XCHRX THE LONG-TERM CREDIT BANK OF JAPAN LTD. v. HYATT INTERNATIONAL (ASIA) LTD. AND ANOTHER

HCA 11249/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11249 OF 1998

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J U D G M E N T

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1. This is an application to stay proceedings brought in Hong Kong, upon the grounds that it is forum non conveniens for resolution of the issues.

Background

2. EIE Guam Corporation (EIE Guam) is a company that was incorporated in Guam for the purpose of building, owning and operating a hotel in Guam to be known as the Hyatt Regency Hotel. The hotel is now complete and operational.

3. The plaintiff (LTCB) is a Japanese bank which has provided loan finance to EIE Guam towards the cost of constructing the hotel.

4. The 1st defendant (Hyatt Asia) is a company incorporated in Hong Kong. Its principal business is to manage and operate hotels under the banner 'Hyatt' in the Asia-Pacific region.

5. The 2nd defendant (Hyatt Guam) is a company incorporated in Hong Kong for the purpose of taking over the management of the hotel in Guam as I shall come to.

6. In anticipation of construction and completion of the hotel in Guam, EIE Guam entered into a management agreement (the management agreement) with Hyatt Asia dated 7th September 1990. The management agreement is extensive in terms. In a nutshell it vested, subject to its own provisions, management of the hotel in Hyatt Asia in consideration for a percentage of the gross operating profit the hotel earns. Article XVIII states 'this agreement shall be construed interpreted and applied in accordance with and shall be governed by the laws applicable in the Territory of Guam, USA.'

7. By 1993 the hotel was complete and, in accordance with its right to do so under the management agreement, Hyatt Asia transferred its interest in it to Hyatt Guam by exchange of letters on 31st August 1993. EIE Guam was sent formal notice of this transfer in January 1994.

8. In or about November 1996 EIE Guam leased the hotel to a company called International Trading Network Limited (ITN) and purported to transfer its interest in the management agreement to ITN at or about the same time.

9. Meanwhile in pursuance of an agreement (the loan agreement) made between LTCB and EIE Guam on 15th July 1992 LTCB provided finance to EIE Guam to fund the cost of completion of construction of the hotel. The terms of that provided for payment in full by 30th June 1993. Subsequently the parties agreed to extend the date to 30th June 1994. EIE Guam failed to comply and LTCB declared all sums owing under the loan agreement due and payable.

10. Then LTCB and EIE Guam entered into an agreement (the forebearance agreement) dated 31st August 1994 under which LTCB agreed to forebear to enforce its remedies for a period, in return for certain undertakings made by EIE Guam, and on condition that the parties entered into a further agreement (the security agreement) of the same date. Under the terms of the security agreement EIE Guam agreed to give security to LTCB over inter alia all moneys due and to become due to it under the management agreement. It is pertinent to note here that like the management agreement, the loan agreement, the forebearance agreement and the security agreement all state that they shall be governed by the laws of the Territory of Guam.

11. On 31st August 1994 EIE Guam gave written notice (the notice of assignment) to Hyatt Asia (not it seems to Hyatt Guam to whom by then Hyatt Asia had transferred its interest in the management agreement) authorizing it to make payment of amounts payable to EIE Guam under the management agreement to its account at LTCB and not to vary the terms of that instruction without prior consent of LTCB.

12. Thereafter until July 1995 moneys due to EIE Guam deriving from income earned by the hotel in Guam were paid into the designated account at LTCB.

13. But that did not last. By letter of 13th July 1995 to Hyatt Guam EIE Guam purported to revoke the authority of the notice of assignment and directed that money payable to it under the management agreement be paid to it direct. By letter of 17th July 1995 Hyatt Guam gave notice to LTCB of this direction. LTCB replied that it did not consent to that and required compliance with the terms of the notice of assignment.

14. Hyatt Guam in turn responded to that by stating that it was not and never had been in control of the passage of funds due to EIE Guam deriving from income earned by the hotel whether under the management agreement or otherwise. It said it could not and would not disobey the instruction to redirect the payments due to EIE Guam.

