CTBC BANK CO LTD v. INDUSTRIAL AND COMMERCIAL BANK OF CHINA LTD

HCCL 3/2024

[2024] HKCFI 3525

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 3 OF 2024

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BETWEEN

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DECISION

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1.  This is ICBC’s[1] application for leave to appeal against the Decision of this court dated 21 October 2024 ([2024] HKCFI 2820) (“Decision”) by which its application for a stay of proceedings on the ground of FNC was dismissed.

2.  For applicable principles, they were summarised in another Decision of this court on an application for leave to appeal which was dated 27 November 2024 ([2024] HKCFI 3454, [2]-[3]).

3.  There are 4 proposed grounds of appeal. They challenge the view taken by the court on the issues of Foreign Illegality (Ground 1 (with 5 sub-grounds)), lis alibi pendens (Grounds 2 (with 3 sub-grounds)), proper place for trial (Ground 3). By Ground 4, ICBC seeks to adduce new evidence at the proposed appeal.

The Decision

4.  With respect, it appears to me from the Grounds and the Submissions of ICBC that the Decision had not been properly understood. To begin with, there was no dispute that CTBC’s action in Hong Kong was brought against ICBC as of right[2]. Second, there was no suggestion that justice could not be obtained in Hong Kong or in Guiyang. The issue for the court was to look for the jurisdiction where the action may be tried more suitably for the interests of the parties and the ends of justice[3].

5.  Third, notwithstanding the volume of evidence (including expert evidence) and the extensive and complicated submissions, the court took the approach that in resolving the interlocutory application it should focus on the real issues and deal with the application expeditiously[4]. There is no challenge to the approach adopted.

6.  Fourth, in deciding the appropriate forum, the court took the view that it was important to bear in mind what this action was about. The court considered that CTBC’s claim, based in part on the UCP, was not complicated and the type of action familiar to the Hong Kong court[5]. The court then considered the issues raised by each of ICBC’s defences[6]. Again, there is no suggestion that the approach was wrong.

7.  Fifth, before dealing with Foreign Illegality, the court turned to lis alibi penden, which was ICBC’s main argument[7]. Plainly, the two were closely related. The court took the view that the main argument had to be assessed in light of what this action was about[8].

Grounds of appeal

8.  In respect of Ground 1, it is important to bear in mind what ICBC’s defence on Foreign Illegality was, namely, payment under the L/C by it would be contrary to the Interim Stop Order[9]. It was incumbent on the court to evaluate this defence and take a provisional view on whether there would indeed be a Foreign Illegality issue, and consequently ICBC would suffer real prejudice if this action was tried in Hong Kong[10].

9.  The court accepted that, whether or not the Fraud Proceedings would be tried on the next day, they were at an advanced stage[11]. If the Interim Stop Order was not continued because, eg, the fraud alleged by New Era was rejected by the Guiyang Court, there would be no Foreign Illegality issue.

10.  There was a conundrum if the Interim Stop Order was not lifted, and it was an area not considered by counsel prior to the hearing[12]. It befell the court to deal with the scenario with the input of counsel provided at the invitation of the court. There was no dispute that on the PRC law evidence, the Interim Stop Order would be lifted if either ICBC or CTBC was acting bona fide in the L/C transaction. In this regard, Ground 1(e) tries to advance a new argument based on a pronouncement of the Supreme People’s Court – 关于当前人民法院审理信用证纠纷案件应当注意问题的通知 (Art. 3). These provisions were not relied upon. Nor was there expert evidence on its effect. The point is sufficiently dealt with in para 18 of the Skeleton Submissions of Mr Sussex SC, who appeared with Ms Ha, for CTBC and with which I agree. I find no merits in this sub-ground.

11.  On the basis of the PRC law evidence before the court, ICBC would have been found to have acted in bad faith if the Interim Stop Order was not lifted. It was quite unclear to the court how ICBC would be in a position to advance the Foreign Illegality defence when the illegality was, at least in part, based on its own wrong. There was no answer provided by ICBC[13].

12.  The court took the view that the issues were complex, impossible to resolve at an interlocutory application and it was not required to do so. Nevertheless, there was no “clear cut case” of a Foreign Illegality defence or prejudice suffered by ICBC. The court was not satisfied that a good arguable case was made out[14].

13.  There can be no question that the burden to make out a good arguable case on Foreign Illegality was on ICBC. Properly understood, the court did not impose a different threshold on ICBC (Ground 1(a)). The “clear cut case” was a reference to the absence of a clear cut case on Foreign Illegality given the unresolved and complex issues.

14.  Under Ground 1(b), ICBC suggests that the court was wrong to have any regard to ex turpi causa because it was not relevant to foreign illegality. The authorities cited by Mr Sussex suggest that the law is more nuanced. I remain of the view that it would be surprising if ICBC could rely on Foreign Illegality which arose, at least in part, by reason of its own lack of bona fide.

15.  Mr Sussex submitted that CTBC’s claim is based on a separate contract with ICBC governed by the UCP, and it is far from clear whether the findings made in the Fraud Proceedings will have any bearing on CTBC’s claim. Whilst the court was referred to the case of Deutsche Bank v CIMB[15], this line of argument was not the focus of CTBC’s submissions at the stay application.

