ING BANK N.V. v. INDUSTRIAL AND COMMERCIAL BANK OF CHINA LTD

HCCL 2/2023

[2024] HKCFI 2220

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 2 OF 2023

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BETWEEN

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DECISION

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1.  There is before the court a Summons filed by the Defendant (“ICBC”) on 9 March 2023 (“Summons”) seeking to strike out the Statement of Claim in these proceedings and, in the alternative, an order that these proceedings be stayed in favour of Xi’an Intermediate People’s Court on the ground of forum non conveniens (“FNC”).

2.  By another Summons filed on 10 October 2023, ICBC sought to amend the Summons by deletion of the strike out relief. Leave was granted on the day before the hearing of the Summons for the amendment pursuant to a Consent Summons of the parties.

Background

3.  The Plaintiff (“ING”) is a well-known international bank. It was incorporated in the Netherlands and carries on banking business in Hong Kong. ICBC is one of the largest banks in the world. It was incorporated in the Mainland, listed on the Stock Exchange of Hong Kong and carries on banking business in Hong Kong. At the material times, ICBC maintained branches called the High-Tech Industries Sub-Branch (“HTI-SB”) and the Shaanxi branch (“Shaanxi Branch”) in Xi’an.

4.  This action arose out of 30 international sale of goods transactions which took place in June to August 2022. The vendor was Triway International Ltd (“Triway”), the purchaser Maike Metals International Ltd (“Maike”), the goods were copper cathodes and the total amount involved was just under US$171 million. The transactions were on DP (documents against payment) at sight terms.

5.  At all material times, Triway was a Hong Kong company. It was a wholly-owned subsidiary of Maike, a Mainland company. Mr He Jinbi (“He”) was a director of Triway, the legal representative of Maike and the ultimate controller of both companies. ING was Triway’s banker.

6.  In order to collect payment for the goods, the documents for various shipments, including bills of lading and invoices, were delivered by ING (who was in possession of the documents as Triway’s collecting bank) to HTI-SB for collection of the purchase price from Maike. The role of ING was the remitting bank and HTI-SB the collecting bank.

7.  On the documentary evidence before the court, the collection instructions (“Collection Instructions”) given to HTI-SB were subject to ICC[1] Uniform Rules for Collections 522 (“URC”). ING says that ICBC acted against the Collection Instructions and released the documents to Maike without collecting the purchase price.

8.  ICBC’s case is that the documents were released to Maike without payment based on the direct instructions from Triway as principal, which was not contrary to the Collection Instructions. Further, there was a course of dealing (“Common Practice”) involving the same parties whereby HTI-SB had on the instructions of Triway released title documents to Maike shortly after receiving them without collecting payment, and ING was aware of and acquiesced to the Common Practice.

9.  Furthermore, ICBC’s position is that this Action should have been brought against HTI-SB and in the Xi’an court.

10.  The loss and damage claimed by IGN is based on the allegation that ING had provided export financing to Triway in the amount of US$147,459,912.59, which was secured by the documents and underlying goods under typical financing documents executed between ING and Triway[2]. Thus, ICBC’s release of the documents without payment had destroyed ING’s security, thereby causing its loss in the amount of the monies lent and/or the value of the security.

11.  ICBC says that it (nor HTI-SB) had no knowledge of any financing, pledge or security arrangements between Triway and ING, and that it had never been informed by ING about these matters until the receipt of a SWIFT message from ING on 9 September 2022 (see [16] below). On the other hand, it may fairly be said that export financing by the remitting bank is commonplace, something which should be within the contemplation of ICBC and HTI-SB.

Parties’ contentions

12.  In summary, Mr Yu SC, who appeared with Mr Keith Lam for ICBC, submitted that this Action should be stayed in favour of Xi’an court by reason of :

(1) ING’s claim raises various issues in contract, estoppel, conversion and remoteness of damage[3], which are central to this case, and all of these issues are governed by PRC law as the proper law.

(2) PRC law is the proper law because the key performance involved, on the facts of the present case, the collection of payment by HTI-SB from Maike, which was to occur in the Mainland. PRC law was therefore the system of law most closely connected with the issues raised in this case.

(3) There is also a question of whether the proper defendant should be ICBC or HTI-SB. This is also an issue which depends on PRC law, given that it concerns the nature and constitution of the Sub-Branch which was established in the Mainland, and its capacity to sue or be sued.

(4) The PRC law issues are of great complexity, as well as being central to the present case. It is therefore a factor heavily pointing in favour of the courts in the Mainland.

(5) There are also other connecting factors in favour of the Mainland.

(6) In the premises, Xi’an court, which has jurisdiction over ING’s claim, is clearly the more appropriate forum for trying ING’s claim against HTI-SB or ICBC. The connecting factors are overwhelmingly in favour of Xi’an court.

