XCHRX R ESMERIAN INC. v. ALEXANDRE REZA

1994, No.A9444

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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D E C I S I O N

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1. This is an application by the Defendant Alexandre Reza for an order staying the action commenced by a Writ of Summons issued and served on the Defendant on 22 September 1994 ("the Hong Kong action") on the grounds that Le Tribunal de Commerce de Paris is the more appropriate forum for the trial of this action.

2. The dispute is between the Plaintiff R. Esmerian Inc., a New York dealer and designer of jewellery and the Defendant who is a French jeweller and an executive in Reza Gem S.A. ("Reza Gem") a jewellery company based in Paris. At the heart of the dispute is a pair of large sugarloaf cabochon emeralds with a total weight of 34.80 carats. Each of the Plaintiff and the Defendant and/or his company Reza Gem claims to be the true owner of these emeralds ("the emeralds").

The Facts

3. In the fall of 1989, the Plaintiff entrusted over US$30 million worth of jewellery, including the emeralds, which had a consigned value of US$2 million to Corvina Securities Inc. ("Corvina"). Corvina in turn entrusted the jewellery to Wolfers Trading AG ("Wolfers"), a European jewellery concern which was to arrange for the showing of the jewellery for sale in the United Arab Emirates. Wolfers entrusted the jewellery to Ghassan Fakhreddin ("Mr Fakhreddin") for a renewable period of 15 days pursuant to a contract dated 22 September 1989 between Wolfers and Piccadilly-Fakhreddin Brothers and/or Mr Fakhreddin ("the Wolfers contract"). Mr Fakhreddin failed to return the emeralds either to Wolfers or the Plaintiff.

4. Instead, Mr Fakhreddin took them to Singapore where he pledged them, together with gems worth approximately US$17.5 million consigned to Mr Fakhreddin by Reza Gem on 31 March 1990, to one Peter Teo ("Mr Teo") a Singaporean jeweller, as security for a guarantee given by Teo to the Republic National Bank of New York ("RNB Singapore") to secure an overdraft of US$1.2 million at RNB Singapore by Mr Fakhreddin. Mr Teo was also owed US$300,000 by Mr Fakhreddin, being the value of jewellery Mr Fakhreddin had consigned to Mr Teo earlier.

5. Not surprisingly, Reza Gem was anxious to recover the gems that it had consigned to Mr Fakhreddin. The Defendant (acting for Reza Gem), Mr Fakhreddin and Mr Teo entered into an arrangement in Singapore which involved the following :-

(i) the substitution of a guarantee valid from 6 July 1990 to 30 December 1990 from RNB France to RNB Singapore for the guarantee of Mr Teo to secure Mr Fakhreddin's overdraft of up to US$1.4 million of which US$300,000 would be paid to Diamond Centre (Pte) Ltd., Mr Teo's company. Such guarantee was conditional upon the Defendant receiving into his possession 11 pieces (of jewellery);

(ii) delivery by Mr Teo to Reza Gem of (a) Reza Gem's consignment of jewellery and (b) two precious stones (being the emeralds) given to Mr Teo by Mr Fakhreddin;

(iii) the deemed sale by Mr Fakhreddin to Reza Gem of

(a) the emeralds at an agreed value of US$700,000; and

(b) 4 oriental carpets at an agreed value of US$270,000; and

(iv) payment by Reza Gem of US$300,000 to Mr Teo.

These events were not contemporaneous but occurred over a period of several months between 7 June 1990 and 23 October 1990.

6. There is a handwritten note dated 7 June 1990, which Mr Fakhreddin gave to the Defendant in Singapore ("Mr Fakhreddin's Note"). It is written in French and, inter alia, refers to the deemed sale of the carpets and "two precious stones" by Mr Fakhreddin to Reza Gem. In late October 1990, the emeralds were imported into France by Reza Gem.

7. In November 1990, Mr Esmerian of the Plaintiff visited the Defendant in his office in Paris together with one Bonnie Selfe, Director of Fine Jewellery for Cartier in North America as he had heard rumours in the jewellery trade that the Defendant had also been defrauded of jewellery by Mr Fakhreddin. According to Mr Esmerian, he described to the Defendant how jewellery belonging to the Plaintiff had found its way to Mr Fakhreddin and had not been returned and showed him photographs of the jewellery including the emeralds but the Defendant did not admit to Mr Esmerian that he had possession of the emeralds.

