CHINACHEM FINANCIAL SERVICES LTD v. CENTURY VENTURE HOLDINGS LTD

HCA 410/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 410 OF 2013

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DECISION
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I. INTRODUCTION

1. On 8 January 2015, I handed down my decision in this action in respect of the defendant’s application to stay all further proceedings in the present action in favour of proceedings between the plaintiff and the defendant in the PRC on the basis that it was more appropriate/convenient for the dispute between the parties to be decided in the PRC (“Decision”).  For the sake of convenience, I shall adopt the abbreviations in the Decision.

2. In the Decision, I dismissed the Summons and granted a costs order nisi that D shall pay costs of and occasioned by the Summons (including all costs reserved if any) to be taxed if not agreed with certificate for two counsel (“Order”).  There was no application by either party to vary the above costs order nisi, so it has been made absolute.

3. On 22 January 2015, D filed a summons for inter alia leave to appeal against the Order (“Leave Summons”) with draft Grounds of Appeal (“Draft Grounds”) annexed thereto.  The hearing of the Leave Summons came before me on 16 April 2015 (“Leave Hearing”).

II. LEGAL PRINCIPLES

4. The Order is an interlocutory order, and it is incumbent upon D to persuade this court to grant leave to appeal.  Under s 14AA(4) of the High Court Ordinance Cap 4, leave to appeal shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.  In SMSE v KL,[1] Le Pichon JA pointed out that such leave to appeal is not lightly granted.  Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable”.[2] Furthermore, it is pertinent to bear in mind that even if there is a reasonable prospect of success on appeal, the court still retains a discretion whether to grant leave to appeal, although the fact that there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion.[3]

5. “Alternatively, the court can grant leave for the purpose of s 14AA(1), Cap 4 if it is satisfied that there is some other reason in the interests of justice why the appeal should be heard (s 14AA(4)(b) of Cap 4).  It is impossible to give an exhaustive list of the circumstances in which the Court of Appeal would find that there s some other reason in the interests of justice that an appeal should be heard.  …… The Court of Appeal may grant leave if the question is one of general principle, decided for the first time; or a question of importance upon which further argument and a decision of the Court of Appeal would be to the public advantage”.[4]

III. DRAFT GROUNDS OF APPEAL

6. In the Draft Grounds, D relied on five draft grounds of appeal.  For the present purpose, Mr Chan SC (and Mr Tse with him), counsel for D, in his written skeleton submissions condensed them into two broad challenges, which I summarise as follows:

(a) Ground 1 – ruling on issue estoppel or res judicata: D contended that I erred in holding that the 2^nd Stay Judgment did not give rise to issue estoppel or res judicata as to whether (i) the dispute between P and D (and hence the HK Action) should be litigated in the PRC or Hong Kong and (ii) the Hong Kong courts were an inconvenient forum for the HK Action (“Ground 1”);

(b) Ground 2 – ruling on the significance of the existence of parallel proceedings: D contended that I erred in failing to have sufficient regard to the existence of parallel proceedings in the PRC and the applicable principles in The Abidin Daver (“Ground 2”).

7. In respect of Ground 1, Mr Chan SC submitted that this court in holding that issue estoppel or res judicata did not arise in the present case by reason of the difference in issue decided by the SPC and those put before this court[5] was too narrow a reading of the 2^nd Stay Judgment.  Mr Chan SC reminded that P’s arguments before this court and in the SPC were substantially similar in that they attempted to rely on the NEJC and various aspects of the case to say that the Hong Kong courts should have jurisdiction as opposed to the PRC courts, and P’s stance before the SPC and this court were virtually the same, ie the Hong Kong courts had jurisdiction over the matter as opposed to the PRC courts.

8. Mr Chan SC argued that the two issues identified by the SPC, ie whether the dispute between P and D should be litigated in Hong Kong or in the PRC[6] and whether forum non conveniens considerations favoured PRC or Hong Kong jurisdiction, were substantially identical to those before this court under the Summons.  Since the 2^nd Stay Judgment firmly rejected P’s arguments and ruled in D’s favour on the jurisdiction point, P in contesting the Summons was essentially having a second bite of the cherry in re-running the same arguments that had been finally/conclusively rejected by the SPC.  As such the doctrine of issue estoppel or res judicata ought to kick in to prevent P from litigating on the same issue.