13.  On behalf of ING, Mr Jat SC (with Mr Julian Lam) submitted that Xi’an court is not clearly or distinctly the appropriate forum :

(1) ICBC essentially rests its case on the governing law being PRC law. However, given the parties’ choice that URC, a set of internationally accepted rules and standard practice of banks, was to govern the collections, they must have intended the URC to be applied by the court with full force and in accordance with international trade practice. It is ING’s case that PRC law and Hong Kong law will accommodate the URC equally, in which case Xi’an court is not clearly or distinctly the appropriate forum. If and insofar as there is any possibility that PRC law would require a distorted interpretation of the URC to comply with PRC law, reasonable commercial banks could not possibly have intended that PRC law should govern their transactions. Instead, they would have chosen Hong Kong law as the law with closest connection that would apply the plain meaning of the URC consistently with international trade practice.

(2) Applying the plain meaning of the URC, none of ICBC’s defences has any merit. ICBC’s sub-agency defence, which is said to allow it to act on the instructions of Triway, undermines the key purpose of URC, Art 4, which is to provide certainty that collecting banks can only follow the instructions of the immediate party up the collection chain and not the principal. As to the Common Practice defence, on the facts, ICBC’s claim that there was an alleged Common Practice inconsistent with ING’s express instructions is unarguable.

(3) Factors concerning the witnesses, etc., do not assist ICBC. It is clear from ICBC’s evidence that the factual disputes are minimal and predominantly to be resolved on the paper. Even if any factual defence witness may be needed, Xi’an is around 4 hours away by flight from Hong Kong. ING’s witnesses are in Hong Kong. There is no reason why, practically, Xi’an is the more appropriate forum than Hong Kong to resolve ING’s claim;

(4) In view of (1) above, staying these proceedings in favour of Xi’an court would deprive ING of a juridical advantage, in that having the dispute adjudicated by this court would provide assurance that the parties’ choice of the URC to govern their transaction would be fully effected; if the case is heard in Xi’an there is a real risk that the URC would not be applied in full force in accordance with international trade law and practice.

The Collection Instructions and non-payment

14.  The terms of the Collection Instructions from ING to HTI-SB were set out in various letters. The terms included: (1) documents should be released against payment; (2) if there was non-payment ING should be advised through SWIFT; (3) the proceeds should be remitted by telegraphic transfer to ING’s designated bank account in New York; and (4) the terms were subject to URC.

15.  In the Collection Instructions, Triway was referred to as the drawer and Maike the drawee. The Instructions were sent to: “The Industrial and Commercial Bank of China, High Tech Industries Sub-Branch”. The acknowledgements by ICBC stated that: “The documents will be handled in accordance of (sic) Uniform Rules for Collection”. According to ING’s case, contracts were thereby constituted which contained the terms of the Instructions, and ICBC became a bailee of the documents and the goods.

16.  There is no dispute that ING has not received payment from ICBC or HTI-SB in respect of the 30 Collection Instructions. In the course of communication between them on the non-payment, on 9 September 2022 ING informed ICBC for the first time that it had discounted the documents for the 30 Collection Instructions as a financing bank to Triway, and as part of this arrangement, the rights of Triway over the documents had been assigned to it. ING also stated that Triway had pledged to it as security the full set of bills of lading under the Instructions.

17.  It is accepted by ICBC that HTI-SB had released the documents to Maike without receiving payment from it. For each set of Collection Instructions, the release took place a few days after receipt of the documents from ING, the last of release took place on or around 18 August 2022. On the face of such evidence, ICBC was in breach of the Collection Instructions. However, ICBC’s case is that HTI-SB had done so by reason of the long-standing Common Practice that it could do so, which was confirmed by a direct instruction from Triway.

The URC

18.  I accept Mr Jat’s submission that the URC consists of rules promulgated by the ICC after worldwide consultation with international experts from the private sector. Their purpose is to govern international collection procedures in international trade that are acceptable to the international community. In Fortis Bank SA/NV v Indian Overseas Bank [2011] 2 All ER (Comm) 288, which was concerned with the UPC[4] (a set of rules similar in nature to the URC), Thomas LJ held at [29] :

“In my view, a court must recognise the international nature of the UCP and approach its construction in that spirit. It was drafted in English in a manner that it could easily be translated into about 20 different languages and applied by bankers and traders throughout the world. It is intended to be a self-contained code for those areas of practice which it covers and to reflect good practice and achieve consistency across the world. Courts must therefore interpret it in accordance with its underlying aims and purposes reflecting international practice and the expectations of international bankers and international traders so that it underpins the operation of letters of credit in international trade. A literalistic and national approach must be avoided.”

