NAN TUNG BANK LTD, ZHU HAI v. WANGFOONG TRANSPORTATION LTD.

CACV 280/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 280 OF 1998

(ON APPEAL FROM HCCL NO. 176 OF 1997)

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J U D G M E N T

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Liu, JA:

1. The plaintiff commenced this action against the defendant on 33 documents which are labelled both in Chinese and in English as "bills of lading". The plaintiff is a bank in Zhu Hai and the defendant is a transportation company incorporated with limited liability in Hong Kong. The defendant was intensely engaged in substantial transportation business on the Mainland. Another Hong Kong company featured in this case is Win Bright (WB) which is the partnership firm of Mr and Mrs William Law. WB and a Mainland company, Zhu Hai Gree Group Company (ZGG), were in a joint venture for the manufacture of electronic goods on the Mainland in the name of another Mainland company known as the Zhu Hai Gree AV Corporation Limited (ZGAV). ZGAV was managed by William Law as was WB. The joint venture company ZGAV dealt with WB and the defendant. Under the directions of WB, the defendant had been the carrier of goods from Zhu Hai to Hong Kong in over 400 consignments for ZGAV against 647 issued transportation documents.

2. In the usual course of business, on the instructions of WB, the defendant sent empty containers to ZGAV in Zhu Hai for loading. ZGAV packed the containers for carriage to Hong Kong by the defendant. Under Mainland law, contracts of affreightment had to be issued by the Mainland authority as agent for the defendant carrier who issued corresponding bills of lading to ZGAV as holder. WB, not ZGAV, entered into an arrangement with the defendant for releasing goods in Hong Kong without the transportation documents, including the bills of lading. WB guaranteed that it, not ZGAV, would surrender the relevant bills of lading to the defendant upon receipt and it was also WB who warranted never to demand delivery on the force these bills of lading. The object of the exercise was to enable goods to be taken off the defendant without the production of documents of title, including the corresponding bills of lading, for immediate shipment out of Hong Kong. The plaintiff was a Zhu Hai bank which lent money to ZGAV on the security of, inter alia, bills of lading and corresponding contracts of affreightment duly pledged to the bank. In this way, the defendant's liability for delivery upon the production of these bills of lading by ZGAV or its indorsee would be indemnified by WB. As a holder, the plaintiff commenced an action in Hong Kong on 33 bills of lading against the defendant for damages for detinue and/or conversion. In the plaintiff's action against the Hong Kong based carrier, the defendant, WB, a Hong Kong firm, would be expected to be brought in under the said guarantee and warranty.

3. After the Hong Kong action, it came to light that the plaintiff held a further 364 contracts of affreightment and corresponding bills of lading. Thereupon, the defendant commenced proceedings in the Guangzhou Maritime Court against WB, ZGAV, ZGG and the plaintiff for (1) the return of all the pledged contracts of affreightment and the bills of lading together with other related shipping documents and (2) a declaration that these documents were void for illegality. Damages for conspiracy were also claimed. In the defendant's Mainland action, the plaintiff bank and ZGG objected to the jurisdiction of the Guangzhou Maritime Court, which was invoked after the commencement of this action in Hong Kong. Their objection was overruled and their appeal against that adverse ruling was dismissed. The defendant applied in Hong Kong for a stay in a usual forum non conveniens application. Stone, J refused stay and from the decision of the judge, the defendant appeals.

4. Documents were sought to be introduced by both parties. This court considered them with the agreed deletion de bene esse. Without more, it suffices to say that I would admit the documents subject to the agreed deletion. The further documents, with a portion deleted, are simply to show that the Guangzhou Maritime Court had accepted jurisdiction to entertain the defendant's claims on, inter alia, bills of lading including the 33 sued upon by the plaintiff against the defendant in Hong Kong. Much is sought to be made by the plaintiff that the Guangzhou Maritime Court had not proceeded with or made any real progress in the Mainland proceedings, but Mr Poon, leading counsel for the defendant, is at pain to emphasise that the inactivity, more apparent than real, is part of the inquisitorial process which the Mainland court enjoys.

5. Mr Poon raises five points: first, it is complained that the judge failed to give due weight to multiplicity. Secondly, the judge did not choose a prima facie proper law. Thirdly, the plaintiff is not a holder of the 33 bills of lading in good faith and cannot sue as a "lawful holder" under s. 2(2) of the Bills of Lading And Analogous Shipping Documents Ordinance, Cap. 440. Fourthly, the judge was wholly misconceived in his understanding of the facts relied upon by counsel, and finally the judge could not have paid due regard to the material factors without forming a tentative view on the proper law.