8. In April 1991, Mr Esmerian spoke to Mr Fakhreddin several times and was told by Mr Fakhreddin that he had delivered the emeralds to the Defendant. The Plaintiff and Wolfers have lodged criminal complaints and commenced civil proceedings against Mr Fakhreddin and others in relation to the jewellery in Switzerland and Singapore. Mr Fakhreddin is (and has been since July 1993) in jail in Geneva pending the investigation of his misappropriation of the Plaintiff's jewellery.

9. On 21 September 1994 one John Ullmann ("Mr Ullmann") a business associate of the Plaintiff saw the emeralds on display in the Defendant's booth at the Hong Kong Jewellery Fair. An Anton Piller Order was obtained on 22 September 1994 pursuant to which the emeralds are now in the joint custody of the Plaintiff's and Defendant's solicitors pending trial of the Hong Kong action or until further order.

Before turning to consider the issues in this case, I should outline proceedings that have or are taking place in France.

Proceedings in France

(a) The French insurance action

10. On 28 February 1991, Wolfers commenced an action for damages before the Commercial Court of Nanterre in France against its insurers MEPA and its brokers Euromepa who had caused Wolfers' insurance contract to be renewed from 31 October 1989 but with the deletion of the clause relating to a direct breach of trust by Mr Fakhreddin. The Plaintiff intervened in those proceedings on 28 June 1991. On 15 January 1993, the Commercial Court of Nanterre rendered a decision ordering Euromepa to pay the Plaintiff US$10,527,500 plus costs representing half of the total claim because Wolfers and Euromepa were found to be equally at fault. On 26 January 1995 the Court of Appeal of Versailles, on Euromepa's appeal, increased the judgment in favour of the Plaintiff to US$20.25 million.

11. The Court of Appeal of Versailles held that the issue of the Plaintiff's ownership of the emeralds was not a relevant one but it found that there was sufficient evidence that the Plaintiff was the true owner and therefore had an insurable interest in them. See 1st Quint affidavit, para.10. So although at the time the 1st Belshaw affidavit was filed (on 16 November 1994), the possibility of consolidating the Hong Kong action with the French insurance action was presented as a factor in favour of granting a stay of the Hong Kong action, Counsel for the Defendant informed me that this point is no longer taken. Indeed, as appears from the 1st Simpson affidavit filed on the Defendant's behalf (para.4), it is conceded that it is no longer possible for the time being to consolidate the lawsuit between the Plaintiff and the Defendant (and I take this to mean both the Hong Kong action and the Paris action described below) with the French insurance action.

(b) The Paris action

12. On 19 October 1994, some six weeks after the commencement of the Hong Kong action, Reza Gem commenced proceedings before the Tribunal de Commerce of Paris against the Plaintiff seeking a declaration that the emeralds are its property and an order for restitution. These proceedings mirror the Hong Kong action.

13. A hearing was scheduled for 5 April 1995. The Plaintiff had indicated that it proposed to request the Tribunal de Commerce of Paris to disclaim its jurisdiction in favour of the Hong Kong courts. See 1st Quint affidavit, para.11. According to the Defendant, such a request would not be heard prior to, but rather at the same time as, the hearing of the entire case on the merits. See 2nd Reza affidavit, para.6. A hearing did take place on 5 April in the Paris action (when this application was actually before me) but to say the least, it is unclear what the outcome of the Paris hearing was. There is a letter from the Defendant's French lawyers to the effect that the entire case will be heard on the merits on 10 May. This is contradicted by a letter dated 6 April 1995 from the Plaintiff's French lawyers according to whom the only issue before the court on 10 May will be the Plaintiff's motion for the court to disclaim its jurisdiction.

(c) The defamation action

14. In addition to the Paris action, the Defendant commenced an action in defamation in the Civil Court of Paris against, inter alia, Mr Esmerian on 20 December 1994 relating to allegedly defamatory statements concerning the Defendant's possession of the emeralds.

(d) The SIACI action

15. On 23 December 1994, Reza Gem commenced an action in the Tribunal de Commerce of Paris against SIACI its insurers claiming against them US$700,000 (being the value of the emeralds) in the event of the Plaintiff succeeding in its claim to ownership of the emeralds and seeking an order that SIACI intervene in the Paris action.

