CHINA CONSTRUCTION BANK (ASIA) CORP LTD v. SHANGHAI PUDONG DEVELOPMENT BANK CO LTD

CACV 14/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 14 OF 2016

(ON APPEAL FROM HCA NO. 1323 OF 2014)

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J U D G M E N T

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Hon Cheung JA :

I. The appeal

1.  Mimmie Chan J stayed the plaintiff’s action on the ground of forum non conveniens.  The plaintiff now appeals to this Court.

II.  Background

2.1   The background of this case is succinctly summarised by the Judge which I will respectfully adopt and supplement with additional material.  

2.2  The plaintiff’s claim against the defendant is for the sum of US$8,593,720.  The plaintiff is the negotiating bank under three letters of credit (the ‘letters of credit’) issued by the defendant’s Nanjing branch and Jiangyin sub-branch, and three bills of exchange (the ‘bills’) drawn under the letters of credit, in the aggregate sum of US$8,593,720.  The letters of credit were issued by the defendant on the application of Jiangyin Haigang International Logistics Co Ltd (as agent for Jiangsu Hualuo Trading Co Ltd) and Daluo Energy Resources and Material Co Ltd) (the ‘purchasers’), as buyers of goods from the sellers, C‑Star Shipping Co Ltd and Kam Fung International Investment Ltd (the ‘beneficiaries’). 

2.3   The letters of credit were expressed to have been issued by the defendant in Nanjing, to expire in the country of the negotiating bank, and to be available with any bank by negotiation.  The terms of the letters of credit provide for presentation of the documents required under the letters of credit (the ‘documents’) within 21 days after the issue of the letters of credit, and require the documents to be sent to the Jiangyin branch of the defendant. 

2.4   The beneficiaries presented the documents to the plaintiff for payment.  Each of them drew a bill of exchange in favour of the plaintiff, and the bills so issued were negotiated and purchased by the plaintiff on the strength of the defendant’s acceptance of the bills.

2.5  On 12 December 2013, the plaintiff presented the documents under the letters of credit to the Jiangyin branch of the defendant for payment.  It asked for remittance of the sum of US$8,593,720 to its bank account in New York.  The defendant refused to pay the plaintiff, on the basis the Intermediate People’s Court in Wuxi in the Jiangsu province (the ‘Intermediate Court’) had issued orders (the ‘Stop Orders’) in March 2014, in proceedings which were issued by the purchasers against the beneficiaries (‘Jiangsu Proceedings’).  The defendant was joined as a third party and ordered not to make payment under the letters of credit.  In the Jiangsu Proceedings, the purchasers claimed that the transactions under the letters of credit were fictitious, that there was fraud, and that the plaintiff had knowledge of the fraud and did not conduct the transaction in good faith.

2.6   Both the plaintiff and the defendant applied to the People’s Higher Court in Jiangsu (the ‘Higher Court’) on 21 March 2014 (the ‘March Application’) to lift the Stop Orders.

2.7   Despite the applications, the Higher Court maintained the Stop Orders.  In its Decision of 21 July 2014, the Higher Court considered that the purchasers had made out their case of fraud and the creation of fictitious documents under the letters of credit, and that the issue of whether the defendant and the plaintiff had negotiated and made payment under the bills in good faith had to be tried.

2.8   On 14 July 2014, the plaintiff commenced these proceedings against the defendant in Hong Kong, to seek payment under the bills.

2.9   In August 2014, the Intermediate Court joined the plaintiff as a party in the Jiangsu Proceedings.  On 11 December 2014, the plaintiff filed objections to challenge the jurisdiction of the Intermediate Court and applied to terminate the proceedings (the ‘December Objections’). The Intermediate Court declined to do so. 

2.10   The Jiangsu Proceedings were tried before the Intermediate Court on 18 December 2014 and 6 January 2015.  The plaintiff did not attend the trial (having reserved its position as to the jurisdiction of the Intermediate Court), despite having been subpoenaed and having been served with notice of and documents pertaining to the trial.  By its decisions dated 27 February 2015, the Intermediate Court found that there was fraud as alleged by the purchasers, but that the plaintiff had acted in good faith in its negotiation of the bills. 

2.11   The purchasers appealed against the decisions of the Intermediate Court.  The Higher Court consolidated the appeals with 13 other cases involving the same alleged fraudsters.  The hearing took 13 days and ended in early December 2016.  Judgments are expected to be available in around February 2017.  It is not disputed that as a result of and pending such appeal, the Stop Orders of the Intermediate Court remain in effect. 