9. Mr Chan SC further argued that having established issue estoppel or res judicata, this court in holding that it was bound to apply the principles in Noble Power Investment Ltd v Nissei Stomach Tokyo Co Ltd[7] fell into error.  Since the underlying rationale of issue estoppel or res judicata is to support the good administration of justice in the interest of the public and the parties by preventing abusive and duplicative litigation,[8] a party will not be permitted to re-litigate in subsequent proceedings issues which have already been adjudicated upon in previous proceedings by a court of competent jurisdiction.[9]  Mr Chan SC submitted that once there was a previous decision, the court should refrain from looking into the merits of identical arguments and should, instead, uphold the previous decision. 

10. Mr Chan SC contended that this court should not have looked into the merits of P’s arguments by applying the principles of Noble Power Investments Ltd, and instead the correct approach would be to uphold the 2^nd Stay Judgment and stay the HK Action.  This was particularly the case when the SPC was aware of and considered Clause 15 which was the very issue in Noble Power Investments Ltd, and in relying on such NEJC before the PRC courts P must/should have put all their arguments before the PRC courts including the effect of such clause under Hong Kong law in support of their contention that the action should proceed in Hong Kong.  

11. It was also suggested that in deciding whether there was any common issue for the purpose of issue estoppel, the focus should not be on whether the SPC was seized of the question as to whether the PRC Litigation should continue in the PRC courts and/or whether this court was seized of the question as to whether the HK Action should continue in the Hong Kong courts, but on the arguments pressed upon the SPC and this court by P (and in this respect the NEJC was very much debated before the SPC).

12. Mr Chan SC argued that even though the SPC did not adopt the approach outlined in Noble Power Investments Ltd, it was neither here nor there. He drew my attention to the Court of Appeal decision in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd[10] which held that issue estoppel was engaged when there were common issues in the two proceedings, and “it was not permissible to avoid the consequences of issue estoppel by recharacterising the issue as one which was sought to be litigated in accordance with the law of a different jurisdiction.  If such reasoning was taken to the extreme, it would mean that no foreign judgment could ever be used as the subject matter of issue estoppel in Hong Kong because such judgment might be based on the court’s application of its own law which might not be exactly the same as Hong Kong law, notwithstanding that the foreign court might have to decide on the very same issue that the Hong Kong court would have to decide ……” (my emphasis)

13. Mr Chan SC further submitted the doctrine of issue estoppel or res judicata would not allow P to contend that the issue as to the effect of the NEJC on whether the action should proceed in the PRC had not been decided against them.  At the very least, in considering whether to exercise jurisdiction, the SPC must have considered whether the Hong Kong courts were inconvenient when compared with the PRC courts, and after careful analysis came to the conclusion that the PRC courts were in a better position than Hong Kong courts in exercising jurisdiction.  Thus, it was not open to P to challenge the same again in this court.  For all the above reasons, it was said that I erred in failing to have sufficient regard of the 2^nd Stay Judgment in reaching the decision on issue estoppel and res judicata, and in holding the 2^nd Stay Judgment dealt with issues distinct from the Summons.

14. In respect of Ground 2, Mr Chan SC submitted that I erred in holding that the existence of parallel proceedings was one of the factors to be taken into account in the Spiliada balancing exercise, which was contrary to the well-settled position under common law that the existence of parallel litigation is a material factor to consider in the granting of a stay.[11] Mr Chan SC hastened to make clear that D was not saying that the HK Action must be stayed once the existence of parallel proceedings was proved, but given the characteristics of the present case and the existence of parallel proceedings, he argued this court ought to have concluded that there existed strong and exceptional ground for declining the exercise of jurisdiction by the Hong Kong courts.  Mr Chan SC submitted that on all the evidence before the court, I fell into error in ignoring or placing insufficient emphasis on, say, the following considerations:

(a) P was merely seeking negative “no liability” declarations in the HK Action;

(b) the prejudice suffered by D as P might not have sufficient assets in Hong Kong;

(c) the uncertainty in enforcing Hong Kong judgments against P in the PRC;

(d) P’s purpose of delaying D’s recovery of loss and damages suffered;

(e) the overlapping of issues in the HK Action and PRC Litigation;

(f) the fact that the HK Action would not obviate the need for PRC proceedings.

15. For all the above reasons, it was submitted that I erred in not having sufficient regard of the existence of parallel proceedings in the PRC.

