BEL NICKEL RESOURCES LTD v. EASTBOURNE TRADING PTE LTD AND OTHERS

HCA 2042/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2042 OF 2009

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D E C I S I O N

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1.  This is an application by the defendants (1) to discharge an order of Master Yu made on 13 October 2009 granting leave to the plaintiff to issue a concurrent writ of summons and to serve the same on the defendants out of jurisdiction and (2) to set aside the concurrent writ and its service and all subsequent proceedings.

2.  There are three grounds in the application, namely material non-disclosure; the claim does not fall within any ground in Order 11 rule  4 of the Rules of the High Court (“RHC”) and forum convenience.

The Plaintiff’s Claim

3.  The plaintiff brings the claim on the basis of an agreement dated 30 August 2008 that it made with the 1st defendant.  For convenience it is called the “BEL Agreement”.  The plaintiff by this agreement agreed to purchase from the 1st defendant 100,000 wet metric tonnes nickel ore at US$38.10 per tonne.  

4.  The 1st defendant pursuant to this agreement made a partial delivery of 51,891 wet metric tonnes.  The plaintiff claimed that the nickel ore as delivered did not conform to the contract’s specifications and was not of merchantable quality or otherwise not reasonably fit for the purpose for which they were bought and the purpose was known to the 1st defendant.  The goods were therefore rejected.  The plaintiff claims loss and damage flowing from the 1st defendant’s breach of the BEL Agreement.

5.  In addition, the plaintiff has pleaded that the 2nd defendant in mid-December 2008 and mid-January 2009 gave the plaintiff a guarantee that if the 1st defendant should fail to compensate the plaintiff, the 2nd defendant would assume the liability to do so.  The plaintiff further pleaded that the 3rd defendant gave a similar guarantee on about 18 April 2009.

Evidence in support of the application for leave to issue a concurrent writ and to serve it out of jurisdiction

6.  The plaintiff’s application for leave to issue the concurrent writ and to serve it outside jurisdiction was supported by an affidavit of a Mr Chan, a solicitor of the plaintiff’s solicitors.  He referred to the BEL Agreement and the allegedly defective goods delivered under it to found a good cause of action against the 1st defendant.  He also said that the BEL Agreement was negotiated and concluded in Hong Kong and leave for service out of jurisdiction can be granted under Order 11 rule 1.  The claims against the 2nd and 3rd defendants are by virtue of their guarantees and they are necessary or proper parties to the action.  

Evidence for discharge

7.  The 3rd defendant made an affirmation to support the application to discharge.  He said the plaintiff was guilty of material non‑disclosure in applying for leave before Master Yu and that it had failed to disclose the background that led to the signing of the BEL Agreement.  He further said that had the plaintiff done so, the court would have come to the view that the plaintiff had no arguable case and that the BEL Agreement was not a valid and binding agreement for lack of consideration and intention to create legal relations. 

8.  He then said that the 1st defendant had on 30 August 2008 entered into a back-to-back arrangement for the sale and purchase of nickel ore.  The 1st defendant entered into a contract with one Aneka Mineral Resources Inc. (“Aneka”) to purchase the nickel ores from Aneka.  It then entered into another contract with one Good Year Corporation Inc. (“Good Year”) to sell the ore to Good Year.  This agreement for convenience is called “the Good Year Agreement”.

9.  The plaintiff was not a party to the said transaction. The plaintiff was only involved when a letter of credit was issued on 11 September 2008 by a bank in Hong Kong to pay the 1st defendant for the ore.  The letter of credit required a number of documents including a full set of clean onboard bill of lading specifying the plaintiff as the party to notify.  A set of bill of lading was duly issued with the plaintiff named the notified party. 

10.  The 3rd defendant said that he did not know what was the arrangement between the plaintiff and Good Year or why the plaintiff had to bear the freight, insurance and bank charges for the transaction or why the goods were delivered to the plaintiff.  However, the goods were only delivered pursuant to the Good Year Agreement to which the plaintiff was not a party.  He further said that he signed the BEL Agreement on behalf of the 1st defendant on 8 December 2008 at the request of one Miss Pat Sze of the plaintiff.  By this time the goods had already been delivered under the Good Year Agreement.  The BEL Agreement was backdated to 30 August 2008 and the 3rd defendant was told that it was made for record purpose only.

11.  In hindsight, the 3rd defendant thought that the plaintiff asked him to sign the BEL Agreement for the purpose of pursuing the 1st defendant directly and that was against the will of the 3rd defendant.  The 3rd defendant maintained that no one intended the BEL Agreement to be legally binding.  There was also no goods delivered or payment made under this agreement.  The Good Year Agreement had also not been rescinded or replaced by the BEL Agreement.  If the BEL Agreement should be binding, then the 1st defendant could be called upon to pay damages to both the plaintiff and Good Year under their respective agreements.

