XCHRX YU LAP MAN v. GOOD FIRST INVESTMENT LTD.

1997, No.A6801

IN THE HIGH COUR OF HONG KONG

COURT OF FIRST INSTANCE

--------------------

--------------------

--------------------

J U D G M E N T

--------------------

Background

1. The Plaintiff sued on an agreement dated 29th December 1992 ("the Agreement") made with the Defendant. By the Agreement the Plaintiff agreed to transfer to the Defendant the rights and liabilities of an agreement made between Hoi Tin Investment Company Limited (Hong Kong) and the Xiamen City Government in China in respect of a piece of land in Xiamen. The Defendant agreed to pay the Plaintiff a fee of RMB2,165,240. The Agreement further provided that the Defendant was to appoint the Plaintiff and one Mr Hui Sui Wai as directors of the Defendant and allot 30% of its shares to them.

2. Pursuant to the Agreement, the Plaintiff arranged for the Defendant to enter into a formal transfer agreement with the Xiamen City Government. The Defendant paid the Plaintiff RMB2,165,240, but failed to allot 30% of the shares to the Plaintiff and Mr Hui or appoint them as directors. The Plaintiff is seeking specific performance of the Agreement relating to the appointment of directors and allocation of shares and also damages arising from the breach of the Agreement.

3. The Defendant denied that it had entered into the Agreement with the Plaintiff and alleged that the signature of the Defendant was a forgery. Instead the Defendant contended that it had entered into an earlier agreement dated 12th December 1992 ("the Earlier Agreement") with the Plaintiff regarding the transfer of the agreement with the Xiamen City Government only.

4. The Defendant applied before the Master to stay the action on the basis that the Agreement and the Earlier Agreement contained an exclusive jurisdiction clause in which the courts in the People's Republic of China ("PRC") had exclusive jurisdiction to deal with disputes arising from the agreements. The Master stayed the proceedings. The Plaintiff now appeals against that decision.

Grounds of appeal

5. The Plaintiff did not challenge the exclusive nature of the clause before the Master. Instead, it was argued before him that since the Defendant had denied the existence of the Agreement, therefore it had no right to rely on the exclusive jurisdiction clause. This point is not taken in the appeal. Mr Martin Lee S.C., who did not appear in the court below, now challenges the exclusive nature of the clause. The two issues that were raised before me are : first, whether the clause conferred exclusive jurisdiction on the courts in PRC and second, whether the matter should, in any event, be stayed on the ground of forum non conveniens.

Exclusive jurisdiction clause

6. The Agreement and the Earlier Agreement are in Chinese. Clause 5 of both agreements are identical.

"五. 雙方同意此協議受中華人民共和國法律保護，有關糾紛受中華人民共和國法院管轄，並適用中華人民共和國的有關法律。"

Two translations were obtained by the parties on Clause 5. The translation first obtained by the Defendant is as follows :

"5. Both parties agree that this Agreement is subject to the protection of the law of the People's Republic of China. All disputes arising hereunder shall be subject to the jurisdiction of the Courts in the People's Republic of China and the relevant laws of the People's Republic of China are applicable."

The Plaintiff's translation is as follows :

"5. Both parties agree that this Agreement is under the protection of the laws of the PRC, that all disputes relating to it are subject to the jurisdiction of the law courts of the PRC and that the relevant laws of the PRC are applicable."

As both versions of the English translation were certified by the same court translator, I asked him to attend court to clarify the difference in the translation. Counsel took the opportunity to question the translator on the translations. Although the translator initially agreed with Mr Wu, Counsel for the Defendant, that the words "有關糾紛受中華人民共和國法院管核" are equally capable of being translated as "all disputes shall be subject to the jurisdiction of the PRC courts" and also as "all disputes are subject to the jurisdiction of the PRC courts", he eventually agreed that the translation should simply be that "all disputes are subject to the jurisdiction of the PRC courts". He stated that the words "shall be" are assertive and connote an obligation whereas the Chinese character "受" does not carry such a meaning. As a bilingual judge, I adopt the translation obtained by the Plaintiff for the reasons now accepted by the translator.

Principles in the stay of proceedings

7. The court has a discretion whether to grant a stay of proceedings brought in breach of an agreement to refer disputes to a foreign court, but the discretion should be exercised by granting a stay, unless strong cause for not doing so is shown : Pioneer Container [1994] 2 AC 324 approving the principle in Aratra Potato Company Limited v. Egyptian Navigation Company [1981] 2 Ll L.R. 119.

8. The principles to be applied in the interpretation of Clause 5 can be summarised as follows :

(1) the question whether the clause provides that the courts in PRC should have exclusive jurisdiction or non-exclusive jurisdiction is one of the construction of the Agreement and nothing more : Sohio Supply Company v. Gatoil (USA) Inc. [1989]1 Ll LR 588.

(2) The question is whether on its truth construction the clause obliges the parties to resort to the relevant jurisdiction, irrespective of whether the word "exclusive" is used : Sohio v. Gatoil.

(3) While the matrix background or surrounding circumstances can be considered, the negotiations or the subjective intention of the parties in construing a contract should not be considered : Sohio v. Gatoil.

