

20. All the above Consignment Agreements were governed by PRC law.

(8) Operations of the joint venture

21. The operations of the joint venture were discussed and approved by the joint venture partners at a directors' meeting of UASSC on 5 May 1995. According to the minutes of that meeting, 11 steps were involved :

"1)	争取在GTA中得到寄售商授权，使华联有权直接批准寄售航材的发货和销售。
2)	用户向迸口公司或寄售中心申请购买寄售航材
3)	迸出口公司通过华联向寄售商发出订单。订单上必须有华联的签字认可才迸行发货。
4)	华联向寄售中心发出的允许发货的销售单。
5)	寄售中心办理与发货有关 的各种手续。
6)	寄售中心向华联报告发货情况。
7)	华联将销售情况按月通知寄售商。
8)	寄售商将账单发给迸口公司。
9)	迸出口公司向用户发出账单并收取费用。
10)	迸出口公司向寄售商付款。
11)	寄售商支付手续费给华联，然后华联支付手续费给迸出口公司。"

22. The parties further agreed on the following matters, as recorded in the said minutes :

"2、	用户购买寄售器材的订单交给迸出口公司，由迸出口公司将订单转交华联。华联在订单上认可后将订单发给寄售商，并填写《销售单》发给寄售中心。寄售中心凭销售单放货。有关寄售器材文件的管理，寄售器材负责寄售器材的《迸出库控制卡》，其它有关货物的迸出管理文件均由华联负责。
3、	根据彭总的提议，全体董事一致同意华联应将1.5%手续费给予发货的迸出口公司，原户的手续费应给予销售的迸出口公司。

..."

THE PLAINTIFF'S PLEADED CASE

23. Unfortunately, the joint venture turned out to be a failure. Eventually, UASSC was wound up on 23 September 1998. The claims herein were originally vested in UASSC. By an assignment dated 22 February 2000, the Official Receiver (as liquidator) and UASSC assigned and transferred all the rights and benefits to be derived from these claims to the plaintiff. On 1 February 2001, the plaintiff commenced the present action. The plaintiff's case pleaded in the Statement of Claim is summarised in paragraphs 24 to 28 below.

24. The 2nd and 3rd defendants had by virtue of the demergers in 1995 succeeded to the rights and liabilities of China Southern Airline and China Eastern Airline respectively.

25. UASSC was formed pursuant to the joint venture described above as a centralised company from which aviation parts would be ordered on a consignment basis with a view to saving costs for the Airlines. The joint venture was evidenced, inter alia, by the Letter of Intent and the JV Agreement which, the plaintiff alleged, were signed by the plaintiff and the Airlines. (Though not expressly pleaded, it is the plaintiff's case that the IE Companies signed these documents as agent on behalf of the Airlines. This pleading point does not give rise to any particular issue for present purposes.)

26. The General Agreements and the Appointment Letter, together with some other documents, formed three agreements made between the plaintiff and each of the Airlines, referred to as the 1st, 2nd and 3rd Agreement respectively. These three Agreements contained the express terms as set out in the General Agreements and the Appointment Letter : see paragraphs 13 to 16 above. They also contained the following implied terms and conditions :

"(1)	After [UASSC] entered into a consignment agreement/arrangement with one or more suppliers, [the Airlines] shall procure from [UASSC] the supply of such aviation parts needed by them and which are available from those suppliers;
(2)	[The Airlines] shall not procure the supply of such aviation parts from other sources unless they had previously sought to procure the supply of such parts from [UASSC] and were informed by [UASSC] that it was unable to supply such parts;
(3)	[The Airlines] shall place all orders for aviation parts firstly with [UASSC] and shall not place orders directly with suppliers unless having firstly been informed by [UASSC] that it could not supply the parts or some of the parts ordered;
(4)	The contractual obligations of [the Airlines] shall last for as long as the Joint-venture last;
(5)	The 1st, 2nd and 3rd Agreements are governed by the Hong Kong law."

27. Pursuant to the 1st, 2nd and 3rd Agreements, UASSC had since September 1994 been actively engaged in the preparatory operations with a view to establishing an organized consignment warehouse of aviation parts. In particular, UASCC had entered into consignment agreements or arrangements with various overseas suppliers. Under those agreements and arrangements, UASSC was entitled to handling fees, being a percentage of the sale price of the aviation parts, which varied from case to case.

28. The defendants were in breach of the 1st, 2nd and 3rd Agreements in that they had failed and neglected to :

"(i)	procure from or utilize on a priority basis of all aviation parts and equipment needed from [UASSC] before considering any other sources;
(ii)	release to [UASSC] the necessary data and information about the Defendants' actual requirements for aviation parts;
(iii)	procure from [UASSC] the supply of such aviation parts needed by them and which were available from the suppliers who had already entered into consignment agreements or arrangements with [UASSC];
(iv)	refrain from procuring the supply of aviation parts directly from suppliers unless they had previously sought to procure the supply of the same from [UASSC] and were informed by [UASSC] that it was unable to supply the same; and/or
(v)	place all orders for aviation parts firstly with [UASSC] and refrain from ordering directly with suppliers unless having firstly been informed by [UASSC] that it could not supply the parts or some of the parts ordered."

UASSC had thereby suffered loss and damage in that it had been deprived of the handling fees that otherwise it might earn from the overseas suppliers had the defendants honoured their obligations of procuring their required aviation parts and equipment from UASSC.

THE DEFENDANTS' CASE

29. The defendants have not filed any defence. As a matter of practice, it is not unusual when they want to dispute jurisdiction or stay the proceedings on the ground of forum non conveniens. Otherwise they might have been regarded as having evinced an intention of defending the action in Hong Kong : see Hwoo Huang Linda v. Fu Being San & others, HCA4888/2001, per Deputy Judge Reyes (as he then was) at paragraph 26. What is required of them is to identify their defence with sufficient particularity and to identify the potential witnesses : see Ramas Markeing Co. LLC v. Chow Kam Fai David [2001] 3 HKC 250, per Recorder Ma, SC (as he then was) at pp.261G-262A. In this connection, the defendants have filed various affirmations by Mr Ge Shenhai (for the 1st defendant), Mr Ding Yuhai (for the 2nd defendant) Mr Peng Yiyuan (for the 3rd defendant) and their expert on PRC law, Mr Shi Yusheng. Their principal defence, in brief, is as follows.