15. Thereafter and to date there has been no compliance with the notice of assignment.

These Proceedings

16. LTCB by writ dated 8th July 1998 is suing Hyatt Asia and Hyatt Guam for unspecified damages for loss and money to which under the notice of assignment it is entitled but which because of breach of the management agreement and notice of assignment it has not received.

Guam Proceedings

17. EIE Guam filed proceedings in the Superior Court of Guam against LTCB and other Japanese banks in August 1995. The claims against the other banks are of no relevance to this matter. In its complaint EIE Guam claims the loan agreement, forebearance agreement and security agreement are void on a number of grounds. LTCB filed a counterclaim. EIE Guam sought summary judgment dismissing that counterclaim. That was successful at first instance by judgment delivered in August 1998, but overturned on appeal by the Supreme Court of Guam in December 1998. Now this reversal is the subject of an application for leave to appeal to the United States Court of Appeal 9th circuit. That is pending.

18. The order dismissing LTCB's counterclaim is stayed pending determination of the appeal process, and the same presumably applies to EIE Guam's suit.

This Application

19. Hyatt Asia and Hyatt Guam jointly claim that Hong Kong is not the forum conveniens for resolution of LTCB's action, and that it should be pursued in Guam. Of the various grounds they put forward in support of their application, one is that LTCB's suit derives from the loan agreement, forebearance agreement and security agreement whose validity would be challenged in the defence. As under the agreements that is to be established with reference to the laws of Guam it would be necessary for the Hong Kong Court to have to call for expert evidence of those laws. But also is that there are already proceedings under way in Guam in which this will be one of the issues for determination.

20. LTCB opposes the application. It says the matters to be resolved in its Hong Kong suit are simply stated, have little relevance to those more complex ones between itself and EIE Guam the subject of the Guam proceedings and need not and should not be obscured by those proceedings. Further it says that it would or might be prejudiced by an order which requires it to pursue its remedies in Guam. It states that EIE Guam's action in Guam is part only of an overall strategy to frustrate LTCB's enforcement of legitimate rights occasioned by EIE Guam's default and in particular to prevent or delay foreclosure of the hotel. It points to delays whilst the appeal process in USA is exhausted. It points to what it sees were serious attempts already undertaken to influence the legislative and executive arms of the administration which a court battle between itself and Hyatt Asia and Hyatt Guam may revive.

Principles to be applied

21. The power I have to deal with the application to stay these proceedings based on the doctrine of forum non conveniens derives from the Court's inherent jurisdiction to exercise its discretion to do so.

22. The doctrine of forum non conveniens is simply stated by the House of Lords in the case Spiliada Maritime Corporation v. Consulex Ltd, The Spiliada [1986] AC460. Briefly put this is authority for the concept that when a local court is faced with an application for a stay founded on the grounds of forum non conveniens it has to identify in which forum the case could most suitably be tried for the interests of all the parties and the ends of justice. In considering the appropriateness of a forum the court must look for that with which the action has the most real and substantial connection in terms of convenience or expense, availability of witnesses, the law governing the relevant transaction and the places where the parties reside or carry on business.

23. Where a party seeks to have the doctrine adopted by applying for a stay in a local proceedings, the burden lies on that party to show the court that it should grant a stay. It is for the applicant to show not just that the local court is not the natural or appropriate forum but that there is another which is clearly more so.

24. The Hagan [1908] AC189 is authority for the proposition that a significant feature in support of a grant of an application to stay is where proceedings are already on foot in a foreign jurisdiction and have been underway for a substantial time and have incurred for the parties already substantial costs and are ready for trial.

25. The same tests have been adopted and applied by the courts of Hong Kong.

26. In Louvet and Louvet & Anor. [1990] 1 HKLR 670 the Court of Appeal said the court had to ask itself a single question, namely,

'Is there 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?'

To get to the answer to this, the court must undertake an analysis of up to three stages. The first is for it to answer the question 'Is there another forum which is clearly more appropriate, the burden being on the applicant to establish this?' If the answer is "yes", the second is for it to answer the question 'Will a trial conducted there deprive the respondent of any legitimate or juridical advantage, the burden being on the respondent to establish this?' If the answer is "yes", the third is for the court to balance these competing features in an objective way the burden once again being on the applicant to establish this.

27. It is to be by this process that a court is to decide whether on balance the other forum is more suitable for the interests of all the parties and the ends of justice.

