SHENZHEN CTS INTERNATIONAL LOGISTICS CO LTD AND ANOTHER v. DAJIANG INTERNATIONAL INVESTMENT CO LTD

HCA 1927/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1927 OF 2016

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REASONS FOR DECISION

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Background

1.  On 12 April 2017, I heard and dismissed the application made by the Defendant for stay of these proceedings commenced by the Plaintiffs against it on 25 July 2016.

2.  According to the Statement of Claim filed on 25 July 2016, the Plaintiffs are Mainland companies, the 2^nd Plaintiff being the parent company of the 1^st Plaintiff.  The 2^nd Plaintiff is the named issuer of 14 bills of lading (“Bills”) for the shipment of cargo from USA to Gaolan in the PRC (“Port of Discharge”).  The Defendant (which is a company incorporated and carrying on business in Hong Kong) is said to be the holder of the Bills, and the Plaintiffs claim that the Bills were issued by the 2^nd Plaintiff as agent and on behalf of the 1^st Plaintiff as principal.

3.  The goods described in the Bills were stated to be “copper ingots” (“Goods”).  According to the Statement of Claim, the Goods were consigned by Shenzhen Starway International Co Ltd (“Starway”) to the 1^st Plaintiff for shipment, and the 1^st Plaintiff engaged the services of various carriers to ship the Goods from St Louis, USA to the Port of Discharge.  The Bills were issued by the 2^nd Plaintiff (as agent for the 1^st Plaintiff) to Starway, and the Bills were then assigned by Starway to the Defendant.

4.  The Bills were made subject to the conditions of carriage printed on the reverse of the Bills (“Conditions”).  The Conditions define “Carrier” as the company stated on the front of the Bills as being the carrier and on whose behalf the Bills were signed.  The 2^nd Plaintiff was the carrier named on the Bills.  The Conditions further define “Merchant” as meaning and including the shipper, consignor, consignee, the holder of the Bills and the owner of the goods.

5.  Clause 5.1 of the Conditions provides as follows:

“The Merchant shall be deemed to have guaranteed to the Carrier the accuracy, at the time the goods were taken in charge by the Carrier of all particulars relating to the general nature of the goods, their marks, number, weight, volume and quantity and, if applicable to the dangerous character of the goods as furnished by him or on his behalf for insertion on (the Bill). The Merchant shall indemnify the carrier against all loss, damage and expense resulting from any inaccuracy or inadequacy of such particulars.

The Merchant shall remain liable even if (the Bill) has been transferred by him.

The right of the carrier to such an indemnity shall in no way limit his liability under this (Bill) to any person other than the Merchant.”

6.  The Plaintiffs claim that whilst the Goods were in transit, they were delivered to the transit ports in Hong Kong and Shenzhen by the carriers, and for the purpose of preparing the cargo manifests and enabling the Goods to be delivered to the Port of Discharge, the carriers requested from the Plaintiffs, and the Plaintiffs in turn requested from the Defendant, the following particulars (“Shipping Information”) of the Goods:

(a) bill of lading number;

(b) name and address of consignee;

(c) number of packages;

(d) gross weight of the cargo;

(e) measurement of the cargo;

(f) description of the cargo in Chinese;

(g) contact person (including telephone number, fax number and email address); and

(h) the name of the discharge terminal.

7.  Despite repeated requests, the Defendant allegedly failed to provide the Shipping Information to the Plaintiffs, and further failed or refused to take delivery of the goods.  The Plaintiffs claim (in paragraph 8 of the Statement of Claim) that the Defendant was in breach of clause 5.1 of the Conditions, as a result of which breach the carriers were unable to deliver the cargo of the Goods to the Port of Discharge.  By reason of such breach, the Goods have been detained in the transit ports in Hong Kong and Shenzhen, and substantial storage fees were incurred and charged by the carriers against the 1^st Plaintiff.

8.  By these proceedings, the Plaintiffs seek damages and an indemnity from the Defendant in respect of all the loss and damage suffered by the Plaintiffs.

9.  By their amendments to the Statement of Claim made in September 2016, the Plaintiffs included a claim by the 1^st Plaintiff as bailee of the Goods by virtue of Starway’s consignment of the Goods.  The Amended Statement of Claim avers that the Defendant became the bailor of the Goods by virtue of Starway’s assignment of the Bills to the Defendant, and is therefore liable to the 1^st Plaintiff for the 1^st Plaintiff’s remuneration and for the expenses and costs incurred by the 1^st Plaintiff in the performance of its duties under the bailment.