[emphasis added]

19.  Under the URC :

Art 1(a)

If collection instructions are accepted, the URC are binding unless expressly agreed or contrary to mandatory provisions of domestic law or regulation.

Art 2

“Collection” means the handling by banks of specified documents (bills of lading, etc.) in accordance with instructions received, in order to, inter alia, obtain payment and/or acceptance or deliver documents against payment and/or against acceptance.

Art 3

The parties to a collection are:

(a) The principal, who is the party entrusting the handling of a collection to a bank (Art 3(a)(i));

(b) The remitting bank, which is the bank to which the principal has entrusted the handling of a collection ((a)(ii));

(c) The collecting bank, which is any bank, other than the remitting bank, involved in processing the collection ((a)(iii));

(d) The presenting bank, which is the collecting bank making presentation to the drawee ((a)(iv)); and

(e) The drawee (Art 3(b)).

Art 4 (which governs collection instructions)

Art 4(a)(i):

“All documents sent for collection must be accompanied by a collection instruction indicating that the collection is subject to URC 522 and giving complete and precise instructions. Banks are only permitted to act upon the instructions given in such collection instruction, and in accordance with these Rules.”

Art 4(a)(iii):

“Unless otherwise authorised in the collection instruction, banks will disregard any instructions from any party/bank other than the party/bank from whom they received the collection.”

Art 9

“Banks will act in good faith and exercise reasonable care.”

Art 16(a)

Amounts collected (less charges, etc.) must be made available without delay “to the party from whom the collection instruction was received in accordance with the terms and conditions of the collection instruction.”

Art 26(c)(iii)

The presenting bank must send without delay advice of non-payment to the bank from which it received the collection instruction and, unless otherwise instructed, must return the documents to the said bank.

[all emphasis added]

Communications between the parties

20.  In addition to the matters referred to in para 16 above, during the course of communication between the parties, which started from 26 August 2022 (when ING failed to receive any payment) to 30 September 2022, in each of its messages ING repeated its expectation that ICBC would comply with the URC.

21.  On 26 August 2022, ING requested ICBC to confirm that it was still holding the documents pending receipt of payment. ICBC replied on 27 August 2022 that: “According to the agreement between Drawer and Drawee, Drawer confirmed that payments [under the 30 Collection Instructions] are no longer required. … Please confirm us if we can deliver documents under [the 30 Collection Instructions] to Drawee free of payment. …” [emphasis added]. It is important to note that at that point in time, ICBC had already released the documents to Maike without payment (see para 17 above).

22.  In reply via SWIFT message of 31 August 2022, ING stated that it disagreed with releasing the documents to Maike free of payment and requested ICBC to confirm by return that it still held the documents, including the original bills of lading (the documents of title to the goods).

23.  In all subsequent communications, ICBC never said that it had released the documents notwithstanding ING’s messages. The first time that ICBC suggested that it had released the documents was in these proceedings. As noted above, for each set of Collection Instructions, the release took place a few days after receiving the corresponding documents from ING. The last release took place on or around 18 August 2022.

24.  Further, ICBC never mentioned any Common Practice whereby it would release documents to Maike free of payment. Instead, the only point made was that Triway had said that payments were no longer required.

Common Practice

25.  ICBC’s evidence is that, apart from the 30 Collection Instructions, the Common Practice involved about 94% of the collection instructions (covering some 1,900 bills of lading) issued by ING to HTI-SB during a period from 2019 to 2022. ING disputes the allegation of Common Practice but acknowledged that for 94% of the bills of lading, it issued a Release Instruction to HTI-SB after having received direct remittance from Triway in full repayment of the facilities granted by it to Triway in relation to the transactions.

ICBC’s defences

26.  The defences relied on by ICBC are as follows :

(1) it is not the proper defendant;

(2) ING does not have proper standing or legal basis to sue and its claim would be dismissed by the Mainland court applying PRC law;

(3) HTI-SB was a sub-agent of Triway, and thus obliged to follow its instructions to deliver the documents to Maike free of payment;

(4) the Common Practice;

(5) ING’s loss and damage was not reasonably foreseeable and/or did not arise from the breach of the Collection Instructions or torts.

Breaches of the Collection Instructions

27.  Although Mr Jat submitted that there is no merit in ICBC’s defences, I do not believe that it is appropriate in this application to adjudicate on the defences. However, it is helpful for the present purpose to have an overview of the issues to be tried.

28.  To begin with, ICBC’s release of the documents to Maike without payment was quite contrary to the express terms of the Collection Instructions. The substantive defences which the court trying this case will be concerned with are (i) sub-agency and (ii) the Common Practice.

29.  In respect of the sub-agency defence, ING says that it is plainly in breach of Art 4(a)(iii) of URC, ie, ICBC had agreed to disregard any instructions from any party/bank other than those of ING.