12.  On the basis of these allegations the 3rd defendant asserted that the plaintiff did not have a good arguable case.  Alternatively, the 3rd defendant also said that this action is not a proper one for service out of jurisdiction.  He referred to the BEL Agreement’s clause on governing law which is English Law.  The 1st defendant is a Singaporean company and the 2nd and 3rd defendants are domiciled in Singapore.  The goods were supplied by Aneka which will ultimately bear all loss and damage, if any, as the 1st defendant was essentially an intermediary only.  The Aneka Agreement provided for arbitration to resolve dispute between the parties.  If the action should proceed in Hong Kong, it would be difficult for the defendants to join Aneka as a third party.  There may also be a risk of inconsistent findings. Aneka may also raise new grounds of defence in separate proceedings which the 1st defendant may not be aware in the Hong Kong proceedings.

Evidence in opposition

13.  Miss Pat Sze made an affirmation to oppose the application.  She disputed the 3rd defendant’s allegation that the BEL Agreement was signed without any intention to create legal relations, not binding and not supported by consideration.  She said the directors of the plaintiff and Good Year were of the same family.  The Good Year Agreement was made simply because Good Year had a long history in shipping and trading and had banking facilities to issue letters of credit.  The plaintiff at the time of the negotiation of the Good Year Agreement was newly acquired by those in its control and did not have banking facilities to issue the necessary letter of credit.  Since the plaintiff needed the nickel ore urgently, it therefore authorised Good Year to enter into the Good Year Agreement and to procure the letter of credit from its banker.  That was the reason why the plaintiff bore the freight, insurance and banking charges and was made the notified party in the bill of lading.  All these matters were known to the 3rd defendant.

14.  Miss Sze had also told the 2nd and 3rd defendants before signing the Good Year Agreement that Good Year was only entering into the Good Year Agreement to purchase the goods as a representative of the plaintiff as the plaintiff had not established any banking facilities. The BEL Agreement was signed in December 2008 to formally reflect the fact that it was the plaintiff and not Good Year which was purchasing the goods.  Both the Good Year Agreement and the BEL Agreement were signed by the 3rd defendant in Hong Kong on behalf of the 1st defendant.  Miss Sze also said she had reached an understanding with the 2nd and 3rd defendants that the Good Year Agreement would be superseded by the BEL Agreement and the parties should rely on the BEL Agreement.  She therefore denied that the BEL Agreement was not binding for want of consideration and intention to create legal relations. 

15.  She also said that Hong Kong is the forum convenience of this action.  All persons involved on the plaintiff’s side are in Hong Kong.  The 2nd and 3rd defendants have no problem in travelling to Hong Kong and they did so to sign the Good Year and BEL Agreements.  They should thus come here to give evidence.  The evidence on quality would also be adduced in the form of inspection reports already obtained because the goods have been sold with the agreement of the 1st defendant. 

16.  She also said that the dealings between the 1st defendant and Aneka are irrelevant to this action and not known to the plaintiff when the BEL and Good Year Agreements were made.

The defendants’ evidence in reply

17.  The 3rd defendant made a supplementary affirmation.  He maintained that the 1st defendant only contracted with Good Year and not the plaintiff for the sale and purchase of the goods.  At the material time, he only knew that the plaintiff was related to Miss Sze and her father.  The relationship between the plaintiff, Good Year and the Szes was not an issue that the parties to the Good Year agreement were concerned about.  He also denied that Miss Sze had told him that the plaintiff was involved in the transaction or was the ultimate buyer.  He further denied that the Good Year agreement had been superseded by the BEL Agreement.  He thought the BEL Agreement was merely for record purpose.  The BEL Agreement did not say that it superseded the Good Year Agreement.  He also questioned if the goods had indeed been sold as the Statement of Claim pleaded that they were still kept at the port of destination.  He also denied the liability of the 2nd and 3rd defendants under the alleged guarantees.

The defendants’ submissions

18.  Counsel for the defendants referred to the 3rd defendant’s allegations that the BEL Agreement was signed and backdated for record purpose, it was not intended to be legally binding, the nickel ore was not delivered pursuant to it, the plaintiff did not make payment pursuant to it, it did not replace or supersede the Good Year Agreement, it was not supported by consideration, the defendants did not know the arrangement between the plaintiff and Good Year and the 2nd and 3rd defendants had not made any oral guarantee to the plaintiff in respect of the 1st defendant’s liabilities to it.