2.12   On 4 November 2014, the defendant applied by Summons to stay or dismiss these proceedings on the basis that, first, there are pending proceedings before the Intermediate Court in respect of the same cause of action and, second, Hong Kong is not the appropriate forum, as the Intermediate Court is clearly and distinctly the more appropriate forum for the determination of the issue in dispute between the parties under the letters of credit and the bills. 

2.13   On 16 June 2015, Master Chow refused the stay application, and the defendant appealed against that decision to the Judge who allowed the appeal and stayed the present proceedings.

III.  The Judge’s decision

1)  The dispute

3.1   The Judge summarised the issue in dispute between the parties as follows.  The plaintiff claims that the defendant, having accepted the bills presented to the defendant, is liable for the amount of the bills.  The defendant had not claimed in the Jiangsu Proceedings that the plaintiff had acted in bad faith.  In its application to the Higher Court for review of the Stop Orders, the defendant had submitted that the plaintiff had negotiated the bills in good faith, and that the defendant had itself accepted the bills in good faith.  The defendant sought to explain that it was not in a position to present evidence as to the plaintiff’s involvement in the fraud, and had left it to the purchasers to present their case in the Jiangsu Proceedings. 

3.2   But whatever its stance in the Jiangsu Proceedings, the defendant has in these proceedings sought to rely on the claims made and evidence adduced by the purchasers in the Jiangsu Proceedings, as to the plaintiff’s involvement in the fraud alleged by the purchasers, and as to the plaintiff’s alleged knowledge of the fictitious transactions.  The defendant therefore claims in these proceedings that the plaintiff had not acted in good faith in respect of the letters of credit and its negotiation of the bills thereunder.  If it is established that the plaintiff did not negotiate the bills in good faith, the defendant has a good defence to the claim made by the plaintiff under the bills in these proceedings.  Whether or not the defendant can ultimately establish the plaintiff’s bad faith at trial is another matter and need not be investigated further at this stage.  The Judge recognised that whilst the Intermediate Court had found that there was fraud, it also held that the plaintiff had acted in good faith in the negotiation of the bills, but the Judge held that this is the subject matter of the purchasers’ appeal to the Higher Court, and the issue of the plaintiff’s good faith has not been finally determined by the courts in the Mainland.

2)  The factors

3.3   The Judge referred to the following factors in staying the plaintiff’s action :

1)  The existence of the Jiangsu Proceedings

3.4   The Judge regarded the existence of the Jiangsu Proceedings and the advanced stage to which those proceedings have progressed, and the fact that they deal with the same issue of the dispute between the plaintiff and the defendant, are strong factors in favour of a stay of the Hong Kong proceedings.

2)  The place of performance of the contract

3.5   Although the Judge did not expressly decide on the place of performance of the contract namely, the letters of credit, she held that :

‘ 23. The Letters of Credit were drawn on the Nanjing branch of the Defendant. The Documents under the Letters of Credit were also to be sent to the Nanjing branch of the Defendant, with which the Plaintiff dealt. The payment under the Bills was to be transmitted by the Defendant to the Plaintiff’s account in New York, although the Plaintiff had made payment to the Beneficiaries in Hong Kong when it purchased and negotiated the Bills.’

3)  Proper law of contract

3.6   As to the issue of the proper law, the Judge held that it does not appear that there is substantial difference between the laws of Hong Kong and of the Mainland as to the Defendant’s liability under the bills, in that the plaintiff would be entitled to payment from the defendant, unless it can be established that the plaintiff had not acted in good faith. 

4)  The place of business of the plaintiff and the defendant

3.7   The Judge held that both the plaintiff and the defendant carry on business in Hong Kong.  The defendant carries on business in the Mainland, and has a branch in Hong Kong and elsewhere.  The defendant was served with these proceedings in Hong Kong.  The plaintiff is incorporated in Hong Kong but it claims in its evidence to be one of the four largest banks in the Mainland.