30.  Further, ING says that the evidence does not support ICBC’s claim that Triway had given it instructions to release the documents without payment.

31.  As regards Common Practice, ING says, firstly, that it is inconsistent with the plain meaning of the URC. The effect of Arts 1(a) and 4(a)(i) is that each collection is an independent transaction and that no resort should be made to past practice. This is supported by a decision of the ICC International Centre for ADR: DOCDEX decision No 283.

32.  Secondly, the factual basis of the Common Practice is heavily challenged by ING. I need only refer to, first, the Collections Instructions were subject to the URC, and that documents were only to be released against payment. These terms were accepted by ICBC without reservation. Second, in the messages subsequent to ING’s initial message of 26 August 202, there was no suggestion by ICBC of any Common Practice. To the contrary, by its 27 August 2022 reply, ICBC asked for ING’s permission to deliver documents to Maike free of payment.

Principles on FNC

33.  The law on this area is trite. The test was summarised by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364 at [51] :

(1) The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action, ie, in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

(2) In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum which has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

(3) If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

(4) If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.

34.  The determination of appropriate forum ((2) above) would involve an examination of various connecting factors, such as the location and availability of the evidence and witnesses, the governing law, and where the parties reside or carry on business: Pusan Newport Co Ltd v Owners of the Milano Bridge [2021] HKCFI 1283, [39].

35.  The court is to focus on the appropriateness of a forum from the point of view of the trial of the action, and should look at the connecting factors with the trial in mind: Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250 at 255B-E. This would involve identifying the likely issues at trial: Rambas, 255I.

36.  In respect of the relevance of foreign law, the parties had referred to the following principles :

(1) The significance of foreign law is a matter of degree, depending on how substantial and difficult the issues of foreign law are. The courts in Hong Kong (particularly the Commercial Court and the Admiralty Court), given the international identity and nature of the type of commercial litigation and litigants here, are often accustomed to dealing with aspects of foreign law. It does not therefore follow at all that once it is shown that issues of foreign law arise, that this will necessarily be a powerful, much less a decisive, factor in favour of a stay: Rambas, 266F-267A.

(2) Hong Kong court is well-placed in dealing with cases involving documents in Chinese and PRC law: Bright Shipping Ltd v Changhong Group (HK) Ltd [2018] HKCFI 2474, [38]; Pei Zheng Middle School v China Pui Ching Education Foundation Ltd, unrep, CACV 262/2005, 21 February 2006, [20].

(3) If the legal issues are complex, or the legal systems very different, the general principle that a court applies its own law more reliably than does a foreign court will help to point to the more appropriate forum, whether English or foreign: Dicey, Morris & Collins: The Conflict of Laws, 16^th edn, vol 1, [12-034].

(4) In Muduroglu Ltd v T C Ziraat Bankasi [1986] 1 QB 1225, Mustill LJ observed that many actions tried in England involved some elements of foreign law, and only in some of them would the foreign law dispute be fought out “because in so many practical respects there is insufficient difference between the commercial laws of one trading nation and another to make it worth while asserting and proving a difference” (1246B-D). The learned Lord Justice went on to hold at 1246D-F:

“It is part of the stock-in-trade of the practitioner and judge in the Commercial Court to deal with this kind of dispute, and the volume of business in the court would give the lie to any suggestion that the court is seen by its users as incapable of dealing with any but characteristically English disputes. At the same time, it would be unrealistic not to acknowledge that the trial of an issue of foreign law must be more complicated and expensive here than in the court to which the law belongs. Moreover, although it does not follow that the judge at first instance here is more likely to misunderstand or mis-apply the law than his counterpart abroad, the fact that any appeal is treated as a question of fact rather than law does make it more uncertain whether any mistake that may be made is going to be put right.”

(5) These dicta were applied in Rambas at 266H-267A. At 266F-G, the court held that:

“In cases where substantial and difficult issues of foreign law are involved, the court may well be compelled to stay the proceedings where there is an appreciable risk that justice will not be done. This risk may in certain circumstances be attributable to factors such as expense, but in the usual case would arise where the court was somehow concerned with the possibility that it might reach a wrong conclusion on an important aspect of foreign law.”

(6) At 266G-H, the court referred to the dicta of Lord Jauncey in Credit Chimique v James Scott Engineering Group Ltd [1982] SLT 131 that the risk of the local court reaching the wrong conclusion on one or more of the French law questions involved was “by no means remote”, whereas such risk would not exist in the foreign court.

(7) It is incumbent on the stay applicant to show that the issues are “substantial or difficult”, which the Hong Kong court “will not feel itself confident to deal”: DP World Djibouti Fzco v China Merchants Port Holdings Co Ltd [2022] 2 HKC 267, [63].