19.  Counsel also referred to Order 11 rule 1 and submitted that the court must be satisfied that it has jurisdiction over the action before it would grant leave for service out of jurisdiction.  A plaintiff also has to show a good arguable case.  Counsel emphasised the importance of full and frank disclosure by the plaintiff at the ex parte application. 

20.  Counsel further submitted that the plaintiff’s failure to disclose the existence of the Good Year Agreement which was made between Good Year and the 1st defendant was a material non-disclosure. Counsel also said that the plaintiff’s affidavit for the ex parte application contained a false statement that the BEL Agreement was made on 30 August 2008.  This agreement was in fact signed between 3 and 8 December 2008.  Counsel also said that the plaintiff had provided no evidence to show that the Good Year Agreement was rescinded or superseded by the BEL Agreement.  The assertion by Miss Sze that the Good Year Agreement had been superseded was unsupported by any reference in the BEL Agreement itself.  The assertion was also not made at the ex parte stage to the Master, but was only made subsequent to the defendants’ attack of material non‑disclosure. 

21.  Counsel also submitted that if the BEL Agreement were binding, the 1st defendant would be liable to the plaintiff for the freight, insurance and banking charges which were incurred by the plaintiff but not by Good Year.  Hence if the 1st defendant had agreed that the BEL Agreement should be binding, then the 1st defendant would have exposed itself to a much bigger liability than under the Good Year Agreement.  Counsel repeated that it was Good Year that had entered into an agreement with the 1st defendant to purchase the goods and the plaintiff was not a party to it.

22.  Counsel submitted that the existence of the Good Year Agreement shows that the plaintiff is not the proper plaintiff and its claim must fail.  Since the plaintiff failed to disclose the Good Year Agreement upon which goods were delivered and payment made, it therefore failed to make disclosure of a material fact that is central to the issue of whether the action was properly brought by the plaintiff against the defendants.  If the Good Year Agreement was disclosed, it would have affected the mind of the Master in considering whether to grant the leave.  The Master’s order should therefore be set aside.

23.  In the supplemental skeleton argument, counsel further submitted that the plaintiff committed the material non-disclosure intentionally and deliberately as the Good Year Agreement was the agreement under which the goods and consideration passed.  The plaintiff also intentionally made a false statement that the BEL Agreement was made on 30 August 2008.  The plaintiff also did not explain why there was the material non-disclosure. 

24.  The existence of the Good Year Agreement is a challenge to the legitimacy of the plaintiff’s claim.  The non-disclosure is not merely on a disputed issue, but amounts to a failure to disclose to the court that the plaintiff may in fact not be a proper plaintiff or that the plaintiff’s claim is groundless.  Counsel finally submitted that the plaintiff’s claim is perfectly groundless.

25.  Regarding the issue of Order 11(1)(d) of RHC, counsel again repeated the defendant’s case and submitted that that was the common ground between the parties.  On this alleged common ground, counsel then submitted that the BEL Agreement was not a valid contract as it lacked consideration and had not been performed.  Therefore, there was no breach of this agreement by the 1st defendant.  Hence, there is no arguable case that can come within Order 11(1)(d) and no serious question to be tried.  Counsel also submitted that there is no evidence of the guarantees given by the 2nd and 3rd defendants.

26.  Regarding the final issue of forum convenience, counsel said that the Singaporean Court is clearly the more appropriate forum. The reasons advanced are that:

         (1)   The 1st defendant is a company domiciled in Singapore;

         (2)   The 2nd and 3rd defendants are also domiciled in Singapore;

         (3)   Aneka, being the ultimate supplier of the goods, is also a Singaporean company; and

         (4)   The resolution of the issue of quality of the goods will involve Aneka. 

27.  Counsel therefore submitted that it is reasonable for the defendants to join Aneka as a third party to the claim.  The witnesses for the defendants and Aneka, which may include expert witnesses, are all based in Singapore.  There are, however, fewer potential witnesses in Hong Kong. 

28.  The goods were loaded in Indonesia and discharged in Mainland China.  The inspection reports were made in Indonesia and Mainland China.  If the plaintiff’s claim should be satisfied, it would be by the defendants or Aneka which are all based in Singapore.  There is no evidence to suggest that this transaction has any real or substantial connection with Hong Kong.  Hence, counsel submitted that the Singaporean Court is clearly and distinctly more appropriate than the Hong Kong Court.