The Issues

16. It is common ground that the main issues at trial are threefold :

(1) the Plaintiff's ownership of the emeralds;

(2) Mr Fakhreddin's title to them; and

(3) Reza Gem's title to them.

I now turn to consider each of these issues and the pointers to a forum.

(1) Plaintiff's ownership

17. Whilst the Defendant accepts that the emeralds formed part of the jewellery consigned to Wolfers, he puts the Plaintiff to proof of its ownership of the emeralds. Although invoices have been produced relating to the purchase in New York of two cabochon emeralds, one on 10 September 1971 weighing 17.47 carats, the other on 2 April 1979 weighing 17.70 carats and a bill has been produced showing that the second was cut to 17.40 carats in May 1982, there is no evidence showing that the first stone was cut from 17.47 to 17.40 carats. The Defendant maintains that this, amongst other things, gives rise to doubts over the Plaintiff's ownership. See 2nd Reza affidavit, paragraphs 16 to 17.

18. The Plaintiff submits that its title is governed by New York law, the emeralds having been acquired by them in New York in the seventies. Since both New York and Hong Kong law are based on the common law, it is contended that Hong Kong is a more suitable forum than France for determining that question. Moreover, Counsel for the Plaintiff submitted that the question of its ownership had already been visited and determined in the French insurance action in which the Plaintiff interpleaded and so is not likely to be a live issue.

19. I agree that if the Plaintiff's title to the emeralds is to be an issue, the relevance of New York law in determining the Plaintiff's ownership of the emeralds points to Hong Kong rather than France as a forum.

(2) Mr Fakhreddin's title

20. The issue is whether under the Wolfers contract, Mr Fakhreddin had the power to dispose of the emeralds to Mr Teo or the Defendant. That is a matter that is governed by Swiss law. As the laws of both Switzerland and France are based on the civil law, Counsel for the Defendant submitted that France is therefore the more appropriate forum and that experts on Swiss law would be more readily available in France than in Hong Kong.

21. As Mr Fakhreddin's title cannot be determinative of the issue that exists between the Plaintiff and the Defendant, I accept the submission of Plaintiff's counsel that this is at best a secondary issue. It is the Defendant's or Reza Gem's title that is the critical issue.

(3) Reza Gem's title

22. As the deemed sale of the emeralds took place in Singapore, Singaporean law (the lex situs) would govern the issue whether Reza Gem acquired a valid title to them. That would depend on whether Mr Fakhreddin is a mercantile agent within the Singaporean equivalent of sections 2 and 3 of the Factors Ordinance (Cap.48) and if so whether the disposition was made in the ordinary course of his business as mercantile agent. The Plaintiff submits that the same inquiry must be made of Mr Teo.

23. In any event, any inquiry would necessitate an investigation into the actual circumstances of the transactions involving the Defendant, Mr Fakhreddin, and Mr Teo and more specifically, into the Defendant's good faith which the Plaintiff has put in issue.

24. The Plaintiff challenges the Defendant's good faith mainly because it is said -

(i) the documentation evidencing the transactions appears to be irregular : carpets became involved in what were transactions between jewellers;

(ii) the Defendant failed to refer to the emeralds when Mr Esmerian paid him a visit in Paris in November 1990;

(iii) the Defendant has provided different valuations for the emeralds as follows :

Valuation		Date		Event
US$700,000		7/6/90		purchase price agreed with Mr Fakhreddin
US$340,000		29/10/90		declaration to French customs
US$400,000		12/1/93		notice to Reza Gem's Insurers
US$450,000		3/11/93		expert's valuation

The valuation of the emeralds is likely to be a crucial factor as to the bona fides of the transactions.

25. Whilst Mr Reyes accepts that the relevance of Singaporean law points to Hong Kong rather than France as a forum, Singapore and Hong Kong being common law jurisdictions, he submitted that it points marginally more to France on the ground that the Defendant who is the principal witness of events in Singapore is resident in Paris as is Mr Daniel Piat who had carried out a valuation of the emeralds for the Defendant and Mr Edery in whose presence Mr Fakhreddin's Note was written should he be called as a witness by the Plaintiff as he was in Singapore.

