HBZ FINANCE LTD. v. NIPPON YUSEN KAISHA

CACV 3185/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 3185 OF 2001

(ON APPEAL FROM HCAJ 90 OF 2001)

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J U D G M E N T

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Hon Mayo VP (giving the judgment of the Court):

1. This is an appeal from a judgment dated 24 September 2001 of Waung J who was hearing an application for a stay of proceedings by the defendant on account of an exclusive jurisdiction clause in a Bill of Lading.

2. The Judge granted the stay and the plaintiff appeals from this determination.

3. To understand the matter fully it is necessary to add that the Judge entertained a similar application some months previously when both of the counsel appearing before him Mr Kerr and Mr Shieh argued a similar application in which a number of very similar issues were canvassed. The Judge adopted some of his reasoning in the earlier judgment in the judgment which is before us for consideration.

4. The claim being made by the plaintiff relates to the alleged misdelivery of five consignment cargoes under five different Bills of Lading relating to shipment of cargo from a port in China to Chile.

5. The exclusive jurisdiction clause which was clause 3 was in these terms:

"(Government Law and Jurisdiction) The contract evidenced by or contained in this Bill of Lading shall be governed by Japanese law except as may be otherwise provided herein, and any action thereunder shall be brought before the Tokyo District Court in Japan."

6. There was a further complication in that an indorsement was stamped upon the front page of the Bills in this form:

"(A) PURSUANT TO TRANSITORY ARTICLE NO.1 OF 18,680 AND THE PERMANENT ARTICLES OF THE NEW BOOK 3 OF THE CHILEAN CODE OF COMMERCE, THE PARTIES HEREBY CONCERNED (CARRIER, SHIPPER, CONSIGNEE AND RECEIVER) MUTUALLY AGREE THAT IN SUBSTITUTION FOR ARTICLES 984 AND 987 SHALL BE SUBSTITUTED THE PROVISIONS OF ARTICLES 3 AND 4 OF THE INTERNATIONAL CONVENTION FOR THE UNIFICATION OF CERTAIN RULES CONCERNING BILLS OF LADING SUBSCRIBED AT BRUSSELS ON THE 25TH AUGUST 1924 (THE HAGUE RULES).

(B) THE PARTIES DECLARE THAT IN RESPECT OF ANY PROCEEDINGS WHICH MAY BE COMMENCED IN CHILE ARISING OUT OF THIS CONTRACT SUCH PROCEEDINGS SHALL BE REFERRED TO THE VALPARIASO COURTS AND THAT UNLESS OTHERWISE MUTUALLY AGREED BY THE PARTIES, ARBITRATORS SHALL NOT BE COMPETENT TO DEAL WITH ANY SUCH DISPUTES.

(C) IT IS HEREBY AGREED THAT THE TIME FOR DELIVERY FOR THE GOODS SHALL BE 6 MONTHS FROM THE DATE OF SHIPMENT."

7. In his judgment of 19 July 2001 the Judge considered the effect of these stamped clauses upon the exclusive jurisdiction clause and whether clause 3 could be invoked in accordance with the principles laid down in The Eleftheria [1970] P 94.

8. There are basically four grounds of appeal being pursued by the plaintiff:

1. The Judge's refusal to grant leave to the plaintiff to file an additional affidavit of law sworn by Mr Carvallo an expert in Chilean law. (The Carvallo affidavit)

2. The effect of the stamped clauses on clause 3 of the Bill of Lading.

3. The exercise of the Judge's discretion in applying the principles laid down in The Eleftheria.

4. The Judge's refusal to grant the plaintiff leave to amend the Statement of Claim.

9. It is convenient to consider the first ground first as the determination of this ground will have an impact upon the remaining grounds. Indeed when counsel had concluded making their submissions on this ground we informed the parties of our decision to dismiss this ground. The reasons for this are contained in this judgment.