5)  The presence of witnesses and documentary evidence

3.8   The Judge held that the essential witnesses on fraud (including that of the plaintiff’s knowledge) would be those called by the purchasers.  As these witnesses and the documentary evidence seized and obtained by the Jiangsu police in respect of the fraud, are all in Jiangsu, there might be difficulties in compelling the purchasers’ witnesses in the Mainland to attend trial in Hong Kong.  It is also conceivable that not all of such witnesses would be able to come to Hong Kong for the trial.  The Judge accepted the plaintiff’s submissions that there is no evidence that the documents now with the Jiangsu police or authorities cannot or will not be made available in Hong Kong.  As to the plaintiff’s claim that no witnesses were in fact called to give evidence in the Jiangsu Proceedings, the Judge held that whether the position will remain unchanged at the rehearing in the appeal before the Higher Court is unclear, but the defendant should not be precluded or prejudiced in its efforts to procure witnesses to come and give evidence at the trial in Hong Kong, or to compel the Jiangsu police and authorities (if necessary) to produce documents at the trial.

6)  Juridical advantage

3.9   In terms of juridical advantage of which the plaintiff will be deprived, the Judge rejected the plaintiff’s submission that the Intermediate Court had acted in contravention of various directives, and that there was delay in the proceedings, to support its assertion that it will not be able to obtain substantial justice in the Jiangsu Court.

3)  The conclusion

3.10   The Judge concluded that the Higher Court in Jiangsu is the appropriate court with which the action has the most real and substantial connection : 

‘ 27. Considering the fact that the Intermediate Court already heard the evidence and had given judgment in the Jiangsu Proceedings on the issue of the Plaintiff’s good faith, that the appeal has been lodged and is to be heard, the presence of both the Plaintiff and the Defendant on the Mainland, the proximity of the majority of the witnesses to Jiangsu, the fact that the Defendant cannot compel the attendance of the Jiangsu witnesses to appear at the trial of this action in Hong Kong, I consider that the Jiangsu Higher Court is the forum with which the action has the most real and substantial connection. Bearing in mind all the factors referred to in the preceding paragraphs, I agree that the Hong Kong Court cannot be seen to be the natural or appropriate forum, and that the Jiangsu Higher Court is more appropriate than Hong Kong to determine the issue in dispute between the Plaintiff and the Defendant in this action.’

IV.  Grounds of appeal

4.1   The Judge granted leave to appeal in respect of paragraphs 2(a), (b)(i) and (iv) and 3 of the draft grounds of appeal relied upon by the plaintiff in support of its application for appeal. 

4.2   Mr Daniel R. Fung, S.C. (together with Mr Alexander Tang) for the plaintiff summarised the grounds as follows :

1) The Judge erred in her decision in regarding lis alibi pendens before the Jiangsu Court to be a ‘strong factor’ in favour of a stay given, in particular, the fact that the plaintiff is disabled by operation of the Mainland law and procedure from seeking relief in the Mainland proceedings such that the same operates as a strong factor militating against any stay.

2) In lieu of supporting evidence, the Judge erred in placing reliance on the defendant’s bare assertion of alleged difficulty in compelling witnesses to attend trial in Hong Kong.

V.  Principles

1)  Forum non conveniens

5.1   The principles on stay of proceedings by reason of forum non conveniens were restated by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364.  The case itself is a matrimonial case.  At 386, having stated that the principles of forum non conveniens apply to the stay of matrimonial proceedings and civil proceedings, Lord Collins of Mapesbury NPJ stated :

‘ 51. We adopt the re-statement of the principles in matrimonial proceedings by the Court of Appeal (Cheung JA and Tang JA (as he then was)) in DGC v SLC (née C) [2005] 3 HKC 293, 297-298, applying Spiliada Maritime Corp v Cansulex Ltd (The Spiliada) [1987] AC 460, 477 and Louvet v. Louvet, 674-675:

1. The single question to be decided is whether there is 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?

2. In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

3. If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

4. If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.

   52. The Court of Appeal in that case (as in the present case) emphasised that the husband was entitled to sue in Hong Kong as of right. Where jurisdiction is founded in the Hong Kong court as of right (as in divorce proceedings like the present case), the party seeking the stay has to establish that there is another available forum which is clearly or distinctly more appropriate than the Hong Kong forum. This derives from what Lord Goff said in The Spiliada (at 477), which has been regularly applied in Hong Kong: eg The Kapitan Shvetsov [1997] HKLRD 374, 377; The Peng Yan [2009] 1 HKLRD 144, [22].’

