OTTO OFFSHORE LTD v. BANK OF COMMUNICATIONS CO LTD

HCA 1600/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1600 OF 2013

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D E C I S I O N

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1. On the question of the discharge of the ex parte order: the fact that the defendant is registered under Part XI in Hong Kong renders it unnecessary for the court to grant leave to the plaintiff to effect service of the writ outside Hong Kong. This fact is clearly relevant to the court’s consideration of the Order 11 application.

2. The fact that the plaintiff had been notified by the defendant of the defendant’s receipt of “instructions” from the mainland court to stop payment under the Guarantee is also relevant to the court’s weighing exercise at the time of its determination of the plaintiff’s ex parte application made under Order 11.  It is for the court, and not the plaintiff on ex parte application, to decide what is relevant or material. Even if the defendant had not made it clear to the plaintiff that a restraining order had been made by the mainland court, and the plaintiff had not received any copy of the order, on an ex parte application, the plaintiff was under the duty to disclose to the court the claim made by the defendant in its correspondence, that it had been “instructed” by a court not to make payment.

3. For these reasons, I discharge the order made on the plaintiff’s ex parte application, on the ground of the plaintiff’s failure to make full and frank disclosure. The plaintiff is to pay to the defendant the costs of the application to set aside.

4. In the background of this dispute, the plaintiff claims against the defendant bank for payment under a Guarantee/Standby Letter of Credit (referred to hereinafter as “Guarantee” for convenience). The parties agreed under the express terms of the Guarantee that it will be governed by Hong Kong law and to submit to the exclusive jurisdiction of the Hong Kong courts. The Guarantee is for the defendant’s payment, on demand, of the amount guaranteed to the plaintiff, a company incorporated in Malaysia. The Guarantee was signed by the Tianjin branch of the defendant bank. The defendant is registered under Part XI in Hong Kong, with a registered presence in Hong Kong.

5. There is currently arbitration between the plaintiff and the shipyard, under the shipbuilding contract, in respect of which the Guarantee was issued to guarantee the shipyard’s repayment to the plaintiff of installments of the purchase price in the event of non-delivery or breach of contract by the shipyard. The arbitration is between the plaintiff and the shipyard, in relation to their dispute as to whether the contract price is liable to be refunded. The tribunal of course has no jurisdiction over the dispute between the plaintiff and the defendant bank.

6. The shipyard commenced proceedings in the Tianjin Maritime Court, to dispute its liability to the plaintiff and to restrain the defendant bank from making payment under the Guarantee. The plaintiff denies that the Maritime Court has jurisdiction over it.  The defendant has clarified this morning that it does not suggest that the Tianjin court is a more appropriate forum for determination of this dispute.

7. In support of its general application for a stay pending the outcome of the arbitration proceedings between the plaintiff and the shipyard, the defendant has referred to the difficulties the bank may face should the Hong Kong court find against the bank in this action under the Guarantee, and the Tianjin court should maintain its restraining order. The defendant also refers to the costs that may be saved, should the present action be stayed pending the outcome of the arbitration proceedings between the parties to the underlying shipbuilding contract.

8. By the express terms of the Guarantee, the defendant undertook to pay the guaranteed amount upon its receipt of the plaintiff’s written demand. Although there is reference in the Guarantee to the defendant being entitled to withhold and defer payment, if a dispute as to whether the plaintiff has the right to demand payment has been submitted to arbitration, the Guarantee also expressly provides that if there has been reference to arbitration before the expiry date of the Guarantee , and there has been no extension of the expiry date as notified to the plaintiff at least one month before the expiry date, the defendant will pay the guaranteed amount according to the plaintiff’s written demand “within 15 days even though there exists arbitration between (the plaintiff) and (the defendant)”.

9. In this case, it is not disputed that the expiry date of the Guarantee was extended to 30 June 2013. The reference to arbitration was on 26 June 2013. The plaintiff’s demand on the defendant for payment under the Guarantee was made on 25 June 2013, and again on 27 June 2013. There was no extension of the expiry date of the Guarantee, as notified to the plaintiff one month before 30 June 2013.

10. The court has power to grant a stay of proceedings if it considers it fit so to do. The defendant emphasized that it is a question of balance of convenience and fairness, and a matter of case management. As the court also made it clear in Tan Man Kou v Chime Corporation Limited, unreported HCMP 4146/2001, 11 March 2005, such balance is also by reference to the facts of the case.

11. Bearing in mind the express provisions of the Guarantee, whereby the defendant bank agreed to make payment on demand of the amount guaranteed, within 15 days of the plaintiff’s demand even though there exists an arbitration between the parties to the underlying shipbuilding contract, I consider that it would be unjust to stay these proceedings against the express provisions of the agreement between the plaintiff and the defendant. I can see no injustice or prejudice to the defendant in allowing these proceedings, instituted in Hong Kong in accordance with the provisions of an agreement made by the defendant to submit to the jurisdiction of the Hong Kong courts, to continue.  It is open to the defendant to raise in these proceedings any defence it may have to the plaintiff’s claim under the Guarantee, by reference to the relevance and effect (if any) of the restraining order of the Tianjin Maritime Court, and let the Hong Kong court decide on its liability.

12. I therefore dismiss the application for stay, with costs to the plaintiff.  40% of the costs of the hearing today should be apportioned to the application for discharge and 60% to the application for stay.