37.  As regards the burden of establishing the matters relied upon in FNC analysis :

(1) The burden is on the applicant to show a “clearly and distinctly more appropriate forum”. Whilst the phrase implies that the burden is not lightly discharged, the task for the court is one of holistic evaluation of the relevant circumstances and it is not helpful to refer to the standard of proof: Pusan Newport, [43]-[44].

(2) Where a defendant relies on a particular fact or matter as a ground for a stay, eg, the dispute is governed by the law of a foreign jurisdiction, the defendant is to establish a “good arguable case” in that respect: China Reliance Finance Co Ltd v China Three-Gorge Economic Development Corp, unrep, HCCL 9/2004, 15 September 2004, [35]-[37]; and on appeal CACV 296/2004, unrep, 25 May 2005, [6].

(3) The parties are in disagreement as to the standard of proof which ING has to meet in respect of any facts relied upon to resist a stay. I do not believe that the authority relied upon by Mr Yu (Owners of the Ship ‘Al Khattiya’ v Owners and/or Demise Charterers of the Ship ‘Jag Laadki’ [2018] 1 CLC 913, [27]), supports the proposition that the burden on ING would be higher than that on the stay applicant. In truth, the dicta concerned where the burden of proof lied. I am inclined to agree with Mr Jat that the burden on both sides is the same “good arguable case” burden.

38.  On location of witnesses, Mr Jat relied on :

(1) The location of witnesses is often not a significant consideration, particularly where they can travel to Hong Kong to give evidence: PT Krakatau Steel (Persero) v Mount Kerinci LLC [2009] 1 HKLRD 264, [80].

(2) It is insufficient for the applicant for a stay to show mere practical convenience for a potential witness to attend trial in the foreign forum. There must be evidence showing that the witness cannot come to Hong Kong: Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd, unrep, HCA 2114/2007, 27 June 2008, [41]. To this, it may be added that, where justified, witnesses may be permitted by Hong Kong court to give evidence via video-link.

(3) Further, it is important to consider the significance and degree of controversy of the witnesses’ evidence: Rambas, 261H-262A.

39.  On legitimate personal or juridical advantages, Mr Jat had referred the court to (1) and (2) below :

(1) Plaintiffs are entitled to legitimately claim the benefit of the application of Hong Kong conflict of laws rules if they would likely result in the application of Hong Kong law: China Medical Technologies Inc (In Liq) v Paul, Weiss, Rifkind, Wharton & Garrison LLP [2019] HKCFI 2631, [210].

(2) Parties have a legitimate interest to have their disputes adjudicated in accordance with the proper law of the contract: Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd [2011] 1 WLR 2575, [143]; Coast Lines Ltd v Hudig and Veder Chartering NV [1971] 2 Lloyd’s Rep 390, 395, col 2 to 396, col 1, affirmed in [1972] 2 QB 34, 45C-D.

Validation principle

40.  Mr Jat relied on the validation principle, namely, as a matter of contractual interpretation, an interpretation which upholds the validity of a transaction is to be preferred to one which would render it invalid or ineffective, (a) for the determination of governing law of the contracts between the present parties and (b) on appropriate forum.

41.  Mr Yu cited Monterosso Shipping Co Ltd v International Transport Workers’ Federation [1982] ICR 675, 684F-685B where May LJ expressed disagreement with the judgment of Lord Denning MR in Coast Lines Ltd and took the view that the validity or invalidity of a contract under foreign law is irrelevant to identifying the system of law which the contract has the closest and most real connection.

42.  However, the court’s attention was drawn by Mr Jat to a fairly recent Supreme Court authority, Enka Insaat v Chubb [2020] 1 WLR 4117, where the court (both the majority and minority judgments) affirmed the long standing validation principle ([95], [96], [109] and [198]).

Is Hong Kong the natural or appropriate forum?

43.  The court looks for the forum which has the most real and substantial connection with this Action as the first step to answer the single question whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of this action.

44.  I fully accept Mr Yu’s submission that Xi’an court is perfectly capable to deal with international transactions of the present type and to apply the URC.

45.  Focusing on the relevant considerations, the transactions in dispute were initiated from Hong Kong (by ING) and concluded between an international bank doing business in Hong Kong and a branch of ICBC based in Xi’an. ICBC was (and is) listed on the Stock Exchange of Hong Kong and doing business here. Although Hong Kong is part of the PRC, the transactions may be regarded as cross-border (or international) transactions. ING and ICBC had agreed that the documents should be released against payment and on the URC to govern the transactions.

46.  The URC were central to the terms agreed by ING and ICBC. The URC were (and are) well-recognised and applied in trading nations all over the world (including Hong Kong).