10.  It is not in dispute that after the service of the Writ and the Amended Statement of Claim, the Defendant applied by summons on 30 September 2016 (“Summons”) for the Plaintiffs’ provision of security for costs in the action, in the sum of HK$800,000.  The Summons includes (in paragraph 2) the Defendant’s application for extension of time to file its defence, stated to be without prejudice to the Defendant’s right to apply to the court for stay of the proceedings.  There was a further application made by the Defendant on 29 November 2016 for extension of time to file its Defence, and on 5 December 2016, an Unless Order was made by the Court, for judgment to be entered against the Defendant unless its defence is filed by 12 December 2016.

11.  It was only on 7 December 2016, after the Plaintiffs applied for default judgment, that the Defendant applied by summons (“Stay Summons”) for this action to be stayed under O 12 r 8 RHC, on the ground that Hong Kong is not the appropriate forum, that the Guangzhou Maritime Court (“GZ Court”) on the Mainland is the most appropriate and natural forum, and that there are existing proceedings between the 2^nd Plaintiff and the Defendant in the GZ Court, which was commenced by the Defendant at the end of June 2016.  At the same time, the Defendant applied for the Statement of Claim to be struck out and for the action to be dismissed, on the ground that it is frivolous, vexatious or otherwise an abuse of the process of the court. 

12.  After reviewing the evidence and hearing submissions from the parties, the Defendant’s application for stay was dismissed.  The following are my reasons for the dismissal.

Submission to HK jurisdiction

13.  First, I accept the submissions made on behalf of the Plaintiffs, that the Defendant has already submitted to the jurisdiction of the Hong Kong Court. It is true that the Defendant stated in the Summons that the application for extension of time to file its defence was made without prejudice to its right to challenge the jurisdiction of the Hong Kong Court.  However, that reservation of right was made only in respect of its application (in paragraph 2 of the Summons) for suspension of the time to file its defence.  The relief sought by the Summons includes the application, by paragraph 1 of the Summons, for security in respect of the Defendant’s costs.  Although the Defendant’s affirmation in support claims that security is sought only for costs up to the hearing of the stay application, a review of the skeleton bill relied upon by the Defendant shows that the security sought is for the Defendant’s costs incurred and to be incurred, from the service of the Statement of Claim, to seeking further and better particulars of the Statement of Claim, and up to seeking Counsel’s advice on merits and on evidence.  The amount of security sought ($800,000) and the description of the work envisaged does not support the claim that security was confined to the hearing of the application for stay of the action.

14.  The Summons further seeks (in paragraph 3) the striking out of the Plaintiffs’ Amended Statement of Claim and the dismissal of their action against the Defendant, unless security is provided by the Plaintiffs.  The Defendant itself accepts (in the 3^rd affirmation of Chen Bo) that the striking out order was sought, as an alternative relief in the Summons, should the stay not be granted. 

15.  As highlighted in the case of ABN AMRO Bank NV v Fortang [2008] 2 HKLRD 349, applying the test in Global Multimedia International v Ara Media Services [2007] 1 All ER 1160, it should be unequivocal to the well-informed bystander that the step taken by a party is inconsistent with the making and maintaining of any challenge to the jurisdiction of the court.  The representation derived from the conduct of the party said to have submitted to jurisdiction must be capable of only one meaning. 

16.  By seeking the different and alternative relief sought in the Summons, not just for time for the filing of the defence to be suspended, but also for security for costs which extends to after the stage of the hearing of the stay application, and for striking out the Amended Statement of Claim and the action, the Defendant was invoking the court’s jurisdiction to obtain an interlocutory or final order requiring the opposite party to perform some act (using the terminology used in Hwoo Huang Linda v Fu Being San [2013] 1 HKLRD 259).  It was more than a defensive action.  Coupled with the reservation of the right to challenge jurisdiction being confined to the application made in paragraph 2 of the Summons for time, the Defendant had not made it clear and unequivocal that it was not accepting the jurisdiction of the Hong Kong court. 

17.  As in the case of 杭州天道實業有限公司 v Chau Oi Fung HCA 488/2014, unreported, 21 October 2014, I find that the Defendant has submitted to the jurisdiction of the Hong Kong Court. 