(1) The 1st defendant's defence

30. The 1st defendant had fully supported UASSC. But UASSC had experienced difficulty in coming up suitable aviation parts for the 1st defendant. On many occasions, the 1st defendant had been unable to locate from UASSC's stock lists aviation parts that the 1st defendant required. Even if they were on the stock lists, their quality was not up to the 1st defendant's requirements. Parts supplied by UASSC did not meet the 1st defendant's standard either. The 1st defendant needed new products but UASSC supplied old and repaired ones. Mr Ge had identified a total of 11 witnesses who would give evidence in support of these allegations.

(2) The 2nd defendant's defence

31. The 2nd defendant denied that it had succeeded to the assets and liabilities of China Southern Airlines under the CSA Demerger Agreement. In any event, China Southern Airlines had fully supported UASSC. But when ordering aviation parts from the Beijing Warehouse, Southern Airlines had experienced similar difficulties as the 1st defendant did. Mr Ding had identified four witnesses in this regard.

(3) The 3rd defendant's case

32. The 3rd defendant's defence is similar to the 2nd defendant's. It denied that it had succeeded to the assets and liabilities of China Eastern Airlines under the CEA Demerger Agreement. China Eastern Airlines had also fully supported UASSC. EIE had given UASSC information about what aviation parts that it required. But UASSC did not have the requisite stock in the Beijing Warehouse. In fact, UASSC had not addressed the needs of China Eastern Airlines at all. Thus, China Eastern Airlines had been unable to obtain any aviation parts from the Beijing Warehouse.

THE PLAINTIFF'S CASE IN REPLY

33. In reply to the allegations that UASSC had been unable to supply the requisite goods, the plaintiff alleged that they had failed to provide UASSC the requisite data and information relating to the aviation parts and equipments that they required. Because of such failure, it was impossible for UASSC to know in advance what the defendants would require and to stock up the relevant goods accordingly.

34. The defendants deny that they had not supplied the requisite information as alleged. According to Mr Ge, both oral and written information had been provided to the Beijing Office : see paragraph 20 of his 2nd affirmation filed on 8 August 2001.

THE MAIN ISSUES FOR TRIAL

35. From the parties' respective case, the following main issues, which are likely to arise at trial, emerge :

(1) Whether the 2nd and 3rd defendants had succeeded to the liabilities of the China Southern Airlines and the China Eastern Airlines as alleged so that they would become liable to the plaintiff under its claims ("Issue 1").

(2) Whether the 1st defendant and the 2nd and 3rd defendants (assuming that they are found to be proper defendants) had wrongfully failed to place with UASSC, on a priority basis, orders for aviation parts which they required ("Issue 2").

(3) Whether the reason for the defendants not ordering goods was that UASSC could not provide the goods required either because the requisite goods were not available or because the goods were not of the requisite quality ("Issue 3").

(4) Whether the reason for UASSC not supplying the relevant goods was that the defendants had failed in the first place to provide the requisite data and information to UASSC to enable it to stock up the relevant goods ("Issue 4").

THE ORDER 12 APPLICATION

36. Having outlined the background facts leading to the present disputes and identified the main issues, I now come to the Order 12 Application.

(1) Service of writ generally

37. I will preface the discussion of this application by an observation on how service of writ is to be effected generally.

38. Under the Rules of the High Court, service of a writ on a defendant within jurisdiction may be by way of personal service (Order 10, rule 1(1)), registered post at the defendant's usual and last known address (Order 10, rule 1(2)(a)), insertion through letter box (Order 10, rule 1(2)(b)), indorsement by the defendant's solicitors on the writ to accept service (Order 10, rule (4)) or in suitable cases, substituted service (Order 65, rule 4). Where the defendant is outside jurisdiction, the writ may be served outside jurisdiction under Order 11.

39. The rules do not prevent the parties from agreeing on how the service of a writ is to be effected. Thus, in cases where a foreign defendant is involved, in order to "short-circuit" the cumbersome procedure under Order 11 and hence saving costs, solicitors have developed a practice, which is laudable, of agreeing to accept service on behalf of that defendant but reserving at the same time its right to dispute jurisdiction later. (This reservation is important because if the indorsement on the writ by the solicitors is not so qualified, the defendant will be precluded from disputing jurisdiction later : see Hong Kong Civil Procedure, Vol. 1, paragraphs 10/1/9 and 11/1/13A at pp.88 and 103). The writ so served on the defendant's solicitors would then be regarded as if it had been served on the defendant outside jurisdiction under Order 11. The defendant will then be free to dispute jurisdiction in the normal way under Order 12, rule 8. See generally Sphere Drake Insurance Plc & others v. Gunes Sigorta Anonim Sirketi [1988] 1 Lloyd's LR 139.

(2) Service of the writ on the 1st defendant

40. I next turn to see how the writ herein was served on the 1st defendant.

41. On 1 February 2001, the plaintiff's former solicitors, Preston Gates & Ellis ("PGE") wrote to Herbert Smith ("HS"), advising HS that the plaintiff had already issued a writ against the three defendants and asking HS to advise if they had instructions to accept service of proceedings. PGE also indicated that if they did not receive any reply from HS by 5 p.m. on 2 February 2001, they would serve the writ to the defendants directly. By letter dated 2 February 2001, HS replied as follows :

" We have instructions to accept service of the Writ of Summons in the above action on behalf of our clients.

For the avoidance of doubt, our acceptance of service of the Writ is without prejudice to our clients' right to dispute the jurisdiction of the Hong Kong courts in these proceedings."

Subsequently on 3 February 2001, HS accepted service for the defendants. Acknowledging service, HS endorsed on the back of the writ :

"We, the undersigned, do hereby accept service of this Writ of Summons on behalf of 1st, 2nd & 3rd defendants".

It would appear that what the solicitors had done was to follow the well-established practice mentioned above of accepting service on behalf of a foreign defendant with the reservation to dispute jurisdiction later.

