ORACLE (CHINA) SOFTWARE SYSTEMS CO LTD v. CITIC 21 CN (CHINA) TECHNOLOGY CO LTD AND OTHERS

HCA 105/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 105 OF 2012

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D E C I S I O N

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1.  This is an application by the 1^st and 2^nd defendants to stay the Action on the ground of lis alibi pendens and/or forum non conveniens.

2.  Of relevance to this application are the following four documents, all dated 30 May 2006, namely,

(i) an Ordering Document executed between the 1^st defendant and the plaintiff (“the Ordering Document”); incorporating

(ii) the Oracle License and Services Agreement (“the OLSA”);

(iii) an Amendment executed between the 1^st defendant and the plaintiff (“the Amendment”); and

(iv) the Payment Agreement executed among the 2^nd defendant, the 1^st defendant, the plaintiff and the 3^rd defendant (“the Payment Agreement”). 

Background 

3.  The transaction concerned the order by the 1^st defendant of certain program licenses and services to be provided by the plaintiff for use in the Mainland and Hong Kong.  The fees involved were over RMB88 million.

4.  The terms of the transaction were set out in the Ordering Document, which provided expressly that the terms of the OSLA were incorporated by reference.  The time for payment of the fees was extended from 60 days to 80 days by way of the Amendment. 

5.  In return for being granted the 80-day payment term, the parties entered into the Payment Agreement.  Essentially, the Payment Agreement provided that the 2^nd defendant was to provide a deposit to the 3^rd defendant of a sum close to US$11 million.  The 2^nd defendant further agreed that in the event of the 1^st defendant defaulting in its obligation towards payment of the fees under the OSLA, the 2^nd defendant would within 5 days of such failure pay or arrange its own subsidiary in the PRC to pay the outstanding part of such fees.

6.  There were express choice of law clauses in the Ordering Document, the OLSA, and the Payment Agreement, providing in each case that the agreement was to be governed by the laws of the PRC.

7.  The several agreements, however, did not contain uniform provisions in relation to resolution of disputes or choice of jurisdiction.  The relevant clause in the Ordering Document is as follows:

“9. Governing Law and Dispute Resolution

This agreement, and all matters arising out of or relating to this agreement, shall be construed and governed by the laws of the People’s Republic of China. We agree to submit any dispute relating to this agreement to China International Trade and Arbitration Committee for arbitration in Beijing in accordance with its arbitration rules provided that any dispute in relation to infringement of Oracle intellectual property rights will be submitted to the exclusive jurisdiction of, and venue in, the courts of the People’s Republic of China in Beijing.” (underline added)

In the OLSA, the relevant provision states:

“O. Other

This agreement, and all matters arising out of or relating to this agreement, shall be construed and governed by the laws of the People’s Republic of China and we agree to submit to the exclusive jurisdiction of, and venue in, the courts of the People’s Republic of China in Beijing in any dispute relating to this agreement.” (underline added)

The Payment Agreement, on the other hand, provides:

“4. Governing Law and Dispute Resolution

4.1 This Agreement shall be governed by PRC laws.

4.2 Any dispute arising out of or in relation to this Agreement shall be resolved by the Parties through amicable consultation. In the event that any dispute cannot be resolved through amicable consultation, either party may apply to the China International Economic and Trade Arbitration Commission in Beijing to resolve the dispute by arbitration in accordance with the relevant arbitration rules and procedures. The arbitration award shall be final and binding on all Parties.” (underline added)

8.  It should be noted that the Ordering Document further contained the following provision:

“8. Order of Precedence

In the event of any inconsistencies between this ordering document and the agreement [i.e. the OLSA], this ordering document shall take precedence.”

9.  What happened was that the plaintiff commenced arbitration in CIETAC (China International Economic and Trade Arbitration Commission), claiming against the 1^st and 2^nd defendants inter alia for the fees of RMB 88 million plus defaulting interest (subject to credit for the deposit already paid by the 2^nd defendant and the interest generated therefrom); and for the loss of the technical-support service fees for the second and third year.  

