COMPANIA SUD AMERICANA DE VAPORES S.A.v. HIN PRO INTERNATIONAL LOGISTICS LTD

CACV 243/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 243 OF 2014

(ON APPEAL FROM HCMP NO. 1449 OF 2014)

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D E C I S I O N

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Hon Lam VP (giving the Decision of the Court):

1.  On 15 October 2014, Deputy High Court Judge Wilson Chan [“the judge”] discharged the Mareva Injunctions and the receivership orders granted by Deputy High Court Judge Saunders on various dates against the defendant and Soar International Logistics Limited [“Soar”]. Those orders were granted by Deputy Judge Saunders under section 21M of the High Court Ordinance in aid of proceedings in England. The background leading to the English proceedings and the orders of Deputy Judge Saunders are set out at paras 6 to 25 of the judge’s judgment.

2.  Instead of repeating what had been set out in those paragraphs, it suffices for present purposes to highlight the following salient features in the case,

(a) The underlying dispute between the parties stems from the defendant’s complaint against the plaintiff for mis-delivery of cargoes;

(b) The defendant started a number of proceedings in mainland China suing the plaintiff in respect of the same;

(c) The plaintiff said the relevant bills of lading contained an exclusive jurisdiction clause in favour of England.  After unsuccessful attempts to stay the proceedings in China, the plaintiff started action in England in 2013 to enforce the exclusive jurisdiction clause;

(d) Various reliefs were granted in the English proceedings, including anti-suit injunction and world-wide freezing order (obtained on 13 June 2014).  Until recently, the defendant did not take part in the English proceedings;

(e) Based on the claims in the English proceedings, the plaintiff applied for s 21M relief in Hong Kong.  An ex parte Mareva injunction was granted by Deputy Judge Saunders on 16 June 2014;

(f) On 17 July 2014, Deputy Judge Saunders granted a receivership order in respect of the defendant ancillary to the Hong Kong Mareva injunction;

(g) On 18 July 2014, Deputy Judge Saunders extended the Hong Kong Mareva to cover the assets of Soar on the basis that Soar were holding assets as to which the defendant had some right in respect thereof, control over or other right of access to the assets, viz the third limb of the so-called Chabra jurisdiction[1] as discussed in Gee, Commercial Injunctions 5^th Edn, para 13.007;

(h) On 30 July 2014, Deputy Judge Saunders appointed a receiver in respect of Soar.

3.  The judge discharged the orders of Deputy Judge Saunders primarily on the ground that in view of the judicial conflict between the English court and the PRC courts, courts in Hong Kong should not exercise s 21M jurisdiction in favour of one side, citing Deutsche Bank AG v Highland Crusader Offshore Partners LP [2010] 1 WLR 1023 in support of this approach.

4.  The judge was of the further view that the undertaking offered by the defendant not to take any step to enforce any PRC judgment against the plaintiff without first obtaining the prior consent of the plaintiff or the leave of the Hong Kong court and the English court provides sufficient protection to the plaintiff in the circumstances of the present case.

5.  The plaintiff sought to appeal against the judge’s decision.  Leave to appeal was granted by the judge on 26 November 2014.  However, the judge refused to stay his decision pending the appeal.  Instead, he granted a short stay (extended by this court) to preserve the position pending a stay application made to this court.

6.  In the meantime, on 14 October 2014 the English court granted judgment in favour of the plaintiff, declaring the relevant clause to be an exclusive jurisdiction clause, and that the PRC actions are in breach of that clause, giving judgment to the plaintiff against the defendant for the breach of that clause and costs in the sum of GBP 286,036.50.  The English court also gave a post-judgment world-wide freezing order against the defendant.

7.  The defendant had obtained permission to appeal against the judgment of Cooke J on 25 November 2014.  There is an extant application by the plaintiff to set aside such permission.

8.  At the application for leave to appeal before the judge on 26 November, the defendant further undertook before the judge to pay into court the sum of $2,916,522.80 and to abide by further orders of the court as to its disposal as protection for the interests of the plaintiff.  The judge held that this, together with the undertaking offered earlier as to the withholding of enforcement of PRC judgment by the defendant, steers a course which seems likely to cause the least irremediable prejudice to one party or the other.  Thus, the application for stay was refused.

9.  The relevant principles governing the exercise of discretion as to stay are set out in Star Play Development Ltd v Bess Fashion Management Ltd [2007] 5 HKC 84 and it is not necessary for us to recite those familiar principles in this judgment. As observed by Ma J (as he then was), ultimately the court embarks on a balancing exercise.

10.  At the forefront of his submissions, Mr Scott SC (appearing together with Mr Hui for the plaintiff) said the plaintiff has a strong prospect of success in the appeal.  Apart from the English cases on judicial conflict, counsel referred to the decision of this court (differently constituted) of 16 October 2014 in HCMP 1932 of 2014 when leave to appeal against the order of Deputy Judge Saunders of 17 July 2014 out of time was refused. With respect, the arguments advanced in that application were substantially different and Mr Barlow SC (who did not appear for the defendant in that application) accepted that the written submissions then placed before the court were deficient in not providing clear explanation as to the relevance of the PRC proceedings.  The question of judicial conflict was not even raised in that application.  Further, there was no offering of undertakings as the defendant did before the judge.  As such, it cannot be assumed from the rejection of that application that this court will find this appeal to be meritorious.

11.  Mr Scott also contended that in view of the past record of the defendant and its sole director and shareholder in failing to comply with court orders, the undertakings now given by the defendant did not give sufficient protection to the plaintiff.

12.  Having reviewed the cases cited and the arguments of counsel (including those advanced by Mr Barlow), whilst we accept that the appeal is arguable we do not think it is so strong that a stay should be granted on the basis of strong prospects of success alone.  We would not pre-empt arguments at the substantive appeal by discussing the relevant arguments at length in this judgment.