16.  As to whether CTBC would be bound by a judgment in the Fraud Proceedings (res judicata) (Grounds 1(c) and 1(d)), Mr Sussex was correct to have pointed out that at the stay hearing ICBC’s position was that res judicata was not relevant. In any case, I fail to see why the court was not entitled to take a provisional view on the point based on the materials before it. Further, if CTBC would be bound by the Fraud Proceedings which result was against it, then this action should fail. Apart from costs, there could be no prejudice to ICBC.

17.  In respect of lis alibi pendens (Ground 2), it was evaluated by the court in light of (a) what this action was about[16] and (b) ICBC’s submissions[17]. The central plank of ICBC’s case was that an inconsistent finding by Hong Kong court might result in it having to honour its payment obligation to CTBC in breach of the Stop Order, which would be a real prejudice to it. Hence, the foregoing analysis on the scenario of the Guiyang Court upholding the Stop Order applies here equally. Unless there was a good arguable case on Foreign Illegality, lis alibi pendens would not assist ICBC[18].

18.  The reference in the Decision to the “Achilles heel” of the lis alibi pendens submission[19] (Ground 2(a)) reflected the law that the court would consider whether the parallel proceedings would have a continuing effect upon the dispute between the parties (China Construction Bank, [6.12] was cited)[20]. The undisputed PRC law evidence was that CTBC was not entitled to make any claim in the Fraud Proceedings[21]. Therefore, no relief would be available to CTBC in those proceedings. It followed that the Fraud Proceedings would not put an end to the dispute between ICBC and CTBC, unless the Stop Order was lifted and the former would honour its payment obligation voluntarily.

19.  As regards the issue of temporary stay (Ground 2 (b)), it is wholly unmeritorious. No temporary stay was offered at the hearing and ICBC’s counsel alluded to the difficulty of agreeing the terms of a temporary stay due to various contingencies[22].

20.  Ground 2(c) has been sufficiently covered by the above.

21.  Ground 3 is largely a re-argument of the submissions previously before this court. It is difficult to see why ICBC is entitled to re-argue its case on appeal.

22.  As regards the new evidence (Ground 4), first, I agree with Mr Sussex that there must be an end to the filing of evidence in an interlocutory application.

23.  Second, I am unable to agree with the proposition that the court was proceeding on the basis of “working assumptions”. The court had to adjudicate the interlocutory application on the basis of the evidence before it, some of which was unclear.

24.  Third, 2 points are sought to be made with the new evidence: (a) whether the trial before the Guiyang Court would proceed on the day after the hearing; and (b) the scope of the arguments before the Guiyang Court.

25.  As to (a), the fact is that the evidence before the court was “far from certain” whether the trial would proceed but, importantly, it was accepted by the court that the Fraud Proceedings were at an advanced stage[23]. The fact that it was subsequently known that the trial did proceed would not have made any material impact to the Decision.

26.  In respect of (b), it is right for Mr Sussex to have pointed out that there was an attempt at the 11^th hour by ICBC to adduce further evidence at the hearing on the scope of the arguments before the Guiyang Court. The application was withdrawn with a concession by CTBC to remove the last sentence of para 89.2 of its skeleton submissions[24] (“Since CTBC will not be participating in the Fraud Proceedings, it is unclear whether anyone will argue [CTBC’s Good Faith Issue or the Negotiation Issue] at trial”).

27.  In the premises, the “new evidence” on (b) was either available or could have been obtained by ICBC with reasonable diligence (condition (1) of Ladd v Marshall).

28.  Further, the fact that arguments were made on CTBC’s Good Faith Issue and the Negotiation Issue at the trial of the Fraud Proceedings does not necessarily falsify the view of the court. Based on the evidence before it, the court took the view that there was a real possibility that the Guiyang Court would not determine those issues[25]. The answer can only be found in the judgment on the Fraud Proceedings, which is not yet available.

29.  For these reasons, I am unable to agree that there is any reasonably arguable ground of appeal or there is a reasonable prospect that the new evidence will satisfy the Ladd v Marshall test.

Extension of time

30.  As for ICBC’s application for extension of time to file Defence, I agree with Mr Sussex that ICBC was sued as of right and there is no question of it being under the jurisdiction of this court, notwithstanding its argument that the court should not exercise its jurisdiction in this action: see O. 12, r. 8(2) of the RHC.

31.  It has not escaped this court that ICBC’s stay application was taken out on the last day for the filing of its Defence pursuant to an unless order[26]. Delay in this action can only be at the expense of CTBC.

32.  Apart from the lack of a reasonably arguable appeal, I am unable to agree with Mr Tang, who appeared with Mr Law for ICBC, that the filing of a Defence would necessarily constitute submission to the jurisdiction of the court or otherwise prejudice its intended appeal: see Hong Kong Civil Procedure 2025, vol 1, [12/8/2], para 3.

Disposition

33.  I see no valid reason for further delay in the progress of this action. I grant an unless order for the filing of Defence by ICBC by 4 pm on 18 December 2024, failing which it should be debarred from doing so.

34.  ICBC’s Summons filed on 4 November 2024 is dismissed with costs to CTBC, to be taxed if not agreed with a certificate for 2 counsel.

35.  I am grateful to counsel for their assistance.