2)  Parallel proceedings elsewhere

5.2   Lis alibi pendens (or in modern language ‘a dispute pending elsewhere’) means the suit about a particular subject matter between the parties is already pending in a foreign court.  LordDiplock in theseminalcaseof The Abidin Daver[1984]1AC398statedthatthelawon lis alibi pendensis indistinguishable from that of forum non conveniens.  Although lis alibi pendenswas relied upon as one of the grounds for staying the present action and although the plaintiff’s grounds of appeal refer to lis alibi pendens, it is clear by now that a parallel proceeding in another jurisdiction is only one of the factors to be taken into account on the issue of forum non conveniens, see : de Dampierre v de Dampierre [1988] AC 92 at 108 per Lord Goff of Chieveley and The Conflict of Laws in Hong Kong 2^nd editionparagraph 3.095 which was cited in Oracle (China) Software Systems Co Ltd v CITIC 21 CN Company Limited HCA 105/2012, 18 September 2013 paragraph 28.  Thus, Halsbury’s Laws of England Fifth Edition, Volume 19, paragraph 407 states that :

‘ In determining whether there is another forum clearly or distinctly more appropriate than England for the trial of the action, the court is entitled to take into account all factors connected to the parties, the claim or the action, including:

(1) the residence of the parties;

(2) the factual connections between the dispute and the courts, such as the place where the relevant events occurred and the residence of the witnesses;

(3) the law which will be applied to resolve the dispute;

(4) the possibility of a lis alibi pendens or other related proceedings; and

(5) the question whether other persons may become parties to the litigation.’  (emphasis added)

5.3   In respect of the relevance of a parallel proceedings elsewhere, Lord Diplock in The Abidin Daver at 411 referred to the inconvenience and expense of two parallel proceedings, the possibility of conflicting decisions and the problem concerning estoppel arising from a decision of another court which had addressed the issues :

‘ Where a suit about a particular subject matter between a plaintiff and a defendant is already pending in a foreign court which is a natural and appropriate forum for the resolution of the dispute between them, and the defendant in the foreign suit seeks to institute as plaintiff an action in England about the same matter to which the person who is plaintiff in the foreign suit is made defendant, then the additional inconvenience and expense which must result from allowing two sets of legal proceedings to be pursued concurrently in two different countries where the same facts will be in issue and the testimony of the same witnesses required, can only be justified if the would-be plaintiff can establish objectively by cogent evidence that there is some personal or judicial advantage that would be available to him only in the English action that is of such importance that it would cause injustice to him to deprive him of it.

    Quite apart from the additional inconvenience and expense, if the two actions are allowed to proceed concurrently in the two jurisdictions the courts of the two countries may reach conflicting decisions, ....... so an unseemly race to be the first to obtain judgment in the jurisdictions in which the Turkish shipowners and the Cuban shipowners respectively are plaintiffs might well ensue; and novel problems relating to estoppel per rem judicatam and issue estoppel, which have not hitherto been examined by any English court, might also arise.  Comity demands that such a situation should not be permitted to occur as between courts of two civilised and friendly states.  It is a recipe for confusion and injustice.’  (emphasis added)

VI.  Overview

1)  The unusual feature

6.1   Before I address the specific grounds of appeal, I will take an overview on the issue of the parallel proceedings in the Mainland Courts which was one of the factors taken into account by the Judge in deciding the issue of forum non conveniens.

6.2   Generally speaking, when parallel proceedings are relied upon, one refers to a suit on the same cause of action between the parties in a foreign court.  The unusual feature in this case is, however, that there is no claim or counterclaim between the plaintiff and the defendant in the Jiangsu Proceedings as they are both third parties to the claims brought by the purchasers: the defendant was joined on the initiative of the purchasers, while the plaintiff was joined as a third party by the Intermediate Court.  However, the stark fact is that because of the allegation of fraud by the purchasers and because of the Stop Order, it provided the defendant with the basis for not paying the bills to the plaintiff notwithstanding that the defendant agreed that the plaintiff had negotiated in good faith in the Jiangsu Proceedings.  Further, the defendant is now relying in the present action on the purchasers’ allegation of fraud in not honouring the bills.  

6.3   Mr Fung argued that the decision of the Intermediate Court dated 27 February 2015 did not impose any order between the plaintiff and the defendant regarding the payment of money under the letters of credit.  The English translation of the extract of the judgment of the Intermediate Court which summarised the issues of the case and the holdings of the Court read :

‘ Based on the arguments presented by the parties, the key issues of this case are as follows:

1. Did the actions carried out by Hua Luo Company (“Hua Luo”) and C-Star Company (“C‑Star”) constitute letter of credit fraud?

