DUNAVANT ASIA LTD v. COTTON & JUTE CORP. OF THE 7TH AGRICULTURAL DIVISION OF PRODUCTION & CONSTRUCTION CORPS OF XINJIANG CHINA

HCCL 47/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.47 OF 2004

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

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

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

J U D G M E N T

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

The application

1. By summons dated 17 September 2004, as amended by consent on 3 December 2004, the defendant seeks an order that the plaintiff’s Writ and Statement of Claim be struck out on the ground that it is frivolous and vexatious and/or an abuse of process, alternatively that the action herein be stayed on the ground of forum non conveniens and lis alibi pendens.

2. Notwithstanding the provision for a strike out, argument in this application has focused solely upon the application for a stay, or at the least an interim stay of these proceedings, and accordingly this judgment reflects that approach.

3. The facts of this case are somewhat out of the ordinary; accordingly brief reference to the background is necessary.

The history

4. In the present action, the plaintiff seeks damages for alleged breaches by the defendant, a Chinese legal entity, of two contracts dated 29 March 2000 and 15 May 2000 which provide for the sale and purchase of cotton.  These contracts are governed by PRC law.

5. At the outset the plaintiff did not seek to bring this claim in Hong Kong.  The plaintiff first sought redress before the Tianjin Intermediate Court, which ruled that the jurisdiction should be that of the Urumqi Intermediate Court.

6. The plaintiff then transferred its case to the Urumqi Intermediate Court, which assumed jurisdiction and conducted a trial on the merits.

7. It is common ground that the plaintiff’s claim has been the subject of a judgment by the Urumqi Court.  The Urumqi judgment, dated 18 September 2003, dismissed the plaintiff’s claim.

8. The plaintiff had the right to appeal to the Urumqi High Court of Xinqiang, but did not follow that course.

9. Instead, on 13 September 2004 the plaintiff petitioned the Urumqi High Court of Xinqiang for a retrial, and further applied to the Urumqi Higher Protectorate to protest the Urumqi judgment on 13 October 2004, an application which also could result in an order for a retrial.

10. As at the date of this stay application and, I assume, as at the date of the judgment herein, given that in the intervening period this court has not been informed of any further developments, the applications for a retrial in China have not been the subject of decision.

11. The plaintiff issued its Writ and Statement of Claim in Hong Kong on 18 August 2004.

12. The present action in Hong Kong is based upon the same claim as already has been adjudicated in Urumqi and as is now sought, by virtue of the further applications to the Urumqi High Court and the Urumqi Higher Procuratorate, to be the subject of a retrial in China.

The argument

13. Mr Mok, who mounted this application for a stay on behalf of the defendant, submitted that, from the perspective of cause of action estoppel, the only matters preventing the Urumqi judgment from being a final judgment were the outstanding applications to the Urumqi High Court and Higher Procuratorate.

14. The result of these applications, he said, had an important bearing on the present case.  If there was ordered to be a retrial in China, it would not be open to the defendant in these proceedings to plead cause of action estoppel by way of defence.  Conversely, if neither application in China resulted in a retrial, reliance could, and would, be placed on such defence.

15. His submission was that in such circumstances the Hong Kong court should stay the present action in Hong Kong, which was based upon precisely the like claim that had been adjudged in China, pending the outcome of the two outstanding applications in Urumqi.

16. Once these matters had been concluded, he said, the alternatives for his client were clear.  Either the Urumqi judgment could found a defence to the present claim, or, if the applications now ongoing in Urumqi were to result in an order for a retrial, which thereafter was to take place, the present action could be the subject of an application for a permanent stay on the basis of forum non conveniens or lis alibi pendens: see, for example, Paladin Agricultural Ltd v. Excelsior Hotel (Hong Kong) Limited [2001] 2 HKC 215.

17. For the defendant, Mr Sussex SC submitted that the applications currently outstanding in China clearly pointed to the fact (as appears to be common ground) that the existing Urumqi judgment should not be regarded as final.

18. He noted that the Urumqi judgment did not even purport to decide all the issues which were extant in that case, in that the Urumqi court had not decided the question, which undoubtedly arose on the facts, as to whether the defendant had entered into a binding contractual promise to procure that the nominated export agent (Nongken) would enter into contractual sales confirmations in the terms identified in the two contracts for the sale and purchase of this cotton.

19. Thus, Mr Sussex argued, the Urumqi judgment could only be regarded as final in terms of that which it had purported to decide, and it had only purported to decide the issue of whether the defendant had the capacity to conclude a contract for the export of Chinese cotton to a foreign party, and not the question of whether there was a contractually binding promise to procure such third party to enter into contractually binding sales confirmations.

20. In addition, he submitted, the plaintiff in this case wished to argue that the two contracts the subject of this action fell to be governed by and to be construed in accordance with the laws of Hong Kong, because, on the correct analysis, Hong Kong was the jurisdiction with which these two contracts were most closely connected.

21. Further, the plaintiff wished to assert that it had not received ‘substantial justice’ in the Chinese court, and complained of bias and local protectionism; in this context Mr Sussex noted that the defendant is a trading arm of the People’s Liberation Army, and the plaintiff wished to mount the argument in this case that the Urumqi judgment was contrary to Hong Kong views of substantial justice.