6. It is agreed on all hands that after The Abidin Daver, [1984] 1 AC 398, a multiplicity of proceedings is not of itself a material factor in an application made on the ground of forum non conveniens but "there might be exceptional cases where the bringing of the second action ..... while the foreign action was proceeding, might cause an unusual hardship to a particular defendant". At p. 409B, ibid, Lord Diplock observed:

"As a general rule, the fact that to permit the (home) action to be pursued would result in concurrent actions on the same subject matter proceeding in two different jurisdictions could not be sufficient to justify depriving the plaintiff of the advantage to which he was entitled..........to choose it as a forum in which he preferred to litigate the matter." (Emphasis supplied).

7. Mr Poon takes issue with the undue weight placed by the judge on the defendant's own institution of a concurrent Mainland action. Mr Poon prays in aid the common questions of law and fact in both proceedings, albeit involving different parties in varying causes of action. The judge had not lost sight of the disadvantages inherent to a multiplicity of proceedings. His analysis and evaluation were questioned by Mr Poon, but the judge did not fail to take into account matters relevant to concurrent litigation.

8. Loans were said to have been granted grossly in excess of the Mainland's lawful bank investment limit - 12 times over. In some cases, the plaintiff bank did not hesitate to accept pledged shipping documents up to six months after delivery of goods here. In those transactions, goods must have long left Hong Kong. The plaintiff also continued to grant like loans, on like security and in like manner subsequent to the failure of their Hong Kong correspondence bankers to collect payments. At times, bills of exchange were negotiated at a discounted rate well below the commercial rate. On these recently discovered irregularities, the defendant raised its allegations of illegality and conspiracy.

9. It is not unknown that the illegality of the transaction in a wagering contract may be circumvented by the giving of a cheque. In this case, there was an intervention of the bills of lading on which the bank advanced loans among other securities. It has yet to be determined whether an indorsed bill of lading could be presented independently of the lending allegedly transacted in breach of Mainland regulations. Equally, it is not easy to appreciate the conspiracy theory. A universal practice has developed for cargo to be released against a guarantee without the production of the bill of lading and the accompanying set of shipping documents. This is what happened here. It is envisaged by s. 2(4)(a) of the Bills of Lading and Analogous Shipping Documents Ordinance that the validity of a bill of lading will not be affected by the loss of the goods to which it relates. WB, not ZGAV, provided the guarantee to surrender bills of lading upon receipt and warranted not to present the bills of lading to demand delivery, and that was because Mr Law of WB played a pivotal role in the joint venture. Moreover, ZGAV had already indorsed the bills of lading over to the plaintiff. The defendant was engaged as carrier who acted on the instructions of Mr Law. WB's guarantee to surrender was a good testimonial that the documents of title for the carriage, against which the goods were to be released in Hong Kong included bills of lading in the true sense of the term and that these bills of lading held good until surrender and could be, in the meantime, pledged to the plaintiff bank as security. Even the defendant seemed to have accepted the designation of these documents as bills of lading.

10. WB had the right to issue the bills of lading to ZGAV who pledged them to the plaintiff, and counsel concedes that there is no room for the application of the maxim, nemo dat quod non habet.

11. However, on these alleged shady banking transactions and irregularities, it is sought to be argued that the documents labelled "bills of lading" were not truly bills of lading, that outside the permitted lending limit, the plaintiff lacked the capacity to accept, inter alia, these bills of lading as security for loans and that consequently the plaintiff bank was not an indorsee in good faith. Therefore, the plaintiff, so counsel submits, did not qualify as a lawful holder of these bills of lading under s. 2(b) of the Bills of Lading and Analogous Shipping Documents Ordinance.

12. Given these plausible arguments, it must be assumed that the Hong Kong trial would have to bring the plaintiff to book for both allegedly lending beyond the limit prescribed by Mainland law and allegedly embracing lax banking practices. In other words, the questions of "illegality" under Mainland law and "lawful holder" under SAR law as clouded by such alleged illegality will be the central points around which most of the arguments in the Hong Kong concurrent proceedings will turn. Against this background, it is pressed upon us for the defendant that the judge must decide in an application for a stay in a forum non conveniens case, first what the prima facie proper law was. It has been said that a "start" would have to be made somewhere by a judge in an application of this nature and "where the action is for breach of a contract whose existence is admitted or established, a start can only be made by identifying the proper law of the contract". Banco Atlantico S. A. v. The British Bank Of The Middle East, [1990] 2 LL.l Rep. 504 at p. 511, LHS per Nourse, LJ. Even assuming that the validity of the documents labelled "bills of lading" both in English and Chinese were not disputed, identifying the proper law would be but a convenient first step to take and proper law is not to be regarded as the only or the foremost factor in a forum selection exercise. Moreover, what really need be expressed by the judge is "a prima facie view on the proper law". The Banco case, supra. 507 RHS, per Bingham, LJ.

