UNITED PHOSPHORUS LTD. v. CHINA MERCHANTS SHIPPING & ENTERPRISES CO. LTD.

CACV 244/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 244 OF 1998

(ON APPEAL FROM HCCL NO. 81 OF 1997)

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J U D G M E N T

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Keith JA (giving the first judgment at the invitation of Godfrey V-P):

Introduction

1. In this action, the Defendant applied for a stay of the proceedings. It did so on two grounds. The first was that an exclusive jurisdiction clause required the dispute between the Plaintiff and the Defendant to be determined in the courts of the mainland. The second was that the Guangzhou Maritime Court in the Province of Guangdong was the more appropriate forum for the resolution of the dispute than the High Court of Hong Kong. Stone J declined to stay the proceedings, and the Defendant now appeals. There is no appeal from the judge's conclusion relating to the exclusive jurisdiction clause. It is only his ruling on the issue of forum non conveniens which is challenged.

The dispute

2. The Plaintiff's case is that it contracted to purchase a cargo of yellow phosphorus from Hunan Leadar International Trade Corporation ("the sellers"). The sellers are based in the Province of Hunan. The cargo was to be shipped to Bombay in India. Payment under the contract was to be made by irrevocable letters of credit, and the Plaintiff opened a letter of credit with the Bombay branch of the Standard Chartered Bank ("the issuing bank") in favour of the sellers for that purpose.

3. The letter of credit was a negotiation credit. It was negotiated by the Changsha branch of the Agricultural Bank of China ("the negotiating bank") by discounting two bills of exchange drawn on the issuing bank. Changsha is in the Province of Hunan. The negotiating bank in turn sought reimbursement from the issuing bank's branch in New York pursuant to the inter-bank engagement contained in the letter of credit, and the Plaintiff's account with the issuing bank's branch in Bombay was debited with that amount.

4. Among the documents tendered by the sellers in order to obtain payment under the letter of credit were what purported to be two bills of lading. They purported to have been issued by the Defendant in Huangpu. Huangpu is a port in the Province of Guangdong, and the "bills of lading" purported to record that the cargo had been shipped from there. In fact, the cargo had not been shipped from Huangpu at all.

5. None of these facts are disputed by the Defendant. Its case is that it did not issue the "bills of lading" at all. It claims that an employee of its agent in Changsha, without his employers' or the Defendant's authority, provided the sellers with blank bill of lading forms, both of which were stamped with the Defendant's chop, and one of which bore a signature. It was the sellers who completed the details on the bill of lading forms, and then used the forms to obtain payment under the letter of credit.

The applicable principles

6. The applicable principles for determining an application for a stay on the ground of forum non conveniens are well-known, but in view of the particular submissions which have been developed on this appeal, it is useful to remind ourselves of what they are. The modern law is contained in the speech of Lord Goff of Chieveley in Spiliada Maritime Corporation v. Cansulex Ltd. [1987] 1 AC 460. At p. 476B-C, he said:

"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."

But this basic principle, concluded Lord Goff, had to be modified to reflect the plaintiff's right to sue in a particular jurisdiction. He posed this question at p. 476F:

"The question being whether there is some other forum which is the appropriate forum for the trial of the action, it is pertinent to ask whether the fact that the plaintiff has, ex hypothesi, founded jurisdiction as of right in accordance with the law of this country, of itself gives the plaintiff an advantage in the sense that the English court will not likely disturb jurisdiction so established."

Having considered authorities in various jurisdictions, including federal ones, Lord Goff concluded at p. 477D-E:

"In my opinion, the burden resting on the defendant is not just to show that England is not the natural or appropriate forum for the trial, but to establish that there is another available forum which is clearly or distinctly more appropriate than the English forum."

Lord Goff then considered the factors to be taken into account in determining that question. At pp. 477F-478B, he said:

"Since the question is whether there exists some other forum which is clearly more appropriate for the trial of the action, the court will look first to see what factors there are which point in the direction of another forum .... I respectfully consider that it may be more desirable .... [to refer] to the 'natural forum' as being 'that with which the action had the most real and substantial connection.' So it is for connecting factors in this sense that the court must first look; and these will include not only factors affecting convenience or expense (such as availability of witnesses), but also other factors such as the law governing the relevant transaction .... and the places where the parties respectively reside or carry on business".

Lord Goff concluded by addressing the question of what the consequences of that inquiry should be. At p. 478B-D, he said:

"If the court concludes at that stage that there is no other available forum which is clearly more appropriate for the trial of the action, it will ordinarily refuse a stay .... It is difficult to imagine circumstances where, in such a case, a stay may be granted .... If however the court concludes at that stage that there is some other available forum which prima facie is clearly more appropriate for the trial of the action, it will ordinarily grant a stay unless there are circumstances by reason of which justice requires that a stay should nevertheless not be granted. In this inquiry, the court will consider all the circumstances of the case, including circumstances which go beyond those taken into account when considering connecting factors with other jurisdictions. One such factor can be the fact, if established objectively by cogent evidence, that the plaintiff will not obtain justice in the foreign jurisdiction ... [O]n this inquiry, the burden of proof shifts to the plaintiff."