The plaintiff’s submissions

29.  On the question of material non-disclosure, counsel for the plaintiff referred to Wo Fung Paper Making Factory Limited v Sappi Kraft (Pty) Limited [1988] 2 HKLR 346.  The plaintiff in that case claimed the defendant for loss and damage for the defendant’s failure to perform a number of contracts.  The plaintiff obtained leave to serve a concurrent writ on the defendant in South Africa.  The defendant then applied to set aside the leave.  The defendant argued material non‑disclosure against the plaintiff. Hunter JA set out six principles that govern applications under Orders 11 and 12.  Counsel referred to the fifth and sixth principles and Hunter JA’s observation on non-disclosure at page 356I to 357J:

“(5) There are two stages to the enquiry. The first is the ex parte stage under Order 11. I emphasise that it is ex parte on documents. The practice does not envisage oral submissions ever being made except at specific request. Order 11 rule 4(1) specifies what the supporting affidavit has to show. At that stage it seems to me that the court has to come to a provisional view (it being an ex parte application) on three matters. The first is whether the applicant shows a prima facie case. I read the speeches in Vitkovice as accepting that that is the burden of that stage, it may be for the simple reason that when the court has only got one party’s version before it, it can do very little more. That is how I read the speeches of Lord Simonds at p. 876, Lord Radcliffe at p. 884, Lord Tucker at p. 891. Secondly, it has to consider the sufficiency in law of the facts alleged: for example whether the applicant brings himself within any of the sub-rules and whether the facts alleged are sufficient prima facie to establish the cause of action alleged. Thirdly, the court has to consider the facts within the limited scope available. This really comes down to considering whether the facts are sufficiently asserted in an apparently credible manner. The matter was put in this way in a case in contract by Lord Buckmaster giving the opinion of Privy Council in Hemelryck v William Lyall Shipbuilding [1921] 1 AC 698 at p. 701. He said:

‘For the purpose of exercising the discretion which is conferred by the rules to be exercised [that is Order 11] it is sufficient if there appears reasonable evidence that a contract has been made.’

(6) The second stage which may or may not be reached, follows a proper application under Order 12, rule 8. Then the court has to consider all the evidence before it, and to determine in the light of that whether the plaintiff shows a good arguable case. That it is the test laid down in Vitkovice at that stage. But the court’s position on fact and law is the same as it was at the ex parte stage. It cannot make any findings of fact. It can certainly consider the legal sufficiency of the facts, and whether there are legal holes or obvious failings in the plaintiff’s case. It can in the words of Lord Goddard, C.J. in Malik v National Bank of Czechoslovakia (1946) 176 LT 136 cited in Vitkovice at p.888, ‘If it can see by what appears on the affidavits that the case put up as a perfectly groundless one and one in which there is no substance at all, the court can refuse to give leave’. Similarly if the case is demurrable or nearly so. But that is about the limit of the court’s power and function of disputed facts under this jurisdiction. It follows that the existence of disputed facts is normally quite irrelevant to the question as to whether or not a good arguable case has been shown. Putting it in another way, the showing of a good arguable case does not postulate an Order 14 case and is not negatived by the fact that good arguable defences may exist. The relevance of the dispute goes really to little more than the question of the suitability of the forum evidentially and it may be a factor to be brought in there. Otherwise normally speaking factual disputes are quite irrelevant.

I turn now to the two principles I conceive to be relevant, in relation to non‑disclosure. First the court’s power to discharge any order obtained ex parte for material non‑disclosure is salutary and necessary. As one of the earlier cases shows, ex parte Polignac [1917] 1 KB 486, it is there for the court’s own protection. It is necessary to prevent its processes being abused. Secondly, there is another equally significant principle in this jurisdiction. This is to make sure that the court does not get itself in a position of what might be called “counter‑abuse”: where this sort of point is regarded by litigants as ‘a very present help in trouble’; and where problems arise on the substance to resort to attack as the best method of defence.”

30.  Counsel for the plaintiff submitted that the so-called

non-disclosure of the Good Year Agreement as relied on by the defendants and the arguments of no consideration or performance and so on are nothing but grounds of defence.  The disclosure of otherwise of the Good Year Agreement would not have affected the Master’s consideration at the ex parte application.  The plaintiff’s case would have been the same as it is the plaintiff’s case that the Good Year Agreement had been superseded by the BEL Agreement and the partrties are bound by the BEL Agreement.  To strengthen this point counsel further referred to the Judgment of Hunter JA in Wo Fung at page 359(b) to (e):

“In relation to that, three points basically were taken by the defendants. The first was an assertion that there was no contract. Irraffe, it is said, had no authority to bind the defendants. These contract forms were simply offers, not contracts. They required express acceptance by the defendants. The first four contracts were expressly accepted and none of the others were. They have exhibited in evidence the acceptance documents they say were sent directly to the plaintiffs. They are in an unusual form, which is perhaps equally consistent with and might be associated with, an internal document. Conversely the plaintiffs deny receipt of those documents.

