ZHOUSHAN XINHONG AQUATIC CO LTD AND ANOTHER v. SINO TRANS LTD AND ANOTHER

DCCJ 540/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 540 OF 2006

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DECISION

 1.  The 1^st Defendant Sino Trans Limited applies for an order that all proceedings against the 1^st Plaintiff be stayed in favour of the Ningbo Maritime Court in the PRC under a foreign jurisdiction clause of the contract.  The Plaintiffs are opposing the application. 

2.  Under the 1^st Defendant's summons, it is apparent that the application is purportedly made under Order 12 rule 8 of the Rules of District Court.  Mr. Kerry, representing the Plaintiffs, argued that Order 12 rule 8 has no application, for an application for a stay of proceedings to a foreign court ought to be made pursuant to the Court's inherent jurisdiction.

3.  Mr. Wright, counsel for the 1^st Defendant, informed the Court at the hearing that the 1^st Defendant is not taking any issue under Order 12 rule 8 of the Rules of the District Court.  Therefore, whether the 1^st Defendant had submitted to the jurisdiction of Hong Kong Courts is not in issue in the present application.

Background

4.  The 1^st Plaintiff, Zhoushan Xinhong Aquatic Co. Ltd., was the shipper of a cargo of frozen seafood ("the cargo"); the 2^nd Plaintiff was the receiver of the cargo.  The 1^st Plaintiff shipped the cargo by sea from the port of Ningbo to the port of Nagoya on board the vessel Xiang Xing ("the vessel") under a contract of carriage contained or evidenced in a bill of lading number 8NGBNG03A5975 dated 27^th August 2005 issued by the 1^st Defendant as the carrier ("the said Bill of Lading").

5.  Upon delivery to the 2^nd Plaintiff, the cargo was found to be damaged; there was evidence that it had defrosted during the course of carriage from Ningbo to Nagoya.

6.  It is the Plaintiff's case that the 1^st and 2^nd Defendants are jointly and severally liable for the damage to the cargo.  The 1^st Defendant being liable in contract, tort and bailment; the 2^nd Defendant  to whom the 1^st Defendant delegated or subcontracted its obligations under the said Bill of Lading is liable in tort and/or bailment. 

7.  The writ in these proceedings was served on both the 1^st and 2^nd Defendants in Hong Kong on 8^th February 2006.  Service was acknowledged by both the 1^st and 2^nd Defendants and both filed notice of intention to defend.  The Plaintiff's Statement of Claim was served on 27^th February 2006.

8.  By a consent summons on 30^th March 2006, time for service of the 1^st Defendant's Defence was extended to 10^th April 2006.

9.  The 1^st Defendant applied for a stay on 7^th April 2006.  The 2^nd Defendant did not challenge the jurisdiction of the Hong Kong Courts and filed a defence on 26^th April 2006.  The Writ and Statement of Claim were amended on 29^th May 2006.

10.  According to the Writ, the 1^st Plaintiff's address is at Zhoushan in the province of Zhejiang in the PRC whereas the 2^nd Plaintiff's address is at Shimonoseki, Japan.  The 1^st Plaintiff  appears to be a PRC company and the 2^nd Plaintiff a Japanese company.  On the other hand, the 1^st Defendant has an address at Great Eagle Centre, Harbour Road, Wanchai, Hong Kong. Mr. Wright, however, submitted that the 1^st Defendant is in fact a PRC company.  The 2^nd Defendant is a company incorporated in Hong Kong and has an address at 99 Queen's Road Central, Hong Kong.  Mr. Wright, referred to the annual return of the 2^nd Defendant, which indicated that a PRC company, China Shipping Container Lines Co. Ltd. with an address in Shanghai is the holder of 999,999 shares of the 2^nd Defendant and 4 out of 5 of its directors are located in Shanghai in the PRC.

11.  The 1^st Defendant relied on the contractual jurisdiction provision allegedly written on the reverse side or the back of the said Bill of Lading.  The Plaintiff disputed the alleged terms to have formed part of the contract of carriage.  It is the Plaintiff's case that the 1^st Defendant failed to exhibit the said Bill of Lading and the reverse side of the said Bill of Lading with the terms containing the alleged jurisdiction and applicable law provision.

