XU ZIMING v. RUIFENG PETROLEUM CHEMICAL HOLDINGS LTD

HCA 450/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 450 OF 2013

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D E C I S I O N

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Introduction

1. By its Summons dated 10 September 2014, the defendant applies for leave to appeal against the Decision handed down by this court on 27 August 2014 (“the Decision”), whereby the court:

(i)  dismissed the defendant’s application for stay of this action on the ground of forum non conveniens;

(ii)  extended the time for the defendant to file its Defence for 28 days from the date of the Decision; and

(iii)  ordered the defendant to pay the plaintiff’s costs of the application in any event, to be taxed if not agreed.

2. In order to obtain leave to appeal the defendant has to meet the threshold of there being “a reasonable prospect of success” for the appeal.  In other words, the defendant has to show that the prospects of succeeding are more than fanciful, without having to be probable.

3. In its skeleton submissions the defendant complains that:

(1)   the court was wrong to conclude (i) that the exclusive jurisdiction clause in the Loan Repayment Agreement (the “EJC”) did not apply to the Promissory Note and the Cheques because they were separate contracts and (ii) that the non-exclusive jurisdiction clause under the Promissory Note (the “NEJC”) trumped the EJC in the Loan Repayment Agreement; and

(2)   for the first time the defendant alleges that there are triable issues and that the court was wrong to refuse to grant the stay on the basis that there are no triable issues.

The EJC

4. The defendant seeks to argue that the court should have, but did not consider the EJC as a matter of “contractual interpretation” relying on Kaplan J’s Decision in York Airconditioning & Refrigeration Inc v Lam Kwai Hung [1995] 2 HKLR 256.  In that case, the underlying contract was in relation to sale of goods, where cheques were issued as part payment for the goods bought, but there was a dispute as to whether or not the goods were defective.  There was an arbitration clause in the underlying agreement and the defendant sought to apply for a stay of the action on the bills of exchange in favour of arbitration.

5. The defendant’s argument on “contractual interpretation” is based on Kaplan J’s comments in the York Airconditioning case where he stated (at 271, lines 17‑19):

“Unusual though it may be, I accept that it is possible for an arbitration clause to be drafted widely enough to cover a claim made under a bill of exchange.”

6. The defendant argues that because the EJC is drafted in wide terms, the present EJC falls under this unusual possibility where the EJC covers the claim under the Promissory Note and the Cheques.

7. The York Airconditioning case was subsequently considered by the Court of Appeal in CA Pacific Forex Limited v Lei Kuen Ieong [1999] 1 HKLRD 462.  The issue before the Court of Appeal was also whether or not the arbitration clause in that case applied to bills of exchange.  The Court of Appeal held (at 466 E‑I):

“To hold that an arbitration clause referring to disputes arising from the underlying agreement, applies to bills of exchange would make ‘a very substantial inroad upon the commercial principle on which bills of exchange have always rested.’ Accordingly, there must be a plain manifestation in the arbitration clause that it is to apply to bills of exchange if the presumption against taking bills of exchange into arbitration is to be rebutted ... It also offends what must in my respectful view be the logical consequence of the commercial principle - there must be an express inclusion of bills of exchange if such arbitration clause is to bite in this way. Furthermore, as a matter of business commonsense and efficacy, no right thinking merchant is going to agree to forego his rights on a dishonoured cheque. They cannot be taken away by implication.”

8. Thus, the CA Pacific case makes it clear that what is required is not simply that the clause is to be drafted widely, but that there has to be an express manifestation or express inclusion in the clause that it applies to bills of exchange for such arbitration clause (or the EJC for that matter) to apply in an action on the bills of exchange.  In the present case, the EJC is drafted vaguely and there is no express manifestation in the EJC that it applies to the Promissory Note and much less the Cheques.  Accordingly, the defendant has been unable to provide any reason why the court should look beyond the Promissory Note and the Cheques themselves. 

Conflict of Jurisdiction Clauses

9. The defendant’s argument here is founded on there being the EJC in the Loan Repayment Agreement and the NEJC in the Promissory Note, thereby causing a conflict of jurisdiction.  The defendant says looking at the transaction “as a whole” the EJC in the Loan Repayment Agreement should be followed.

10. The defendant has been unable to demonstrate why the Loan Repayment Agreement ought to apply to the Promissory Note and the Cheques, which are distinct contracts in themselves.  In this case, the defendant has not raised any issues to enable the court to look beyond the terms and conditions on the face of the Promissory Note and the Cheques.  It is not open to the defendant to bring in the “intention of the parties” or terms under prior contracts into the picture.  It is trite that when the subject matter is a promissory note or a cheque, extrinsic evidence is generally inadmissible: SY Chan Limited v Choy Wai Bor [2001] 3 HKLRD 145 (at 149 C‑G) and Lu Ming Hui v Ho Yu Kuen, HCA 472/2009 (Judgment of Sakhrani J dated 26 May 2010) (paragraphs 20‑23).