42. However, Mr Shieh, SC, who appeared for the defendants, submitted that HS's letter of 2 February 2001 did not amount to such an agreement on service. It was no more than a warning : "serve the writ at your own peril". With respect, I disagree. On its plain wording, the letter cannot possibly bear the meaning asserted by counsel, which is also contradicted by HS's subsequent indorsement on the writ. I will therefore hold that HS had by the said letter agreed to accept service on behalf of the 1st defendant with the reservation of its right to dispute jurisdiction. The 1st defendant cannot now challenge service per se on the basis that there is no proper service.

(3) Whether a proper case of service outside jurisdiction

43. The main submission of Mr Shieh is that service of the writ should be set aside because leave would not have been granted to serve the writ on the 1st defendant outside jurisdiction under Order 11.

44. A useful summary of the principles pertinent to applications for leave to serve outside jurisdiction under Order 11 can be found in the Hong Kong Civil Procedure, Vol.1, paragraphs 11/1/7-11/1/13 at pp.99-103. Briefly, they are as follows. An application for leave to serve outside jurisdiction involves normally three requirements to be satisfied by the applicant. First, the applicant for leave must show that there is a good arguable case that his case falls within one or other of the sub-paragraphs of Order 11, rule 1(1). He must choose which particular sub-paragraph he relies on. The case must fall within the spirit as well as the letter of the Order. The court must decide upon the application on the basis of the cause or causes of action expressly mentioned in the writ or statement of claim. He will not be entitled to rely on an alternative cause of action which he seeks to spell out of the facts pleaded, if such cause of action has not been so mentioned. Second, the applicant must show that there is a serious question to be tried so as to enable the court to exercise its discretion to grant leave. Third, the applicant must satisfy the court that it is a proper case for the exercise of the discretion to grant leave with particular reference to the principle of forum conveniens. In this connection, the burden rests on the applicant to show that the Hong Kong court is the forum conveniens.

45. Mr David Chu of the plaintiff stated in his first affirmation filed on 15 May 2001 the facts which, he said, would justify leave being given to the plaintiff to serve the writ on the 1st defendant outside jurisdiction under three grounds pursuant to Order 11, rule 1 :

(1) That the plaintiff's claim has been brought against the 2nd and 3rd defendants duly served within jurisdiction and the 1st defendant is a necessary and proper party thereto : sub-para.(c).

(2) That the General Agreements that the plaintiff is suing upon are governed by Hong Kong law as a matter of proper law or as a matter of implied term : see sub-para.(d)(iii) and paragraph 11(5) of the Statement of Claim.

(3) That the breaches of contract being sued upon occurred in Hong Kong : sub-para.(e).

It will be sufficient if the plaintiff brings the case within any of the above three grounds.

46. For present purposes, it is necessary just to deal with the first ground. The relevant test is this. Supposing both parties had been served within the jurisdiction, would they both have been proper parties to the action : Massey v. Heynes (1888) 21 QBD 330, per Lord Esher MR at p.338. On the facts of the present case, I have no doubt that had the 1st defendant been served within jurisdiction, it would have been a proper (and indeed necessary) party to this action.

47. Mr Shieh however takes a technical objection. He submits that to fulfil the requirements of Order 11, rule 1(1)(c), the plaintiff must have already served the 2nd and 3rd defendants : see the Hong Kong Civil Procedure, Vol.1, paragraph 11/1/7 at p.104. Technically, it must be right. But such an objection is curable and should be cured in the present case by the court exercising the discretion to waive the irregularity under Order 2, rule 1, had there been an application for leave to serve outside jurisdiction. The only irregularity is that the 1st defendant was served simultaneously as opposed to immediately after the 2nd or 3rd defendant. The defendants could not have suffered any prejudice at all.

48. For the above reasons, I will hold that the plaintiff's case would have come within Order 11, rule 1(1)(c). That disposes of the first requirement of a good arguable case.

49. As I understand Mr Shieh, he is not taking any issue on whether there is any serious issue to be tried to enable the court to exercise the discretion to grant leave. That disposes of the second requirement of a serious issue to be tried.

50. Mr Shieh's real and substantive objection is on the third requirement of Hong Kong being the forum conveniens. He argues that the discretion would not have been exercised in favour of granting leave because the Hong Kong court is not the forum conveniens. In this way, the Order 12 Application and the Forum Application falls or stands together, except that the question and the burden for the applications are opposite. For the Order 12 Application, the burden rests on the plaintiff to show that the Hong Kong is the forum conveniens. For the Forum Application, the burden rests on the 1st and other defendants to show that Hong Kong is not the forum conveniens and that there is another available forum which is clearly or distinctly more appropriate than the Hong Kong forum : see Spiliada Maritime Corporation v. Cansulex Ltd [1987] AC 460, per Lord Golf at pp.480H-482A; the Hong Kong Civil Procedure, Vol.1, paragraph 11/1/10 at p.100.

51. With this distinction in mind, I now turn to the Forum Application.

FORUM NON CONVENIES

(1) The principles

52. The common law position is, I believe, well settled since the Spiliada case. The relevant legal principles may be summarised thus :

(1) In general, the legal burden of proof rests on the defendant to persuade the court to exercise its discretion to grant a stay, although the evidential burden will rest on a party who seeks to establish the existence of matters which will assist him in persuading the court to exercise its discretion in his favour.

(2) If the court is satisfied that there is another available forum which is prima facie the appropriate forum for the trial of the action, the burden will shift to the claimant to show that there are special circumstances by reason of which justice requires that the trial should nevertheless take place in England.

(3) The burden on the defendant is not just to show that England is not the natural or appropriate forum, but to establish that there is another forum which is clearly or distinctly more appropriate than the English forum; accordingly, where (as in some commercial disputes) there is no particular forum which can be described as the natural forum, there may be no reason to grant a stay.

(4) The court will look to see what factors there are which point in the direction of another forum being the "natural forum", i.e. that with which the action has to most real and substantial connection. These will include factors affecting convenience or expense (such as availability of witnesses) and such other factors as the law governing the transaction and the places where the parties reside or carry on business.

(5) If the court concludes at that stage 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.

(6) If, however, the court concludes that there is some other available forum which prima facie is clearly more appropriate, it will ordinarily grant a stay unless there are circumstances by reason of which justice requires that a stay should not be granted. In that enquiry, the court will consider all the circumstances of the case, including circumstances which go beyond those taken into account when considering connecting factors with other jurisdictions.

