XCHRX BAYER POLYMERS CO. LTD. v. THE INDUSTRIAL AND COMMERCIAL BANK OF CHINA, HONG KONG BRANCH

HCCL307/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.307 OF 1998

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J U D G M E N T

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1. This is the Defendant's application by summons dated 25th January 1999 whereby it seeks to stay these proceedings on the basis of forum non conveniens.

2. This is an action upon a letter of credit opened by the Defendant in favour of the Plaintiff for the amount of US$275,400. The underlying contract of sale was entered into between a Thai seller and a Chinese buyer, the goods in question being shipped from Thailand to China via Singapore. The letter of credit in question was issued by the Wuxi branch of the Defendant, and the Plaintiff submits that the Defendant breached its obligations under the UCP500 by rejecting as discrepant documents presented under that letter of credit, whilst at the same time forwarding one such document, an original bill of lading, to its customer, the applicant for the letter of credit and the buyer in the underlying transaction, thereby enabling possession of the goods to be taken without payment. Neither the goods nor the original bill of lading have been returned or paid for, and, says the Plaintiff, this state of affairs is a direct consequence of the Defendant's actions. Hence these proceedings.

3. The parameters of this stay application are unusual. Normally the battle ground in such applications lies in establishing not only that Hong Kong is not the natural or convenient forum for the trial, but that another jurisdiction clearly is. In this case, however, and perhaps understandably in terms of the factual matrix, there is no issue in this regard - the Plaintiff accepts that the subject matter of this action is more closely connected with Wuxi than Hong Kong. However, the Plaintiff says, in terms, that if the action is stayed, as the Defendant/Applicant now wishes, in the circumstances there is a risk of not receiving substantial justice in China, and second, that in any event there is no arguable defence in this case, and that therefore the Court should not exercise its undoubted discretion. In effect, therefore, the Court in this case is solely concerned with what I might call the second limb of Spiliada [1987] AC 460 - namely, that if the Court concludes that there is indeed another forum which is prima facie more applicable, the Court will normally grant a stay unless there are circumstances militating against such a stay.

4. It is for this reason that, against this background, Mr Brock, who appears today for the Plaintiff, was effectively required to make the running. This he did, under the two heads that I have described. I take them briefly in reverse order.

(1) No arguable defence

5. The proposition here is straightforward. The Defendant, says Mr Brock, has made no real attempt to justify its actions, in reality there is no arguable defence (albeit currently there is no application for summary judgment before the Court), and it follows that the issue of a stay should not seriously arise in this case. Jurisdiction has been established in Hong Kong as of right by virtue of service upon the Defendant's branch here, and the case should follow its normal course in this jurisdiction.

6. In the context of this argument, Mr Brock has referred me to a number of authorities. I will touch upon them briefly. In the English case of Adria Services Y.U. v. Grey Shipping Company Limited (unreported, Folio 212 of 1993), Clarke J. (as he then was) was faced in the admiralty court with cross applications for Order 14 judgment and a stay of proceedings, in the course of which he observed as follows :-

"... 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 to give judgment, because there would then be no real issues between the parties which should be tried either here or elsewhere."

In that case, the learned judge thereafter concluded that it was appropriate to grant Order 14 judgment, notwithstanding the existence of the stay application.

7. This approach was followed, albeit in differing circumstances, in Bank of Credit and Commerce Hong Kong Ltd. (In Liquidation) v. Sonali Bank [1995] 1 LLR 227 by Cresswell J. and thereafter (and perhaps unsurprisingly) by Clarke LJ. (as he now is) in Standard Chartered Bank v. Pakistan National Shipping Corporation and Others [1995] 2 LLR 365 at 378, wherein, after reviewing the argument and distinguishing cases wherein there existed an exclusive jurisdiction clause, he noted :-

"... The position here is different because the Court has a discretion whether to grant a stay. 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, as I said in the Adria Services Y.U. case, there would be no real issues between the parties which should be tried either here or elsewhere."