11. As the Promissory Note contains the NEJC whereby the defendant has submitted to the jurisdiction of Hong Kong, following Noble Power Investments Limited v Nissel Stomach Tokyo Company Limited [2008] 5 HKLRD 631, the defendant has simply failed to discharge the heavy burden on it to show strong and overwhelming reasons on why another jurisdiction is more applicable.

Alleged Triable Issues

12. In this regard, the defendant first of all argues that because there is the EJC in the Loan Repayment Agreement, the court should not have to consider whether or not there are any triable issues.  The defendant relies on the principles laid down by The El Amria [1981] 2 Lloyd’s Rep 119 to say that what is required is a “strong cause” for not staying the application.  The defendant argues that whether or not there are triable issues should not be accorded any significant weight, if at all.

13. In considering this argument, it is important to bear in mind that according to The El Amria case (at page 123), even if an EJC is involved, the court still has a discretion whether or not to grant a stay.  In exercising its discretion, the court will take into account “all the circumstances of the particular case” which, in my view, should include whether or not there are triable issues.

14. At paragraph 20 of the Decision, I have set out a portion of Stone J’s Judgment in Bayer Polymers Company Limited v Industrial & Commercial Bank of China, Hong Kong Branch [2000] 1 HKC 805, which included the following quoted passage approved by Stone J:

“...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 YU case, there would be no real issues between the parties which should be tried either here or elsewhere.”

15. It is important to note that the above quoted passage in fact came from the Judgment of Clarke J (as he then was) in Standard Chartered Bank v Pakistan National Shipping Corporation [1995] 2 Lloyd’s Rep 365 (at page 378).  In that case, there was indeed an exclusive jurisdiction clause in favour of Pakistan and the plaintiff bank issued proceedings in the English courts.  Therefore, the dictum of Clarke J quoted above was dealing with precisely the same situation as in the present case.

16. On this basis, I do not accept the defendant’s argument that the issue of whether there are triable issues should not be accorded any significant weight. 

17. Next, the defendant attempts to argue that there are in fact triable issues.  For the first time the defendant attempts to raise a triable issue or a dispute by referring to clause 5 of the terms stated in the Promissory Note.

18. A helpful complete translation of clause 5 of the Promissory Note can be found in the plaintiff’s Statement of Claim where it states:

“5.   If [the defendant] is unable to repay part or all of the maximum repayment amount and its interest under the Promissory Note upon the due date of the Promissory Note, the remaining unpaid amount and interest will be repaid through the issuance of [the defendant’s] company shares on Growth Enterprise Market (“GEM”) of the Hong Kong Stock Exchange, save that it is a precondition that such issuance must be in compliance with the listing rules of GEM of the Hong Kong Stock Exchange and be approved by the Hong Kong Stock Exchange.  The number of shares issued and their price will be agreed separately.”

19. Based on this clause, the defendant argues that the parties agreed that if the defendant defaulted in its payment obligations the defendant will issue equity in lieu of cash repayment.

20. It is noteworthy that the defendant does not challenge the validity and enforceability of the Promissory Note itself.  The defendant does not say in its affidavit evidence that the Promissory Note is not a bill of exchange or otherwise does not fall within the provisions of the Bills of Exchange Ordinance, Cap 19.  The Promissory Note has the same effect of a promissory note being an unconditional promise in writing made by one person to another to pay at a determinable time in the future a certain sum of money.  Hence, the Promissory Note, as a bill of exchange has to be treated as good as cash.

21. Clause 5 of the Promissory Note provides that the plaintiff and the defendant can “agree separately” the “number of shares issued and their price” if the plaintiff would accept the issuance of equity in lieu of cash.  The fact that clause 5 provides alternative means for the defendant to satisfy the debt due does not undermine the effect and enforceability of the Promissory Note itself.  The sum due under the Promissory Note is still payable at the agreed time of payment.

22. Further, there has been no evidence adduced that the plaintiff and the defendant had made an agreement as to the number and price of shares to be issued.  I agree with the plaintiff that this is merely an “agreement to agree” and preconditioned upon the approval of the Hong Kong Stock Exchange, which may or may not be granted.

23. The opportunistic issue now raised by the defendant is also contradictory to its original case.  In its own case, the defendant says that it had issued the Cheques to reduce the liability under the Promissory Note.  If the parties had agreed to issue equity in lieu of cash payments, it is difficult to see why the defendant would have issued the Cheques instead of shares.

24. In the circumstances, in my view, the matters raised by the defendant by way of counsel’s submissions (and not on affidavit) are simply not arguable defences in relation to the plaintiff’s claims on the Promissory Note and the Cheques.

Conclusion

25. For the reasons stated above, the defendant is unable to demonstrate any grounds of appeal with reasonable prospect of success.  The defendant’s application for leave is dismissed with costs to the plaintiff.