(7) A stay will not be refused simply because the claimant will thereby be deprived of "a legitimate personal or juridical advantage", provided that the court is satisfied that substantial justice will be done in the available appropriate forum.

See generally Dicey & Morris, The Conflict of Laws (13th edn, 2000), paragraphs 12-021.

(2) The 3-stage approach

53. In Hong Kong, the above principles had been incorporated in a 3-stage approach formulated by Hunter JA in The Adhiguna Meranti (owners of cargo) v. The Adhiguna Harapan (owners of ships) [1987] HKLR 904 at p.907, which had been subsequently re-stated by the Court of Appeal in The Lanka Muditha [1991] 1 HKLR 741 at p.744 in a slightly abbreviated fashion as follows :

"(I)	Is it shown that Hong Kong is not only not the natural and appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong...
(II)	If the answer to (I) is yes, will a trial at the other forum deprive the plaintiff or any legitimate personal or juridical advantages. The evidential burden here lies on the plaintiff.
(III)	If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II) ... Deprivation of one or more personal or juridical advantages will not necessarily be fatal to the applicant provided hat the court is satisfied that notwithstanding such loss substantial justice will be done in the available forum ... Proof of this ... rests upon the applicant for the stay."

54. I will apply this 3-stage approach to the Forum Application and begin with the Stage I enquiry.

STAGE I ― (1) ANY AVAILABLE FORUM?

55. The first question is whether there is any available forum for the trial of this action. The defendants put forward the Beijing Courts as the available forum by invoking their jurisdiction on two grounds. First, pursuant to Article 24 of the PRC Civil Procedure Law, Beijing Courts have jurisdiction because it was the place of performance of the Agreements. Second, pursuant to Article 245 of the PRC Civil Procedural Law, Beijing Courts have jurisdiction in a lawsuit with foreign element if the defendant raises no objection to jurisdiction. The defendants herein will not raise any objection if the plaintiff is to commence proceedings in the Beijing Courts within six months after the disposal of the Forum Application should I decide to stay the proceedings.

56. Given the defendants' agreement to submit the Beijing Courts' jurisdiction, Mr Lee, SC, appearing for the plaintiffs, concedes, and rightly so in my opinion, that for present purposes that Beijing Courts do have jurisdiction pursuant to Article 245. For it is well established that a forum which acquires jurisdiction over a case because of the defendant's submission to jurisdiction is sufficient to satisfy the requirement of an available forum for the purposes of the forum non conveniens analysis : Lubbe v. Cape plc [2000] 1 WLR 1545.

STAGE I ― (2) ARE THE BEIJING COURTS APPROPRIATE FORA?

57. The second question is whether the Beijing Courts are clearly or distinctly the more appropriate fora. In this regard, the burden on a defendant is twofold : first, it has to demonstrate that Hong Kong is not the appropriate forum and second, it has to demonstrate that there is a distinctly more appropriate forum : LG Electronics Hong Kong Ltd v. Bank of Taiwan, CACV3153/2001, 22 May 2002, per Le Pichon JA at paragraph 8.

58. Mr Lee begins his submissions by taking two general points. The first relates to "the defendants' eagerness to avoid a trial in Hong Kong". The second concerns the fact that jurisdiction against the 2nd and 3rd defendants has been founded in Hong Kong as of right. I propose to look at them in turn.

(1) "The defendants' eagerness to avoid a trial in Hong Kong"

59. Mr Lee submits that prior to the joint venture, the defendants' set-up only involved PRC companies in Beijing, Guangzhou and Shanghai respectively. The joint venture changed all that. The clear intention of the parties was not only to centralise and modernise the entire operation, but also to merge and upgrade the separate domestic businesses into an international enterprise. Hence the choice of Hong Kong, which, in 1994, was a territory under British administration, but which would continue to have a capitalist system after 1997 under the Sino-British Joint Declaration. Pursuant to the arrangements contemplated by the JV Agreement, the General Agreements and the Appointment Letter, UASSC put in place and entered into a number of agreements with the overseas suppliers, authorising and enabling UASSC to sell, supply and deliver aviation parts to the defendants and the IE Companies from the consignment warehouses directly. With this new arrangement, the defendants would source their aviation parts via UASC in Hong Kong (who would then deliver to the defendants), rather than the original system where each of them would individually approach the various overseas suppliers directly.

60. Mr Lee further submits that according to the defendants' expert on PRC law, if the plaintiff were to commence action in the Mainland, it should sue each defendant in the city of its headquarters and predominant place of business ― that is, the plaintiff should sue the 1st defendant in Beijing, the 2nd defendant in Guangzhou and the 3rd defendant in Shanghai. It is then suggested that if there is consent from all three defendants, the case can be tried in the Beijing Courts. Hence, the statement from the defendants' solicitors that they would have on objection to the Beijing Courts trying this case if action were brought in either one of them.

61. Mr Lee complains that the defendants have demonstrated great eagerness to avoid a trial in Hong Kong, even though they had in 1994 evinced the clearest possible intention of bringing their operation from Beijing, Guangzhou and Shanghai, to Hong Kong. (Presumably, the operation that Mr Lee has in mind relates to the sourcing and supply of aviation parts and equipment only.) It is obvious that the aforesaid statement of "no objection" was made by the defendants solely with a view to creating an alternative forum for the trial of this action, without which there would be none. Mr Lee asks me to bear in mind, in considering the appropriateness of Hong Kong versus Beijing, the fact that the alternative forum of the Beijing Courts is available only if the three defendants all consent to be sued there : otherwise the plaintiff would have to be sued in three different cities. On the other hand, the plaintiff can sue all of them together in Hong Kong at the same time and in the same action. It is not disputed that the claims against them should be dealt with together; and indeed there is no attempt to sever this action into two, one for the 1st defendant in Beijing and one for the 2nd and 3rd defendants elsewhere.

62. Mr Shieh submits that Mr Lee's criticisms are analytically unsound. The defendants' voluntary submission to jurisdiction of the Beijing Courts disposes of the question whether there was an available forum. The appropriateness of that forum depends on weighing up the connecting factors and going through the Spiliada analysis. The fact that the alternative forum derives jurisdiction from the defendants' consent does not render it an inferior alternative forum. This is indeed of no importance. If the defendants meet the Spiliada test, their application for stay will succeed. If not, their application will fail anyway.

