S. MEGGA TELECOMMUNICATIONS LTD. v. ETOWARU CO. LTD. and Another

IN THE COURT OF APPEAL

1995, No. 113
(Civil)

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J U D G M E N T

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Bokhary, J.A.:

1. The plaintiff (which I will call "the Hong Kong company") is a company incorporated in Hong Kong carrying on business here as, among other things, a manufacturer of electronic products.

2. Turning to the defendants, the 1st defendant (which I will call "the Japanese company") is a company incorporated in Japan carrying on business there, while the 2nd defendant (whom I will call "the guarantor") is its president and principal shareholder. He is Japanese and lives in Japan.

3. There is some dispute as to the Japanese company's business. According to the Hong Kong company, the Japanese company's business includes research into and the development of electronic products. According to the Japanese company itself however, its involvement in that line of business, which has since ceased anyway, had been confined to taking on such undertakings for overseas customers only to sub-contract the actual work to a Japanese research and development company. And that, it says, is what happened in the present case.

4. By an agreement dated January 7, 1993, the Japanese company agreed, for ￥ 40 million, to develop, in accordance with the Hong Kong company's specifications, a certain quantity of cordless telephones together with ancillary components, and to supply the Hong Kong company with those products.

5. The guarantor came into the agreement for the purpose of guaranteeing the Japanese company's performance thereunder.

6. After the Hong Kong company had paid the Japanese company a total of ￥ 16 million under the contract, the contract came to an end without any of the products having been supplied. That was in mid-1993.

7. How did the contract come to an end? According to the Hong Kong company, it came to an end by reason of repudiatory breach on the Japanese company's part. According to the Japanese company, it came to an end because the Hong Kong company wrongfully repudiated it.

8. Behind all of that, there is a question as to whether the Hong Kong company had delayed in furnishing specifications or was otherwise in default in relation to the furnishing of specifications.

9. On October 6, 1993, the Japanese company and the guarantor commenced proceedings in Tokyo against the Hong Kong company. They claim damages from the Hong Kong company in, for some reason, tort. And they also claim a declaration that they are not liable to the Hong Kong company.

10. On April 22, 1994, the Hong Kong company issued a writ here against the Japanese company and the guarantor, claiming a refund of the ￥ 16 million yen which it had paid and US$133,870.97 liquidated damages.

11. In applying for leave to effect service on the Japanese company and the guarantor out of the jurisdiction, the Hong Kong company had relied on items (d) and (e) of rule 1(1) of Order 11. It relied on item (d) on the basis that the contract had been made within the jurisdiction. And it relied on item (e) because it said that failure on the Japanese company's part to supply it with the products constituted a breach committed within the jurisdiction.

12. By an Order dated June 1 last year, Master Jennings gave the Hong Kong company leave to effect service out of the jurisdiction.

13. Then, on November 22 that year, the Japanese company and the guarantor took out a summons, returnable before a Master, seeking an Order:-

" 1) that the Order of Master Jennings dated 1st June 1994 granting leave to the Plaintiff to serve the concurrent Writ of Summons on the 1st and 2nd Defendants out of jurisdiction be discharged;

2) that the service of the concurrent Writ of Summons on the 1st and 2nd Defendants be set aside on the ground that the present case is not a proper one for service out of jurisdiction, pursuant to Order 11 Rule 4(2) of the Rules of the Supreme Court, in that:-

(a) there is pending in the District Court of Tokyo, Japan, an action between the Plaintiff and the 1st and 2nd Defendants concerning the same subject matter or dispute;

(b) the most appropriate forum for the trial of this action is in the District Court of Tokyo, Japan;

ALTERNATIVELY

3) that all further proceedings in this action may be stayed or this action may be dismissed on the grounds mentioned in sub-paragraphs (a) and (b) above;

4) and that the costs of and occasioned by this application be to the 1st and 2nd Defendants."

14. On the 21st of the following month, a Consent Order was made adjourning that summons to a Judge in Chambers.

15. That is how the matter came before Seagroatt J, from whose decision the present appeal is brought.

16. So the judge was in error when he said, as he did at the beginning of his judgment, that what was before him was an appeal against the Master's decision. But nothing turns on that error.

17. In the result, on March 17 this year, after hearing argument on the 6th of that month, the judge made an Order that:-

"1. the Order of Master Jennings dated 1st June 1994 do stand;

2. all further proceedings in this Action be stayed; and

3. the costs be in the cause but nisi."

