XCHRX COLLECTIONS INTERIOR LTD. v. JIN JIANG DICKSON CENTRE CO. LTD. and Another

1995, No. Con. 7

Construction and Arbitration List

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Background

1. Against the first defendant, the plaintiff is claiming the sum of US$163,193.55. The plaintiff alleges in its statement of claim that it agreed to carry out interior decoration work for the first defendant in Shanghai. It says it has completed this work, but the first defendant has failed to pay the balance of the contract price. Against the second defendant, the plaintiff alleges that "according to a collateral agreement evidenced in part by the course of dealings between the parties, upon issuance of a copy of the payment certificate by the Quantity Surveyor to the 2nd Defendant, the 2nd Defendant agreed to issue a completion certificate whereupon the amount payable would then be remitted by telegraphic transfer by the 1st Defendant to the Plaintiff", but the second defendant has refused to issue the completion certificate. The plaintiff claims US$151,267.80 from the second defendant.

The Summonses

2. On 25 March 1995, the first defendant issued a summons applying for an order that the proceedings be stayed because the parties had agreed to refer the dispute to arbitration.

3. On the same day, the first defendant issued another summons applying for an order that the writ of summons be set aside and a declaration that it had not been duly served because the first defendant was outwith the jurisdiction of this court and leave had not been obtained to issue and serve the writ.

4. On 25 March 1995, the second defendant issued a summons applying for an order that the action against it be stayed on the grounds of forum conveniens, lack of jurisdiction and the existence or likelihood of lis alibi pendens.

5. When the matter came before me, the parties has agreed that all further proceedings against the first defendant be stayed pending the arbitration and that the summons applying for the writ of summons to be set aside and for a declaration as to service be adjourned sine die. I made orders accordingly. This left only the summons by the second defendant for consideration.

Merit of Plaintiff's Claim

6. Mr James argues that the plaintiff's claim against the second defendant is lacking in merit. This may or may not be so, and it may be that presently the claim against the second defendant is pleaded without great particularity, but I do not believe that this aspect of the matter allows me to stay the proceedings against the second defendant.

Lack of Jurisdiction

7. The summons taken out by the second defendant alleges that this court has no jurisdiction over the second defendant, but this is not so, and Mr James did not press this point.

Lis Alibi Pendens

8. Mr James also argues that there is or is likely to be a lis alibi pendens, but this is also strictly not so. The arbitration in the People's Republic of China will be between the plaintiff and the first defendant; the second defendant has no part in this. I would not order a stay on this basis, but there are arguments based on the inter-linking between the dispute the plaintiff has with the first defendant and that it has with the second defendant that I will consider under the next heading.

Forum Conveniens

9. Mr James also argues that the People's Republic of China is the more natural and appropriate forum for the trial of the dispute between the plaintiff and the second defendant.

10. In this area, the principles applicable are clear. The fundamental principle is that the court should choose that forum in which the case could be tried more suitably for the interests of the parties and for the ends of justice. The burden of proof lies on the second defendant to show that the court should exercise its discretion to grant a stay. The second defendant is required to show not merely that Hong Kong is not the natural or appropriate forum but that there is another available forum which is clearly or distinctly more appropriate was than the Hong Kong forum. In considering whether there is another forum which is more appropriate the court looks for that forum with which the action has the most real and substantial connection.

11. The courts of Hong Kong and those of the People's Republic of China are both available for the litigation of the dispute between the plaintiff and the second defendant. I have to consider the relevant factors that indicate which forum is clearly or distinctly more appropriate; which forum has the most real and substantial connection with the dispute between the plaintiff and the second defendant.

The Place of Performance

12. The work undertaken by the plaintiff, which, as I will explain in more detail later, will be central to the disputes both as between the plaintiff and the first defendant and between the plaintiff and the second defendant, is situated in the People's Republic of China. That is where the plaintiff was obliged to carry out its obligations to the first defendant. It may be that the forum deciding any factual dispute will wish to see the site and inspect the work done. That would be most conveniently done if the litigation is in the People's Republic of China.

13. It is not said where it was to be that the second defendant would issue the completion certificate, but it would be natural to assume that this would be in the People's Republic of China because that is where the second defendant would carry out the steps preliminary to issuing such a certificate. The second defendant says that its duties to the first defendant were to be performed, wholly or in part, on site.

The Place of the Agreement

14. I do not know where the written agreement between the plaintiff and the first defendant was entered into. The signed agreement is a formal one, with signs of professional input, and it is in Chinese characters. This, to me, indicates the probability that it was signed in the People's Republic of China. I also do not know where the alleged collateral agreement was entered into. But it seems that, if it is probable that the main agreement was entered into in the People's Republic of China, so was the collateral agreement.