63. Mr Shieh derives support from Lubbe v. Cape plc, above, where Lord Hope of Craighead said at pp.1565H-1566C :

"...As for the suggestion that the defendant was choosing its jurisdiction and thus indulging in a kind of forum shopping, this overlooks the fact that the issue as to forum non conveniens is for the court itself to resolve. It is not a matter that is left to the choice of the defendant. Furthermore the court resolves the issue by looking to the interests of all parties and the ends of justice...it does not do so from the point of view of the defender only. The only purpose of the undertaking is to satisfy the requirement that the other forum is available. The ground on which the jurisdiction of the courts in the other forum is available to be exercised is of no importance either one way or the other in the application to the case of the Spiliada principles."

I agree with Mr Shieh and accordingly reject Mr Lee's submissions in this respect.

(2) As of right

64. The second general point taken by Mr Lee relates to the 2nd and 3rd defendants only. He submits that these two defendants have voluntarily chosen to come to Hong Kong and set up a place of business here. In fact, their shares are now publicly listed in the Hong Kong Stock Exchange. Thus, as rightly conceded by the 2nd and 3rd defendants, this action is commenced by the plaintiff against them in Hong Kong as of right. Proper regard is to be paid to the fact that jurisdiction has been founded in Hong Kong as of right. Where a plaintiff sues and commences proceedings as of right, the court should not disturb his choice of forum and he should not be deprived of the right to continue those proceedings in the absence of very good reason to the contrary : see the Spiliada case at p.477E, LG Electronics Hong Kong Ltd v. Bank of Taiwan, CACV3153/2001, 22 May 2002, at paragraph 8, First Laser Limited v. Fuijan Enterprises (Holdings) Co. Ltd & another, HCA4414/2001, 12 December 2001, paragraphs 47-49, Intel Corp v. VIA Technologies Inc. & another [2002] 3 HKC 650, at paragraph 18, p.655F-G.

65. Mr Lee's submissions cannot be flawed. The fact that jurisdiction in the Hong Kong court has been invoked as of right is the very reason why in the Spiliada analysis, the defendant has to show not only that the Hong Kong court is not the natural and appropriate forum for the trial, but also that the available forum is clearly more appropriate : see the Spiliada case, per Lord Golf at pp.477E-F. In this way, proper regard is to be paid to the fact that jurisdiction has been founded as of right. If no particular forum can be described as the natural forum, the Hong Kong court should refuse a stay when the action has been commenced as of right. However, Lord Golf went on to point out (at pp.477F-G) that, if in any case, the connection of the defendant with the forum in which proceedings were commenced as of right is a fragile one (for example, if he is served with proceedings during a short visit there), it should be all the easier for him to prove that there is another clearly more appropriate forum for the trial overseas. In determining whether there exists some other forum which is clearly more appropriate for the trial, Lord Golf stated (at pp.477G-478B) that the court would look first to see what factors there are which point in the direction of another forum.

66. My understanding of Lord Golf's speech is this. While proper regard must be paid to the fact that jurisdiction is founded as of right, it is the connecting factors that determine if the Hong Kong court or the other forum is clearly more appropriate. Thus, if the connecting factors clearly point to the latter as the more appropriate forum for the trial, the "as of right" point, however weighty that may be, will not tilt the balance back in favour of the Hong Kong court. It is therefore essential to look at the connecting factors in the present case to see in which direction they point to.

(3) The proper approach in considering connecting factors

67. Before proceeding further, I remind myself that the approach in forum non conveniens applications is not just an exercise in loading up with factors which point to any particular jurisdiction in abstract. The court is required to focus on the appropriateness of a forum from the point of view of the trial of the action. The court is to identify a forum with which the action has the most real and substantial connection. See the Spiliada case, per Lord Golf at p.478A, the Ramas case, per Recorder Ma, SC at p.255B-C and the Linda Hwoo case, above, per Deputy Judge Reyes at paragraph 59. Hence it is important to focus on the four main issues that are likely to arise for trial as set out in paragraph 34 above and see where, for the purposes of resolving them, the connecting factors point to.

68. It is convenient at this juncture to dispose of a major theme that runs through Mr Lee's submissions. In short, the theme is this. Prior to the setting up of UASSC, the Airlines operated in three different localities for the purposes of obtaining aviation parts. UASSC was set up in Hong Kong to, inter alia, centralise the entire operations. Hong Kong then became the focal point where all the major steps of obtaining aviation parts for the Airlines undertaken by UASSC crossed through. Such steps included UASSC making contractual arrangements with suppliers of aviation parts; UASSC making arrangements to have the aviation parts stored in the consignment warehouses in Beijing, Guangzhou and Shanghai; the defendants and the IE Companies issuing orders to the suppliers by sending it to UASSC in Hong Kong (which constituted an offer to buy); UASSC forwarding the orders from Hong Kong to the overseas suppliers (which constituted an acceptance of that offer); the sale contracts thus being concluded in Hong Kong; UASSC issuing delivery order from Hong Kong to the consignment warehouse, permitting it to make delivery of the goods to the defendants; and the consignment warehouse reporting back to UASSC in Hong Kong on the progress of the deliveries made. The parties intended Hong Kong to be the point of convergence where all steps would pass through, it is clearly the most appropriate forum amongst Hong Kong, Beijing, Guangzhou and Shanghai.

69. Mr Shieh disputes the modus operandi as described by Mr Lee. And I will come back to the modus operandi in a moment when I deal with the question of place of performance in paragraphs 77 to 82 below . But even taking Mr Lee's description at its highest, it does not assist the plaintiff. For, with respect, it is an attempt to load up factors in abstract. Such an approach is not permissible.

70. I now turn to the four main issues and examine the connecting factors. For convenience, they are repeated below :

(1) Whether the 2nd and 3rd defendants had succeeded to the liabilities of the China Southern Airlines and the China Eastern Airlines as alleged so that they would become liable to the plaintiff under its claims ("Issue 1").