IV. ADDITIONAL DRAFT GROUND OF APPEAL

16. In his written submissions, Mr Chan SC raised an additional ground of appeal which did not feature in the Draft Grounds (“Ground 3”).  Mr Chan SC submitted that the principle established in the Court of Appeal decision in Noble Power Investment Ltd on the legal effect of a NEJC was almost to elevate it to a EJC, which is especially draconian when the party seeking to rely on such clause is merely issuing the writ in the non‑exclusive jurisdiction just for negative “no liability” declarations when it is being sued in a proper and natural jurisdiction.  Mr Chan SC reminded that Noble Power Investment Ltd was binding on this court, so it was pointless for D to seek to impugn such authority at the Hearing, but D intended to have the matter re-considered by the Court of Appeal (and if need be by the Court of Final Appeal) and hence leave should be granted for such purpose.

17. Mr Chan SC further argued that even if Noble Power Investment Ltd was correctly decided, “it is plain that the decision also accepts that strong a factor that the [NEJC] may be, the court would not stay if there are strong reasons or exceptional circumstances in favour of granting a stay despite the clause”.[12] Mr Chan SC submitted that the scope of the application of such exception is plainly a point of great and general public importance that should be considered by the higher courts.

V. GROUND 1

18. The requirements for issue estoppel or res judicata has been explained by Lord Guest in Carl Zeiss Siftung v Rayner & Keeler Ltd & ors[13] as follows: (a) that the same question has been decided, (b) that the judicial decision which is said to create the estoppel was final, and (c) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.  The underlying requirement of the “same question has been decided” was emphasised in Fidelitas Shipping Co Ltd v V/O Exportchleb[14] and in Re Chime Corp (No 2).[15] “An express decision will not necessarily create an estoppel.  Only determinations which are necessary for the decision, and fundamental to it, will do so.  Other determinations, however positive, do not.”[16] This was also recognised by the Court of Appeal in First Laser Ltd for they referred to the foreign court having to decide “on the very same issue that the Hong Kong court would have to decide”.[17] Mr Dawes, counsel for P, accepted that the doctrine of issue estoppel covers not only issues that were raised, but those which ought to have been raised.[18]

19. The core complaint under Ground 1 relates to my reading of the 2^nd Stay Judgment as to what issue(s) was/were decided by the SPC in the 2^nd Stay Judgment.  In a nutshell, it was said that I read the 2^nd Stay Judgment too narrowly and such judgment in fact decided that the dispute between P and D (which underlied the HK Action) should be litigated in the PRC, and hence P could not revisit this in opposing the Summons.  As Mr Chan SC recognised, this was an argument that had been raised at the Hearing[19] and considered in the Decision.[20]

20. In the 2^nd Stay Judgment, the SPC held that the PRC courts, which had jurisdiction, should not decline jurisdiction over D’s claim before them, and gave three reasons for such conclusion as set out in paragraph 42 of the Decision including on forum non conveniens grounds.  Although the SPC canvassed the NEJC and forum non conveniens grounds and noted the existence of the HK Action which resulted in parallel litigation in both jurisdictions, central to the SPC’s conclusion as to whether the Beijing HPC should or should not decline jurisdiction was its reasoning that irrespective whether Hong Kong being an independent legal jurisdiction “是否已經受理案件或作出判決，不影響內地法院依法享有的管轄權，但內地法院是否受理，根據案件具體情況裁量決定，其中包括考慮案件是否存在不方便管轄的因素”.  Quite plainly, the SPC made clear that whether the PRC courts would exercise or decline jurisdiction over the PRC Litigation was irrespective of whether the Hong Kong courts under an independent legal jurisdiction had accepted jurisdiction or had already rendered a judgment.  The SPC was expressly making clear it formed no view as to whether Hong Kong courts should exercise/decline jurisdiction over the HK Action.  As such the SPC did not seize this issue, and in any event there was no determination of such issue by the SPC.  Mr Chan SC failed to address the careful qualification by the SPC as to the scope of their ruling/determination as being irrespective of whether the Hong Kong courts “是否已經受理案件或作出判決”.  I am not persuaded there is reasonable prospect of success on this intended ground of appeal.

21. There is also a further argument under Ground 1 that the 2^nd Stay Judgment decided that the Hong Kong courts were an inconvenient forum.  But in light of my conclusion as to the primary argument on issue estoppel and res judicata set out in the above paragraph, I am also not persuaded there is reasonable prospect of success that at the very least implicitly there must be issue estoppel as to whether the Hong Kong courts were an inconvenient forum for the HK Action.  It is plain from the 2^nd Stay Judgment[21] that the SPC was concerned with the issue whether the Beijing HPC should decline jurisdiction over the PRC Litigation on the grounds of forum non conveniens under PRC law, which would not necessarily “imply” that Hong Kong courts (being the named/chosen forum under the NEJC in contra-dictinction to the PRC courts) were therefore ipso facto an inappropriate forum under Hong Kong law, which determination requires the application of the principles under Noble Power Investment Ltd (which is different from a standard Spiliada balancing exercise).  I am not persuaded it would have been necessary and/or relevant for P to put all arguments in relation to the effect of Clause 15 on the HK Action under Hong Kong law to the SPC for the purpose of the separate issue of determining whether the Beijing HPC should exercise or decline jurisdiction over the PRC Litigation. 