No arguable defence

18.  Significantly, and even if I should be wrong that the Defendant had submitted to the jurisdiction of the Hong Kong Court, the Defendant has failed to identify any defence on the merits, to demonstrate that there are real issues requiring resolution between the parties to this action, so as to justify a stay of these proceedings.  In Bayer Polymers Co Ltd v ICBC Hong Kong Branch [2000] 1 HKC 805, the court referred to Adria Services YU v Grey Shipping Co Ltd (Folio 212/1993, unreported), where Clarke J (as he then was) granted Order 14 judgment notwithstanding a stay application, and explained:

“In my judgment if the plaintiffs satisfy me that the defendants have no arguable defence then, save in an exceptional case, the right course would be to refuse a stay and get judgment, because there would be no real issues between the parties which should be tried either here or elsewhere.”

The same judge elaborated on this in Standard Charted Bank v Pakistan National Shipping Corp & Ors [1995] 2 Lloyd’s Rep 365 at 378, as follows:

“It appears to me that in a case where a defendant has no arguable defence on liability and quantum that would be a strong reason to refuse a stay because … there would be no real issues between the parties which should be tried either here or elsewhere.”

19.  In Bayer itself, the court refused the stay on the same basis of the absence of an arguable defence. 

20.  The Plaintiffs’ claims against the Defendant, even as set out in the original Statement of Claim, are clearly stated to be for damages and indemnity in respect of the Defendant’s breach of clause 5.1 of the Conditions.  Under clause 5.1, the Defendant (as holder of the Bills, which capacity it does not deny) guarantees the accuracy of all the particulars relating to the general nature of the Goods, and undertakes to indemnify the carrier against all loss, damage and expense resulting from any inaccuracy or inadequacy of the particulars. 

21.  The Goods are described in the Bills to be copper ingots.  As a result of the Defendant’s breach in failing to furnish the Shipping Information as requested, a joint survey of the Goods took place in Hong Kong in May 2016 (“HK Survey”).  The HK Survey revealed that 41 of the 202 containers of the Goods were found to be not copper ingots as stated on the Bills, but were “damp mud”.  A separate survey had also been conducted by the anti-smuggling authorities of the Mainland in May 2016.  This also confirmed that 32 containers of the cargo in question contained grayish black solid substance, or granules, and not copper ingots.  As a result of the Defendant’s failure to provide the Shipping Information, and as a result of the discrepancies found in the surveys conducted, the Goods were detained in Hong Kong and Shenzhen, and could not be released for shipment to and delivery in the Port of Discharge.  The storage charges and expenses were incurred by the Plaintiffs as a result, for which they are entitled under the guarantee and indemnity contained in clause 5.1 to seek recovery from the Defendant.

22.  Nowhere in the Defendant’s affirmations has the Defendant raised any arguable defence, or real issue in dispute to the claims made by the Plaintiffs in this action.  It only asserts that it has no obligation to provide the Shipping Information to the Plaintiffs, without further elaboration on any real or arguable basis, even after the results of the surveys conducted in Hong Kong and on the Mainland, showing the obvious inconsistencies and contradictions between the nature of the Goods as stated on the Bills and as revealed in the surveys, had been made known to the Defendant.

23.  These are sufficient, in my judgment, to dispose of the application for stay.

The natural and appropriate forum

24.  Further and in any event, the Defendant has failed to discharge its burden of establishing that Hong Kong is not the natural or appropriate forum for the trial of this action. 

25.  The Writ was properly served in Hong Kong on the Defendant, which is a company incorporated in Hong Kong, and which carries on business here.  It has a registered office address and a place of business at Hutchison House in Hong Kong.  This address was used by the Defendant in its contemporaneous emails and correspondence relating to the subject matter of this action.  It was also given as the business address of the deponents in all the affirmations filed on behalf of the Defendant for use in these proceedings.  Even in the PRC proceedings issued by the Defendant against the 2^nd Plaintiff, the Defendant stated Hutchison House in Hong Kong as its address. 

26.  The alleged breach of the Defendant, in failing to furnish the Shipping Information to the Plaintiffs or to take delivery of the Goods, took place in Hong Kong where the Defendant carries on its business.

27.  A total of 129 containers containing the Goods under 9 of the Bills are now detained in Hong Kong, where the storage charges are being incurred.

28.  A substantial and significant part of the evidence concerning the Defendant’s breach is in Hong Kong.  The HK Survey was undertaken by a Hong Kong company (“Union Star”) carrying on business here, and a survey report was prepared by Union Star in Hong Kong.  The HK Survey revealed that 41 of the 202 containers of the Goods were found to be not copper ingots as stated on the Bills, but were damp mud. 

29.  The HK Survey was undertaken in the presence of not only the 1^st Plaintiff’s representatives, but also the Defendant’s business manager (“Chen”) and employee (“Han”), both of whom state their business address to be in Hong Kong.  They will be witnesses to give evidence at trial.

