UNITED PHOSPHORUS LTD. v. CHINA MERCHANTS SHIPPING & ENTERPRISES CO. LTD.

HCCL81/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.81 OF 1997

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J U D G M E N T

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THE APPLICATION

1. This is an application by the Defendant herein, by summons dated 13th September 1997, for an order that all further proceedings in this action be stayed. The application is put on two grounds :

first, that by a jurisdiction clause in two bills of lading, numbered CMS-6-27 and CMS-6-28 and dated 27th June 1996, the Plaintiff agreed to refer all disputes arising thereunder or in connection therewith for determination to the Courts of the PRC; or

second, that all further proceedings in this action be stayed on the ground of forum non conveniens, it being alleged that the Guangzhou Maritime Court, Guangdong Province, PRC is the appropriate forum for the trial of the present action.

BACKGROUND FACTS

2. The Plaintiff's claim is for, inter alia, the sum of US$615,200.00, being the sound arrived value of 400 metric tons of 99% yellow phosphorous it had agreed to purchase from one Hunan Leader International Trade General Corp. ("Hunan Leader"), Hunan, PRC, pursuant to a contract dated 8th May 1996. Shipment of the goods was to be made by the end of June 1996 by sea from a PRC port to Bombay, with payment to be made by Letter of Credit.

3. I understand that Hunan Leader in fact presented the documents under such Letter of Credit and obtained payment thereunder, and that the Plaintiff has reimbursed the bank therefor. It also transpires that among the documents required under the Letter of Credit and presented to the bank were clean on board ocean bills of lading; in fact, two bills of lading purportedly issued by the Defendant were presented, stating on their face that goods had been shipped on board in Huangpu, Guangzhou. The problem is and was, however, that there were no such goods, and that no shipment was effected.

4. The Plaintiff claims against the Defendant as the issuer of the Bills of Lading. The Plaintiff's claim was originally brought in contract for failure to deliver the goods, and in tort for misrepresentation, in that the bills of lading were wrongfully issued and that the Defendant knew or ought to have known that the assertion therein as to shipment was false. The claim in contract has been recently deleted by amendment, an amendment which Mr Jat, who appears for the Plaintiff, maintains was not a tactical attempt to evade an otherwise operative jurisdiction clause, but because, on analysis, the conclusion had been reached that there never had been any contract with the Defendant. Mr Jat also informed the Court that there is no dispute between the parties that the Defendant is a Hong Kong registered company, and therefore that the writ in the proceedings herein was validly issued and served in Hong Kong.

5. Against this background I turn now to consider the two grounds underpinning the Defendant's present challenge to the jurisdiction.

(1) Exclusive jurisdiction clause

6. Clause 3 on the reverse of the relevant bills of lading reads as follows :

"JURISDICTION. All disputes arising under or in connection with the Bill of Lading shall be determined by Chinese law in the courts of the People's Republic of China."

7. There is, I think, no difference between Counsel as to the applicable legal principles when dealing with such a clause, and for his part Mr Jat for the Plaintiff does not seek to persuade me that this clause is not exclusive in nature. It follows therefore that, in principle at least, the Court retains a discretion whether or not to grant a stay of proceedings, but that the discretion should be exercised by granting such a stay "unless strong cause for not doing so is shown" by the Plaintiff : see The Pioneer Container [1994] 2 AC 324 at 347F per Lord Goff, a decision of the Privy Council on appeal from the Court of Appeal in Hong Kong.

8. Pursuant to this statement of principle it followed, said Mr Peter Ng for the Defendant, that the Plaintiff cannot avoid the effect of such a clause by framing its cause of action in tort and not contract, and that, on the evidence before the Court, the Plaintiff has not come near to discharging the burden of proof which it must accept in the face of such an exclusive foreign jurisdiction clause.

9. For his part Mr Jat, I think, is content to leave the stay issue in the hands of the Court if indeed the foreign jurisdiction clause 'bites'. But, said Mr Jat, this is a big 'if'. In a nutshell, he submits that the Defendant's argument presupposes that there was in place an effective contract between the Plaintiff and the Defendant in relation to the carriage of goods, in the absence of which the jurisdiction clause could not come into play at all. However, the Plaintiff's case is that, in these particular circumstances, there never was any binding contract with the Defendant, so that the exclusive jurisdiction clause never impacted upon the relationship between the Plaintiff and the Defendant. To the contrary, so far as the Plaintiff is concerned, these bills of lading never were "bills of lading" in the accepted legal sense; notwithstanding the purported issue of such "bills of lading" the goods were never shipped, and in all probability the document was a nullity (see dicta of Lord Diplock in United City Merchants [1983] 1 AC 168 at 187G-188A), albeit a bank in a letter of credit chain may as a matter of practice effect payment against it. And certainly where there is no shipment no contract of carriage came into being : see the observations of Devlin J (as he then was) in Heskell v. Continental Express Ltd. [1950] 1 All ER 1033 at 1037.

10. On the Plaintiff's case, said Mr Jat, his client relies upon the wrongful act of issuing a document which is termed a 'bill of lading', but which misrepresented the factual position - as he put it, this was simply "a false document in bill of lading form" - whereas the Defendant's whole premise in invoking the jurisdiction clause, namely that the clause was applicable between the parties, was plainly in error. Moreover, submitted Mr Jat, to add insult to analytical injury, the Defendant itself denies that it is bound by the bills, since on its own case the bills were issued wrongfully and without authority, so that the Defendant should not be able to rely upon an exclusive jurisdiction clause which it claims does not bind it in the first place, in this context citing by analogy the observations of Litton JA (as he then was) in Greenwood Ltd. v. Pearl River Container Transportation Ltd. (unreported) CA 27 of 1994, at page 6.