12.  Mr. Wright admitted that the 1^st Defendant has not been able to produce either a copy or the original of the said Bill of Lading for the particular cargo in question. The 1^st Defendant claimed the terms and conditions on the back of the said Bill of Lading are identical to those referred to in paragraph 7 of Mr. Yang Yuntao's 1^st affirmation and exhibit "YYT-6" of Mr Yang's 2^nd affirmation. The 1^st Defendant produced at the hearing a similar bill of lading form with terms and conditions appearing on the reverse side.

13.  Mr. Kerry, representing the two Plaintiffs in this application, took strong objection to the 1^st Defendant's failure to produce a copy of the original Bill of Lading with the terms set out on the back.  Mr. Wright admitted that the 1^st Defendant had not in its possession a copy of the original Bill of Lading.  

14.  Mr. Kerry submitted that the 1^st Plaintiff had retained only a photo or fax copy of the front of the said Bill of Lading and the original Bill of Lading had been sent to the 1^st Defendant.  The 2^nd Plaintiff had never received or seen a copy of the said original Billing of Lading with the alleged terms and conditions on the back.  This was said to be an accepted trade practice where the cargo was released by telex.  

15.  The absence of the said Bill of Lading is unfortunate.  If the 1^st Defendant is relying on the terms of the contract (the bill of lading), it has to discharge the onus of proof by producing the said Bill of Lading with the terms and conditions binding on the parties.  The 1^st Defendant cannot rely on a clause in the contract that has not been proved to exist.  It is not beyond the 1^st Defendant to locate a copy of the said Bill of Lading with the terms and conditions printed on the reverse side.  As the Plaintiffs made no admission to the terms forming part of the said Bill of Lading, the burden is on the 1^st Defendant to show that the alleged terms formed part of the contract between the two Plaintiffs and the 1^st Defendant.

The Foreign Jurisdiction Clause

16.  Had the 1^st Defendant succeeded in proving the alleged foreign jurisdiction clause was one of the terms on the reverse side of the said Bill of Lading and binding on the Plaintiffs, this clause would be significant in the determination of whether these proceedings should be stayed in favour of an action against the carrier to be brought before the Maritime Court of Ningbo in the People's Republic of China.

Applicable Legal Principles

17.  In the event the Plaintiffs are pursuing a claim in Hong Kong in breach of an exclusive jurisdiction clause, the Hong Kong Court can exercise its discretion to refuse a stay provided strong cause is shown by the Plaintiffs.  The Court's discretion in refusing a stay is subject to the principles established by a line of authorities referred to by Brandon L.J. in the case of The "El Amria" [1981] Lloyd's Law Reports vol.2 119 at p.123-124.  The Court has to consider all of the circumstances of the case, taking into account the following factors summarised by Dicey and Morris on the Conflict of Laws 13^th edition volume 1 page 443 paragraph 12-117:

"In exercising its discretion whether or not to grant a stay, the court considers all the circumstances of the case, and the following formulation of the particular factors to be taken into account has been much relied upon: (1) in which country the evidence is available, and the effect of that on the relative convenience and expense of a trial in England or abroad; (2) whether the contract is governed by the law of the foreign country in question, and if so, whether it differs from English law in any material respect; (3) with what country either party is connected, and how closely; (4) whether the defendants genuinely desire trial in a foreign country, or are only seeking procedural advantages; (5) whether the plaintiffs would be prejudiced by having to sue in the foreign court because they would be deprived of security for their claim, or be unable to enforce the judgment in their favour, or be faced with a time-bar not applicable in England, or for political, racial, religious or other reasons be unlikely to get a fair trial.  The fact that a stay will result in concurrent proceedings with different parties, but similar issues, may militate against a stay."

18.  The aforesaid factors have been approved by the Hong Kong Court of Appeal in the case of Trafalgar House Construction (Asia) Ltd. v. The Owners and/or Demise Charterers of M.V. "Thor Scan" 1999 2 HKLRD 136 applying the "El Amria" 1981 2 Lloyd's Report 199.