(2) Whether the 1st defendant and the 2nd and 3rd defendants (assuming that they are found to be proper defendants) had wrongfully failed to place with UASSC, on a priority basis, orders for aviation parts which they required ("Issue 2").

(3) Whether the reason for the defendants not ordering goods was that UASSC could not provide the goods required either because the requisite goods were not available or because the goods were not of the requisite quality ("Issue 3").

(4) Whether the reason for UASSC not supplying the relevant goods was that the defendants had failed in the first place to provide the requisite data and information to UASSC to enable it to stock up the relevant goods ("Issue 4").

(4) Issue 1

71. Issue 1 relates to the status of the 2nd and 3rd defendants. Put in slightly different way, the question is whether they were not proper defendants because under the relevant Demerger Agreements they did not inherit the rights and liabilities of China Southern Airlines and China Eastern Airlines respectively.

72. Both the CSA and CEA Demerger Agreements are governed by PRC law. It is further the plaintiff's own pleaded case that the devolution of liability upon by the 3rd defendant was by reason of the CEA Demerger Agreement and by operation of law. That law must be PRC law.

73. Mr Shieh submits that when the case turns on disputed questions of foreign law, it is more appropriate for such questions to be decided by the foreign court in question. This is more so when the foreign law is part of a system which is different from the common law system (such as the Mainland system) : The Nile Rhapsody [1992] 2 Lloyd's Rep. 399, per Hurst J at p.411; upheld on appeal at [1994] 1 Lloyd's Rep. 382. On the question of "the proper defendants", disputed questions of PRC law are plainly involved. Further, according to the undisputed evidence of Mr Shi, the defendants' PRC law expert, in construing documents such as the Demerger Agreements which deal with the restructuring and privatisation of state-owned enterprises, PRC judges with a systematic and in-depth understanding and knowledge of the PRC law would be more familiar with and aware of the purpose and developments of any relevant Chinese policy considerations. PRC judges also have access to the Supreme People's Court if they were to require judicial interpretation for guidance. The relevance of PRC law is therefore a pointer in favour of the dispute being resolved by the Beijing Courts.

74. Mr Lee submits that the defendants have not pointed out how the Demerger Agreements involve complex legal arguments; or importantly, how PRC law differs from Hong Kong law in this respect. Although the defendants have briefly mentioned and relied on state policies, they have stopped short of pointing out what or which so-called policies are in question and why the Hong Kong courts would have any problems applying the PRC law. As matters now stand, the issues relating to the Demerger Agreements appear to be no more than contractual interpretation in light of facts and evidence, involving no complex or peculiar PRC law.

75. I note that in relation to the Demerger Agreements, the defendants are not suggesting any peculiar doctrine of PRC law. But I accept Mr Shieh's submission that these agreements are policy-driven instruments : see, e.g., Clause 2.1 of the CEA Demerger Agreement. On the undisputed evidence before me, PRC judges are better placed than Hong Kong judges when construing such documents in accordance with state policy which, I think, will be sufficiently identified at trial. They are more familiar with such an exercise and have the additional advantage, peculiar to the Mainland legal system, to have access to the Supreme People's Court for guidance if necessary. That being the case, the relevance of the PRC law in relation to the Demerger Agreements is, in my view, a pointer in favour of the Beijing Courts.

(5) Issues 2 to 4

76. These issues raise the fundamental question whether the defendants acted in breach of the Agreements sued upon by the plaintiff as alleged. They can be conveniently dealt with together. The following factors as identified by the parties are pertinent : (a) place of performance, (b) proper law of contract, (c) location of witnesses and (d) location of documents. I will deal with them in turn.

(a) Place of performance

77. As noted in paragraph 21 above, the operations of the joint venture involved 11 steps. The daily, practical implementation of some of the steps relevant to Issues 2 to 4 are set out in paragraphs 9 to 10 of Mr Ge's 2nd affirmation, where he said :

"9.	朱在其誓章第7段谓各方的用意是华联的主要业务地点在香港，因为香港有上佳的国际通讯网络，可使华联与外国供应商进行业务及谈判。朱并附上附件 'CYLD-1'以证明寄售商如何在香港支付寄售费予华联。
10．	朱以上的描述是不完整、不准确及有误导成份的。在实际的日常业务运作内，有关的通讯是由国航进出口公司和华联的北京办事处作出的，它们两者都在北京。现简略说明一下有关的程序，并附上附件'GSH-18'以帮助解释。在提及这些文件时我会说明有关文件的页码。
	(a)	国航进出口公司从国航或与其有业务关系的其它航空公司处收到订单(见第一页要求购买零部件表)。如我在第一份誓章中所说，然后国航进出口公司负责购买表内要求的零部件。
	(b)	国航进出口公司会与华联北京办事处联络查询或查阅华联提供的清单，看是否有该零部件。如有，国航进出口公司便会向寄售商订货(见第二页至第三页国航进出口公司的订货表格)。传真会发给寄售商但有时会先给华联北京办事处，由华联北京办事处再自行发给寄售商。从附件第二页可看到华联北京办事处的传真号码。国航华联(见第四页至第十五页)。同样，涉及的是华联北京办事处。朱誓章中的附件'CYD-1'最后一页也有类似的订货单。所有传真通常都会由国航进出口公司发给华联北京办事处。
	(c)	之后从国航进出口公司华联北京寄售中心接收有关航材(见第十六页 - 航材送货单)。
	(d)	之后国航进出口公司会就该等航材直接在北京付款予寄售商，而不会经过华联(见第十七及第十八页 - 供货商的发票和国航进出口公司的付款单)。"

78. Mr Chu did not disagree with Mr Ge but he added that "the Hong Kong office was kept apprised of each step of each transaction and the financial and management control were always maintained in Hong Kong. More importantly, the Hong Kong office was the office that would contact and liaise with suppliers for payment of the consignment fees. All financial aspects of [UASSC] were controlled from Hong Kong and the consignment agreements were negotiated and signed in Hong Kong" : see paragraph 10 of his 2nd affirmation filed on 2 July 2002.

79. The plaintiff complains that the defendants had acted in breach of the General Agreements for having failed to order aviation parts with UASSC (under Clause 1) and to provide relevant data and information to UASSC so that the relevant aviation parts could be stocked up in advance (under Clause 2). On the undisputed evidence of Mr Ge, both the ordering of goods and supplying of the relevant data and information would have to be made in Beijing.