47.  There are other Hong Kong connections. Firstly, the relationship between Triway and ING was governed by Hong Kong law[5]. In answer to ICBC’s argument that the choice of Hong Kong law clauses in the contracts between Triway and ING did not cover the collection instructions from Triway to ING as remitting bank, Mr Jat submitted that it is inconceivable that Triway and ING would have selected another law to govern those instructions. There is much force in Mr Jat’s submission.

48.  Secondly, the payments to be collected by ICBC were to be made to ING in Hong Kong, albeit through its USD account in New York. Whilst ICBC placed emphasis on the place of the collection (Xi’an), I agree with ING that the place of payment was also important. It is pointless to have payments collected without having them paid over to ING. Collection and payment are part and parcel of the key step in these international transactions.

49.  Thirdly, ING (in Hong Kong) would have to informed if no payment was received. Fourthly, the documents would be returned to Hong Kong if their presentation was not accepted. This serves to illustrate the importance of taking a holistic view of the transactions.

Governing law

50.  This topic occupies the pride of place in this application, and is the lynchpin of ICBC’s application. There is no issue between the parties that this court is to apply its own conflict of law rules to determine the applicable law.

51.  For the principles on the proper law of contract, Mr Yu relied on :

(1) The test was set out by the CFA in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569, [53]:

“53. The common law rule is that the law applicable to a contract is the system of law by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection: S Megga Telecommunications Ltd v Etowaru Co Ltd [1995] 2 HKC 761, 767, Bokhary JA (as he then was); Chitty on Contracts: Hong Kong Specific Contracts (2nd ed., 2008) Chapter 15 (Conflict of Laws) paras.15-006 et seq; and other authorities cited in Dicey, Morris & Collins on the Conflict of Laws (14th ed., 2006) Vol.2, p.1538 para.32-003, n.4. The line between the search for the inferred intention and the search for the system of law with which the contract has its closest and most real connection is a fine one which is frequently blurred. In theory, in the absence of an express choice as the first test, the court should consider as a second test whether there are any other indications of the parties’ intention, and only if there is no such indication to go on to consider the third stage, namely with what system of law the contract has its closest and most real connection. But in practice the same result can be reached by the application of the second or third tests, and frequently the courts move straight from the first stage to the third stage. This is largely because the tests of inferred intention and close connection merged into each other, and because before the objective close connection test became fully established the test of inferred intention was in truth an objective test designed not to elicit actual intention but to impute an intention which had not been formed: Dicey, p.1539 para.32-006.”

(2) The underlying policy of this test is to reflect the reasonable expectations of the parties in the commercial context: see Conflict of Laws, vol 2, [32-007].

(3) To identify the place where the transaction has its closest and most real connection, the approach is for the court to put itself in the place of the reasonable man, to see what ordinary, reasonable, sensible businessmen in the circumstances would likely to have had in their minds: First Laser, CA, [2011] 2 HKLRD 45, [58(3)]. The nature of this exercise suggests that one cannot take into account matters that the parties were not aware of at the time of contract, submitted Mr Yu.

(4) The intended place of performance under the contract is a consideration of great weight: First Laser, CFA, [55]-[56]. The underlying rationale of this factor is that if a contract is made in one country to be carried out in another, unless there appears something to the contrary, the parties must have intended that it should be carried out according to the law of that other country. It is hardly conceivable for the parties to intend that the contract be carried out in a country contrary to the laws of that country: First Laser, CA, [58(10)].

(5) First Laser was concerned with the transfer of shares in Mainland. They were “state assets” and the transfer of which would require government approval. The place of performance could only be the Mainland and this was regarded as important and pointed to PRC law being the governing law, and the fact that the agreement was executed in Hong Kong “is of little weight in modern circumstances”: CFA, [56].

(6) In its analysis, the CFA referred to the fact that the circumstances were known to the controller of the plaintiff ([56]). This suggests that the circumstances relevant to the proper law issue should be something that were known to the parties at the time of contract, submitted Mr Yu.

(7) The proper law arrived at by this process would also govern the issue of material or essential validity of the contract, including whether a contract came into existence at all. This is referred to as the putative proper law, ie, the law that would govern if the contract were valid: The Conflict of Laws in Hong Kong, 3^rd edn, by Johnson, [5.010].

52.  On his part, Mr Jat referred the court to China Medical Technologies Inc v Paul, Weiss, Rifkind, Wharton & Garrison LLP [2019] HKCFI 2631, [126] per G Lam J (as he then was) for the proposition that as a matter of procedure, when determining the governing law, the court cannot come to a final determination but assesses it practically in terms of the rubric of the good arguable case.

53.  In this application, there are rival contentions as to whether Mainland law (advocated by ICBC) or Hong Kong law is the proper law of contract. The first conundrum for the court is how to approach these contentions.