10. It appears from the transcript of the proceedings before the Judge and from the judgment that the Judge took the view that there were few material differences between the opinions which had been expressed by the Chilean experts on the relevant law.

11. One of the most important factors weighed by the Judge in his determination of the application for the late filing of the Carvallo affidavit was whether the affidavit would materially affect the stay application.

12. It is apparent from the transcript of the proceedings before the Judge that Mr Kerr who represented the plaintiff below and before us agreed with the Judge that the contents of the Carvallo affidavit was unlikely to make any material difference to the end result of the application.

13. Over and above this the Judge was concerned that there should not be a proliferation of affidavits on Chilean law as this would not have assisted in the resolution of the stay application.

14. There was also the problem that the application was made at a very late stage and that no satisfactory explanation had been forthcoming to justify this delay.

15. What however is of paramount importance is that it is only in exceptional circumstances that a Court of Appeal will interfere with the exercise of a discretion by a judge.

16. This Court considered the circumstances when it might be justified in interfering with a judge's discretion in PCCW-HKT International Ltd v New World Telephone Ltd [2001] HKLRD 141. It was said at p. 149:

"We are satisfied that the Court of Appeal was right in Lau Lap Che Richard v Wong Sut Fan Villette [1996] 1 HKC 165 to hold that the correct test to adopt in deciding whether to interfere with the exercise of a discretion by a judge is the test laid down by Lord Diplock in Hadmor Productions Ltd. v Hamilton [1983] 1 AC 191 at p.220:

'Before adverting to the evidence that was before the learned judge and the additional evidence that was before the Court of Appeal, it is I think appropriate to remind your Lordships of the limited function of an appellate court in an appeal of this kind. An interlocutory injunction is a discretionary relief and the discretion whether or not to grant it is vested in the High Court judge by whom the application for it is heard. Upon an appeal from the judge's grant or refusal of an interlocutory injunction the function of an appellate court, whether it be the Court of Appeal or your Lordships' House, is not to exercise an independent discretion of its own. It must defer to the judge's exercise of his discretion and must not interfere with it merely upon the ground that the members of the appellate court would have exercised the discretion differently. The function of the appellate court is initially one of review only. It may set aside the judge's exercise of his discretion on the ground that it was based upon a misunderstanding of the law or of the evidence before him or upon an inference that particular facts existed or did not exist, which, although it was one that might legitimately have been drawn upon the evidence that was before the judge, can be demonstrated to be wrong by further evidence that has become available by the time of the appeal; or upon the ground that there has been a change of circumstances after the judge made his order that would have justified his acceding to an application to vary it. Since reasons given by judges for granting or refusing interlocutory injunctions may sometimes be sketchy there may also be occasional cases where even though no erroneous assumption of law or fact can be identified the judge's decision to grant or refuse the injunction is so aberrant that it must be set aside upon the ground that no reasonable judge regardful of his duty to act judicially could have reached it. It is only if and after the appellate court has reached the conclusion that the judge's exercise of his discretion must be set aside for one or other of these reasons, that it becomes entitled to exercise an original discretion of its own.'

In our view adopting this test the defendant falls far short of satisfying us that it would be appropriate to interfere with Stone J's judgment. Indeed it is clear that he came to the right decision in this matter. In this connection it is perhaps helpful to bear in mind that when the judge in charge of the commercial list of cases hears an application of this nature he will inevitably be concerned with overall matters of case management. It is clear from a perusal of Stone J's judgment that he carefully bore in mind all relevant factors and we do not think that he can validly be criticised for the way in which he dealt with this application."

17. The observations made concerning the judge in charge of the Commercial List are equally applicable to the judge in charge of the Admiralty List.

18. The plaintiff has not in our view been able to demonstrate that we would be justified in interfering with the Judge's exercise of his discretion.

2. The effect of the stamped clauses

19. It is apparent from the affidavits of the Chilean experts (and not contradicted by the Carvallo affidavit) that the main effect of the stamped clause B was to provide that the parties could opt out of the requirement laid down in Art. 1203 of the Chilean Code of Commerce that the dispute between the parties should be referred to Arbitrators and that the matter should be heard by the Valparaiso courts.