80. However, Mr Lee submits that the place of performance of these clauses is in Hong Kong. In respect of Clause 1, performance by each of the defendants thereunder would consist of dispatching the purchase orders from Beijing, Guangzhou or Shanghai to reach UASSC in Hong Kong. Accordingly, the place of performance of Clause 1 would have been in Hong Kong, where each of the purchase orders would have had to reach UASSC and each of the sales contracts would have been made and concluded. In this connection, he relied on his analysis of how offers and acceptances were made : see paragraph 68 above. Factually, Mr Lee's submission is not entirely correct. For according to the undisputed evidence of Mr Ge, the purchase orders were sent to the Beijing Office, not UASSC in Hong Kong. More importantly, as rightly pointed out by Mr Shieh, the resolution of the disputes between the parties does not depend on when, as a matter of legal analysis, an offer or acceptance took place. If there were no goods of the requisite type, the defendants would be arguably entitled to go elsewhere. It matters not that a sales contract might have been constituted at some earlier point in time and that there might be remedies available to a particular party.

81. In respect of Clause 2, Mr Lee submits that it required the defendants to provide UASSC with the necessary data and information relating to the aviation parts they required, it could only be performed by the defendants sending the requisite data and information from Beijing, Guangzhou or Shanghai to reach UASSC in Hong Kong. Thus the place of performance of Clause 2 would also be Hong Kong. Again, his submission is not supported by evidence. The undisputed evidence is the defendants, through the IE Companies, would communicate with the Beijing Office. Any relevant information and data would be supplied to the Beijing Office.

82. In my view, contrary to Mr Lee's submissions, the place of performance of Clauses 1 and 2 of the General Agreements is in Beijing. This is a strong pointer in favour of the Beijing Courts.

(b) Proper law

83. It is the plaintiff's contention that the proper law of the Agreements sued upon is Hong Kong law. The defendants argue that it is PRC law. There is, however, no suggestion that there is any material difference in Hong Kong law and PRC law relating to the Agreements. It is therefore a neutral factor. It is not necessary and I do not propose to make any finding on this question of proper law of contract.

(c) Location of witnesses

84. The 1st defendant has identified eleven factual witnesses, nine of whom reside in the Mainland. The 2nd and 3rd defendants have named four and seven factual witnesses, all of whom live in the Mainland. The plaintiff has not identified any witness but asserts that all its witnesses will be available to give evidence in Hong Kong.

85. The parties have spent some time debating whether the defendants' witnesses have any difficulty in coming to Hong Kong to given evidence, particularly in light of the recent introduction of the scheme in the Mainland allowing individuals to come to Hong Kong ("自由行"). I do not consider it necessary to dwell on the evidence and submissions in this respect. For my part, I accept that it is a matter of will for the defendants to arrange their witnesses to come to Hong Kong to testify if necessary : see similar remarks of Deputy Judge Lam (as he then was) in the First Laser case at paragraph 53. If for some reasons, they are unable to come to Hong Kong, the facilities of the Technology Court may be used. But I accept Mr Shieh's submission that the spectacle of a whole team of Mainlanders having to come en bloc to Hong Kong, or the empty courtroom in Hong Kong with counsel and the judge examining them through videolink, or (as faintly alluded to by Mr Lee) of the entire Hong Kong entire legal team and the trial judge flying to Beijing to examine them must raise the question whether Hong Kong is the most appropriate forum.

86. Further, location of witnesses must be considered and weighed together with other connecting factors. Having done so, I am satisfied that location of the defendants' witnesses also points in favour of Beijing.

(d) Location of documents

87. The parties' submissions on this factor are short. Given the nature of disputes, the most relevant documents appear to be the stock lists kept in the Beijing Warehouse and/or the Beijing Office and the written data and information, if any, the defendants supplied to the Beijing Office on aviation parts. The location of documents also points in favour of Beijing.

(e) Other factors

88. I am aware of the fact that UASSC is controlled by Hong Kong interests. But it has little bearing on the identity of the appropriate forum. I am also aware of the fact that two out of three defendants are present in Hong Kong. While it entitles the plaintiff to sue them as of right in Hong Kong, it likewise has little bearing on any of the four main issues for trial.

(6) Conclusion for the Stage I enquiry

89. For the above reasons, I am satisfied that Hong Kong is not the appropriate forum for the trial and that the Beijing Courts are clearly and distinctly more appropriate. This brings me to the Stage II enquiry.

STAGE II

90. To recap, the question is whether a trial in the Beijing Courts will deprive the plaintiff of any legitimate personal or juridical advantage. The burden here lies on the plaintiff, who raises two points.

(1) Time bar

91. First, the plaintiff complains that if it is compelled to litigate in the Beijing Courts, there is an appreciable risk that the plaintiff's claim will be subject to certain time bars, a hurdle that would not be present in Hong Kong. The short answer to this complaint is the defendants have undertaken not to raise such defence. Mr Lee complains that this would constitute prima facie injustice to the plaintiff should this action be stayed. With respect, I do not agree. As rightly pointed out by Mr Shieh, at this stage of the enquiry, the court would, ex hypothesi, have concluded that the foreign court is the natural forum. A waiver of time bar by the defendant is to assure the court that a stay can be granted consistently with the ends of justice. It is not uncommon in commercial cases : see e.g. The Polessk [1996] 2 Lloyd's Rep. 40 at pp.44-45 where English proceedings were stayed in favour of Russia subject to a waiver of time bar.

(2) Quality of justice

92. The plaintiff next raises the fear of lack of finality and bias on the part of Chinese courts in favour of state-owned enterprises. Where, in order to overcome a prima facie case of a stay, a party alleges that there is a risk that justice will not be obtained in the natural forum for ideological or political reasons, or because of inexperience and inefficiency of the courts, it is incumbent on that party to assert it candidly and support the allegation with positive and cogent evidence : see The Abidin Daver [1984] AC 389, per Lord Diplock at p.411B-D; Mudurouglu v. TC Ziraat Bankasi [1986] 1 QB 1225, per Mustill LJ (as he then was) at pp.1248B-1249C. I first look at the allegation of lack of finality.