22. In the circumstances, I am not convinced that Ground 1 has reasonable prospect of success.

VI. GROUND 2

23. As regards Ground 2, the complaint is against my failure to have sufficient regard to the existence of parallel proceedings in the PRC in light of the applicable principles in The Abidin Daver[22] and BAS Capital Funding Corporation & ors v Medfinco Ltd & ors[23] which articulated that parallel proceedings are a material factor in considering whether to grant a stay.  However, such arguments did not take into account the analysis of the law in paragraphs 102-108 of the Decision that led to this court’s conclusion that parallel proceedings in a foreign jurisdiction (and the difficulties which may ensue) is but a connecting factor to be taken into account, in particular the guidance by Lord Goff in de Dampierre v de Dampierre[24] and the summary in Johnston, The Conflict of Laws in Hong Kong.[25] Mr Dawes also referred me to Dicey, Morris and Collins, The Conflict of Laws,[26] which stated that:

“Although it was once thought that there were special factors in cases of lis alibi pendens, presumably because litispendence has always been more widely accepted as a ground for jurisdictional relief, it is now clear that the existence of simultaneous proceedings is no more than a factor relevant to the determination of the appropriate forum. …… It was confirmed that the principles in Spiliada Maritime Corp v Cansulex Ltd apply whether or not there are other proceedings already pending in the alternative forum: the foreign proceedings may be of no relevance at all, for example, if one party has commenced them for the purpose of demonstrating the existence of a competing jurisdiction, or if the proceedings have not passed beyond the stage of the initiating process. But if genuine proceedings have been started and have had some inpact on the dispute between the parties, especially if it is likely to have a continuing effect, then this may be a relevant (but not necessarily decisive) factor when considering whether the foreign jurisdiction provides the appropriate forum.”

In the circumstances, I am not persuaded the suggestion that I erred in holding the existence of parallel proceedings was one of the factors to be taken into account has reasonable prospect of success.

24. Under Ground 2, D also challenged my exercise of discretion in declining to grant a stay of the HK Action by failing to place sufficient weight on the existence of the parallel PRC Litigation and/or sufficient emphasis on the various factors set out in paragraph 14 above.  But in his oral submissions at the Leave Hearing, Mr Chan SC also submitted that I had ignored the forum non conveniens factors other than the existence of parallel proceedings (which he accepted I had canvassed in the Decision).

25. Taking the last point first, I do not see any merit in such argument for in paragraphs 110-145 of the Decision I did consider various factors, including those set out in paragraph 14 above, and in paragraph 146 of the Decision I concluded that all the “convenience” connecting factors must or could have been foreseen at the time of the Agreement, but “even taking into account these matters, the nature of the HK Action as well as the PRC Litigation, I find they do not amount to justification, whether in law or in fact, that go to a matter of public policy or the interests of justice that require the HK Action to be stayed in favour of the PRC”.

26. Mr Chan SC’s alternative stance was that in balancing the weight and relativity of the “convenience factors”, I failed to give sufficient weight to the various factors set out in paragraph 14 above. Since this intended ground of appeal impugns an exercise of discretion, D has to show that they have an arguable case with reasonable chance of success that the relevant decision exceeds the generous ambit within which reasonable disagreement is possible and is in fact plainly wrong,[27] and not merely that the appellate court would prefer a solution which the judge had not chosen.[28]

27. Mr Chan SC’s arguments set out in paragraph 14 above focused on the Spiliada balancing exercise.  But as explained by Ma CJHC (as he then was)[29] and Stone J[30] in Noble Power Investments Ltd, the basic premise is that the courts will generally hold parties to their contractual bargain (ie the NEJC) and will unseat the named/chosen jurisdiction only if there are strong or exceptional grounds.  In the Decision, this court accepted Mr Chan SC’s argument that the court’s hands should not be unduly fettered in considering what are matters of public policy and what the interests of justice require (ie the strong causes, overwhelming reasons and/or exceptional circumstances are not necessarily limited to matters that have been reasonably contemplated or foreseen at the time when the parties agreed to submit to the particular jurisdiction),[31] but at the same time this court also recognised D had a heavy burden to discharge in persuading the court not to give effect to the contractual bargain, and this court also took note of the significant status and legal effect of Clause 15 being a NEJC as explained by Noble Power Investments Ltd.[32]