13. Stone, J did not at all express any tentative view on the proper law. He simply observed that Hong Kong law was arguably applicable but that even if Mainland law should apply, so the judge reminded us, it would "not be the first time that Hong Kong courts (had) had to deal with contentions based upon foreign law", evidently including PRC law in the past. In the course of this appeal, counsel were asked why "foreign law" should retain its prominence after 30 June 1997 in the context of "one country". In fact, Mainland law can no longer be strictly said to be foreign law after the resumption of the exercise of sovereignty over Hong Kong. The Hong Kong SAR is part of China. Mainland law extends, in part, to Hong Kong. To all intents and purposes, we are one country. In the same way as regard may be had to the Tsing law and customary practices which form part of Hong Kong law without proof, a similar approach is expected to be adopted for such of the Mainland law which is applied to the SAR. The SAR courts are understandably to familiarise themselves more with Mainland law at large. Naturally, courts in the SAR would welcome assistance in matters of Tsing law as they would for Mainland law. As to that, the Hong Kong SAR is well placed to be supported and served locally by practising Mainland law firms and Guangdong is a stone's throw from the SAR. Tsing law is, not infrequently, encountered here without difficulty. The judge must be right that Mainland law is not expected to pose any problem. Also, in reality it would not be rational to treat Mainland law on a par with foreign law. In his final analysis, the judge was not troubled by the need to "deal with contentions based upon (Mainland law)" and did not attribute "excessive weight" to it. But for his appreciation of our modus operandi, the judge would not have expressed his view on the use of Hong Kong Law and Mainland law in the way he did. Further, consideration of a forum non conveniens application should not be attempted wholly detached from reality which no amount of eloquence could underrate. Thus, it would be unproductive at the "stay" stage to embark on an elaborate exercise in quest of a tentative view on the proper law where only Mainland law and Hong Kong SAR law are the two systems under review. The guidance proffered by Hirst, J in The "Nile Rhapsody", [1992] 2 LL.l Rep. 399 at p. 410 RHS that "a foreign court is obviously best suited to adjudicate on its own law" and that a foreign trial would "avoid the great expense of bringing experts here to debate the foreign law issues at stake" was properly given little weight in this case. The judge did not seem to have given his tentative view on the proper law. For the broad reasons he gave, the judge was content with a mere observation that the dispute was "arguably subject to Hong Kong law". The circumstances in this case did not call for a closer examination of these two related laws in the context of foreign law. Stone, J did not regard any possible involvement with Mainland law as a matter of "excessive weight", and in his final analysis he did not apparently see fit to give and did not give a "prima facie view on the proper law". I do not accept that the judge is wrong. As a matter of fact, the judge did not refuse stay lightly. He had taken into account all the relevant features which I do not propose to rehearse. The gravamen of the complaint lies in the want of a decision on the proper law. In forum non conveniens cases where only Mainland law and Hong Kong SAR law are involved, barring exceptional circumstances, there is hardly any real need for forming a prima facie view on the proper law.

14. In conclusion, the defendant fails on the "proper law" issue. I will now endeavour to dispose of the last point raised by Mr Poon, namely, without making a decision on the prima facie proper law which, counsel says, ought to be Mainland law, the judge could not have properly evaluated the need for a foreign trial. But once the usual difficulties arising from the application of a "foreign" law in a Hong Kong SAR court cease to manifest themselves, the option of a "foreign" trial and its attendant advantages would be relatively insignificant. In any case the judge had considered the likely "use" of Mainland law in our courts. In his balancing exercise, no material factors were ignored and his decision cannot be faulted on the "proper law" aspect.

15. In the alleged negotiation in bad faith of the bills of lading, counsel for the defendant elaborates that the judge paid insufficient regard to the "illegality" and the "lawful holder" issues since he unceremoniously described the case as "an entirely straightforward case of misdelivery of goods at a Hong Kong wharf". First of all, the judge was merely quoting an assertion of the plaintiff. Granted that the judge could have dwelt upon "illegality" and "lawful holder" more fully, he was very much alive to the Guangzhou litigation. He reviewed "the considerable amount of evidence and documentary material before" him, together with the submissions of counsel. It cannot be fairly said that the judge had overlooked these material considerations. There is no substance in Mr Poon's third point.

