YU LAP MAN v. GOOD FIRST INVESTMENT LTD

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 115
(Civil)

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JUDGMENT

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Mayo, J.A.:

1. This is an appeal from a judgment of Cheung, J. who in turn was hearing an appeal from Master Jones. Master Jones had ordered that the proceedings which had been commenced by the Respondent should be stayed. Cheung, J. allowed the appeal and ordered that the stay be lifted. It is this order which is the subject of this appeal.

2. In the proceedings the Respondent claimed to have entered into an Agreement with the Appellant dated 29th December 1992 whereby it was agreed that the Respondent would assign to the Appellant all his rights and liabilities under an Agreement made between a company called Hoi Tin Investment Co. Ltd. (Hong Kong) and the Xiamen City Government in relation to a parcel of land at Xiamen. The consideration for the assignment was RMB2,165,240. The Respondent also claimed that pursuant to Clause 7 of the Agreement it was agreed that the Appellant would appoint the Respondent and one Hui Sui Wai Directors of the Company and allot to them 30% of the share capital in the company.

3. The Appellant denies the existence of the Agreement dated 29th December 1992. They say that there was an earlier Agreement dated 12th December 1992 under which there had been an assignment of the rights and liabilities in the land for the consideration stated but that there had been no agreement to make either the Respondent or Mr. Hui a Director or allot any shares to them.

4. So far as the stay application is concerned two issues were considered by Cheung, J. The first was whether Clause 5 in both 12th December and 29th December Agreements was an exclusive jurisdiction clause. The second was whether the doctrine of forum non conveniens could be invoked. In this appeal we are not concerned with this second issue.

5. Before Cheung, J. there was a dispute concerning the English translation of Clause 5. The Judge resolved the dispute in the Plaintiff's favour and Mr. Warren Chan, S.C. who represents the Appellant now appears to be content to accept this. The translation reads:

"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."

6. Mr. Warren Chan also accepted that the summary of the relevant principles which should be applied in interpreting Clause 5 referred to by the Judge on p.181 of the appeal bundle were indeed the correct principles. These were:

"(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 true 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."

7. As can be seen from (2) the failure to specifically use the word "exclusive" is not fatal. It is necessary to have regard to the construction of the Agreement and the background and surrounding circumstances at the time the Agreement was entered into.

8. For the Appellant it can be said:

(a) The subject matter of the Agreement was the assignment of rights and liabilities relating to a parcel of land in China.

(b) Payments under the Agreement were in RMB and payment was in fact effected in China.

(c) It would appear on whatever view is taken on the litigation that an Agreement incorporating Clause 5 was executed in China.

(d) On perusing Clause 5 it is apparent that the parties had PRC law in their contemplation. There is certainly no reference to the laws of any other jurisdiction.

9. Mr. Warren Chan has submitted that the document appearing at p.141 of the appeal bundle constituted an expert opinion on Chinese Law. I do not think that it can qualify as such.

10. Besides the obvious fact that the lawyers are clearly representing the interests of the Appellant it would appear that they are simply placing reliance for the claim they are advancing on "basic principles common in the international community". I do not think that this takes matters any further.

11. In my view the Judge was right to proceed upon the basis that Hong Kong Law and PRC Law are the same.

12. For the Respondent it can be said:

(a) He is not a Chinese citizen. Although he is apparently of the Chinese race he is a citizen of the United States of America. He has been a resident of Hong Kong for the past ten years or so.

(b) The Appellant is not a Chinese company. It is a Hong Kong company. However, a large part of its business operations are undertaken in China.

(c) The Directors and shareholders of the Appellant are Hong Kong residents.

13. Before us it was accepted by Mr. Warren Chan that for him to succeed on this appeal he had to demonstrate that the effect of Clause 5 was to oblige the parties to litigate in China and in China only.