(a) Lack of finality

93. The plaintiff's PRC law expert, Mr Liu Nanping ("Mr Liu") relies on the availability of the Supervision Procedure as "destroying" finality of judgments. The picture he portrayed is that a re-trial under this procedure is liberally available; the procedure is a somewhat peculiar "Chinese" creature; there is no time limit for making an application for re-trial; and a number of parties have the right to apply for a re-trial.

94. The defendants' PRC law expert, Professor Emeritus Jiang Ping ("Professor Jiang") does not dispute that the Supervision Procedure does exist in China. However, he points out the following matters. First, the Supervision Procedure has its roots in the Continental Legal System and has equivalents in Germany, Japan and Taiwan. Therefore, insofar as Mr Liu purports to paint a picture that this procedure is a peculiar "Chinese" creature, this is incorrect. Second, compared with the available avenues under the common law system, the Supervision Procedure is not so drastically different anyway. The analogy is drawn with the common law doctrine that a judgment can always in principle be reopened for fraud. Further, one of the grounds for the ordering of a re-trial is where new evidence is found to reverse the original judgment. New evidence is not freely admissible on the re-trial, as suggested by Mr Liu. The conditions for the adducing of new evidence are in fact not dissimilar from the common law principles set out in Ladd v. Marshall [1954] 1 WLR 1489. Third, the circumstances under which the Supervision Procedure can be invoked are strictly circumscribed by law. There are only five types of cases where the courts will grant such relief and there are only three types of persons who can make an application. Lastly, there are limits on the time within which, and the number of times which, applications can be brought.

95. Mr Liu also relies on certain newspaper cuttings in support. Professor Jiang comments that they date back to events which took place prior to the civil justice reforms in 1999 in the Mainland. They consist of outdated anecdotal evidence. Professor Jiang also points out that while Mr Liu has cited the fact that in 2001, the Procuracy protested 21,098 cases and obtained a reversal of 4,697 judgments, he had failed to mention the fact that during 2001 a total of 5,930,707 cases were heard and hence the rate of protest was only 0.3557% and the reversal rate was only 0.079%.

96. Mr Shieh submits and I agree that Mr Liu's evidence should be evaluated with caution. Undoubtedly, he has a strong view on the Mainland legal system but he has apparently taken a blinkered and partial approach to the regime in the Mainland. I also accept Mr Shieh's submission that Mr Liu's criticisms against the Supervision Procedure in China amount to no more than a comparison between the Hong Kong system with the Mainland system and an invitation to the court to find that the local system is better than, or superior to, the Mainland system. This is precisely the sort of exercise which the court should not embark upon : see Amin Rasheed Corp. v. Kuwait Insurance [1984] 1 AC 50, per Lord Diplock at p.67E-F.

(b) Bias

97. I next turn to bias.

98. In this respect, Mr Liu makes three points :

(1) State-owned enterprises are economically important to the state and hence the Chinese Communist Party/Government authorities would intervene in the judicial process.

(2) Because of its dependence on the Government, the judiciary is likely to be influenced by the Chinese Communist Party.

(3) Even in the absence of any intervention from the Government, because of its dependence upon the Government's financial well-being, the Chinese judiciary is prone to side with local/governmental economic interests.

These are very serious charges indeed.

99. Mr Liu has quoted, as an example of "protectionism", the requirement that a bankruptcy application by a state owned enterprise cannot be filed without prior administrative approval. Mr Liu seems to have suggested that this gives the administrative authorities a chance to veto any attempt to bankrupt a state owned enterprise and illustrates how they are "protected" under the Chinese regime.

100. Answering Mr Liu's charges, Professor Jiang points out that there is sufficient safeguard in the Constitution against Government intervention in the judiciary. Whilst local protectionism does exist in some places in China, one cannot generalize to say that all courts in China suffer from the same problem. Judges in Beijing are well-trained and highly qualified, the legal "environment" in Beijing is superior to the rest of China, Beijing courts are fully conscious of their external image and the Beijing Government has no need to interfere with justice. In any event, more resources are being dedicated to improving the system following China's entry into the WTO. Professor Jiang then lists out numerous examples in which courts in China (including those in Beijing) have held against Chinese parties in favour of foreign parties.

101. Turning to Mr Liu's example referred to in paragraph 99 above, Professor Jiang points out that the provision referred to by Mr Liu related to the Hong Kong equivalent of a voluntary winding up. If it is a creditors' application for winding up there is no requirement for administrative approval. The reason why a voluntary winding up by a state owned enterprise needed administrative approval was because the administrative authority is the equivalent of the "owner/shareholder" of the state owned enterprise, it is not giving approval qua Government.

102. Viewed in the round, Professor Jiang's evidence is, in my view, more superior to that of Mr Liu. His evidence is frank, measured, fair, supported by concrete figures and examples and more importantly, relevant as he focused on the courts in Beijing, which is the forum under consideration. When viewed against Professor Jiang's evidence, the generalized "risk" of interference raised by Mr Liu falls short of making out a prima facie case of such risk in relation to the Beijing Courts.

(c) Lack of experience

103. In his submissions, Mr Lee takes a further point that Chinese judges may lack sufficient experience in handling cases such as the present one. Such comparison is, with respect, not permissible : see Amin Rasheed Corp. v. Kuwait Insurance, above.

(3) Conclusion

104. Accordingly, I am not satisfied that the plaintiff has demonstrated that it will be deprived of any personal or juridical advantage if the action is to be litigated in the Beijing Courts. That being the case, it is not necessary for me to go further to Stage III.

RESULTS OF THE APPLICATIONS

105. For the above reasons, the Forum Application succeeds. As Hong Kong is not the forum conveniens, the Order 12 Application succeeds as well. I will therefore order :

(1) that service of the writ on the 1st defendant be set aside;

(2) that the action against the 1st defendant be dismissed; and

(3) that subject to their undertakings to submit to the jurisdiction of the Beijing Courts and not to raise the defence of limitations, the action against the 2nd and 3rd defendants be stayed.

106. On the question of costs, I see no reason why costs should not follow the event. I will therefore make an order nisi that the defendants do have the costs of their summons dated 4 April 2001, to be taxed if not agreed.