22. In terms of the present application for a stay based on the basis of forum non conveniens or lis alibi pendens, he said, the court will have regard to the principles laid down in Spiliada Maritime Corporation v. Cansulex Ltd [1987] AC 460, wherein the guiding principle was that a stay will not be granted “unless the court is satisfied that there is some other tribunal, having competent jurisdiction, in which the case may be tried more suitably for the interests of all the parties and the ends of justice”.

23. In this case, he argued, there was no jurisdiction which can be considered the ‘natural forum’: the two contracts were concluded in Hong Kong and called for performance in Hong Kong, the plaintiff is in Hong Kong, and the defendant, who has voluntarily submitted to the jurisdiction, was required to present shipping documents in Hong Kong.  On the other hand, the defendant is in mainland China, and part of the contractual performance was to occur there.  And, in addition, the proceedings which had taken place in mainland China could ‘legitimately be regarded’ as a factor pointing to the mainland.

24. Thus, Mr Sussex contended, this was an example of a commercial case in which there was no forum which could be considered ‘clearly more appropriate’, and therefore a stay should be refused.  And even if the defendant could overcome the initial burden of persuasion in terms of another ostensibly more appropriate forum, the plaintiff would oppose a stay by demonstrating that there were special circumstances — in this case the inability to receive substantial justice in the competing forum — by reason of which justice required that the trial of the present proceedings now should take place in Hong Kong.

25. As to the course the plaintiff would take consequent upon resolution of the outstanding applications for retrial in China, Mr Sussex noted that if there was no order for a retrial by the Urumqi courts the position of the parties would crystallize: in this instance there would be a final and conclusive judgment on a limited number of issues, and thus the defendant would be able to plead issue estoppel only, and in addition the plaintiff would seek to plead the lack of substantial justice.  Conversely, if there were to be an order for a retrial, if possible he would advise his client to try and stay any such further Chinese proceedings in favour of this litigation in Hong Kong, and such retrial would continue in China only if his client was constrained so to continue by the Chinese courts, and if the plaintiff did not otherwise withdraw from such proceedings.

26. In any event, he concluded, this was not a case which now should be subject to a stay, whether of an interim or a permanent nature, and the matter should be permitted to be pleaded out, and thereafter to proceed to trial in normal course, given that on any basis the Chinese proceedings would not be determinative of all the issues arising in the present action.

Decision

27. The present position is far from satisfactory, and evidently is subject to a number of variables.

28. The intervening period between the hearing of this application and judgment herein possibly afforded an opportunity for clarification of the position in terms of the decision as to a retrial in the Chinese courts, but as matters have transpired this has not been forthcoming.

29. Dependent upon that which occurs in China, and further upon the plaintiff’s response thereto, in my view any order of this court at this stage should not purport to be finally dispositive of the defendant’s stay/strike out application. The question thus arises as to the appropriate course to be followed in the interim.

30. For my own part I fail to see that application of the principles in Spiliada, op cit., can have much to do with it in a situation in which the plaintiff’s claim for contractual breach has, at the plaintiff’s option, already been heard and determined in China.  As Mr Mok observed at the outset, the current situation required ‘adjustment’ of the normal Spiliada approach.

31. Be that as it may.  In light of the variables that arise consequent upon the decision of the Chinese courts as to the issue of a retrial, it seems to me that this action cannot sensibly go further until it becomes clear whether, for example, the defendant is able to allege that it has an accrued defence in terms of cause of action estoppel (I appreciate that the plaintiff will say that on any basis the defendant would have only an issue estoppel defence), and further what is the plaintiff’s reaction to any retrial order that may be made in China consequent upon its current application therefor.

32. If this be correct, and the present action cannot sensibly proceed until matters are thus clarified, the only question that then arises is whether this action should be subject to an interim stay, as suggested by Mr Mok, or whether it should be permitted to be pleaded out, as Mr Sussex submitted, or, in the further alternative, whether the present application simply should stand adjourned, with no order being made, pending the required clarification.

33. Tempting as it may be, I do not favour the latter course.  I have entertained a disputed application upon the evidence as now exists, and in my view it behoves this court to decide it.

34. In my judgment the appropriate course to adopt in this situation is to order, as I now do, an interim stay of these proceedings pending clarification of the situation in terms of the present Chinese proceedings.  Consequent upon such clarification, there is to be liberty to the plaintiff to apply to lift such interim stay, and there is to be liberty to the defendant to apply to restore its application for a permanent stay/strike out of the present Hong Kong action.

35. This approach strikes me as more appropriate than simply leaving the matter effectively in limbo, both as to the future progress of this action and absent the possibility of the existing case currently being susceptible to precise pleading.

36. I note also that this approach conforms with approach of these courts wherein Hong Kong proceedings on the same claim were stayed to await the outcome of PRC applications: see, for example, the decision of Cheung J (as he then was) in Chiyu Banking Corporation v. Chan Tin Kwun [1996] 2 HKLR 395, wherein the proceedings in that case were stayed pending a decision by the Supreme People’s Procuratorate.

37. As to costs, the defendant’s application for an interim stay of these proceedings pending the outcome of the PRC applications has been made, and has succeeded, after determined resistance by the plaintiff.  In the circumstances, it seems to me that costs should follow the event.

38. Accordingly I make an order nisi that the plaintiff do pay to the defendant the costs of this application, including the hearing on 14 December 2004, in any event, such costs to be taxed if not agreed.