19.  Should the Defendant succeed in proving the terms set out in exhibit YYT-1 of Mr. Yang Yuntao's affirmation were on the reverse side of the said Bill of Lading, these terms would have become part of the contract of carriage because on the front of the said Bill of Lading it is expressly stated:-

"In accepting this B/L the Merchant hereby expressly accept and agree to all printed, written or stamped provisions, exceptions and conditions of this B/L, including those on the back hereof."

20.  At the back of the sample bill of lading form submitted at the hearing, Clause 4 stated:

"	4. Jurisdiction and Applicable Law
	Any dispute arising under and/or in connection with this B/L shall be determined by the law of the People's Republic of China and any action against the carrier shall be brought before the Maritime Court in the People's Republic of China."

21.  I agree with Mr. Wright that should Clause 4 formed part of the said Bill of Lading and the contract of carriage between the Plaintiffs and the Defendants, Clause 4 being mandatory, the appropriate Court for disputes arising out of the contract would be the Maritime Court of the PRC.

22.  The Court should exercise its discretion in favour of a stay for the action to be taken up in the Maritime Court of the PRC unless there is a strong cause for not doing so.

The Country where the Evidence is Available and the Relative Convenience and Expense of the Parties for Trial in the Foreign Jurisdiction  

23.  It is the Plaintiff's case that the 1^st Defendant is liable to the Plaintiff as the contractual carrier.  The 2^nd Defendant was the actual carrier.  The Plaintiffs claimed it owed a duty to the Plaintiffs for the damage to the cargo that took place while the cargo was in its custody. 

24.  In spite of a Surveyor's report prepared on the instructions of the Plaintiffs, the exact cause and time of the damage to the cargo has yet to be established.  The Plaintiffs, however, put the blame on the 1^st and 2^nd Defendants and concluded that the damage arose as a result of defects in or the malfunctioning of the container or the interruption of electricity supply while the cargo was carried by the Defendants.

25.  The Plaintiffs claimed that as the shipper and the consignee they have suffered damages and have the right to sue.  The 1^st and 2^nd Defendants as the carrier and the sub-bailee are therefore liable, the 1^st Defendant under the contract of carriage and the 2^nd Defendant as the sub-bailee in bailment and tort.

26.  It is not disputed that the main issue for determination at the trial would be the cause of damage to the cargo.  The burden of proof is on the Plaintiffs to show the Defendants are liable. The 1^st Plaintiff would be expected to prove the condition of the cargo at the time of delivery to the 1^st Defendant's custody in Ningbo.   Such evidence must come from the 1^st Plaintiff's servants or agents in Ningpo.  As to the evidence on the discovery of the damage at the time of delivery to the 2^nd Plaintiff in Nagoya, evidence would come from the 2^nd Plaintiff's agents or servants in Nagoya in Japan.    The investigators who made enquiries in Ningbo and prepared a report in English on the 2^nd Plaintiff's instruction would also be giving evidence at the trial. 

27.  It is not disputed that that both the 1^st and 2^nd Defendants' witnesses would have to come to Hong Kong from China to give evidence if the trial is conducted in Hong Kong. Consequently, the evidence at the trial would come from witnesses resident in China and in Japan.  The only connection with Hong Kong is the fact that both Defendants have an address in Hong Kong.  However, even though the 2^nd Defendant was incorporated in Hong Kong, the cargo was carried from the port of Ningbo in China to the port of Nagoya in Japan.

28.  Mr. Kerry argued that the 2^nd Defendant being a Hong Kong incorporated company should be able to give evidence in Hong Kong with no difficulties and it is within the power of the 2^nd Defendant to call its servants or agents to prove the condition of the cargo while the cargo was in its custody throughout the period of the carriage.

29.  There is obvious advantage for the trial to be conducted in English because all the documents are in written in English, including the report of the surveyor appointed by the 2^nd Plaintiff in Japan.  However, the evidence of the 1^st Plaintiff's agents or servants and the 1^st and 2^nd Defendants' witnesses would presumably have to come from Ningbo

30.  There are no language difficulties if the case is tried in Hong Kong because the Hong Kong Courts have excellent interpretation facilities.  So far as costs and expenses of the trial are concerned, the surveyor/investigators from Japan have to travel to the city where the trial is conducted whether it be Hong Kong or Ningpo in any event.  The witnesses from Ningbo, however, would have to travel to Hong Kong if these proceedings are allowed to continue.   Mr Kerry submitted that should the Plaintiffs be required to take up further proceedings in the PRC they would be exposed to further delay and incur additional expenses and costs.  Furthermore, all the documents written in English would have to be translated into Chinese.