18. As to why he ordered that the Master's Order do stand, this is what the judge said in the judgment which he handed down:-

"Although I consider that the proper law of the contract is probably Japanese and a Japanese court is probably the forum for jurisdiction to be construed from all the circumstances, it is certainly arguable that the contract was made within the jurisdiction of Hong Kong courts with Hong Kong law to be applied - therefore leave was properly given and I will not set that service aside."

19. And as to why he stayed all further proceedings in the action, this is what the judge said in his judgment:-

" The Japanese court is in my view the appropriate court for trial, the 'forum conveniens'. Although the Plaintiffs are in Hong Kong the Defendant's residence, place of business, and that of the developing contractors, Sugi are all in Japan. Wherever trial takes place it is inconvenient for the witnesses of one party. The product was to be developed in Japan. Payment was to be made in Japan. The balance of convenience is tipped in favour of the trial taking place in Japan. The question of costs, and the disadvantage to the Plaintiffs is a factor I have had to consider carefully. At present it is not entirely clear whether costs follow the event, as is generally the case in Hong Kong, but there are other jurisdictions in which the successful party does not usually recover costs. The position in Japan, is nonetheless the same for the suing party as for the party sued and I have decided that this not a factor which should weigh heavily against Japan as the 'forum conveniens'.

There are already proceedings under way in Japan which arise out of this very same contractual dispute. They were commenced before the Hong Kong proceedings but that fact is not in itself a significant one. A number of hearings have taken place. The likely length of time before the resolution is not clear and variously estimated. The Defendants in the Hong Kong proceedings are Plaintiffs in that action. The issue of jurisdiction is to be decided at the same time as the merits of the action generally. It has been described as an action in tort, but that distinction, though perhaps puzzling, is not for me a factor which undermines its relevance or importance. It is agreed that the factual issues are essentially the same, arising out of the same subject matter. I am satisfied that it is 'in the interests of all the parties and for the ends of justice' that this action should be stayed pending resolution of the proceedings in Japan. If the Japanese court decides that it does not have jurisdiction then application may properly be made for the stay to be lifted."

20. Before us, the Hong Kong company appeals against the stay. The Japanese company and the guarantor are now unrepresented and have not appeared. But they have written to the Clerk of the Court indicating that they seek to support the stay on the grounds relied upon by the judge and on the additional grounds set out in the two respondent's notices filed when they had been represented. Their first respondent's notice contains, among other things, a contention that even on what the judge did, he should have given them the costs rather than making them in the cause. And by their supplementary respondent's notice, they cross-appealed against the judge's Order that the Master's Order as the service do stand.

21. The attack upon the Master's Order for leave to serve out of jurisdiction had been made on the basis that Japanese court is the appropriate forum. That was of course the very contention on which the application to stay was brought.

22. Guiding the courts in their approach to applications to stay proceedings on the ground of forum non conveniens is this basic principle laid down by Lord Goff in Spiliada Maritime Corp v. Cansulex Ltd[1987]1 AC 460 at p.476C:-

" The basic principle is that a stay will only be granted on the ground of forum non conveniens where the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice."

23. That was not stated as merely a factor to be taken into account when deciding whether or not to exercise a discretion to stay proceedings on the ground offorum non conveniens. It goes to whether the discretion exists.

24. As can be seen from the circumstances outlined in the second passage which I read out from Seagroatt J's judgment, no Hong Kong court could be satisfied that the Japanese courts have jurisdiction. That is because even in relation to the Japanese proceedings, there is a live issue before the Japanese courts as to whether the Japanese courts have jurisdiction.

25. It is not merely that it is a feature of the Japanese legal system, as we have been given to understand it from the expert evidence filed on each side, that the Japanese courts invariably deal with jurisdiction at the very end or at least reserve to themselves the right to deal with jurisdiction finally at the very end.

26. The whole of the evidence shows that there is actually a live issue in the Japanese proceedings as to jurisdiction. Of course, even though the Japanese courts only deal with jurisdiction at the end, if there can be no serious doubt that in the end they will certainly hold that they have jurisdiction in this instance, then perhaps we could be satisfied that the Japanese courts have jurisdiction even though they have not as yet pronounced on jurisdiction. But that is not the case here. For us to say that we are satisfied that the Japanese courts have jurisdiction over the proceedings there when they themselves regard the question of jurisdiction as a live one would be for us to assume greater knowledge of Japanese law than that which is possessed by the Japanese courts themselves. That is obviously something we cannot possibly do.