26. However, the suggestion that the Defendant, Mr Piat and possibly Mr Edery are the only witnesses on the third issue is not correct. As noted above, that issue involves the Defendant's bona fides and on that aspect, Mr Esmerian and Ms Selfe will undoubtedly be giving evidence. Mr Ullmann will also be a principal witness in the action. Far from pointing to France as a forum, the witness factor points to Hong Kong since the majority of the witnesses are conversant with English rather than French. Moreover, as to expert witnesses, in Spiliada Martime Corp. v. Cansulex Ltd. [1987]1 A.C. 460 at 469G, Staughton J. took the view that "experts can travel, or be replaced by other experts". Neither the Court of Appeal nor the House of Lords found this to be wrong. So the residence of Mr Piat is not a factor to which weight should be attached.

27. To sum up, on the three issues reviewed above, the pointers to a forum come down in favour of Hong Kong. It remains for me to consider whether other factors exist that would satisfy the court 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 for the ends of justice."

See per Lord Kinnear in Sim v. Robinson (1892)19 R. 665 at 668.

Multiplicity of proceedings

28. Because there are currently three sets of related proceedings in France, it is contended that the Hong Kong action should be stayed to avoid multiplicity of proceedings. For the reasons mentioned earlier, the French insurance action should not be taken into account and I have therefore not done so. The Plaintiff submitted that the current French proceedings initiated contended by the Defendant are essentially self-serving. I note that by the time the defamation action and the SIACI action were commenced, the Hong Kong proceedings were indeed well under way : 13 out of 18 affidavits before me had been filed. The Plaintiff submitted that the French proceedings have not been under way for a substantial period of time; that there is no evidence of substantial costs having been incurred in the French proceedings; and that the Paris action may not go ahead in that it is by no means certain that the French courts would not decline jurisdiction.

29. Whether or not these proceedings are self-serving, I cannot disregard the fact that they exist. In evaluating the multiplicity argument, I have disregarded the defamation action since it is before a different French court and no question of consolidation could arise. As regards the SIACI action, if indeed it is heard together with the Paris action, there would appear to be some validity to the multiplicity argument.

30. But the gravamen of the Defendant's argument here appears to be that considerable expertise has already been acquired in France regarding the Plaintiff 's ownership of the emeralds (i.e. the first issue) in relation to the French insurance proceedings. It was urged upon me that such expertise gained by lawyers should not be allowed to go to waste and it was suggested that it would be appropriate to apply the "Cambridgeshire factor" considered in Spiliada [1987]1 AC 460 at 467 D-G, 469E-471E, 485 F-486G, in reverse as it were. "Cambridgeshire" was heavy litigation involving teams of lawyers and experts delving into complex and difficult scientific questions. It required a great deal of expert evidence on both sides, an understanding of the interrelation of law, fact and scientific knowledge not to speak of vast numbers of documents. There is no evidence that the issue of the Plaintiff 's ownership of the emeralds involves, even remotely, the degree of complexity, difficulty or expertise of Cambridgeshire. Moreover as noted above, it is disputed by the Plaintiff that the ownership issue was a fundamental issue in the French insurance action. I am therefore not persuaded that the Cambridgeshire factor arises in the present case.

Other factors pointing to France as a forum

31. The 1st Belshaw affidavit at paragraphs 4.4 to 4.9 deal with other factors that the Defendant contends point to a French forum. Some have been overtaken by events. The ones remaining include the following :

(a) Language of the documents

32. That some of the documents in this case, notably Mr Fakhreddin's Note and an invoice for the emeralds issued by Mr Fakhreddin to Reza Gem are in French is not really a factor to which much, if any, weight is to be attached. Translations have been prepared. Moreover such difficulties as may arise with any of the French documents are not difficulties of translation. Rather, they relate to the proper construction of those documents because of language deficiencies in the underlying text.

(b) Jurisdiction of the French courts and enforcement of judgments in France

33. The Defendant has filed evidence to the effect that there is a real possibility of conflicting judgments occurring in that French courts have jurisdiction to hear the Paris action irrespective of the Hong Kong proceedings, although it would not intervene in the attachment aspect of the Hong Kong proceedings; that foreign judgments are not enforced if the French party to the foreign lawsuit contests the jurisdiction of the foreign court. See the 1st Belshaw affidavit at paragraphs 4.8-4.9 and the 1st Simpson affidavit at paragraphs 7-13.