8. I agree with this approach. Although there is no Order 14 application before me, Mr Yuen has not succeeded in identifying for the Court's consideration any particular case on the merits which his client wishes to put forward, and it seems to me that in such circumstances the Court should weigh firmly in the balance the apparent absence of merits on the part of the Defendant bank. Indeed, if I have understood him correctly, Mr Yuen appeared to accept that this application for a stay was purely tactical on the Defendant's part.

9. In my judgment, therefore, this is sufficient for the Plaintiff to win on this head alone. Strictly speaking, of course, this conclusion is sufficient to decide this matter, although should this case go further, I now move on to deal with Mr Brock's second head of argument.

(2) Risk of not receiving substantial justice

10. An issue of broad principle arises forcefully here. In The Abidin Daver [1984] AC 398 at 410, Lord Diplock emphasised that :-

" In the same case [that is in Amin Rasheed Shipping Corporation v. Kuwait Insurance Co. [1984] 1 AC 50] this House also made it clear that the balancing of advantage and disadvantage to plaintiff and defendant of permitting litigation to proceed in England rather than, or as well as, in a foreign forum is to be based upon objective standards supported by evidence. Unlike the rule as it was stated by Lord Reid to have been applied before The Atlantic Star [1974] A.C. 436, a mere belief, however genuinely held, by a would-be plaintiff or his legal advisers that it would be to his advantage to pursue an action in the English court rather than to participate in proceedings in what would appear to be the more natural and appropriate forum is insufficient to justify refusal of a stay, unless the belief is supported by objective evidence.

The possibility cannot be excluded that there are still some countries in whose courts there is a risk that justice will not be obtained by a foreign litigant in particular kinds of suits whether for ideological or political reasons, or because of inexperience or inefficiency of the judiciary or excessive delay in the conduct of the business of the courts, or the unavailability of appropriate remedies. But where there is already a lis alibi pendens in a foreign jurisdiction which constitutes a natural and appropriate forum for the resolution of the dispute, a plaintiff in an English action, if he wishes to resist a stay upon the ground that even-handed justice may not be done to him in that particular foreign jurisdiction, must assert this candidly and support his allegations with positive and cogent evidence. ..."
(Emphasis added)

11. What, therefore, is the "positive and cogent evidence" in this case? In this connection, the Court is here faced with the competing views on affidavit of Mr Gao for the Plaintiff and Ms Linda Cheung for the Defendant.

12. In this connection, Mr Brock puts his case under three basic heads : first, fairness before the courts when dealing with a dispute between a state-owned entity and a foreign enterprise; second, difficulties in the enforcement of judgments; and third, difficulties of remittance outside the PRC of the proceeds of a judgment obtained within the PRC.

13. In terms of the fairness issue, Mr Gao observes :

"It is also widely reported and understood by PRC lawyers that the PRC courts are heavily influenced by local protectionism. The serious nature of this problem of local protectionism has also been acknowledged in the 1999 Working Report. In the present case, the significance of local protectionism is that, apart from the likelihood of delay in obtaining a judgment and enforcing it, there is real risk that Bayer may not receive substantial justice being a foreign company litigating against a Chinese bank before the PRC court."

14. As that passage makes clear, reliance is therein placed on extracts from the March 1999 Working Report of the Supreme People's Court which specifically acknowledges problems in the judiciary including "local protectionism"; indeed Part 2 of this Working Report which is exhibited to Mr Gao's affirmation, expressly recites one of the main difficulties to be "in favour of local protectionism, taking side with local parties and encroaching upon the rights and interests of the parties from other places ...".

15. To this Ms Cheung, whose affirmation is sworn on behalf of the Defendant, affirms that :-

"... on occasions there may have been some experiences of local protectionism in respect of different Provinces in the PRC, although I would say that this is now uncommon and that the problem has now been overcome. I would again refer this Honourable Court to Article 5 of the Civil Procedure Law which states that foreign enterprises and organisations that bring suits or enter appearance in the PRC courts shall have the same litigation rights and obligations as citizens, legal persons and other organisations of the PRC."