14. He placed considerable reliance on the words in Clause 5 "under the protection of the laws of the PRC ...". He submitted that these words were all embracing. They included matters such as mediation, litigation and, for example the enforcement of any order that may be made. This contemplated the inclusion of all procedural matters thus excluding the possibility of any litigation being commenced in say, Hong Kong. The parties would not have had in mind that it would have been feasible to undertake court proceedings in another jurisdiction where the procedure would not be the procedure of the PRC Courts.

15. Mr. Warren Chan went on to argue that it was significant that the parties did not appear to have received legal advice when the clause was drafted. He argued that having regard to all the background and circumstances common sense indicated that the parties not only wished to submit to PRC law but would also have wished to exclude the possibility of litigation being undertaken in some other jurisdiction.

16. I do not think that the mere fact that the parties may have been legally unrepresented is of significance one way or the other.

17. It is by no means certain that they would have addressed their minds to this particular problem. However even if they had done so it may well be the case that they would not wish Clause 5 to exclude the possibility of litigation in some other jurisdiction.

18. As was pointed out by Mr. Martin Lee, S.C. for the Respondent it would have made just as much sense not to exclude the jurisdiction of other courts. In this connection it needed to be borne in mind that both parties had strong Hong Kong connections and if a dispute arose on any other matter than one specifically relating to the parcel of land in Xiamen it would make obvious sense for the litigation to be conducted in Hong Kong.

19. Mr. Warren Chan contended that the situation in this case was similar to that which was encountered in Sohio v. Gatoil [1989] 1 Lloyds Law Reports 588. He referred to a passage at p.591 in the judgment of Staughton, L.J.:

"It seems to me that one should first decide whether the clause in the contract was one which provided that the English Courts should have exclusive jurisdiction, or merely provided that they should have non-exclusive jurisdiction.

In Dicey and Morris on Conflict of Laws, p. 404, there is this footnote 93:

Some authorities suggest that the clause must provide in terms that the jurisdiction of the chosen court be exclusive . .

and then there is a reference to Hoerter v. Hanover, (1893) 10 T.L.R. 103, to two Canadian cases and to certain other authorities, and the footnote continues:

... but it is submitted that the question is whether on its true construction the clause obliges the parties to resort to the relevant jurisdiction, irrespective of whether the word 'exclusive' is used.

Mr. Pollock does not dissent from that footnote; indeed, he adopts it.

The question is one of the construction of this contract and nothing more. It is, I think, part of the matrix background, or surrounding circumstances, whichever term one chooses to use, that this was a contract made between sophisticated business men who specifically chose their words as to English jurisdiction for the purpose of this contract. It is not a consumer contract on a printed form, or anything like 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. It may be that in some other types of case, such as a policy of insurance, there is a reason for providing for non-exclusive jurisdiction. I can see none here. I am not sure that I can detect what precisely the reason was for choosing England. 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."

20. It has to be said that this passage comes perilously close to suggesting that wherever there has been a submission to a jurisdiction this also includes a provision for exclusive jurisdiction. I do not think that this is what Staughton, L.J. intended. The situation in Sohio v. Gatoil can readily be distinguished from the present case. All of the interested parties were U.S. companies. It is apparent that the reason for the submission to English law was for the parties to avail themselves of the particular expertise of the Commercial Court in London. Such being the case it would have been illogical to agree to submit to the jurisdiction and not to exclude the jurisdiction of other Courts. This was an entirely different situation to the instant case. Mr. Warren Chan was not seeking to argue that the rationale for submitting to the jurisdiction of the PRC Courts was based upon their expertise in hearing cases of this nature.

21. Mr. Warren Chan also sought to place reliance on Continental Bank v. Aeakos SA [1994] 1 WLR 588 in support of his proposition that it was not necessarily a fruitful exercise attempting an exact interpretation of the clause in question. What was necessary was to have regard to the surrounding circumstances.

22. I do not think that this case assists the Appellant. It is clear from the headnote to the report that the parties had indeed addressed the subject of exclusivity. In those circumstances it was not surprising that the court should not seek much assistance from the construction of the clause.