10.  On 9 June 2010, an arbitral award was made (subsequently amended on 8 July 2010) in favour of the plaintiff against the 1^st and 2^nd defendants in relation to the various claims.  The arbitral tribunal ruled that 1^st defendant’s and 2^nd defendant’s cross-claims should not be entertained in the arbitration proceedings. 

11.  The 1^st and 2^nd defendants applied to the Beijing First Intermediate People’s Court in October 2010 to set aside the arbitral award.

12.  Further in January 2011, the 1^st defendant issued proceedings against the plaintiff, also in the Beijing First Intermediate People’s Court, to seek to set aside the Ordering Document, the OLSA and the Amendment, and for compensation for loss on the ground that the products delivered by the plaintiff did not conform with the contract and that the plaintiff had failed to complete the procedure to facilitate the 1^st defendant’s unlimited use of the licensed services.  It was contended that the several agreements were no longer necessary or capable of performance and should therefore be set aside. 

13.  In its judgment rendered in August 2011, the Intermediate People’s Court considered that the Ordering Document, the OLSA and the Amendment should be treated together as forming an integral and unseverable agreement as a whole.  Insofar as there was any inconsistency regarding the manner of resolving disputes, the provision in the Ordering Document should prevail.  The Intermediate People’s Court considered that the subject matter of the action should be submitted to CIETAC for arbitration pursuant to the Ordering Document.  The action to set aside the various agreements was accordingly dismissed by the Intermediate People’s Court. 

14.  The 1^st defendant appealed to the Beijing Higher People’s Court against the said dismissal of its action.

15.  Then on 25 October 2011, the Intermediate People’s Court gave its ruling on the 1^st and 2^nd defendant’s application to set aside the arbitral award.  On the basis similar to its earlier ruling, the court considered that 4 documents (namely the Ordering Document, the OLSA, the Amendment and the Payment Agreement) should be viewed together as forming an unseverable agreement, and that the arbitral tribunal had erred in rejecting the 1^st and 2^nd defendants’ cross-claims.  The Intermediate People’s Court ordered the arbitral award to be set aside.

16.  On 16 December 2011, the Beijing Higher People’s Court allowed the 1^st defendant’s appeal against the Intermediate Court’s dismissal of its action.  The Higher People’s Court noted that the arbitral award was already set aside and that there was no fresh agreement between the parties to refer their dispute to further arbitration.  Applying Article 9(2) of the Arbitration Law of the PRC (the significance of which will be further discussed), the Higher People’s Court directed the dispute to be remitted to the Intermediate People’s Court for adjudication. 

17.  The 1^st defendant then filed a fresh statement of claim on 27 February 2012 at the Intermediate People’s Court, seeking again the setting aside of the Ordering Document, the OLSA and the Amendment, and compensation in relation to its loss.  A defence dated 2 May 2012 was filed by the plaintiff.  The Intermediate People’s Court conducted a hearing in June 2012.  The 1^st defendant filed its submissions to the court on 20 June 2012 in support of its claim.

18.  It is not disputed that for the purpose of the present application, the 1^st and 2^nd defendants bear the burden of satisfying this Court that the PRC courts are the clearly or distinctly more appropriate forum for the trial of the dispute than the Hong Kong Court. 

Courts in the PRC have exclusive jurisdiction? 

19.  The first point raised by the 1^st and 2^nd Defendants is that the courts in the PRC have now assumed exclusive jurisdiction over the dispute between the parties. Mr Daniel Fung, SC (counsel for the 1^st and 2^nd defendants) argued that the plaintiff’s claim in the Hong Kong Action falls within the exclusive jurisdiction of the PRC courts.  Ms Teresa Cheng, SC (counsel for the plaintiff) argued otherwise.  The experts on PRC law engaged by both sides proffered different opinion on the question.