16. Turning now to the enforcement issue, and the problems pertaining thereto, Mr Gao submits :-

"Enforcement procedures in the PRC courts are also cumbersome and slow. The enforcement of judgments is mainly regulated by the Civil Procedure Law. However, the Civil Procedure Law does not stipulate any specific timetables within which enforcement procedures must be completed and consequently excessive delay is common.

The delay in the enforcement of judgments has also been acknowledged by the Chinese judiciary at the highest level in the 1998 Working Report and 1999 Working Report. ..."

17. For her part, Ms Cheung appears implicitly to accept some enforcement difficulties, in her affirmation noting as follows :-

"... I would refer this Honourable court to paragraph 7 of this affirmation which referred to the fact that the 1999 Working Report stated that out of some 2,200,000 cases brought before the court, 2,070,000 were duly enforced in accordance with PRC laws. I cannot therefore see how the enforcement procedures could be interpreted as cumbersome and slow. From my own personal experience it is certainly not common for excessive delays to occur in enforcement procedures. ..."

18. Finally, in terms of remittance problems, Mr Gao notes :-

"Even if foreign judgment creditors are able to successfully enforce judgments of the PRC courts, it is very difficult, if not impossible, for foreign judgment creditors to convert the proceeds of the enforcement into foreign currency and to remit such ..."

19. Whilst for her part Ms Cheung envisages "... no problems that the Plaintiff would encounter in converting the proceeds of the judgment and remitting the same overseas. ...", relying in this context on "the spirit of the administration of PRC Foreign Exchange Regulations revised on 14th January 1997".

20. The foregoing are but thumbnail extracts from the material put before the Court. At the end of the day, the Court has to take a view on the evidence before it, and upon nothing else, and whilst Mr Yuen in a vigorous submission stoutly maintains that the evidence placed before the Court "is not good enough", and does not justify the stance taken in this regard by the Plaintiff, arguing that the Plaintiff's attitude is "wholly unjustified and can be thrown out of Court summarily", I am not satisfied that this is the case. Indeed, after a brief period of reflection, I am inclined to disagree. Looked at in totality the affidavit material, taken together with the exhibited 1998 and 1999 Working Reports which are prayed in aid, suffice, it seems to me, to acknowledge on their face a residual degree of risk, of, for example, the existence of local protectionism in a suit between a foreign Plaintiff, and what, as Mr Brock has pointed out, is one of the largest state banks in China. I emphasise here that in this judgment I make no criticism of the Chinese legal system. But what I do take into account in the evidence filed on this application are the Working Reports of the Supreme People's Court, which are frank and open reviews of difficulties which have arisen in the legal system and which are in the course of being rectified.

21. In the circumstances, therefore, it is not easy to see why this Plaintiff, which it is common ground has established jurisdiction in Hong Kong as of right against a Defendant which apparently has little in the way of merits and seeks simply a tactical stay, should now be exposed by order of this Court, in the exercise of its discretion, to a degree of residual risk which is openly and generally acknowledged in a contemporary official Chinese document. When all matters are taken together, therefore, I consider that the evidence indeed is sufficient to get the Plaintiff home in the discharge of its evidential burden in this regard, and should such be necessary, I hold in favour of the Plaintiff under this head also.

Order

22. The end result, therefore, is that in all the circumstances and in light of all the evidence before the Court, I decline to exercise my discretion in favour of the Defendant and to order a stay of the present proceedings in favour of a Chinese Court (which presumably meant the Court at Wuxi, albeit this was not, I believe, ever specified).

23. Accordingly, my Order is as follows :-

The Defendant's application by Summons dated 25th January 1999 is dismissed with costs, such costs to be taxed if not agreed.

24. I will now hear submissions on any consequential matters that may arise.

[Counsel address]

25. There being nothing further for today, I thank both parties for their assistance, and in particular for the meticulous skeleton arguments prepared on both sides which have resulted in this application being dealt with in a considerably shorter time scale than may otherwise have been the case.