         In my view it can be seen at once that this is an ineffective and valueless point on the question of arguable case under Order 11 and Order 12.  When one looks at the contract documents, they themselves create an arguable point that they constitute agreements in writing.  All the other matters which have been put in evidence go to the possibility of that prima facie conclusion being displaced upon further evidence at the trial by evidence of acceptance or course of dealing.  That only goes to the need for a trial: it certainly does not detract from the conclusion that there is an arguable case.”

Decision on issues of material non-disclosure and Order 11 rule 1

31.  I agree with counsel for the plaintiff that the Good Year Agreement and the arguments that goods and payments passed under this agreement but not the BEL Agreement are merely matters that go to the substantive merits of the defence.  They are not relevant questions and have no impact at the ex parte stage.  The plaintiff has already pleaded that the parties are bound by the BEL Agreement.  Miss Sze has now condescended on her affirmation to say so.  The defendants accept that the BEL Agreement was signed by the 3rd defendant for the 1st defendant.  Whether this agreement has superseded the Good Year Agreement or whether it was only made for the plaintiff’s purpose of good record is a matter for the trial.

32.  In the light of the defendant’s admission of the making of the BEL Agreement, I do not think the defendant’s case on the facts as deposed to by the 3rd defendant in his two affirmations would make the plaintiff’s claim liable to be struck out (see Hong Jing Company Limited v Zhuhai Kwok Yuen Company Limited, HCA 156/2006 at para 17).  There is also Miss Sze’s evidence that the 2nd and 3rd defendants have given guarantees to the plaintiff.  

33.  I find that the plaintiff has established serious questions to be tried as against all three defendants.  On this finding, the defendant’s argument that the action is not within the scope of Order 11(1) also falls away.  This argument is also unmeritorious as it is raised by treating the defendant’s case on the facts as the common grounds of the parties. 

The plaintiff’s arguments on forum convenience

34.  Cheung JA has in the case of DGC v SLCnée C, CACV 37/2005 summarised the principles for consideration of forum convenience as follows:        

“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 i.e. 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 proceeding 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.”

35.  This formulation of the principles is the same as in earlier cases like The Adhiguna Meranti [1987] 2 HKC 126 at 129 to 130 and The Lanka Muditha [1991] 1 HKLR 741 at 744.  Counsel for the plaintiff submitted that it is only the issues between the plaintiff and the defendants that are relevant for consideration of forum convenience. The issue between the 1st defendant and Aneka should not come into the picture at all as Aneka is not a party to this action. 

36.  Furthermore, the Aneka contract provided for arbitration to resolve disputes.  Hence, even if the action should be tried in Singapore, there is still no guarantee that Aneka could be joined as a third party.  The BEL Agreement is governed by English Law, but Hong Kong Law is very similar to English Law and English authorities are applied in Hong Kong very frequently. 

37.  Regarding the witnesses, the plaintiff’s witnesses including those who negotiated the Good Year and BEL Agreements with the defendants are all domiciled in Hong Kong.   Both the Good Year and BEL Agreements were made in Hong Kong.  Now that the purpose and effect of the BEL Agreement is in issue, these are important witnesses.  The 2nd and 3rd defendants travelled frequently to Hong Kong and should have no difficulty in attending the trial of this action in Hong Kong. 

38.  I would also add that the inspection reports were made in Indonesia and the Mainland, hence, the convenience or otherwise for the witnesses who conducted the examinations and made the reports to come to Hong Kong would not be significantly different if they were to go to Singapore.  Though the defendants have also mentioned expert witnesses from Singapore, but I do not know whether it will be inconvenient for them to come to Hong Kong to give evidence.

Decision on forum convenience

39.  Looking at the matter in the round, I think the defendant has failed to show that Hong Kong is not the natural or appropriate forum or that the Singapore Court is clearly or distinctly more appropriate.

Decision on the summons

40.  Having come to the above conclusions, I dismiss the defendant’s summons to discharge the Master's Order.  

41.  The plaintiff has a fallback position for re-grant of leave should the Master’s Order be discharged.  I do not think I need to consider that as I have dismissed the defendant's summons.  However, if I should have accepted the defendants’ argument that the BEL Agreement is not binding, then there would also be no basis for the leave to be re-granted.

42.  I also mention that the plaintiff’s error in Mr Chan's affidavit, which stated that the BEL Agreement was made on 30 August 2008, is not a matter that would have affected the Master’s consideration of the application at the ex parte stage.

43.  Finally, I make a costs order nisi that the defendants do pay the plaintiff the costs of this application forthwith and with certificate for counsel.