13.  Mr Scott’s alternative basis for seeking a stay is his argument that without a stay the appeal would be rendered nugatory.  Counsel invited this court to draw the inference that the defendant intended to dissipate all its assets in Hong Kong at the earliest possible opportunity in light of,

(a) The continuation of the English world-wide freezing order: thus there is no legitimate reason for the defendant to seek to lift the Hong Kong Mareva;

(b) Ms Su (the director and shareholder of the defendant)’s evasive attitude to legal proceedings and flagrant breaches of the orders made by the English court;

(c) PRC claims being advanced on fraudulent basis. In that connection, counsel referred to the master sale agreement relied upon by the defendant which was purportedly signed by Mr Salazar and his denial of signing the same;

(d) There has not been a full disclosure of the assets of the defendant and Soar as ordered by this court;

(e) The receiver had not obtained full information as to the assets of the defendant and Soar.

14.  Mr Scott further said that there is a risk of books and records of the defendant being destroyed if the appointment of the receivers is discharged in the meantime.

15.  However, these allegations are subject to dispute by Mr Barlow.  He submitted that the defendant was the party seeking to be compensated rather than the plaintiff.  As such, the defendant never has any incentive to dissipate assets.

16.  In our view, that submission did not address sufficiently the proposition of Mr Scott that the claims of the defendant had been advanced on the basis of forged documents.  Cooke J was rather critical of the defendant in that respect in his judgment of 14 October.

17.  Mr Barlow then said that the shunning of the English court by the defendant on the advice of its PRC lawyers is not evidence of propensity to dissipate or to disobey the orders of (or breach an undertaking given to) the courts in Hong Kong.  We see some force in that submission bearing in mind that the defendant and its director and shareholder are present in Hong Kong and, unlike the position in England, they have assets in Hong Kong.  Ms Su gave a residential address in Hong Kong and we were told that it is a property owned by her.

18.  More fundamentally, as submitted by Mr Barlow, the claim of the plaintiff is a pre-emptive one.  Apart from the anti-suit injunction and the order for costs, the judgment obtained in the English proceedings for damages is, as set out in para 41 of the transcript of the judgment of Cooke J of 14 October 2014, a form of reflective damages in the amount of any sums awarded in China.  If the PRC judgments are not enforced or not enforceable, the plaintiff suffers no loss (apart from costs incurred).

19.  This is the context in which we should consider the significance of the undertakings given by the defendant.  If the defendant does not or could not enforce the PRC judgments, the plaintiff will not be entitled to any substantial damages.

20.  We were taken to paras 11 and 12 of the formal judgment of Cooke J which provided for liberty to enter judgment in England in the equivalent sums as ordered under any PRC judgments specified in para 11.  Mr Scott submitted that in effect even if a PRC judgment is not enforced, the plaintiff would be entitled to an English judgment in the same amount.  However, the entering of such a judgment, as provided under para 12, will have to be subject to an undertaking as provided in the preamble, which is in the following terms,

“UPON the Claimant undertaking that it will not execute the judgment … against any of the defendants’ assets except and to the extent that, following the appeal which has been submitted by the Claimant against that judgment, the appellate court orders that sums are payable by the Claimant to the Defendant.”

21.  A clearer version of that undertaking can be found in the order of Cooke J of 4 November 2014.  It would appear that the undertaking is to preserve the appellate avenue for the plaintiff in the PRC courts and the judgment would only be enforceable after the plaintiff is unsuccessful in such appeals.

22.  We were not told about the progress of those appeals.  As things stand, we proceed on the basis that it is possible for the plaintiff to have an enforceable judgment (after a PRC judgment against it has been confirmed on appeal in the PRC courts) even though the defendant does not enforce the PRC judgment or does not obtain any payment under such judgment.  Whether that goes beyond the proper limits for a claim based on the breach of an exclusive jurisdiction clause can be a matter for debate.  But Mr Scott assured us that the plaintiff is not trying to get a windfall advantage by these judgments.  We will therefore deal with the present application on the same basis.

23.  Mr Scott submitted that the undertakings do not provide sufficient protection as the plaintiff has no confidence that the defendant will abide by its undertaking in light of the history.  Counsel suggested that there is a risk that the defendant might arrest one of the plaintiff’s vessels outside Hong Kong.

24.  With respect, there is no evidence of such risk.  As far as we know, there has not been any incidence of such arrest.  Further, as pointed out by Mr Barlow, the defendant is a Hong Kong company and its director and shareholder a Hong Kong resident.  They are amenable to the jurisdiction of the Hong Kong court.  Any breach of the undertakings would immediately be known to the plaintiff and the defendant and its director would face the prospect of committal in Hong Kong.  It is true that Ms Su was subject to contempt proceedings in England and she was committed in her absence.  But since she is not resident in England, the impact of such an order on her is quite different from a committal by the court in Hong Kong.  Actually, it is difficult to see why the defendant would take such a risk in the circumstances of this case.  There is every reason to believe that if the defendant does act in breach of its undertakings, it would do itself more harm than good as whatever benefit it may obtain from such a course would probably be reversed by remedies granted by the court in Hong Kong.

25.  Mr Scott also suggested that a stay will not cause any prejudice to the defendant and Soar.  We do not accept this suggestion.  The appointment of a receiver is a highly intrusive measure, particularly when the receiver could conduct business in the name of the defendant or Soar.

26.  In our judgment, having regard to all the relevant circumstances, the balance in the present case points towards the refusal of a stay pending the appeal.  However, we are prepared to direct that the appeal be expedited.  We direct that the appeal shall be heard on 21 January 2015. We shall reserve the question of costs of this application to be dealt with at the substantive appeal.