20.  As already mentioned, in allowing the 1^st defendant’s appeal, the Higher People’s Court directed the action to proceed in the Intermediate People’s Court, referring to the absence of a fresh agreement for arbitration and the application of Article 9(2) of the Arbitration Law.

21.  Article 9(2) reads as follows:

“裁決被人民法院依法裁定撤銷或者不予執行的，當事人就該糾紛可以根據雙方重新達成的仲裁協議申請仲裁，也可以向人民法院起訴”

The 1^st and 2^nd defendants’ expert provided a translation of the Article as follows: 

“Whereas the award cancelled or put in void under a rule by the people’s court, the parties concerned for the dispute may reach another agreement for arbitration and apply for arbitration or bring a suit in the people’s court.”

22.  There is no dispute that in analysing and resolving rival contentions advanced by the respective experts, this Court should adopt the approach explained by Deputy High Court Judge Lam (as the learned judge then was) in Shenzhen Development Bank Company Limited v New Century Int’l (Holdings) Ltd and another, HCA 2896/2011.  Given that this Court is able to read the relevant provision in the Chinese language, this Court is entitled and indeed bound to use his own legal skill and experience to examine the relevant legislation in light of the reasoning of the Higher People’s Court’s decision, insofar as it may have a bearing on the resolution of the issue.    

23.  To begin with, Article 9(2) is an enabling rather than mandatory provision.  In other words, upon the setting aside of the arbitral award and in the absence of a fresh arbitration agreement, the parties may choose to bring a suit in the courts for the subject dispute as opposed to commencing fresh arbitration.  This interpretation of the Article is accepted by the 1^st and 2^nd defendants’ expert. 

24.  What divides the experts is whether under the PRC laws and in light of the judgment of the Higher People’s Court, the courts in the PRC would be regarded as having exclusive jurisdiction over the subject matter of the dispute in the Hong Kong proceedings.  In support of his view for exclusive jurisdiction being conferred on the PRC courts, the 1^st and 2^nd defendants’ expert reasoned as follows:  first, the 4 documents together formed “an unseverable agreement”; secondly, the parties had initially intended their dispute arising from “the agreement” to be resolved either by arbitration or under the exclusive jurisdiction of the PRC courts; and thirdly, there was no fresh arbitration agreement; and therefore it must be the effect of the judgment of the Higher People’s Court that exclusive jurisdiction is vested in the PRC courts in relation to the same subject matter of the dispute. 

25.  As against that view, however, I note that Article 9(2) does not in terms confer exclusive jurisdiction on the PRC courts in the absence of a fresh arbitration agreement.  Being only a permissive provision in nature, no support can be found for the view that the provision confers exclusive jurisdiction on the PRC courts.  To the contrary, as pointed out by the plaintiff’s expert, where a party chooses to bring a suit in court pursuant to Article 9(2), that court assumes only non-exclusive jurisdiction and his suit would be subject to any applicable rules and principles pertaining to the question of jurisdiction or choice of forum. 

26.  In addition, there is also nothing in the judgment of the Higher People’s Court, when directing the dispute to be tried by the Intermediate Court, to indicate that the jurisdiction to be assumed by that court would be exclusive of all other appropriate jurisdictions in relation to the resolution of the parties’ dispute. 

27.  Accordingly, having considered the materials on the issue, I do not consider that the 1^st and 2^nd defendants have made out a case that the PRC courts have exclusive jurisdiction over the dispute between the parties.

Forum non conveniens

28.  Although the present application is put on the bases of lis alibi pendens and forum non conveniens, they are no longer to be considered as different bases of the court’s discretion to order a stay of proceedings.  As the author of The Conflict of Laws in Hong Kong, by Graeme Johnston, 2^nd edition, stated at §3.095:

“Unlike some other jurisdictional systems, Hong Kong law does not now have a technical notion of lis alibi pendens: the existence of parallel litigation in other jurisdictions is simply one factor to be taken into account in the forum conveniens discretion.”