27. It seems to me, therefore. that the application to stay falls at the first hurdle. Since the fortunes of the attack upon the leave to serve out of the jurisdiction follows, for the reasons which I have explained, the fortunes of the stay application, it likewise falls at the first hurdle.

28. That is sufficient to dispose of this appeal in favour of the Hong Kong company and to remove the stay. But I feel bound to add one further point. And it is this.

29. As it appears from the first passage which I quoted from the judgment below, the judge took the view that the proper law of the contract is probably Japanese law.

30. As best I can tell, the strongest argument for that view is the one that the place of performance was Japan. But the problem with that argument is this. On the face of the contract, nothing is said about the place of delivery. It would then be for the supplier to carry out its fundamental obligation of supplying by making delivery to the party to be supplied. That would mean delivery in Hong Kong.

31. It is true that there is some evidence that the contract may or may not have become an FOB one. But there is a serious argument as to that. And no reliable conclusion can be formed on the present material as to the place of delivery and therefore the place of performance.

32. Turning to what seems to be the strongest argument for saying that the proper law of the contract is that of Hong Kong, it is the fact that the contract was drafted here by Hong Kong lawyers. It is quite right, as the judge pointed out, that the mere fact that the contract is in English does not mean that its proper law is Hong Kong law as opposed to the law of a country which uses some other language.

33. But here the matter goes beyond mere language as such. It goes to legal terminology. And the importance of legal terminology is made abundantly clear by the attention which Lord Atkin devoted to it in R. v. International Trustee [1937] A.C. 500.

34. Here, one finds in the contract these features of legal terminology plainly connected to our system of law: time being of the essence; indemnity; and, most importantly, liquidated damages.

35. No evidence has been put in to suggest that those concepts are equally features of the Japanese legal system.

36. In the present case, there was no express choice of the proper law. Nor can one reliably draw any inference as to the intention of either side in that regard. It seems very likely that here, as in the case of The First National Bank of Chicago v. Carroway Enterprises Ltd[1990]2 HKLR 10, the parties deliberately refrained from making an express choice as to the proper because they could not agree upon one.

37. In those circumstances, our task is to decide which system of law is the one with which the contract has the closest and most real connection, and to hold that the contract is governed by that system and its laws.

38. Going by that test and what seems to me to be only reliable material on the point, being that of legal terminology, I am driven to part company with the judge in his view that Japanese law rather than Hong Kong law appears to be the proper law of contract. I am of the opposite opinion.

39. I add that because it is a matter of some importance. But the shortest answer to the application for a stay and to the application to set aside leave to serve out of the jurisdiction, which follows the fortunes of the application for a stay, is that they simply do not come within the basic principle laid down by the House of Lords in Spiliada (supra).

40. I would allow this appeal; set aside the stay; thank Mr Fok for the Hong Kong company for his assistance (his task, like ours, having been made more rather than less onerous by the absence of the other side); and look forward to hearing him on the questions of costs here and below.

Leonard, J.:

41. I, too, would allow this appeal for the reasons given by Bokhary JA and I would only add my thanks to Mr Fok for the manner in which, in the absence of the respondents, he has taken care to present to this Court all the arguments which could have been advanced on behalf of the respondents, and in addition to that has drawn to our attention the case of ISC Technologies Ltd And Another v. James Howard Guerin And Others [1992]2 Lloyd's Law Reports 430 in an attempt to be as fair as possible to the respondents who have chosen not to appear or be represented today.

Nazareth, V.-P.:

42. I also agree.

43. The evidence before the judge, such as it was, is that a substantial question has been raised in the Japanese court whether the Japanese courts do have jurisdiction. The answer apparently turns in the first instance upon the factual or partly factual question whether some sort of tort was committed in Japan. There is not much in addition to, so far as I have been made aware, that would have assisted the judge in concluding that the Japanese courts have jurisdiction. In those circumstances, it seems to me that there plainly was no evidence upon which the judge could properly come to a conclusion that the Japanese courts have jurisdiction, a fortiori that the Japanese court is the appropriate forum. That finding therefore cannot stand nor can the exercise of the judge's discretion founded upon it. In that situation on the material before us, discretion could properly only be exercised against continuation of the stay, so that the appeal must succeed.

44. Accordingly, the appeal is allowed and the order of the judge set aside.