2. Did China Construction Bank (Asia) Corporation Ltd. (“CCBA”) negotiate the presented documents?  If yes, did CCBA negotiate the documents in good faith?

3. Did Shanghai Pudong Development Bank, Jiangyin Branch (“SPDB”) accept the draft(s) presented under the letter of credit in good faith?

 This Court holds the following views:

1. Hua Luo and C-Star did commit an letter of credit fraud because:.....

2. CCBA did negotiate the documents in good faith because:......

Based on the above, it is held that this is a letter of credit case as defined in article 8 of the Judicial Interpretation on Letters of Credit – there was no genuine underlying trade while C-Star prepared forged documents and conspired with Hua Luo in presenting the forged documents.

However, this case falls within items (2) and (4) of article 10 of the Judicial Interpretation on Letters of Credit (i.e. exceptions to the letter of credit fraud exception) —CCBA and SPDB did negotiate and accept the presented draft(s) respectively while the evidence provided by Hai Gang could not prove that CCBA did not negotiate the documents in good faith nor refuted the acceptance performed by the issuing bank under the letter of credit.

Accordingly, we hereby reject Hai Gang’s application to terminate payment under the letter of credit due to the lack of legal basis and evidence.  We also reject Hai Gang’s claims for damages against Hua Luo and C‑Star for RMB162,247.53 due to the lack of legal basis and evidence.  Pursuant to UCP 600 (articles 2, 5, 6(b), 7, 12(a)), the Judicial Interpretation on Letters of Credit (articles 8 (items 1 and 3), 9, 10 (items 2 and 4), Explanation on the Civil Procedure Law issued by the People’s Supreme Court of China (articles 90, 108 (item 1) and Civil Procedure Law of China (articles 142, 144), it is held that :

All the applications and claims submitted by Hai Gang are rejected.’

6.4   Notwithstanding the finding of good faith of both the plaintiff and the defendant by the Intermediate Court, the purchasers had continued their allegations of fraud against the plaintiff in the appeal process and unless this matter is resolved by the Mainland Courts, this will have an impact on the Hong Kong proceedings because, as the Judge observed in this case, the defendant had in these proceedings sought to rely on the claims made and evidence adduced by the purchasers in the Jiangsu proceedings as to the plaintiff’s involvement in the fraud alleged by the purchasers and also as to the plaintiff’s alleged knowledge of the fictitious transactions.  Specifically, the defendant claims in the present action that the plaintiff had not acted in good faith in respect of the letters of credit and its negotiation of the bills.  

6.5   In my view, the issue whether the Mainland Courts are the more appropriate forums cannot be viewed in a vacuum.  The analysis has to be made on the bases or factors that were presented before the Judge.   Fraud in respect of the letters of credit had been alleged and this clearly impacted on the question of payment by the defendant to the plaintiff.  This being the case, the Judge was clearly entitled to regard this as a relevant factor in deciding which is the appropriate forum bearing in mind the advanced stage of the proceedings in the Mainland.

2)  Nature of letters of credit, proper law and illegality

6.6   In an attempt to overcome this problem, Mr Fung referred to Power Curber International Ltd. v. National Bank of Kuwait S.A.K. [1981] 1 W.L.R. 1233 which discussed the unique nature of letters of credit, namely, they are regarded as cash and are to be honoured in the absence of fraud and that the contract as constituted by the letters of credit is a distinct transaction from the transaction of sales on which the letters of credit are based.  Lord Denning M.R. at 1241 stated that :

‘ On this question of recognition, I must draw attention to the importance of letters of credit in international trade. They are the means by which goods are supplied all the world over. It is vital that every bank which issues a letter of credit should honour its obligations. The bank is in no way concerned with any dispute that the buyer may have with the seller. The buyer may say that the goods are not up to contract. Nevertheless the bank must honour its obligations. The buyer may say that he has a cross-claim in a large amount. Still the bank must honour its obligations. A letter of credit is like a bill of exchange given for the price of goods. It ranks as cash and must be honoured. No set off or counterclaim is allowed to detract from it: see Nova (Jersey) Knit Ltd. v. Kammgarn Spinnerei G.m.b.H. [1977] 1 W.L.R. 713. All the more so with a letter of credit. Whereas a bill of exchange is given by buyer to seller, a letter of credit is given by a bank to the seller with the very intention of avoiding anything in the nature of a set off or counterclaim. This is borne out by the Uniform Customs and Practice for Documentary Credits which have been adopted by the banks in all, or practically all, the countries of the world—from China to Andorra—from Cuba to Nauru. All subscribe to the Uniform Customs and Practice which declare:

“Credits, by their nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts.” ’

(emphasis added)

6.7   Griffiths LJ at 1243 referred to the judgment of Kerr J in R. D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. [1978] Q.B. 146, 155 who described letters of credit as ‘the life‑blood of international commerce’.