20. According to the experts this was permissible under Chilean law.

21. The submissions made by Mr Kerr were that the stamped clauses and clause 3 were irreconcilable and led to a situation where there would be a "floating law" clause which was not permissible.

22. Mr Kerr argued that the correct approach to adopt was outlined in para. 12-043 of Chitty on Contract 28th Edition Vol. 1 Sweet & Maxwell 1999:

"12-043 Intention of the parties. The task of ascertaining the intention of the parties must be approached objectively: the question is not what one or other of the parties meant or understood by the words used, but 'the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract'. The cardinal presumption is that the parties have intended what they have in fact said, so that their words must be construed as they stand. That is to say the meaning of the document or of a particular part of it is to be sought in the document itself. 'One must consider the meaning of the words used, not what one may guess to be the intention of the parties'. However, this is not to say that the meaning of the words in a written document must be ascertained by reference to the words of the document alone. In the modern law, the courts will, in principle, look at all the circumstances surrounding the making of the contract which would assist in determining how the language of the document would have been understood by a reasonable man."

23. In attempting to ascertain the intention of the parties the stamped clauses should take precedence over clause 3 as they had been added later.

24. What was not permissible was to add words in an attempt to give meaning to the contract as a whole.

25. The critical issue for the Judge to determine was whether the clauses could be reconciled.

26. He held that they could.

27. In doing so he accepted the validity of the contentions being advanced by Mr Shieh for the defendant that clause 3 required the parties to litigate the dispute in the Tokyo District Court.

28. If however proceedings were commenced in Chile the stamped clauses would then apply and the Valparaiso Court would be seized of the matter rather than the Arbitrators. Even though the plaintiff would be in breach of the exclusive jurisdiction agreement in clause 3 by commencing proceedings in Chile, the reality was that under Chilean law, a foreign law and jurisdiction clause would not be recognized, as deposed to in paragraph 67 of the affidavit of Mr Tomasello Hart, the Chilean law expert. Therefore, should proceedings be commenced in Chile, the stamped clauses would apply.

29. This makes good sense. For Mr Kerr's submissions to be made good it is necessary to conclude that the effect of the stamped clauses was to strike down clause 3 in its entirety.

30. Once it is accepted that the clauses can be reconciled there is no need to resort to this. Clause 3 should not simply be ignored. In our opinion it continues to have application and the parties are bound by it.

31. Mr Kerr's objection that this interpretation would lead to a situation where there would be a floating law clause cannot be sustained.

32. It is clear from the relevant authorities that what is objectionable is a floating law clause. There is no objection to a floating forum clause such as would arise in the present case. This can be gleaned from the judgment of Bingham J (as he then was) at p. 385 of The Iran Vojdan [1984] 2 Lloyd's Law R 380:

"I find this, as I feel bound to say, an extremely unattractive clause, introducing maximum complexity and difficulty into what could and should be a simple matter. It is nonetheless the duty of the Court to give a sensible meaning so far as possible to what the parties have agreed and not readily to reject the text of an agreement between the parties as unintelligible. If the clause had confined itself to conferring three options for the choice of jurisdiction on the carrier alone that would seem to me a clause to which effect could properly and without difficulty be given. Moreover, it would seem to me that the plaintiff could well protect himself against abortive proceedings, if that were the effect of the clause, by requesting an exercise of the option before issuing proceedings in one jurisdiction or another. I very much doubt if there is any obligation on the merchant to request the exercise of the option. I do not, however, construing this clause as a whole, think that the choice of jurisdiction can be excised from each of these sub-clauses and given independent effect if the choice of law falls. They are intimately connected with the choice of law options and are not expressed in the clause as separate options. I think, as a matter of construction, that it is artificial and unreal to give effect to the ancillary provision while rejecting the main provision to which it is, as I think, parasitic. Accordingly, I reach the conclusion that this must be treated as a case in which there is no exclusive jurisdiction, applying the principles of English law on the assumption that that is the same as Iranian law."

