SHANGHAI GOPHER ASSET MANAGEMENT CO LTD v. CHINA BASE GROUP LTD AND OTHERS

HCA 1299/2019 & HCA 1300/2019

[2022] HKCFI 114

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. 1299 & 1300 OF 2019

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BETWEEN

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(Consolidated by the Order of Mr Registrar S Kwang dated 18 November 2019)

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DECISION

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1.  There are 2 summons for determination:

(a) the plaintiff’s application for leave to appeal this court’s Decision dated 28 October 2021 (“the October Decision”) dismissing its application to set aside the decision of Master Jonathan Wong dated 29 January 2021 (“the January Decision”), effectively staying the plaintiff’s consolidated action in this matter in favour of the People’s Court in Pudong New District, Shanghai (“the leave summons”); and

(b) the defendants’ application to vary the costs order nisi in the October Decision made in their favour to costs on an indemnity basis (“the costs summons”).

2.  The relevant background is set out in §§3-14 of the October Decision to which reference should be made. For convenience, this Decision will adopt the nomenclature used in the October Decision.

THE LEAVE SUMMONS

3.  In its draft Notice of Appeal (“NOA”) the plaintiff raises 3 grounds of appeal which are identical to the submissions it made when appealing the January Decision, culminating in the October Decision. Specifically, this court held that (1) §11.2 of the EPA is an exclusive jurisdiction clause; (2) the defendants had identified a credible defence and that the action should not be stayed; and (3) the defendants had not submitted to jurisdiction and/or waived their right to challenge the jurisdiction of the Hong Kong courts.

(1) §11.2 of the EPA – NOA §1

4.  The thrust of the plaintiff’s submission is that this court failed to have regard to the original Chinese text of Article 34 of the CPL in evaluating the evidence of the parties’ experts and that the court wrongly preferred the opinion of Mr Lin. Implicit in the submission is the suggestion that either the English translation did not accurately reflect the meaning of the Chinese text or that the original text trumps its translation into the other official language.

5.  The parties knew from the outset that English[1] (one of the official languages under section 5 of the Official Languages Ordinance, Cap 5) would be used in these proceedings. Indeed, directions had been given requiring English translations for all Chinese documents that would be used by the parties.

6.  While the wording of the English translation used in Mr Lin’s expert report is slightly different from that used in Mr Yang’s expert report, no point was taken at the hearing concerning the English translation used by Mr Lin. It was not suggested that it was in any way inaccurate or wrong.

7.  Having reviewed the reasons given in §§17-28 of the October Decision, even if Mr Yang’s version were to be used, the reasons given for preferring the evidence of Mr Lin are not rendered any the less valid.

8.  Accordingly, I see no prospect of this ground of appeal being successful.

(2) Whether the defendants had identified a credible defence and whether the action should be stayed – NOA §2

9.  The plaintiff makes 6 sub-points which can conveniently be considered under the following heads:

(a) evaluation of hearsay evidence and identification of a credible defence – NOA §§2.1, 2.2 and 2.4

10.  The plaintiff’s criticisms are not any different from those made at the hearing and summarised in §40 of the October Decision. Essentially, it was submitted that inordinate weight was given to Tang 2^nd and 3^rd which evidence should have been disregarded altogether, being nothing more than second-hand hearsay. §§19-40 of the plaintiff’s written submissions repeat the arguments made at the October hearing and add nothing new.

11.  §§39, 48 and 55 of the October Decision highlighted the key considerations underpinning the court’s conclusion which involved an evaluative process. In my view, no discernible grounds have been put forward to invalidate that conclusion.

(b) The defendants’ attempt to delay matters and avoid trial - NOA §2.3

12.  In so far as the plaintiff is taking issue with the court allowing the amendment of the stay summons, the basis for impeaching the exercise of the court’s discretion has not been articulated.

(c) issue of law requiring clarification or of public importance – NOA §§2.5-2.6

13.  At §§49-54 of the October Decision, this court did engage in an exercise comparing the SCB line of authorities with the Euromark line of authorities, concluding (at §53) that the Euromark line of authorities strikes the correct balance between the policy of upholding the parties’ own jurisdiction agreements while retaining a discretion only for the truly exceptional cases.

14.  The question whether the lack of a credible defence amounts to a strong cause to justify refusal of a stay does not arise given the finding that the plaintiff had a credible defence.