23. Mr. Martin Lee contended that the burden was very much upon the Appellant to prove that it had indeed been the intention of the parties to exclude all jurisdictions other than China for the resolution of any disputes which may arise under the Agreement. In this connection a person or body corporate has a right to commence proceedings in Hong Kong unless they are specifically excluded from doing so. The question which had to be addressed by Cheung, J. was whether the provisions contained in Clause 5 amounted to such an exclusion.

24. He argued that they did not. He suggested that the Judge's interpretation of Clause 5 was the correct one. The wording of the clause was not assertive. One way of making sense of the clause was to read the earlier part of the clause as being descriptive and the subsequent parts as the implementation of the earlier part.

25. In particular he submitted that it was significant that no attempt had been made to indicate that the institution of legal proceedings in some other jurisdiction was not permitted. It would have been a simple matter for the parties to state that legal proceedings could only be commenced in the PRC. This has not been done and it was not possible to imply any such agreement either from the clause itself or from the matrix background or the surrounding circumstances.

26. Mr. Lee also sought to derive assistance from a passage on p.49 in the judgment of Travers, J. in Contractors Ltd. v. M.T.E. Control Gear Ltd. [1964] SASR 47.

"In the circumstances the first thing I must do is to construe clause 22. As I read the clause it consists of two parts. The first is an agreement as to the body of law which shall be applied in construing the agreement, and that law is described as 'the laws of England'. The second part of the clause is what has been described in argument as the 'submission to the High Court'. I think the two parts must be considered separately. I see nothing inconsistent in an agreement to apply the laws of England for the purposes of construction and at the same time permit the jurisdiction of the Supreme Court of South Australia to be exercised. I do not think the argument as to the second part, namely, the 'submission to the High Court', gains any substantial support from the existence in the same clause of the first part. As I read the second part of the clause it does not require any litigant of necessity to refrain from proceeding in a Court other than the High Court of Justice in England, but it requires a submission to the jurisdiction of that Court. The expression 'submission to the jurisdiction' seems to me to be apt to describe a situation which arises after litigation has been commenced in the High Court of Justice in England. No such litigation has been commenced there, and I do not think the clause extends to require either of the parties to refrain from commencing proceedings in the Supreme Court of South Australia if they so desire. I do not think the clause can be read as putting any higher duty upon the parties than a duty to refrain from objecting to the jurisdiction of the High Court of Justice if any proceedings are taken there."

27. I agree with Mr. Lee that this passage satisfactorily sets out the correct approach to be adopted.

28. I have come to the conclusion that if the principles referred to by Cheung, J. are followed it inevitably leads to the result that the Appellant is unable to discharge the burden of establishing that Clause 5 conferred exclusive jurisdiction on the PRC Courts. This being the case in my view this appeal should be dismissed and an order nisi should be made that the Respondent should have its costs.

Rogers, J.A.

29. I agree that this appeal should be dismissed.

30. As the Judge below said, the first important question is the construction of the Agreement whether it be that relied upon by the Plaintiff or the Defendant. In particular, the meaning of Clause 5 was crucial. The Agreement was in Chinese and the Judge below was faced with the difficulty that there were two certified translations by the same translator. He resolved that difficulty after hearing the translator. Important as regards the translation is the meaning of the characters which were used. In one translation, the second sentence of Clause 5 had been translated "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." However, the Judge accepted the conclusion of the translator's evidence that a better translation would be "..... are subject to the jurisdiction .....". The important distinction however is the distinction in meaning: whereas the words "shall be" would be assertive and connote an obligation, the Chinese character does not carry such a meaning. In addition, the Judge below had the advantage that he was a bi-lingual Judge and was therefore able to confirm the proper meaning himself.

31. Once the meaning of Clause 5 of the Agreement (whichever Agreement it might be) had been ascertained, in my view, the matter fell into place. The learned Judge below applied the correct principles and, in my view, his judgment should be affirmed for the reasons which he gave.

Godfrey, J.A.

32. I agree. The appeal is dismissed and we make an order nisi that the Respondent should have its costs.