The Proper Law of the Contract

15. The written agreement is silent as to the proper law. There is no allegation as to the proper law of this or the collateral agreement. If the agreements were entered into the People's Republic of China, as seems likely, and that is the place of performance, the proper law is probably that of the People's Republic of China.

The Location of the Parties

16. The plaintiff and the second defendant are Hong Kong companies. The first defendant is established under the laws of the People's Republic of China having its registered office and principal place of business in Shanghai. It appears that from the location of the works, the plaintiff and the second defendant carry on some business in the People's Republic of China.

Location of Witnesses

17. The witnesses as to whether or not the work was done in accordance with the contract, which will the main dispute, are probably in the People's Republic of China, although, because the plaintiff and the second defendant are resident in Hong Kong, some of the witnesses may reside here.

The Inter-linking of the Agreements

18. As I have said, the plaintiff founds its action against the second defendant on the basis of the second defendant's agreement to issue "a completion certificate whereupon the amount payable would then be remitted by telegraphic transfer by the 1st Defendant to the Plaintiff". In terms of the agreement between the plaintiff and the first defendant, the first defendant appointed the second defendant as designer having various duties, including the issuance of certificates following examination and acceptance of the works and certificates of completion and certificates of completion of renovation. It must be inferred that the plaintiff alleges that, by the "collateral" agreement, the second defendant owed these duties, in so far as they concern the issuance of a completion certificate, to the plaintiff as well as the first defendant. The work in respect of which the second defendant was required to carry out these duties was to be done in Shanghai. The plaintiff alleges that its agreement with the second defendant was "collateral", meaning, it must be assumed, collateral to the agreement between the plaintiff and the first defendant. As I put to Mr Finley, and I did not understand him to dissent from this, that it is inconceivable that the second defendant is liable to the plaintiff if the first defendant is not. The payment claimed from the second defendant is, Mr Finley concedes, essentially the same as that claimed from the first defendant. The plaintiff cannot recover from both. The dispute between the plaintiff and the first defendant is now to be resolved in the People's Republic of China. The plaintiff and the first defendant agreed that their disputes should be resolved by arbitration in the People's Republic of China. The plaintiff and the second defendant did not do so, but, assuming that the second defendant owed a duty to the plaintiff regarding a completion certificate, it cannot be suggested other than that duty was to issue a certificate properly; that is, to issue a certificate only when the work was completed in accordance with the contract between the plaintiff and the first defendant. Whether or not the plaintiff completed the work in accordance with that contract is the issue, or one of the issues, that is to be resolved as between the plaintiff and the first defendant by arbitration in the People's Republic of China.

19. What I have said in the last paragraph argues for the whole matter being litigated in the same forum, but, without the agreement of the plaintiff and the second defendant, this will not happen. If I were to grant a stay here, the proceedings by the plaintiff against both the first and second defendants would not be decided in the same forum in the People's Republic of China. The claim by the plaintiff against the first defendant is to be decided by arbitration; that against the second defendant would be litigated in the courts of the People's Republic of China. The outcome of the arbitration proceedings in the People's Republic of China will not effect the claim by the plaintiff against the second defendant. Even if the first defendant succeeds in that arbitration and it is found that the plaintiff has not completed the work in accordance with the contract between the plaintiff and the first defendant, the plaintiff will not be bound by this in its claim against the second defendant. The plaintiff will be at liberty, in spite of the arbitration findings, to seek to establish that it complied with its obligations and, having done so, the second defendant was bound to issue a completion certificate. Nevertheless, although it is not possible, without the agreement of the parties, to achieve a settlement of all the disputes concerning the work in Shanghai at the same time and in the same forum, it seems to me desirable and convenient and more conducive to the interests of the parties and the ends of justice that they should all be litigated within the same jurisdiction. In that way, there is less possibility of conflict of decisions and more possibility of a speedier end to the litigation.

The Acceptance of Arbitration

20. The fact that the plaintiff itself accepted the People's Republic of China as the appropriate jurisdiction for the settlement of disputes between itself and the first defendant would indicate that it is the natural jurisdiction for the resolution of a dispute arising out of the "collateral" agreement also.

Conclusion

21. On this analysis, and for the reasons I have given, I conclude that the suit by the plaintiff against the second defendant would be tried more suitably for the interests of the parties and for the ends of justice in the People's Republic of China. This, I believe, is the jurisdiction that is clearly or distinctly more appropriate, and is the jurisdiction that has the most real and substantial connection with the dispute between the plaintiff and the second defendant. Accordingly, I order a permanent stay of the proceedings by the plaintiff against the second defendant.

Costs

22. It seems to me, without argument, that the appropriate order as to costs is that the plaintiff pay the second defendant's costs of suit, including this application, and I make an order nisi accordingly.