54.  Mr Yu submitted that Hong Kong law is irrelevant to the matters under consideration. All that ICBC has to show is a good arguable case that Mainland law applies, and then the court will have to consider the complexity of the Mainland law issues and decide on the appropriate forum. There is no guidance on the correct approach in the authorities before the court. However, I believe it is difficult for the court to come to a view on closest correction without any comparison with other system(s) of law which may be applied.

55.  With respect, I am inclined to agree with Mr Jat’s submission that (a) the court does not make a final decision on proper law, ie, the decision based on good arguable case may be revisited at trial; (b) this court is required to consider the proper law of contract in assessing the appropriate forum; and (c) if it is demonstrated that there is a good arguable case that Hong Kong law is the proper law, then it should follow that Hong Kong court is the appropriate forum.

56.  Guided by the principles cited above, to identify the place where the transactions between ING and ICBC have their closest and most real connection, the following considerations are relevant :

(1) The matters identified in paras 45 to 49 above;

(2) The contracts constituted by the Collection Instructions were made in Hong Kong because the acceptance of ING’s terms by ICBC was communicated to ING via SWIFT messages sent to ING in Hong Kong[6];

(3) Hong Kong is a well-recognised international financial centre with a sound legal system;

(4) Hong Kong applies the common law system which is widely used by businessmen to resolve their differences. Hong Kong laws are generally in step with international commercial practice;

(5) Hong Kong courts are familiar with the exercise of applying foreign laws, especially Mainland laws.

57.  It should be noted that (2) to (5) above are also relevant to the overall consideration of appropriate forum. In other words, there are overlaps between the consideration of appropriate forum and governing law.

58.  In respect of ICBC’s reliance on the performance of the Collection Instructions in terms of the presentation of documents to Maike and collection of payment from the same, and that these acts would take place in the Mainland, I accept that these are important considerations. On the other hand, the issue of performance embraced other acts, namely, the payment, if received, to ING and if there was no payment, the return of the documents to ING in Hong Kong. In short, the performance should be considered holistically, and I do not believe that the acts heavily relied upon by ICBC are conclusive.

59.  On the principle at para 51(4) above, despite the voluminous Mainland law evidence filed by ICBC (2 reports of Prof Shen) I do not believe it is suggested that the performance of the Collection Instructions in the Mainland would not be consistent with Mainland laws[7]. I would have been surprised by such a proposition because China is one of the largest trading nations and it is difficult to imagine that the compliance with URC (agreed by its largest bank in this case) would be contrary to Mainland laws.

60.  Further, there is Mainland law evidence filed by ING (report of Prof Gao), whose opinion I generally prefer as more balanced and adequately supported by Mainland authorities, to the effect that the URC would be followed under Mainland Laws[8]. Hence, I do not believe the fact that part of the performance of the Collection Instructions, albeit an important part, would take place in the Mainland is conclusive.

61.  Furthermore, it should be noted that in First Laser the place of performance could only be the Mainland. The present case is different for the reasons explained above.

62.  It should be pointed out that if the performance of the Collections Instructions was contrary to Mainland laws, it would lend weight to Mr Jat’s submission based on the validation principle (see paras 13(1) and 40 above) that the parties could not have intended to apply Mainland law to the transactions in question (see also para 65 below).

63.  Mr Yu submitted that the fact that the financing documents between ING and Triway were governed by Hong Kong law and had a Hong Kong jurisdiction clause is not relevant to the proper law issue. However, as pointed out by Mr Jat, Hong Kong law governs the legal relationship between Triway and ING. Insofar as ICBC tries to run the defence that once Triway had instructed ING to allow the release of documents without payment (this allegation is disputed by ING) ING could not insist on compliance with the Collection Instructions, ING would argue that Triway had no such right by reason of cl.6(d)(i) of the Deed of Charge and Assignment of Receivables. Therefore, a Hong Kong law issue arises as to whether the alleged instruction of Triway was valid.

64.  After careful evaluation, I am of the view that there is at least a good arguable case that Hong Kong law is the system of law with which the transactions in question have their closest and most real connection. Therefore, Hong Kong law applies to the same.

65.  Alternatively, based on the relevant considerations, I infer that the common intention of ING and ICBC was to apply Hong Kong law to these cross-border commercial transactions based on internationally accepted best practice (the URC) and concluded between two international banks doing business in Hong Kong, albeit with a Mainland branch of one of them. I do so by applying the test: what ordinary reasonable businessmen would have been likely to have agreed if their minds have been directed to the question: Century Yachts Ltd v Xiamen Celestial Yachts Ltd [1994] 1 HKLR 385, 393, l.16-19 per Litton JA.