Proper law

9. Before I embark on the interpretation of the clause, there is a matter which has to be dealt with. In Dicey and Morris on the Conflict of Laws, page 421, the learned authors stated that

"It is a question of interpretation, governed by the law applicable to the contract, or more accurately, the law governing the jurisdiction agreement, whether a jurisdiction clause is exclusive or non-exclusive ..."

The parties did not address me on the governing law or the proper law of the Agreement. Although Clause 5 of the Agreement provided that the relevant law applicable in disputes arising from the Agreement was the law of PRC, the parties proceeded on the basis that the interpretation should be according to common law principles. Although the Defendant relied on a letter from its lawyers in China on the jurisdiction clause, there is no evidence of Chinese law on the interpretation of Clause 5. The Chinese lawyers simply referred to "basic principles common in the international community concerning jurisdiction and governing law". In the absence of such evidence, I will proceed on the basis that the Hong Kong law and the law in PRC in this regard are the same : para. 794 Halsbury's Laws of England Volume 8.

Defendant's view

10. Mr Wu submitted that Clause 5 was an exclusive jurisdiction clause because the subject matter of the agreement was in relation to a transfer of land in Xiamen; the consideration of the purchase of the land right was in PRC currency and the agreement was executed in Xiamen. The agreement provided that it was subject to the protection of PRC law and all disputes arising from the agreement were subject to the jurisdiction of the courts in the PRC and the governing law of the agreement was the PRC law. There was no reference to any other law or court in the agreement. Clause 5 provided submission to the PRC jurisdiction simpliciter.

Other cases

11. In Continental Bank N.A. v. Aeakos Compania Naviera S.A. and others [1994] 1 WLR 588 an American bank granted loan facilities to Greek defendants under an agreement which provided that each defendant "irrevocably submits to the jurisdiction of the English courts ... but the bank reserves the right to proceed under this agreement in the court of any other country claiming or having jurisdiction in respect thereof." Steyn LJ held that :

"The juxtaposition of a submission by the defendants to the jurisdiction of the English courts and the option reserved in favour of the bank to sue elsewhere brings into play the expressio unius exclusio alterius canon of construction. It suggests that a similar option in favour of the defendants was deliberately omitted. In our judgment the language of clause 21.02 evinces a clear intention that the defendants, but not the bank, would be obliged to submit disputes in connection with the loan facility to the English courts."

12. In Sohio v. Gatoil the parties were American companies carrying on business in America. Their contract provided that it should be governed by English law and "under the jurisdiction of the English Court without recourse to arbitration". Staughton LJ held that :

"... To my mind, it is manifest that these business men intended that clause to apply to all disputes that should arise between them. I can think of no reason at all why they should choose to go to the trouble of saying that the English Courts should have non-exclusive jurisdiction. I can think of every reason why they should choose that some Court, in this case the English Court, should have exclusive jurisdiction. Then, both sides would know where all cases were to be tried. ... The parties had chosen English law; it may be that they thought that the best place for English law to be applied was an English Court; it may be that they even thought that English Courts were a good thing in their own right - I do not know. It may be that they wanted to join the 28 per cent. of cases in the Commercial Court where both sides came from overseas; or it may be that they just wanted to choose a neutral forum. But in my judgment, that was their choice."

13. In Berisford plc v. New Hampshire Insurance Company [1990] 2 QB 631 the policies of insurance were governed by English law with the term that "This insurance is subject to English jurisdiction." It was held that the clause was not an exclusive jurisdiction clause. The clause was merely declaratory. Hobhouse J. stated that :

"... the words used are inapt to create any obligation. If an obligation was intended it could easily have been so stated in clear words. ... It is a statement to the assured, who may be foreign, that the rights that he has under the policy are capable of enforcement in the English courts. Such is an apt interpretation having regard to the legal and commercial relationships created by the document and having regard to the words actually used. Such a clause, even though creating no obligation to sue only in England is a contractual acknowledgment of the jurisdiction of the English courts and a contractual agreement to the invocation of that jurisdiction."

14. In the Hong Kong case of T and K Electronics Limited v. Tai Ping Insurance Co. Ltd. [1993] 3 HKC 330 the policy of insurance contained the clause that "This insurance is subject to English jurisdiction". Stone J. held that the clause was not exclusive but rather permissive in nature in the light of the connecting factors with Hong Kong.

Clause 5 not exclusive

15. In the present case the word "exclusive" of course does not appear in the clause. This, however, is not necessary. I have to construe the clause to see whether an obligation is imposed on the parties to invoke the jurisdiction of the courts in PRC exclusively. The word "受" was used in Clause 5 which means "subject to". The fact that the words "subject to" are used does not mean that the clause must be exclusive in nature. Neither would the words "Both parties agree" at the beginning of the clause render the clause exclusive as every contractual term represents the agreement of the parties anyway. The fact that the clause refers to the law of PRC twice would not, so to speak, boost up the exclusive nature of the jurisdiction clause. In my view, the reference to the laws of PRC in the first place is descriptive, namely the parties agree that the agreement is subject to the protection of the law of PRC, then it specified that the disputes are subject to the jurisdiction of the courts of PRC and the law of PRC shall apply to it. Further, the fact that PRC law was chosen does not mean that the jurisdiction clause must be exclusive in nature as can be seen from Berisford.