The Applicable Law

31.  If the alleged Clause 4 formed part of the contract of carriage, the applicable law under Clause 4 is the law of the People's Republic of China.  Since the alleged Clause 4 also stated that any dispute arising should be brought in the Maritime Court of the PRC, there is no doubt that the Maritime Court in China would be the appropriate Court to take up this matter and apply the law of the People's Republic of China instead of a common law jurisdiction Court in Hong Kong.

The Country the Parties is More Closely Connected

32.  Of the four parties involved, three are said to be closely connected to the PRC.  The 2^nd Defendant is incorporated in Hong Kong with its major shareholder, a company registered in Shanghai.  The only exception is the 2^nd Plaintiff, which is based in Japan.

Genuinely Desire For Trial in Hong Kong

33.  There is no evidence that the Plaintiffs are merely seeking procedural advantage in commencing proceedings in Hong Kong.  The Plaintiffs, however, claimed that they would be disadvantaged should they commence proceedings in the PRC because of enforcement difficulties of a PRC judgment on the 2^nd Defendant, a company incorporated in Hong Kong.

Prejudice 

34.  Mr. Kerry referred to the possibility of multiple proceedings if these proceedings are stayed. The 2nd Defendant being a company incorporated in Hong Kong, there is possible difficulties involved in the enforcement of a judgment from the Maritime Court in Ningbo against the 2nd Defendant. Consequently, the Plaintiffs would have to continue with the present proceedings against 2^nd Defendant in Hong Kong in any event.  Furthermore, there is a risk that the Courts in Ningpo and Hong Kong may differ in their respective findings.

35.  These are genuine concerns.    On the basis that 1^st Defendant can show the parties had chosen the governing law of the contract to be the law of the People's Republic of China, the Plaintiffs would have to show a very strong case to resist a stay of these proceedings in breach of the exclusive jurisdiction clause. In paragraph 27 of Mr. Yang's 2^nd affirmation, Mr Yang claimed that under article 257 of the Chinese Maritime Code (page 120 of the bundle), the limitation period for claims against the carrier with regard to the carriage of goods by sea is one year.  He believed the Plaintiffs' claim against the 1^st Defendant had not been time-barred in the PRC until the expiry of one year after the cargo was delivered to the consignee's premises on 6^th September 2005.  That indeed should be the position if not for Clause 24 of the alleged terms of the said Bill of Lading which stated :

"	24. Time Bar
	The carrier shall be discharged of all liabilities under this B/L unless suit is brought within 9 months after the delivery of the goods or the date when the goods should have been delivered."

36.  The Plaintiffs submitted that there is a risk that article 257 may not override Clause 24.  The Plaintiffs consequently should not be exposed to the risk to have their claims thrown out by the Chinese Maritime Court under Clause 24 because it was not brought within 9 months of 9^th September 2005.  As no expert opinion from a Chinese law expert on the applicable principles between the terms in the contract of carriage that conflicted with an article in the Chinese Maritime Code had been produced at the hearing, the Hong Kong Court would adopt an interpretation according to the local law.

37.  I find there is a genuine risk that the Plaintiffs may be put in the position similar to the case of The "Blue Wave" [1982] volume 1 Lloyd's Law Reports, part II, page 151 where Sheen J. held at page 153:-

"At the time when this contract was made it was made between the cargo-owners and the shipowners, who were identified under cl. 17 of the bill of lading as "the carrier".  I have no doubt that the proper law of the contract is the law of the country in which the shipowners have their principal place of business."

43. Sheen J. held that the defendants have a place of business in Piraeus.  They have no office or staff in Liberia.  The "Blue Wave" did not operate from Liberia.  There can therefore be no doubt that the defendants have their principal place of business in Greece. He further found that as between the original parties to the contract of the carriage there was an agreement that any dispute arising thereunder would be decided in the Courts of Greece.  He held that the Court would give effect to the agreement by granting a stay of proceedings unless the Plaintiffs can show strong grounds for not doing so.