Mainland law

66.  ICBC’s Mainland law evidence served to support the various defences identified in para 26 above in the face of its breaches of the Collection Instructions by releasing the documents without payment. If Hong Kong law applies, what defence ICBC may have will be judged according to Hong Kong law. For instance, under Hong Kong law, there is little doubt that ICBC, rather than HTI-SB, is the proper defendant in this Action (apart from conflict of law rules): see Bank of Credit and Commerce International (Overseas) Ltd v Bank of Credit & Commerce International (Overseas) Ltd – Macau Branch [1997] HKLRD 304, 308C-H per Godfrey JA.

67.  Further, I accept Mr Jat’s submission that whether ICBC can be sued in the Hong Kong courts is a procedural matter for the Hong Kong courts and hence Hong Kong law as the lex fori: The Conflict of Laws, [4-017]. On the specific issue of whether the person sued is the proper defendant to the action, any potentially applicable foreign law is merely procedural (and is ignored under Hong Kong law) if it only makes liability conditional on other persons being sued first: [4-020]. The evidence before the court is that the Mainland law objection here is merely procedural.

68.  Even if Mainland law is to apply, in my respectful view, the issues are less complex than suggested. First, experience informs that in the commercial sphere there is often little difference in the law applied here and in the Mainland. I retain a healthy scepticism that with the aid of a single joint expert, the “complexity” will be trimmed down, possibly significantly.

69.  Second, on the two substantive defences identified in para 28 above, the issue of Common Practice involves factual disputes and whether the concept of estoppel exists under Mainland law and, if so, its parameters. Insofar as there is any need to consider the concept of good faith under Mainland law, this court had to deal with that concept only recently. In short, the Hong Kong courts are capable of dealing with these matters.

70.  On the sub-agency defence, whilst there are 3 Mainland authorities to the effect that the drawer had a cause of action against the collecting bank when it was wronged by the latter, there is no authority to the effect that the drawer may instruct the collecting bank to act against the clear terms of the contract between the remitting bank and the collecting bank. Prof Gao’s evidence is that the concept advocated by ICBC had never been applied to any dispute between a remitting bank and a collecting bank. Again, I see no undue difficulty for the Hong Kong courts to decide the controversy with the appropriate Mainland law evidence.

71.  The remaining defences of ICBC – whether the Collection Instructions constituted any contracts between ING and ICBC (or HTI-SB) and whether ING’s loss and damage was reasonably foreseeable – do not, I believe, raise any issue which the Hong Kong courts will have serious difficulty in resolving.

72.  Finally, I am inclined to agree with Mr Yu that, despite Mr Jat’s criticisms of the merits of ICBC’s defences, they should not be the focus of this application.

Location of witnesses and documentation

73.  It appears that the trial of these disputes will mainly involve application of the URC and consideration of the documentary evidence, and if relevant, expert evidence on issues of Mainland law. These are matters with which Hong Kong courts are experienced.

74.  I accept Mr Jat’s submission that it is likely that the trial will be predominantly based on the documentation, so the relevance and significance of the witness evidence is limited. There will be no difficulty in making the documentation available for trial in Hong Kong.

75.  ING’s witnesses are based in Hong Kong. ICBC’s factual witnesses are apparently in Xi’an, but they are a short flight from Hong Kong. There is no suggestion that they will be unable to attend a trial in Hong Kong.

76.  As to the position of He, ICBC says that he is an important third party witness, who is located in the Mainland and cannot be compelled to give evidence in Hong Kong. Assuming that He is indeed located in the Mainland, I agree with Mr Jat that there is no evidence to show that he is not able to attend trial in Hong Kong (in person or by VCF) and yet is able or compellable to attend trial in the Mainland.

Conclusion on FNC

77.  I agree with Mr Jat that the dispute between ING and ICBC is the bread and butter type of work carried out by the Hong Kong commercial court. I am not satisfied that Hong Kong is not the appropriate forum which has the most real and substantial connection with this Action. Nor am I satisfied that Xi’an court is clearly or distinctly more appropriate forum to hear this Action.

Disposition

78.  Having failed at the first hurdle, the Summons must be dismissed. The parties have agreed that costs should follow the event with a certificate for 2 counsel. I order that the costs of and occasioned by the Summons be paid by ICBC with a certificate for 2 counsel, to be taxed if not agreed.

Expert evidence

79.  Five expert reports had been filed for this application from 4 experts. Two of them are experts in banking practice. With respect, I have not been able to derive much assistance from such evidence in light of the issues to be determined in this application.

80.  As for the Mainland law evidence, the experts differ widely on their views. It is extremely taxing for the court to try to wade through the voluminous evidence and adjudicate on paper as to whose view is the more reliable.

81.  It is imperative for the court to exercise control over the parties’ enthusiasm to adduce expert evidence to advance their case. In particular, the use of single joint expert is generally preferable.

82.  I direct that no expert evidence is to be adduced in any interlocutory application in this case without the leave of the court.

83.  Last but not least, I am grateful to counsel for their assistance.