34. There does not appear to be consensus as to French law in this regard. As appears from the 1st Quint affidavit filed on behalf of the Plaintiff, Mr Quint is of the opinion that French courts do not have jurisdiction in any action which is in connection with an execution measure taken in a foreign country. On the enforcement aspect, Mr Quint is of the view that since the emeralds are in Hong Kong, enforcement in France would only relate to ancillary matters such as damages and costs and that such judgment would be enforceable in France.

35. Irrespective of the conflict of evidence as to French law, I do not consider that even if the position is as described by the Defendant, it would be correct as a matter of principle for the Hong Kong courts to decline jurisdiction automatically in such cases, regardless of other relevant factors.

The Spiliada test

36. The Defendant is entitled to succeed only if he can establish that there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Where he so succeeds, the Plaintiff may nevertheless show that there are special circumstances by reason of which justice requires that the trial should nevertheless take place here. See Spiliada (supra) at 477 to 478.

37. In The Adhiguna Meranti [1987] HKLR 904, Hunter J.A. commended a three-stage approach. This is set out in the judgment of the Court of Appeal in The Lanka Muditha [1991]1 HKLR 741 at 744 B-D. I respectfully adopt that approach. The three stages are :

(I) Is it shown that Hong Kong is not only not the natural and appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong?

(II) If the answer to (I) is yes, will a trial at the other forum deprive the Plaintiff of any legitimate personal or juridical advantages. The evidential burden here lies on the Plaintiff.

(III) If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II). ..... Deprivation of one or more personal or juridical advantage will not necessarily be fatal to the applicant provided that the court is satisfied that notwithstanding such loss substantial justice will be done in the appropriate forum .... Proof of this ... rests upon the applicant for the stay.

38. The argument based on multiplicity of proceedings would have some force if indeed SIACI were party to the Paris action through consolidation of proceedings or the Paris action and the SIACI action were to be heard together. Although both complaints in the Paris action and the SIACI action (exhibited to the 2nd Reza affidavit) were returnable on 11 January 1995 before the Tribunal de Commerce of Paris, the current status of the SIACI action is wholly unclear. SIACI is not mentioned in the letters containing (conflicting) reports of the hearing held on 5 April 1995 referred to above. In those circumstances, I am not persuaded that a stay of the Hong Kong action would necessarily avoid multiplicity of proceedings.

39. If, contrary to my reservations, SIACI has in fact been joined and assuming, (without deciding for present purposes) that this factor would render Paris a more appropriate forum, it is necessary to consider whether special circumstances exist such that the interests of justice requires that the trial should nevertheless take place here.

40. Counsel for the Plaintiff had initially argued that to have the action tried in Paris would deprive the Plaintiff of legitimate juridical advantages such as the ability to cross-examine witnesses and discovery. He later accepted as correct the principle stated by Lord Wilberforce in Amin Rasheed Corporation v. Kuwait Insurance Co. [1984]1 AC 50 at 72D :

"It is not appropriate ... to embark upon a comparison of the procedures or methods, or reputation or standing of the courts of our country as compared with those of another."

This echoed Lord Diplock's views (at p.67 F-G) that a natural prejudice in favour of a procedure with which English lawyers are familiar is not a consideration to which any weight ought to be given. Nevertheless the court is entitled to take into account the nature of the dispute, the legal and practical issues involved, such questions as local knowledge, availability of witnesses and their evidence and expense when exercising its discretion under Order 11.

41. Mr Kat therefore submitted that the ends of justice would be served by having the matter heard in Hong Kong because -

(1) Hong Kong is an objective forum, being home to no party or witness;

(2) the proper law of the transaction is Singaporean law which like Hong Kong law is derived from the common law system;

(3) some 18 affidavits with numerous exhibits have been filed in the Hong Kong action and it is difficult to see how the ends of justice are best served by having to translate all the affidavits into French;

(4) substantial costs have already been incurred by the parties in connection with the Hong Kong action;

(5) Hong Kong is the lex situs since the Defendant chose to bring the emeralds here;

(6) the proceedings in Hong Kong are not prejudicial to the Defendant because all the relevant parties and witnesses speak English; all relevant documents have been translated and discovery is mostly done.

42. Having regard to those considerations, in particular to the fact that the main issues point to Hong Kong rather than France as a forum, and applying the three stage test, assuming that a stay would indeed avoid a multiplicity of proceedings, that sole advantage is far from sufficient to counterbalance the disadvantages to the Plaintiff that would result from staying the Hong Kong action. Accordingly, the Defendant's application is dismissed with costs.