30.  A total of 129 containers of the Goods, including the 41 containers containing the damp mud, have now been detained in Hong Kong.  After the survey by the anti-smuggling authorities on the Mainland and the 3 reports made in May 2016, 73 containers of the Goods were detained in Shenzhen.

31.  From the above matters, it cannot be said that Hong Kong is not the natural or appropriate forum with the most real and substantial connection with the trial of the action.  All the witnesses of the Defendant are here.  The evidence, documents and witnesses as to the HK Survey are here.  Any further inspection of the Goods detained in Hong Kong will have to take place here.  The Plaintiffs having served the Writ on the Defendant with its place of business in Hong Kong and established jurisdiction here as of right, and the burden being on the Defendant to show that Hong Kong is not the appropriate forum, the proceedings commenced here should not lightly be disturbed (SA v SPH [2013] 2 HKC 130, United Phosphorus Ltd v China Merchants Shipping & Enterprises Co Ltd, HCCL 81/1997, unreported, 31 August 1998).

32.  Clause 19 of the Conditions deals with jurisdiction and the applicable law.  It states:

“Actions against the carrier may be instituted only in the place where the carrier has his place of business as stated on the reverse of (the Bill) and shall be decided according to the law of the country in which that place of business is situated.”

33.  The Plaintiffs rightly argued that clause 19 only permits actions brought against the Plaintiffs as carriers to be instituted in the place where the Plaintiffs carry on business.  It is not an exclusive jurisdiction clause which obliges the parties to litigate all actions on the Mainland.  Nor does clause 19 require actions brought by the Plaintiffs, against other parties to the Bills, to be instituted on the Mainland. 

34.  On governing law, even if it can be argued that the Bills are subject to the laws of the PRC, there is no reason why the action against the Defendant cannot be tried in Hong Kong on expert evidence of PRC law.  Nor has it been shown how the relevant PRC law is different to Hong Kong law so far as issues raised in the Amended Statement of Claim are concerned.

35.  The Defendant relies on the fact that it had, at the end of June 2016, commenced proceedings before the GZ Court, claiming that the 2^nd Plaintiff failed to deliver the Goods to the Defendant. It claims that 2 hearings already took place before the GZ Court. 

36.  Bearing in mind the matters outlined in paragraphs 25 to 30 and 33 to 34 above, I am not satisfied that the Defendant has established that the GZ Court is clearly or distinctly more appropriate to try the issues in dispute between the Plaintiffs and the Defendant in these proceedings.  The Plaintiffs have highlighted the fact that the 1^st Plaintiff is a party in this action, as the principal of the 2^nd Plaintiff which issued the Bills on its behalf, but the 1^st Plaintiff is not a party in the GZ Action.  There is no identity of parties.  Nor is there identity of issues in the 2 actions, since there is a claim against the Defendant in these proceedings on the basis of the bailment of the Goods.

37.  Even if the Defendant can establish that the GZ Court is clearly or distinctly the more appropriate forum, I accept the Plaintiffs’ case that if the dispute between the Plaintiffs and the Defendant as to the shipment of the Goods is to be tried in the GZ Court, the Plaintiffs would be deprived of a legitimate juridical advantage.  Any judgment that may be made in the GZ Court in favor of the Plaintiffs, including judgment on any counterclaim that may be raised by the 2^nd Plaintiff, cannot be directly enforced against the Defendant which carries on business in Hong Kong, or against its assets in Hong Kong.  Fresh proceedings, with the consequential and inevitable delay, would have to be commenced by the Plaintiffs in Hong Kong. The Mainland Judgments (Reciprocal Enforcement) Ordinance does not assist, since the GZ Court is not a designated or recognized court under that Ordinance.

38.  I reject the Defendant’s assertion that the Plaintiffs’ claims in these proceedings are an abuse of process.  The Plaintiffs pleaded a clear and arguable cause of action against the Defendant, both in the original Statement of Claim and, after the amendment in September 2016, in the Amended Statement of Claim on bailment.  The issues for determination at trial are based on the pleadings, and not on the affirmations filed or the arguments made in the affirmations.

Conclusion

39.  For all the above reasons, the Defendant’s application for stay was dismissed, with costs to the Plaintiffs.

40.  In the course of the hearing, I indicated to the parties that many of the affirmations filed for use in these proceedings were a waste of costs, since they set out arguments and submissions on law, which have no place in affidavits.  In future cases, the court will have no hesitation in ordering legal advisers to show cause why such wasted costs should be charged to their clients.