Application of the principles

28. Those matters which support the proposition that there is a more appropriate forum, namely Guam, include the following: -

1. The hotel which is the subject of the management agreement is in Guam. It is operated in Guam. Its income and expenditure and profit is calculated and paid in Guam. Its managerial staff is in Guam. The laws governing the interpretation of the management agreement are of Guam.

2. The loan, forebearance and security agreements, whose validity is likely to have a bearing on the outcome of these proceedings, are all governed by the laws of Guam.

3. There are proceedings already on foot in Guam in which the validity of the loan, forebearance and security agreements or any of them is an issue to be resolved. Hyatt Asia and Hyatt Guam are ready and willing to join or be joined in these proceedings. To test the validity of these documents here would require the need to import expert evidence on the laws of Guam, result in a duplication of effort and cost and, more seriously, the possibility of inconsistent outcomes.

4. LTCB has no direct link with Hong Kong. Hyatt Asia and Hyatt Guam are registered here but would need to import from Guam the witnesses who have the information the court will need as evidence to rule on the issues.

5. To protect their positions Hyatt Asia and Hyatt Guam will no doubt seek to join EIE Guam, a foreign entity. EIE Guam is already party to the proceedings in Guam.

29. Those matters which do not support the proposition that there is a more appropriate forum, namely Guam, include the following: -

1. There is an argument put up by LTCB that this court does not have to consider the validity or legitimacy of LTCB's agreements with EIE Guam and its rights of enforcement. The forbearance and security agreements and the notice of assignment stand alone. The issues between LTCB and Hyatt Asia and Hyatt Guam are narrow and simple to deal with.

2. Applying No. 1, the importing of evidence should be limited to expert evidence on Guam law, limited to the narrow issue. Hyatt Asia and/or Hyatt Guam should by their positions as manager/former manager of the hotel have ready access to the accounts necessary to establish what of the amount paid to EIE Guam LTCB is entitled to.

3. The proceedings in Guam have become protracted and delayed pending completion of the appeal process under way. It will be some time before the substantive issues can be dealt with. Hyatt Asia and Hyatt Guam will have to be joined. These proceedings are likely to be ready for trial much more speedily.

30. I am satisfied that the answer to the question 'Is there another forum which is clearly more appropriate, the burden being on the applicant to establish this?' is a resounding "Yes". I do not see how the proceedings can be run on the narrow issues put up by LTCB without involving those issues to be dealt with in Guam. And the pursuit of both sets of proceedings in different jurisdictions could result in duplication of effort, unnecessary costs and inconsistent findings.

31. And so the second question.

32. That matter which supports the proposition that a trial conducted there will deprive the respondent of any legitimate or juridical advantage is the following, namely, that EIE Guam has already without doubt exerted pressure on the executive and legislative arms of the administration as part of an overall strategy to protect its position vis a vis LTCB.

33. That matter which does not support the proposition is that steps so far taken have come to naught and there is no resultant disadvantage. Furthermore it is unlikely that there will be any revival of these pressures.

34. I am satisfied that the answer to the question 'Will a trial conducted in the other forum deprive the respondent of any legitimate or juridical advantage, the burden being on the respondent to establish this?' is "No." I do not form a view on the rights or wrongs of EIE Guam's steps taken to influence the administration's position on the legitimacy of LTCB's operations in Guam. I am not certain to what extent they have come to naught or maybe renewed. But I do form the view, it not having been established by LTCB to the contrary, that such conduct has not and will not block or otherwise interfere with the path of judicial process. The rule of law in Guam is USA based with the appellate process conducted on the mainland. The judiciary is independent of the executive just as it is in Hong Kong.

35. That final answer negates consideration of the third of the three stages Louvet propounds.

36. It follows that I am satisfied that on balance Guam is a more suitable jurisdiction than Hong Kong for the interests of all the parties and the ends of justice.

37. I grant the application to stay save that it shall be in the exercise of my inherent jurisdiction and not under Order 12 rule 8.

38. Costs shall follow the event and shall be to the defendants taxed if not agreed, including those reserved. But this order as to costs being without benefit of argument shall be nisi at first instance, liberty to restore within 14 days of the day this judgment is handed down.