6.8   Mr Fung further argued that the Stop Order against payment will only constitute a defence if the defendant has a right to insist upon performance in the Mainland.  He argued that since the letters of credit did not provide that the reimbursement could only be made in the Mainland, therefore the Stop Order is not a relevant consideration.  He referred to two Singapore cases, namely Sinotani Pacific Pte Ltd v Agricultural Bank of China [1999] 2 SLR(R) 970 and Agritrade International Pte Ltd v Industrial and Commercial Bank of China [1998] 1 SLR(R) 322 which discussed the issue that the proper law of an international letter of credit is the law of the country where the beneficiary is entitled to present the documents and becomes entitled to payment. 

6.9   Mr Fung further referred to Kleinwort, Sons and Company v. Ungarische Baumwolle Industrie Aktiengesell-Schaft and Another [1939] 2 KB 678 where at 694 MacKinnon L.J. referred to Dicey on Conflict of Laws, 5^th ed. at page 657 which stated that :

‘ A contract (whether lawful by its proper law or not) is, in general, invalid in so far as (I.) the performance of it is unlawful by the law of the country where the contract is to be performed (lex loci solutionis).’

3)  The answer

6.10   The short point to Mr Fung’s arguments is that neither illegality nor the proper law of the contract is included as a ground of appeal on which leave had been granted by the Judge.  To the contrary, the Judge specifically refused leave on the argument of illegality.  

6.11   In any event, as pointed out by Mr Ronny Tong SC (together with Mr Laurence Li) for the defendant, under the terms of the letters of credit, performance is to take place in the Mainland.  Although there were no restrictions on the place of negotiation, the documents were required to be presented to the defendant in Jiangyin, Jiangsu in the Mainland and the plaintiff had, in fact, presented the documents to the defendant at its office in Jiangyin as evidenced by a document dated 12 December 2013.  Hence, the plaintiff is unable to overcome the problem posed by the Stop Order. 

6.12   Further, in my view, in considering the relevance of foreign proceedings, it is likewise important to consider the stage which the foreign proceedings have reached.  If, for example, the foreign proceedings are in the course of being tried or had already been tried and an appeal is pending, these are clearly relevant factors to be considered in contradistinction with a case where the local proceedings are only at the initial stage of its commencement.  As Lord Goff observed in de Dampierre at 108 :

‘ But if, for example, genuine proceedings have been started and have not merely been started but have developed to the stage where they have had some impact upon the dispute between the parties, especially if such impact is likely to have a continuing effect, then this may be a relevant factor to be taken into account when considering whether the foreign jurisdiction provides the appropriate forum for resolution of the dispute between the parties.’

6.13   In this case, the dispute in the Mainland has already reached the Higher Court and a decision is pending.  This clearly is a relevant factor in considering whether the Jiangsu Court is the more appropriate forum.

VII.  Specific grounds of appeal

1)  The plaintiff is unable to obtain relief in the Mainland

7.1   Turning to the specific grounds of appeal, Mr Fung referred to Linfield Ltd v. Taoho Design Architects Ltd [2002] 2 HKC 204, a case concerning a stay in favour of arbitration, where Ma J (as he then was) laid down the following principles :

‘12. In lis alibi pendens cases... a stay is not automatically ordered if it can be shown that there is a legitimate purpose in proceeding with two sets of proceedings...

…

14. One starts with the basic principle: what would serve the ends of justice between the parties to the litigation and as far as the administration of justice is concerned?

…

“the guiding principles are:

(1) that the stay must not cause injustice to the claimant…

(2) that the applicant for stay must satisfy the Court that the continuance of the arbitration would he oppressive or vexatious to him or an abuse of the process of the Court; in short, that it would he unjust.

    I would add that where a plaintiff institutes proceedings as of right... he is not to be deprived of carrying on these proceedings unless very good reasons exist to the contrary.” 