28. Mr Dawes reminded that other than the HK Action (which Mr Chan SC submitted was an idle claim) D did not assert any of the various factors outlined in paragraph 14 above were not foreseeable at the time the contract was concluded.[33] In the Decision, I considered those factors and concluded that “even taking into account these matters, the nature of the HK Action as well as the PRC Litigation, I find they do not amount to justification, whether in law or in fact, that go to a matter of public policy or the interests of justice that require the HK Action to be stayed in favour of the PRC”.[34] Mr Chan SC’s submissions on this intended ground of appeal revisited the arguments that had been raised at the Hearing and considered in the Decision.  In all the circumstances, I am not persuaded there is reasonable prospect of success in establishing that the conclusion reached by this court in the exercise of its discretion exceeded the generous ambit within which reasonable disagreement is possible, or is plainly wrong.

VII. GROUND 3

29. As for Ground 3, Mr Dawes complained that other than asserting that the effect of the Court of Appeal’s decision in Noble Power Investments Ltd can be draconian and should be re-considered by the higher courts, and that even if such decision was correctly decided there is a point of great and general public importance in seeking appellate guidance on the scope of the application of the “strong reasons” or “exceptional circumstances” exception, no attempt had been made to substantiate these assertions in Mr Chan SC’s written submissions. 

30. At the Leave Hearing, Mr Chan SC submitted that Noble Power Investments Ltd was wrongly decided since it erroneously conflated the contractual effect of the NEJC and the court’s inherent jurisdiction to stay proceedings which led to an unwarranted elevation of the legal status and effect of a NEJC to that of an EJC.  Instead, according to Mr Chan SC, a NEJC should be merely a factor on par with other “convenience” factors which the court has to consider in the exercise of its discretion on whether to grant a stay.

31. Mr Chan SC also submitted that even if Noble Power Investments Ltd was correctly decided, the ambit of the application of the “strong reasons” or “exceptional circumstances” exception is problematic as it is quite subjective in nature, and the unusual features in the present case (including the existence of parallel proceedings, the claim for negative “no liability” declarations in the HK Action and other “convenience” factors) conspire to lead this court to the undesirable result of effectively allowing P a second bite of the cherry.

32. I have given careful thought to Mr Chan SC’s submissions, but in the end I am not persuaded Ground 3 passes the threshold test.  As pointed out by Mr Dawes, the guidance in Noble Power Investment Ltd as to the legal status and effect of NEJCs drew strength not only from the authoritative judgment and reasoning by Ma CJHC (as he then was) but from a wealth of English case law.[35]  Further, the learned judge’s view of the heavy burden carried by an applicant to unseat a named/chosen jurisdiction under a NEJC also drew support from English authorities.[36] There is no suggestion that English case law on the subject has since departed from the approach explained in Noble Power Investment Ltd or evolved in any other way, especially in view of the reasoned basis enunciated in those cases for placing emphasis on the contractual bargain.[37] As regards Mr Chan SC’s concern over the ambit of the application of the exception based on strong or overwhelming reasons, each case would turn on its own facts, and in jurisdictional disputes the possibility of parallel proceedings is not unusual. I am not convinced that I should grant leave to appeal under section 14AA(4)(b) of the High Court Ordinance Cap 4.

VIII. CONCLUSION

33. In the premises, I dismiss the Leave Summons.  Both counsel agreed that should leave to appeal be refused, costs should follow event.  I therefore order D to pay P costs of the Leave Summons to be taxed if not agreed, and such costs order is an absolute and not nisi one.

IX. POSTSCRIPT

34. On 5 March 2015, sometime after the Decision was handed down and the Summons was filed, P filed/served Notice of Intention to Enter Judgment against D. On 6 March 2015, D filed a skeleton Defence without prejudice to D’s application under the Summons.  Dissatisfied with the Defence, P filed a summons on 13 April 2015 to strike out the Defence and to enter judgment against D (“Strike Out Summons”) returnable at the Leave Hearing.

35. At the Leave Hearing, it was agreed between P and D through their respective counsel that D would file and serve their Amended Defence and Counterclaim (if any) within 28 days of handing down of this Decision on the basis that such act shall not be construed as any submission by D to the jurisdiction of this court. On such premise, at the Leaving Hearing, I adjourned the Strike Out Summons sine die with

liberty to restore, and ordered D to pay P costs of the hearing of such summons on that day summarily assessed at $800 to be paid forthwith.