7. Lord Goff's speech in Spiliada was considered by the Court of Appeal in Hong Kong in "The Adhiguna Meranti" [1987] HKLR 904. In giving the judgment of the court, Hunter JA said at pp. 907E-908A that as a result of Lord Goff's speech in Spiliada,

".... [t]he court has now to answer a single question namely: 'Is there 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' (p. 476B). Although this may no longer be necessary, .... we still think it convenient for the purposes of analysis to view the problem at three separate stages namely:

(I)	Is it shown that Hong Kong is not only not the natural or appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong (p. 477I). The evidential burden is here upon the applicant. The emphasis is upon 'appropriate' rather than 'convenient' because this is not simply a matter of practical convenience. The purpose is to identify the forum 'with which the action has the most real and substantial connection' .... The principal factors are enumerated at p. 478A. Failure by the applicant at this stage is normally fatal.
(II)	If the answer to (I) is yes, will a trial at this other forum deprive the plaintiff of any 'legitimate personal or juridical advantages'? (pp. 478C, 482-484). The evidential burden here lies upon the plaintiff (pp. 476E and 478D).
(III)	If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II) .... Deprivation of one or more personal or juridical advantages will not necessarily be fatal to the applicant provided that the court is satisfied that notwithstanding such loss 'substantial justice will be done in the available appropriate forum' (p. 482F). The court must try to be objective (p. 482D). Proof of this, which can fairly be called the ultimate burden of persuasion, rests upon the applicant for the stay. By these means he establishes that on balance the other forum is more suitable 'for the interests of all the parties and the ends of justice'. This may be another way of saying that the plaintiffs' choice of forum has been shown to be so inappropriate as to deserve the pejorative description of 'forum-shopping' and to be restrained accordingly ...."

(The page nos. of the citations from Spiliada which Hunter JA gave were from the page nos. of the report of the case in the Weekly Law Reports. I have changed the page nos. to the report of the case in the Appeal Cases for consistency and ease of reference.)

The criticism of the judge

8. The criticism made of Stone J by Mr Charles Sussex for the Defendant focuses on the three stages identified in "The Adhiguna Meranti". It is said that his conclusion was that the Defendant had failed to discharge the burden imposed on it at stage I of the analysis. That conclusion is said to be wrong. The effect of that conclusion was that the judge did not go on

Since the judge did not address those issues, the Court of Appeal should now do so, thereby carrying out the task which the judge (understandably in the light of his decision at stage I of the analysis) did not. Mr Sussex contended that such juridical disadvantages as the Plaintiff would be subject to if the case proceeded in the Guangzhou Maritime Court were minimal, and it could not be said that substantial justice would not be done there.

9. With one crucial exception, Mr Clifford Smith for the Plaintiff agreed with that analysis. He agreed that the judge's conclusion had been that the Defendant had failed to discharge the burden imposed on it at stage I of the analysis. Accordingly, the judge did not go on to consider stages II and III. Mr Smith also agreed that such juridical disadvantages as the Plaintiff would encounter if its claim proceeded in the Guangzhou Maritime Court were not such as to justify denying the Defendant the right to have the case heard there which, ex hypothesi, would clearly or distinctly be the more appropriate available forum. The critical point at issue, therefore, was the judge's conclusion at stage I of the analysis. Was the judge right to conclude that the Defendant had failed to discharge the burden on it to show that the Guangzhou Maritime Court was clearly or distinctly more appropriate for the trial of the action than the courts of Hong Kong?

The substance of the judge's decision

10. Before addressing that question, I wish to comment on whether the judge had indeed decided the issue of a stay against the Defendant at stage I of the analysis. The judge concluded his judgment in these terms:

".... on the evidence before me I decline, in the exercise of my discretion, to hold that the Guangzhou Maritime Court is 'clearly or distinctly more appropriate' than the Hong Kong forum for the trial of the action, or that in the circumstances it would be just for such a stay to be ordered."

That is the language of a decision at stage I of the analysis and is the basis on which I go along with what is common ground between counsel. What made me initially hesitate before I did so were two things:

The attack on the judge's conclusion

11. Exercise of discretion. Mr Sussex contended that the analysis at stage I did not involve the exercise of a discretion. It was a question of mixed fact and law on which there could only be one correct answer. If the Court of Appeal concludes that the answer which the judge arrived at was not the correct answer, it has to substitute what it considers the correct answer to be for the answer given by the judge.