7.2   Mr Fung argued that if the Mainland proceedings would not or could not afford the plaintiff the remedy it requires, this is a very strong factor militating against a stay —because it necessarily means that there is a legitimate purpose in proceeding with both sets of proceedings and a stay will cause injustice to the claimant.  He relied on a number of First Instance decisions in which stay was refused on the ground that the Hong Kong party would not be able to obtain the necessary relief in proceedings elsewhere : Intel Corporation v Via Technologies Inc. [2002] 3 HKC 650, First Laser Limited v. Fujian Enterprises (Holdings) Co. Ltd. (HCA 4414/2001, judgment delivered 12 December 2002), Oracle (China) Software Systems Co Ltd v. Citic 21 CN (China) Technology Limited (HCA 105/2012, judgment delivered 18 September 2013) and Chan Chow Yuen v. Nanyang Commercial Bank Trustee Ltd. (HCAP 4/2002, judgment delivered 7 June 2004).

7.3   Mr Fung submitted that even the defendant’s own expert characterized the plaintiff as a ‘third party’ who had no independent right of request and who was debarred from raising issues of jurisdiction, counterclaim, or making relevant applications in relation to the conduct of the case in the Mainland.

7.4   According to the opinion of the defendant’s expert, Professor Wang Ya Xin (黃亞新), under Mainland law, in first instance proceedings, a duly joined third party without an independent claim is not in the same position as the plaintiff, the defendant, or a third party with an independent claim.  It is only a ‘quasi-party’ to the action, i.e., it has no right to challenge the jurisdiction, file any counterclaim or raise any claims related to the case or the right to raise factual claims and evidence favourable to itself or other parties, debate, request recusals, and other litigation rights.  A third party without any independent claim could not have all the rights that a party has, including the right to appeal, challenge jurisdiction and other procedural issues other than raising substantive issues until after it was found liable for civil liabilities in the proceedings of the first instance.

7.5   The lack of relief to be resorted to by the plaintiff in the Mainland Courts is clearly a relevant factor.  However, the plaintiff’s expert stated in his opinion of 23 January 2015 that, while recognising that the plaintiff was a third party who has no right to proceed by way of a similar counterclaim against the defendant for payment, the plaintiff could issue an independent claim against the defendant for payment.  On this basis, the plaintiff can hardly argue that it would not be able to seek justice in the Mainland Courts had it decided to do so by lodging an independent claim there against the defendant for payment.  It had chosen not to do so.

7.6   It is true that while the plaintiff had the right to institute the present action in Hong Kong because it is a Hong Kong registered company and the defendant has a branch in Hong Kong, the reality is that it would not be deprived of any juridical advantage in litigation in the Mainland because it is entitled to sue the defendant separately in the Mainland.  

7.7   Mr Tong also argued that there is an element of forum shopping by the plaintiff in this case by choosing to litigate in Hong Kong after the Jiangsu proceedings had already begun.  The issue of forum shopping is, in my view, not determinative of this appeal because the Court is simply concerned with how the discretion is to be exercised in the light of two parallel proceedings in different jurisdictions.  Hence, it is not necessary for me to express a view on the matter. 

2)  Problem with witnesses

7.8   Mr Fung then argued that the defendant’s alleged difficulty in calling the Mainland witnesses is illusory because it has failed to identify with particularity what witnesses it wishes to call or prove that such witnesses are available in the the Mainland but not available in Hong Kong.  Mr Fung argued that the defendant has instead merely made a bare assertion, in the most general of terms, that :

‘ 56. All of SPDB’s witnesses are in Mainland China. It will be difficult if not impossible for them, or at least some of them, to obtain the necessary permit to come to Hong Kong to give testimony.

57.  Moreover, the witnesses for Haigang, Suntec, and RCB, as well as the persons related to Hualuo and Daluo are all in Mainland China...SPDB has no influence over them, has no means to force them to come to Hong Kong to participate in any trial here...’

7.9   Mr Fung submitted that the Judge based her decision on conjecture when she held :

‘ 26. ...there might be difficulties in compelling the Purchaser’s witnesses on the Mainland to attend trial in Hong Kong. It is also conceivable that not all of such witnesses would be able to come to Hong Kong for the trial.’

7.10   He relied on two First Instance decisions as examples where the Court commented on the failure to identify the relevant witnesses, Shenzhen Futaihong Precision Industry Co v BYD Co Ltd. (HCA 2114/2007, judgment delivered 27 June 2008). Pei Zheng Middle School v China Pui Ching Educational (HCA 946/2003, judgment delivered 5 August 2005).