See also the observations of Lord Goff in de Dampierre v de Dampierre [1988] AC 92, cited in footnote 323 by the author in support of the above statement; see also the judgment of Kwan J (as the learned judge then was) in Ho Siu Pui v Yuen Sheng Finance Ltd, HCA 3060/2001, at §§45 and 46.

29.  I would begin by considering the plaintiff’s causes of the action in the present proceedings.  It would be noted that the basis of the plaintiff’s claim against the 1^st defendant was the Ordering Document and the OLSA, whereas the claim against the 2^nd defendant was the Payment Agreement.  At paragraph 6 of the Amended Statement of Claim, the plaintiff pleads:

“6. In breach of the Ordering Document and the OLSA, the 1^st defendant has failed and/or refused to pay to the plaintiff the Fees despite repeated requests and demands. The 2^nd defendant has also failed and/or refused to discharge its obligation under the Payment Agreement as pleaded herein above given the default of the 1^st defendant and despite repeated requests and demands.”

30.  The plaintiff relied on different contractual bases to support its claim respectively against the 1^st and 2^nd defendants for payment of the sum of RMB88 million.

31.  In contrast, the current proceedings in the PRC involved only the 1^st defendant as the claimant and not the 2^nd defendant.  Although the statement of claim submitted there by the 1^st defendant mentioned all 4 documents, the relief sought only concerned the setting aside of the Ordering Document, the OLSA and the Amendment.  No relief was sought to impugn the validity or effect of the Payment Agreement. 

32.  It is true that in the defence submitted in the PRC proceedings, reference was made to the Payment Agreement.  However, it is apparent that the plaintiff’s reference there to the Payment Agreement was in answer to the 1^st defendant’s challenge to the genuineness of the transaction, and the Payment Agreement was clearly not deployed as the basis of seeking payment of the RMB88 million. 

33.  Indeed, the plaintiff had not included a counterclaim for its fees in the PRC proceedings. 

34.  Hence, despite some overlap, this is not truly a case of parallel proceedings where there is identity of parties, issues, subject matter and reliefs.

35.  The lack of identity, while relevant, is of course not determinative. And in this regard, I have not overlooked the point that the basis of any liability of the 2^nd defendant under the Payment Agreement is derivative from a finding that there has been default in payment on the part of the 1^st defendant (see clause 1.3 of the Payment Agreement pleaded in paragraph 5 of the Amended Statement of Claim) and that the 1^st defendant’s liability is in turn grounded on the several contractual documents (the Ordering Document, the OLSA and the Amendment) whose validity is the subject of dispute in the PRC proceedings. 

36.  In this connection, it may also be said in favour of the 1^st and 2^nd defendants that PRC laws have been chosen as the governing law of the several agreements, and that there had been observations by the PRC courts that the agreements should be viewed together as an unserverable whole. 

37.  However, despite the considerations mentioned in the two preceding paragraphs, I think the fact that the 2^nd defendant is a party only in the Hong Kong proceedings and that the enforcement of the Payment Agreement features only in the litigation in this jurisdiction strongly militates against the grant of a stay against the 2^nd defendant. That being the case, I think it would be highly unsatisfactory for the respective claims against the 1^st and 2^nd defendants (for fees or outstanding payments) to be litigated in different jurisdictions. 

38.  As has also been noted earlier, the claim for the fees is pursued only in the present Action in Hong Kong and not before the PRC courts.  Whilst being conscious that the facts of each case are different, the considerations here are not dissimilar to those in First Laser Limited v Fujian Enterprises (Holdings) Co Ltd, HCA 4414/2001, where Deputy High Court Judge Lam (as the learned judge then was) had refused a stay (see in particular, discussions at §§ 42 to 45).     