12. I cannot go along with this argument in its entirety. Even if stage I of the analysis does not involve the exercise of a discretion, it involves the making of a value judgment based on its assessment of all the factors which connected the action to one forum and those factors which connected it to another. The process by which that value judgment is formed is akin to the exercise of a discretion. It follows that, if the Court of Appeal is to interfere with the judge's conclusion, it would not be sufficient if the court would have reached a different view from that of the judge. It would be necessary for the court to conclude that the judge's conclusion was outside the generous ambit within which reasonable disagreement is possible.

13. As of right. However, the Court of Appeal would be entitled to interfere with the judge's conclusion, and to decide the issue for itself, if the judge had reached his conclusion in disregard of principle. Mr Sussex was contending, I think, that in one respect the judge disregarded principle, namely by attaching too much weight to the fact that the Plaintiff had a right to bring the proceedings in Hong Kong. No, or at any rate little, weight should be attached to that factor, argued Mr Sussex, because that factor has already been built into the test to be applied: see the passage in Lord Goff's speech in which the basic principle was modified to reflect the plaintiff's right to sue in a particular jurisdiction (pp. 476F-477F).

14. Although I see the force of that argument, it must not be taken too far. Lord Goff himself recognised that distinctions can be drawn even between plaintiffs who have the right to sue in a particular jurisdiction. Lord Goff gave the example at p. 477F of the case where "the connection of the defendant with the English forum is a fragile one (for example, if he is served with proceedings during a short visit to this country)." That is to be contrasted with corporate defendants, such as the defendant in the present case, who are incorporated in Hong Kong and who hold themselves out as doing business in Hong Kong. In such cases, it is not inconsistent with Lord Goff's statement of principle for the court to give modest weighting to the plaintiff's right to sue in Hong Kong. To apply what Lord Goff said to the Hong Kong context, the more fragile the defendant's connection with Hong Kong, the easier it should be for the defendant to prove that there is another clearly more appropriate forum for the trial than Hong Kong. Thus, when Stone J said

".... [p]roceedings begun in Hong Kong as of right are not lightly disturbed, a principle epitomised by the burden imposed upon a party making an application for a stay purely on the forum non conveniens basis ..."

he should not be treated, I think, as giving impermissible weight to the Plaintiff's right to sue in Hong Kong. Rather, he should be regarded as simply giving legitimate effect to the particular circumstances in which the Plaintiff's right to sue in Hong Kong had arisen.

15. The critical question. With these considerations in mind, I turn to the critical question: was the judge's conclusion that the Defendant had failed to establish that the Guangzhou Maritime Court was clearly or distinctly a more appropriate forum for the trial of the action than the courts of Hong Kong a conclusion which was outside the generous ambit within which reasonable disagreement is possible? I bear in mind that the case is one with transnational ingredients. As Mr Smith said, the case should not be treated as if it was a road traffic accident in Guangzhou. It is a case in which documents which purported to be bills of lading bearing the address in Hong Kong of the company incorporated in Hong Kong which purportedly issued them on the mainland were presented to a bank on the mainland with the ultimate intention of obtaining payment on a letter of credit which had been opened in India by a company incorporated in India in connection with a shipment of cargo from the mainland to India. With that in mind, I turn to the various connecting factors.

(i) The place of the tort. In "The Albaforth" [1984] 2 Lloyd's Rep. 91, Robert Goff LJ (as he then was) said at p. 96:

"If the substance of an alleged tort is committed within a certain jurisdiction, it is not easy to imagine what other facts could displace the conclusion that the Courts of that jurisdiction are the natural forum."

In the present case, many of the material events, including the issue and presentation of the "bills of lading", took place in Changsha (a place for which, on the evidence, the Guangzhou Maritime Court had jurisdiction in maritime cases). But the torts which the Plaintiff alleges were committed were the torts of fraudulent misrepresentation (deceit), negligent misstatement and conspiracy to defraud. An essential ingredient of the first two is that the plaintiff has to have relied on the misrepresentation or the misstatement to his detriment. To the extent that these causes of action are based on the Plaintiff's reliance on the statements contained in the documents which purported to be the bills of lading, that reliance took place in India. Thus, the acts which constituted two of the Plaintiff's causes of action occurred in more than one jurisdiction (neither of which, admittedly, is Hong Kong).