15.  Leave is not granted for academic appeals[2] which an appeal in the circumstances of the present case would be.

(3) Error in failing to find that the defendants have submitted to and/or waived their right to challenge the jurisdiction of the Hong Kong courts – NOA §3

16.  The plaintiff’s submissions replicate those made at the October hearing which are addressed in §§57-81 of the October Decision. The thrust of NOA §§3.1-3.4 is that the plaintiff disagrees with the weight accorded to competing facts by this court.

17.  Whether any particular matter amounts to a voluntary submission to jurisdiction must depend on the circumstances of the particular case[3]. Further, the circumstances should be looked at sensibly, realistically and fairly to see whether the step taken by the defendants constituted a submission to jurisdiction[4].

18.  The plaintiff has not identified which part or parts of the court’s reasoning (at §§57-81 of the October Decision) is/are plainly wrong.

Conclusion

19.  For the reasons set out above, I do not consider that any of the grounds of appeal has any reasonable prospects of success.

THE COSTS SUMMONS

20.  The defendants seek to vary the costs order nisi in their favour to be assessed on an indemnity basis. The ground is that the proceedings were commenced in breach of an exclusive jurisdiction clause.

21.  There is English and Hong Kong authority that upon granting a stay upon an exclusive jurisdiction clause, costs should be on an indemnity basis: see 2022 HKCP at §11/1/168, citing (inter alia) A v B (Costs) [2007] 1 Lloyd’s Rep 358 at §15 and Deltatre SPA v Hong Kong Sports Industrial Development Limited [2018] 4 HKLRD 478 at §125.

22.  The rationale for indemnity costs was explained by Colman J in A v B (Costs) at §15:

“The conduct of a party who deliberately ignores an arbitration or a jurisdiction clause so as to derive from its own breach of contract an unjustifiable procedural advantage is in substance acting in a manner which not only constitutes a breach of contract but which misuses the judicial facilities offered by the English courts or a foreign court. In the ordinary way it can therefore normally be characterised as so serious a departure from “the norm” as to require judicial discouragement by more stringent means than an order for costs on the standard basis.”

23.  Colman J then referred to “exceptional cases” where such an order should not be made:

“Without wishing to confine this flexibility in any way, it is not difficult to envisage that departure from the normal approach might be justified in a case where conduct on the part of the successful party has led the party in breach to believe that the chosen forum can be ignored. Further there may be cases in which the general conduct of the successful party, although not breaking the chain of causation, would nevertheless justify its being deprived of an order for indemnity basis costs. In such cases the need to reflect judicial disapproval of such conduct might justify an order for costs on the standard basis.”

24.  The plaintiff opposes the variation on the grounds that: (a) the defendants’ conduct led the plaintiff to believe that the chosen forum can be ignored; and (b) the breach was not deliberate and there was no unjustifiable procedural advantage involved. It is apparent that those grounds mirror the observations set out in §23 above.

25.  As to (a), it is but a different way of putting the submission to jurisdiction point which this court has rejected for the reasons set out in §§57-81 of the October Decision.

26.  The example given in A v B (Costs) suggests conduct on the successful party’s part that is open to criticism or is blameworthy in some way – conduct misleading the other party.

27.  But for the plaintiff’s recalcitrance in providing inspection of the EPA and the other contractual documents referred to in the writ, followed swiftly by the plaintiff’s applications on 4 October 2019 to enter judgment (meanwhile continuing to withhold the requested documents from the defendants), the defendants would not have had to take procedural steps in HK which the plaintiff now suggests led it to believe the chosen forum can be ignored. That is a travesty of the events.

28.  Where the conduct in question is not open to criticism or be said to be blameworthy in any respect, it is difficult to see on what basis the successful party should be deprived of indemnity costs to which it would otherwise be entitled.

29.  As to (b), the normal costs order upon granting a stay upon an exclusive jurisdiction clause does not turn on whether or not the breach is deliberate. A breach of contract remains a breach even if committed unintentionally.

30.  The plaintiff’s denial of seeking any unjustifiable procedural advantage rings hollow. The fact that the Shares are situated in HK is not an overriding consideration given the matters noted in §§30-31 of the October Decision.

31.  As therein noted, the pledge acts as a security for the principal creditor’s rights under the main agreement which is the factoring agreement. The present proceedings which are based on secondary liability have been brought in circumstances when the principal liability has yet to be determined in the Shanghai proceedings.

ORDER

32.  Accordingly, it is ordered as follows:

(1) The leave summons be dismissed with indemnity costs to the defendants such costs to be summarily assessed and payable forthwith.

(2) The order nisi in the October Decision be varied in terms of §1 of the costs summons.

33.  Directions will be given separately for summary assessment.