39.  Whereas it is relevant to take into account the ongoing proceedings between the plaintiff and the 1^st defendant in the PRC courts, it is but one factor to be considered especially in light of my earlier view that the PRC courts do not assume exclusive jurisdiction over the subject dispute.  The choice of PRC laws as the governing law of the relevant agreements is another factor, though in my view not a particularly strong one towards showing PRC courts to be the more appropriate forum: for reference, see observations of Mr Recorder Ma SC (as the Chief Justice then was) in Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250 at 266F – 267D.  Indeed, as Ms Cheng pointed out in the present case, it has not been shown what PRC laws would be engaged concerning the setting aside of the relevant agreements in question. 

40.  I would also bear in mind that the proceedings are commenced by the plaintiff here as of right and that the 1^st defendant is a company within jurisdiction and listed on the Hong Kong Stock Exchange. 

41.  Thus, considering all relevant circumstances, I am not persuaded that the PRC courts are clearly and distinctly the more appropriate forum for adjudication of the dispute presently before the Hong Kong Court.  According to the three-stage approach laid down in Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460 as summarised in The Adhiguna Meranti [1987] HKLR 904 at 907F – 908B, where the applicant fails to establish a more appropriate forum for the subject dispute it is usually fatal to the application for a stay.  But before I come to a final conclusion, the following points raised in the course of argument also merit consideration. 

42.  First, Ms Cheng submitted that even if the plaintiff were to obtain a judgment in respect of the fees in the PRC courts such a judgment is not directly enforceable in Hong Kong.  She relied on the views of the expert on the lack of mutual recognition and enforcement of judgments between the two jurisdictions and the observations of Cheung J in Chiyu Banking Corporation Limited v Chan Tin Kwun [1996] 2 HKLR 395.  Further, any claim for payment would be time-barred under the PRC law on limitation.   

43.  On the other hand, Mr Fung queried the lack of explanation from the plaintiff as to why it did not raise a counterclaim for payment in the PRC proceedings.  In response to the time-bar point, Mr Fung indicated that his clients would not take any limitation defence in the PRC proceedings if the Hong Kong proceedings were stayed, and further submitted that this Court should disregard any juridical disadvantage to the plaintiff when it had chosen to put itself in difficulty – citing the observations of Lord Goff in Spiliada (supra) at pp 483E – 484E, as quoted in the judgment of A Cheung J (as the Chief Judge of the High Court then was) in Duan Qi Gui v Upper Like Investments Ltd [2007] 4 HKLRD 576 at p 585.  

44.  In my view, there is much force in Ms Cheng’s submissions regarding the difficulty in the enforcement of a PRC judgment in this jurisdiction.  The absence of a direct enforcement mechanism further reinforces the plaintiff’s argument that the PRC courts are not the more appropriate forum for adjudication of the subject dispute presently before the Hong Kong Courts.  It also answers much of the defendants’ criticism as to why a counterclaim had not been raised (even if it were permissible by way of a counterclaim against an additional party such as the 2^nd defendant). 

45.  As for the question of the time-bar, there is nothing to suggest that the plaintiff had intentionally put itself in difficulty in the PRC in order to take a procedural advantage of a more generous limitation period by litigating in the Hong Kong.  Nor is there anything to suggest that the plaintiff had acted unreasonably by not raising a counterclaim in the PRC.  I am, however, unable to form a view as to whether the 1^st and 2^nd defendants’ offer to waive any limitation defence would be effectual in the PRC proceedings, notwithstanding the discussion of a similar point in the Duan Qi Gui’s case (supra, at p 588).  In the circumstances, I do not think any weight should be given to the time-bar point or whether the plaintiff would suffer juridical disadvantage for the purpose of the balancing exercise.    

Conclusion  

46.  After considering to all the circumstances, I am not satisfied that the present Action should be stayed. 

47.  I would therefore dismiss the 1^st and 2^nd defendants’ summons with an order nisi that the costs of the application be paid by the 1^st and 2^nd defendants to the plaintiff with a certificate for two counsel.