16. Next I turn to counsel's criticisms levelled at what the judge said in his written decision. That is Mr Poon 4th point. What was said by the judge is:

"Mr Chain maintains, in my view with considerable justification, that his client is entitled to come to this jurisdiction and to present its case, that the relief sought against the other parties sued by the Defendant in Guangzhou has little to do with his client, and that if the Hong Kong action proceeds in normal course, and is determined as such, the dispute between the present two parties will have been duly resolved and that there is therefore no reason whatever why the Hong Kong action should now be ordered to await the Guangzhou determination, whenever this may be."

The first observation could have been more elegantly made and made with precision, but in truth the plaintiff commenced this action against a Hong Kong resident company "as of right". See Spiliada Maritime Corporation v. Cansulex Limited, [1987] 1 AC 460 at p. 477E-F. However, it is incorrect to say that the relief sought against the other parties in the Guangzhou Maritime Court is wholly unrelated to the plaintiff's action, albeit that the parties in the two concurrent proceedings are not the same. The direct causes of action and the relief claimed are also different. In the adjudication of the plaintiff's claims against the defendant, the questions between them may not be wholly resolved in the Hong Kong action. But these inaccuracies or less than precise comments are not of sufficient gravity to override the judge's conclusion reached on what he regarded as factors overwhelmingly in favour of a Hong Kong trial.

17. The fact remains that the plaintiff chose to litigate in Hong Kong against a Hong Kong resident company. In The Atlantic Star, [1974] AC 436 at p. 469H-470A, Lord Wilberfoce had this to say:

"But they do vouch the proposition that a very clear case is needed to justify a stay, where a plaintiff is (properly as to jurisdiction) suing here and that the mere fact that they are proceedings abroad is not enough." (Emphasis supplied).

The burden rests on the defendant to show that the Mainland court is not only another natural or appropriate forum for the trial of issues relating to the bills of lading, but it is a "clearly or distinctly" more appropriate forum. The Spiliada case, supra. p. 477E-F, per Lord Goff. It is not suggested that the judge failed to appreciate this fundamental principle. Absent any real objection to concurrent proceedings, there is nothing to show that the Mainland court is clearly and distinctly more appropriate.

18. I have dealt with the five areas which, counsel says, encapsulate all the separate grounds of appeal. It is not necessary for me to run through the list of material factors in this case once more after all the defendant's complaints have been, in my view, effectively disposed of.

19. Finally, in refusing a stay, a judge exercises a discretion. The defendant has not been able to demonstrate that the judge failed to take into consideration the material factors or had regard to irrelevant matters, or that the judge misdirected himself, or that in all the circumstances, the judge's ruling is plainly wrong. See The Abidin Daver, supra. p. 420B-C, per Lord Brandon. The refusal to grant a stay in this case is pre-eminently a matter for the judge and the Court of Appeal should be slow to intervene. In none of the five areas canvassed by Mr Poon could sufficient justification be found for interfering with the judge's exercise of his discretion. It is quite unnecessary to deal specifically with the multifarious grounds of appeal. I would dismiss this appeal with an order nisi for costs against the defendant.

Burrell J :

20. I also agree that this appeal should be dismissed. I further agree with the judgment of Nazareth V-P in which he agrees with the reasons given by Liu JA, save one.

21. It seems to me that although the mainland is no longer a foreign country, the argument that its law is therefore not foreign for the purpose of applying common law principles in a forum non conveniens case does not follow.

22. In my view mainland law should be regarded in the same way as foreign law in such a case. However I do not consider it necessary to expand on the point because it was not ventilated in this appeal. In all other respects I agree with the judgment of Liu JA. Further, the fact that I am unable to agree on this one point does not affect the fact that I concur with his final conclusion.

Nazareth V-P:

23. I agree with the reasons given by Liu JA for his conclusion that the appeal should be dismissed, save those in respect of the second point relied upon by Mr Poon for the defendant.

24. The defendant's second point was the judge failed to reach a prima facie view on the proper law. Liu JA, if I understand the position correctly, rejects that contention primarily upon the basis that "Mainland law can no longer be strictly said to be foreign law after the resumption of the exercise of sovereignty over Hong Kong". I do not find it necessary to rely upon that reason and those ancillary to it. Given their wider implications in other areas of the law, and that they were not the subject of argument before us, it seems to me preferable that they should be reserved for an occasion when they are properly raised and argued.

25. For my part, I am satisfied that when the judge used the words "involving the carriage of goods to Hong Kong by a Hong Kong carrier under a bill of lading arguably subject to Hong Kong law", he was conveying his prima facie view on the proper law. In the context of that part of his judgment, that seems to me to be what he was saying. Upon that view there is nothing in Mr Poon's second point.

26. I would therefore also dismiss the appeal with an order nisi that the plaintiff is to have its costs of the appeal.

27. The appeal is accordingly dismissed with a costs order nisi against the defendant.