33. The consequence of this is that in our view the stamped clauses and clause 3 can stand together.

3. The exercise of the Judge's discretion

34. It is apparent from reading both the judgment in question and the previous judgment that the Judge was fully aware of the principles laid down in Eleftheria, at p. 99 of Brandon J's judgment:

"The principles established by the authorities can, I think, be summarised as follows: (1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign court, and the defendants apply for a stay, the English court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. (2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (3) The burden of proving such strong cause is on the plaintiffs. (4) In exercising its discretion the court should take into account all the circumstances of the particular case. (5) In particular, but without prejudice to (4), the following matters, where they arise, may properly be regarded:- (a) In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign courts. (b) Whether the law of the foreign court applies and, if so, whether it differs from English law in any material respects. (c) With what country either party is connected, and how closely. (d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages. (e) Whether the plaintiffs would be prejudiced by having to sue in the foreign court because they would: (i) be deprived of security for their claim; (ii) be unable to enforce any judgment obtained; (iii) be faced with a time-bar not applicable in England; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial."

35. At p. 3 of his judgment, the Judge recoginsed that "the central issue here, on the Eleftheria principle, is whether having regard to the action that will be tried (based on the present material), the plaintiff had showed a strong case that the court should not apply the jurisdiction clause". The fact that the Judge at one point in his extempore judgment used the word "overwhelms" does not detract from this. This appears to have been just an inadvertent "slip".

36. The Judge carefully weighed and considered all of the relevant factors. The Hong Kong connection was not substantial and in our view the Judge was entirely correct in coming to the conclusion that a strong case had not been made out to override clause 3.

37. There is a further matter. Mr Kerr submits that the nature of the defence being run by the defendant had "radically" changed. He referred to the considerable delay which occurred before the defendant accepted that forged Bills of Lading had been utilized by a fraudster to obtain the goods and that no satisfactory explanation had been forthcoming for this delay.

38. This does not take matters further so far as the stay application was concerned. It has all along been the defendant's defence that at all times they have strictly complied with the requirements of Chilean law.

39. It is perhaps noteworthy to add that any suggestion that Mr Miyakawa the defendant's then representative in Hong Kong may have been less than frank would in any event militate in favour of the proceedings being heard in Tokyo as Mr Miyakawa has now been transferred back to Tokyo.

40. However the main point which appears to emerge from the alleged misrepresentation is the apparent necessity of considering in some depth exactly what procedures have to be complied with in Chile before a shipper is able to validly deliver goods to a consignee.

41. This would appear to support Chile as being the most appropriate venue for this litigation if clause 3 is not adhered to. Certainly it does not support Hong Kong being a candidate for this.

42. For all these reasons the Judge appears to have exercised his discretion correctly in accordance with the principles laid down in Eleftheria.

4. The application to amend the statement of claim

43. This again comes within the scope of the Judge's discretion.

44. As has been pointed out by Mr Shieh we do not have before us a formally drafted amendment indicating what was proposed.

45. It appears that what was contemplated were amendments which would enable the plaintiff to plead some form of estoppel in relation to the evidence which is now available concerning the forgeries.

46. As was pointed out by the Judge in his judgment any amendment along these lines would not materially affect the outcome of the application which was before him for the stay of the proceedings.

47. However Mr Kerr submitted that one of the problems which he encountered was that any pleading relating to estoppel would logically be contained in a Reply rather than a Statement of Claim.

48. By the very nature of the application which was before the Judge the defendant had not filed a defence and so any question of filing a Reply would have been premature.

49. Be that as it may once it is accepted that the issue of estoppel would at most be peripheral to the stay application this would appear to be largely an academic point.

50. For the reasons we have given this appeal is dismissed. We make an order nisi that the defendant will have their costs.