38.  At page 156 of the report he held further:-

"The approach of the Courts of this country to a time bar has significantly altered in recent years.  If it is open to a Court to extend the time limit, the Court will look to see if the defendant has been prejudiced by the delay in commencing proceedings.  Such prejudice cannot arise where a claim is brought in time, but not in the correct tribunal.  There would be an injustice to a plaintiff, who has suffered a legal wrong and has started proceedings, if he is precluded altogether from pursuing his remedy.  The fact that the plaintiff will have no remedy in the foreign Court seems to me to be a powerful factor against a stay."

39.  At page 157, he said:

"It seems to me that I have two options.  I can refuse to stay the action in England, or I can grant a stay conditional upon the defendants not taking the time bar point in Greece.  Thereafter, if the Court takes the point of its own motion I could treat that as grounds for lifting the stay.  On the evidence before me, it seems that if I were to adopt the second option I might be putting the parties to a great deal of unnecessary expense and I might cause delay in the resolution of this dispute.  I have already indicated my view that on the facts of this case, when considering only the convenience to the parties as between litigation in Athens and litigation in London, there is very little to choose between the two possible venues.  On that basis, it would be quite wrong to stay proceedings in London and thereby put the parties to the expense, inconvenience and delay which would result from starting again in Athens if there is a possibility that the matter would have to come back to London because the claim in Greece is time barred."

40.  The same principles have been referred to in Fuad J.'s judgment in the Hong Kong Cases of Confecciones Del Atlantico v Lamont Shipping Incorporated  [1982] Hong Kong Cases 327, where the learned judge adopted the principles set out in The "Eleftheria" [1970] P 94 and the influence of the time bar factor on the Court in Sheen J.'s judgment at p. 156 referred to above.  The 'multiplicity of proceedings' point was held to be in the plaintiffs' favour.

Conclusions

41.  Should the present proceedings be stayed for the Plaintiffs to pursue their claims in the Maritime Court of Ningbo and should the Defendants raise the issue of limitation of action under the contract in the PRC Court relying on Clause 24 of the alleged terms and conditions on the back of the said Bill of Lading, it is likely that the Plaintiffs would not be able to recover against the Defendants in the PRC.  As a result, the Plaintiffs would have to turn to the Hong Kong Courts and apply for the lifting of the stay of proceedings in Hong Kong after a long delay and having incurred further expenses in the Ningbo Maritime Court proceedings.  It seems to me to be quite wrong to stay proceedings in Hong Kong and expose the Plaintiffs to the risks of wasting huge expenses and time if there is a strong possibility that the matter may be time-barred in China under the alleged Clause 24 of the said Bill of Lading.

42.  I come to the following conclusions after considering all of the circumstances of this case. Firstly, the 1^st Defendant had failed to produce a copy or the original of the said Bill of Lading with the terms attached to establish its claim that the parties are subject to a binding exclusive jurisdiction clause.

43.  Secondly, even if the 1^st Defendant is able to establish that the Plaintiffs are bound by a foreign jurisdiction clause in the contract, there is a strong possibility that the Maritime Court in Ningpo may reject the Plaintiffs' claims upon finding the Plaintiffs to be bound by Clause 24 of the alleged terms and conditions, the Plaintiffs having failed to bring their claims against the Defendants within 9 months of the delivery of the cargo.  The period of 9 months having expired on 8 June 2006.

44.  Thirdly, the Plaintiffs would have to face multiplicity of proceedings and put to great expense to commence proceedings in the Maritime Court in Ningbo which may be an exercise in futility due to Clause 24; resulting in their return to Hong Kong to pursue their claims against the Defendants. Further, they may have to continue their claims against the 2^nd Defendant in any event, even if they should succeed in the Maritime Court in Ningpo in order to enforce the judgment.  For the aforesaid reasons, I am satisfied the Plaintiffs have shown a strong cause for not granting a stay of these proceedings.   The 1^st Defendant's application to stay is, therefore, dismissed.

45.  Cost nisi – Cost should follow the event therefore the 1^st Defendant should pay the cost of the Plaintiffs, to be taxed if not agree.