7.11   In this case, the defendant relied on the allegation of fraud that came from the purchasers.  I do not consider that, beyond a general description by the party applying for a stay on the nature of the evidence that its witnesses will give, it must at that early stage of proceedings give specific particulars of the witnesses that it intends to call.  I do not regard this as a point which will upset the judgment below.

3)  Presence of the parties

7.12   Mr Fung also referred to the Judge’s view about the plaintiff’s presence in the Mainland when in fact the plaintiff is a Hong Kong company and it is different from the China Construction Bank Corporation which is one of the four largest banks in the Mainland.  I also do not regard this to be a decisive point on the correctness of the judgment below.

4)  Exercise of discretion

7.13   It is important to bear in mind that this is an appeal against the exercise of discretion by the Judge.  An appellate court will only interfere with the discretion if it is shown that the discretion has been wrongly exercised.  As Lord Brandon of Oakbrook observed in The Abidin Daver, at 420A-C, the appellate court can only interfere in three cases: (1) where the judge had misdirected himself with regard to the applicable principles; (2) where the judge had taken into account material matters which he ought not to have done or had failed to take into account material matters which he ought to have done; or (3) where his decision is plainly wrong. 

7.14   Lord Templeman in The Spiliada at 456F-G observed :

‘ … the solution of disputes about the relative merits of trial [here] and trial abroad is preeminently a matter for the trial judge. Commercial court judges are very experienced in these matters … An appeal should be rare and the appellate court should be slow to interfere.’

7.15   Lord Bingham in Lubbe v Cape Plc [2000] 1 WLR 1545, at 1556 explained the same:

‘ The jurisdiction to stay is liable to be perverted if parties litigate the issue at different levels of the judicial hierarchy in the hope of persuading a higher court to strike a different balance in the factors pointing for or against a foreign forum.’

7.16   In my view, the Judge had correctly applied the principles on forum non conveniens andtaken into account the relevant factors in holding that the Mainland Courts are the more appropriate forums.  Her discretion has been correctly exercised.  In any event, even if for the purpose of argument, there was an error in the exercise of the discretion which may cause this Court to exercise the discretion afresh, I would still come to the same view as the Judge that the Mainland Courts are the appropriate forums for the determination of this action considering the advantage of the proceedings there.

VIII.  Respondent’s notice

8.1   The defendant has issued a respondent’s notice on two grounds :

1) the plaintiff had submitted to the jurisdiction of the Mainland Courts; and

2) if the Mainland proceedings should go against the plaintiff, it would have no claim against the defendant in the present action.

8.2   No argument was raised by Mr Tong on the defendant’s respondent’s notice.  Accordingly, the matters do not need to be addressed.

IX.  Ambit of the stay

9.1   The only matter that requires discussion is the ambit of the stay.  As pointed out in paragraph 11/1/9 of the Hong Kong Civil Procedure 2017 Volume 1 :

‘ Nature of stay—In practice forum conveniens stays are nearly always effectively permanent because the matter is finally resolved in the foreign court, but the Hong Kong court has jurisdiction to grant a temporary stay, The On Tat [1983] H.K.L.R. 52 (first stay ever in favour of mainland China: granted for initial period of seven months) and to lift an indefinite stay for enforcement or other purposes.’

9.2   At the hearing of the appeal, this Court expressed its concern whether the defendant will effect payment after the decision of the Higher Court because as between the plaintiff and the defendant, the Intermediate Court made no order requiring the defendant to pay the sums under the letters of credit to the plaintiff.  Mr Tong informed the Court that the defendant is prepared to give an undertaking to pay the sums to the plaintiff in the event that the purchasers’ appeal is dismissed and subject to the question of further appeal but because of internal management of the defendant, time will be required for such undertaking to be given.  Irrespective of any undertaking to be given on the part of the defendant, my view is that the proper order is that a stay of the present action should be temporary in nature, namely until the determination of the appeal by the Higher Court or until further order.  This will strike a balance between the interest of the defendant and that of the plaintiff on its claim for the money.

X.  Conclusion

10.  The appeal is allowed to the limited extent as indicated above.

XI.  Costs

11.  The variation of the order on the stay itself has no impact on the outcome of the appeal.  Since in substance the plaintiff is unsuccessful, there will be an order nisi that the defendant is to have the costs of the appeal together with certificate for two counsel.

Hon Yuen JA :

12.  I agree with the judgment of Cheung JA.