16. I have not overlooked Mr Sussex's point that it was the negotiating bank which acted in reliance on the statements contained in the "bills of lading". The issuing bank in turn paid the negotiating bank pursuant to the inter-bank engagement contained in the letter of credit. The Plaintiff paid the issuing bank pursuant to an independent engagement undertaken when it applied for the issue of the letter of credit. Thus, the reliance on the statements contained in the documents which purported to be the bills of lading was that of the negotiating bank on the mainland. On the other hand, the letter of credit had been opened on the Plaintiff's instructions, and payment under the letter of credit would not have been made (despite the independent engagement undertaken by it) if the Plaintiff had known that the documents which purported to be the bills of lading (which they must have known had been tendered to the negotiating bank) had contained false statements. It is therefore strongly arguable that the reliance on the statements contained in the documents which purported to be the bills of lading was that of the Plaintiff, and that therefore that reliance took place in India.

(ii) The governing law. Two assumptions can be made in favour of the Defendant: first, that the acts which constituted the torts occurred for the most part on the mainland; secondly, that the double actionability rule applies, i.e. that the acts complained of are actionable in Hong Kong only if the acts complained of would be actionable (a) as a tort in Hong Kong and (b) according to the law of the mainland. The burden being on the Defendant at this stage, it is noteworthy that there is no evidence that the acts complained of would not be actionable according to the laws of the mainland.

(iii) The parties and the witnesses. Neither of the parties carry on business on the mainland, although the Defendant has agents on the mainland. Indeed, as I have said, the Defendant is incorporated and carries on business in Hong Kong. I accept that the principal witnesses in the case are likely to be the employee of the Defendant's agent in Changsha and the employees of the sellers and their agents, all of whom are presumably based in Changsha. But there is still at least a possibility that one or more of the Plaintiff's employees in Bombay may have to give evidence as well as a representative of the Defendant, who is presumably based in Hong Kong.

(iv) The existing proceedings. If a stay was to be granted, the judge plainly regarded the fact that proceedings had already been issued in the Guangzhou Maritime Court as the most significant factor in favour of a stay. Those proceedings had been commenced by the Defendant against the sellers and their agents in respect of the documents which purported to be the bills of lading, and the Guangzhou Maritime Court had accepted jurisdiction to hear the case. Thus, it was argued before the judge that, if the current proceedings were stayed, the rights and liabilities of all the parties (not just the Plaintiff and the Defendant) could be decided by a court at the same time, thereby saving time and expense and obviating the risk of inconsistent findings. On this issue, the judge was alive to "the presumption in favour of one-stop adjudication", but said:

"... in my view the Court reasonably could have expected substantially more information from the Defendant as to the existing Guangzhou litigation, in particular as to the manner in which the present litigation between the Plaintiff and Defendant could be related to or assimilated with the current Guangzhou action, whether as part of those proceedings or as an action collateral thereto; and, if the latter, what provision could be made, for example, as to contemporaneous trial before the same judge (and assuming, for this purpose, the absence of any jurisdictional difficulties). This seems to me to be important in the context of the present debate; inconsistency of judicial findings is not a problem arising solely in litigation in parallel jurisdictions, nor for that matter does it seem entirely accurate to assert that the same issues arise for decision before the Hong Kong and Guangzhou courts, broad commonality of background facts notwithstanding. In my view information of this nature is important in a situation in which, as here, the existence and subject matter of related litigation is prayed in aid as an integral element in support of a forum non conveniens application, and I resist the notion that, absent appropriate evidence, the Court should accept an argument bearing within it the assumption that some appropriate form of 'consolidation' (if I may use the term loosely) can be effected within or in the context of the current Guangzhou proceedings."

In short, one-stop adjudication would be a dead letter if the two sets of proceedings could not be consolidated and tried together by the same judge.

Conclusion

17. At the end of the day, the judge was, as I have said, exercising a value judgment, weighing up a whole variety of different factors. I have spelt out those factors so that I could more easily assess whether the value judgment which the judge made was one which could fairly be characterised as outside the generous ambit within which reasonable disagreement is possible. I recognise that on the same material another judge may have come to a different conclusion. But not without some hesitation, I have concluded that the conclusion which Stone J reached was one which did not fall outside the generous ambit within which reasonable disagreement is possible. I would therefore dismiss the appeal. At present, I see no reason why costs should not follow the event, and the order nisi which I would make is that the Defendant should pay to the Plaintiff its costs of the appeal, to be taxed if not agreed.

Godfrey VP :

18. Unless a judge is satisfied, in this sort of case (a) that Hong Kong is not the natural or appropriate forum for the trial and (b) that there is another available forum which is clearly or distinctly more appropriate than Hong Kong, he should, normally, exercise the discretion he has to order or to refuse a stay of the proceedings in favour of refusing a stay.

19. As I read his judgment in the present case, this was the principle on which Stone J acted here. On the material before him, I think he was entitled to exercise his discretion as he did although it may be that, on the same material, another judge might have come to a different conclusion and have exercised the discretion differently.

20. Accordingly, I agree with Keith JA (whose judgment I have had the advantage of reading in draft) that we should dismiss the appeal, with the consequences as to costs which Keith JA indicates.