16. While no doubt regarding the Agreement there are connecting factors with China, there are also other factors pointing towards the connections with Hong Kong. The Defendant is a company incorporated in Hong Kong with its registered office in Hong Kong. Although Mr Wu submitted that of the four directors and shareholders of the Defendant, only one is working and living in Hong Kong, the company search revealed that the directors and shareholders, who were the same, all gave a Hong Kong address and all had Hong Kong identity cards. The Plaintiff is said to be an American national. He has not denied this but he asserts that he has been living in Hong Kong for the past ten years.

17. Under the Agreement, the subject matter is not simply the land in Xiamen, but also the appointment of the Plaintiff as one of its directors and the allocation of shares in a company which is registered in Hong Kong. If the subject matter is simply land in Xiamen, one may conclude, as conceded by Mr Lee, that the courts in PRC should have exclusive jurisdiction. However, this is not the case. In matters concerning the transfer and allottment of shares and appointment of directors of a Hong Kong company in which formalities must be observed under the Hong Kong Companies Ordinance, I just cannot see how it can be said the clause creates an obligation to litigate in PRC exclusively. The question of shares and directorship is now the only issue between the parties. In my view the clause is not exclusive in nature, and to adopt the words used in previous cases, the clause is inapt to create any obligation of litigating exclusively in the courts in PRC. Clear words could easily have been adopted if such an obligation is intended. The clause is either declaratory or permissive : it is a contractual acknowledgement by two foreign parties of the jurisdiction of the courts in PRC and a contractual agreement to the invocation of that jurisdiction. Ultimately the question is one of construction. How other courts construe jurisdictional clauses are decisions based on the particular facts and are not binding on other cases.

18. There is some vague reference in the Defendant's affidavit on the question of intention of the Defendants and on matters relating to negotiation. They are inadmissible and should not be considered in the construction of the clause.

Forum non conveniens

19. Although the question of forum non conveniens was not dealt with before the Master, this point was argued by both parties in this appeal. Mr Wu submitted that the court should stay the action on this ground as well. The principle is governed by Spiliada Maritime Corporation v. Cansulex Ltd. [1987] 1 AC 460 at p.476 in which Lord Goff stated that :

"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."

20. The point can be dealt with shortly. Regarding the connecting factors with China and the availability of witnesses in China, Mr Wu has merely shown that the courts in PRC are equally appropriate as the Hong Kong courts to deal with this case. There certainly is no evidence that the witnesses could not come to Hong Kong. The burden on the Defendant is not to show mere practical convenience, but whether there is another available forum which is clearly or distinctly more appropriate than the one chosen by the Plaintiff. As Litton V-P (as he then was) in The Kapitan Shvetsov [1997] 1 HKC 485 stated that :

"... It must not be forgotten that the jurisdiction to stay proceedings springs from the inherent jurisdiction of the court: the doctrine of forum conveniens, which became an integral part of English law since the decision of the House of Lords in The Atlantic Star [1974] AC 436, [1973] 2 All ER 175, is merely an enlargement of the principle that an action will be stayed if it is vexatious or oppressive or an abuse of the process of the court: see Brandon J's observations to this effect in The Tillie Lykes [1977] 1 Lloyd's Rep 124 at 126. Plainly, this inherent jurisdiction will not be lightly exercised."

In this case the Defendant is a Hong Kong company, even for the sake of argument, the Plaintiff is a foreign plaintiff, jurisdiction is nonetheless properly founded in Hong Kong. Such a right should not be lightly disturbed as emphasised by The Kapitan Shvetsov.

21. The parties also argued on the expiration of the limitation period to bring proceedings in China. There is no evidence that the Plaintiff deliberately withheld from commencing proceedings in China on the Agreement. In Spiliada, Lord Goff discussed the issue of a plaintiff commencing proceedings in England which has not been time-barred, but there is some other jurisdiction which is clearly more appropriate for the trial of the action but where the Plaintiff has not commenced proceedings and where his claim is time-barred. He was of the view that if the plaintiff deliberately refrained from commencing proceedings in such a country, the court should not hesitate to stay the proceedings in England. This is not the case here. I am not satisfied that the Defendant has discharged the burden of showing that the courts in PRC are the more appropriate forum for the determination of this action.

Conclusion

22. Accordingly the appeal is allowed and the summons to stay the proceedings is dismissed.

Costs

23. As the challenge to the exclusive jurisdiction clause was raised for the first time in this appeal by the Plaintiff, Mr Lee conceded that the cost order before the Master should not be disturbed. Accordingly, I shall not interfere with the cost order made by the Master. However, as the Plaintiff succeeds in removing the stay of the proceedings, the costs of the appeal must be awarded to the Plaintiff.

(P. Cheung)

Judge of the Court of First Instance
High Court