11. With respect to the submissions of Mr Ng on this issue, I think that Mr Jat is correct. The short point is that so far as these bills of lading are concerned, the Plaintiff does not rely on them (at least qua bills), and the Defendant actively disavows them. Accordingly, in my judgment the present application fails in so far as it is based upon the exclusive jurisdiction clause on the reverse of the bills of lading, and I decline to grant a stay of the present proceedings upon this basis.

(2) Forum non Conveniens

12. Mr Ng's alternative argument on behalf of the Defendant is that the Court should exercise its discretion to stay the present proceedings under the general head of forum non conveniens. Again, in terms of applicable principle Counsel are fundamentally in agreement, the basic proposition being that a stay will only be granted on the ground of forum non conveniens where the Court is satisfied that there is some other available forum, having competent jurisdiction, which is clearly or distinctly the more appropriate forum for the trial of the action, that is, in which the case may be tried more suitably for the interest of all the parties and the ends of justice - see the oft-quoted dicta on this subject of Lord Goff in Spiliada Maritime Corp. v. Cansulex Ltd. [1987] 1 AC 460 at 474-478. It is also accepted by the parties that in this situation the burden of proof is upon the Defendant to show that there is such other available forum, and that if the Court concludes that there is no other available forum which is clearly or distinctly more appropriate, then in the exercise of its discretion a stay of proceedings will ordinarily be refused.

13. In applications of this type, recitation of applicable principle serves merely as the framework against which each party surveys the factual pros and cons of the jurisdiction in favour of which is sought a stay of the existing proceedings.

14. In this regard, Mr Ng accepted the burden of submitting that the Guangzhou Maritime Court is clearly or distinctly more appropriate than Hong Kong in terms of trying the present dispute between the Plaintiff and the Defendant. He submitted that the presence of the Defendant within the jurisdiction apart, this case presents no "connecting factors" with Hong Kong. The Plaintiff is an Indian company based in Bombay. Its witnesses are also in Bombay. Moreover, it is and was apparently accepted by the Plaintiff that the majority, if not all, of the material events took place in the PRC, including the issue and presentation of the bills of lading, so that the facts giving rise to the cause of action took place exclusively in the PRC. The opinion of his Chinese expert, Mr Zhao, is that whether the bills of lading were issued in Changsha or Huangpu, the port of loading named in the bills of lading, jurisdiction vests in the Guangzhou Maritime Court. And as far as the Defendant is concerned, the most important witnesses are Mr Chen Fan Zhu, who issued the bills of lading in Changsha, and those employed by Hunan Leader and its associate Hunan Yatong, who are presumably also in Changsha. Mr Ng also raised, but did not overly press, the fact that there is evidence to show that there is a cumbersome procedure that a Chinese national has to go through in applying to come to Hong Kong, so that whether in terms of the occurrence of material facts, or the convenience of witnesses, he submitted that the Guangzhou Court was clearly more appropriate than Hong Kong.

15. A further important element relied upon by Mr Ng was that there were already on foot in the Guangzhou Maritime Court legal proceedings instituted by the Defendant against Hunan Leader and Hunan Yatong in relation to the issuance of the two fraudulent bills of lading, and that the Guangzhou Maritime Court had accepted the jurisdiction to hear that case. He made three main points arising in this regard : first, that the existence of these Guangzhou proceedings indicates that, in making the present application, the Defendant genuinely desires trial of the present disputes and is not merely seeking procedural advantage; second, that in the interests of justice, it would be wholly undesirable to have concurrent proceedings in Guangzhou and Hong Kong in relation to the same incident arising out of the same facts, not least because of the risk of inconsistent findings upon the same issues by the two Courts; and third, that it is in the interest of all parties, and not just the Plaintiff, that the present dispute should be tried in Guangzhou. He submitted that at the trial in Guangzhou the rights and liabilities of all necessary and proper parties to the present dispute, namely the Plaintiff, the Defendant, Hunan Leader and Hunan Yatong, could be decided by the same Court at the same time, whereas the current litigation in Hong Kong involved only the Plaintiff and the Defendant; in this context he rejected as impracticable the suggestion that application might be made in this action for leave to issue and serve third party proceedings out of the jurisdiction.

16. Looking at the matter in the round, Mr Ng submitted, the prejudice suffered by the Defendant if the present proceedings are not stayed will significantly outweigh that suffered by the Plaintiff if they are; on one scenario, the Defendant would have to face or be involved in concurrent proceedings in two jurisdictions, whereas on the other, the Plaintiff would have to face one set of proceedings in Guangzhou. In this context Mr Ng drew my attention to the words of Hoffmann LJ (as he then was) in Harbour Assurance Co. (UK) Ltd. v. Kansa General International Assurance Co. Ltd. [1993] QB 701 where the learned Lord Justice referred to "the presumption in favour of one-stop adjudication", an observation with which the English Court of Appeal in Continental Bank v. Aeakos S.A. [1994] 1 WLR 588 at 593 expressed agreement, albeit in the specific context of argument in that case involving the construction of a jurisdiction clause.

17. In response to Mr Ng's submissions, Mr Jat mounted a persuasive attack based upon the burden of proof. Whilst he recognised certain of the factual elements underpinning the forum non conveniens argument put forward by the Defendant, he asserted that such argument fell some way short of discharging the recognised burden.

18. Mr Jat's starting point, of course, was the fact that jurisdiction against this Defendant had been established as of right in Hong Kong, and could and should not easily be displaced, and whilst recognising the fact that the Defendant maintains a presence here is in itself not conclusive, he submitted that such presence in Hong Kong amply demonstrated that it was prepared to assume the risk of litigation in the SAR, precisely as now had occurred.

19. So far as the difficulties in relation to witnesses was concerned, the Defendant's evidence that it would be more troublesome and time consuming for attending in Hong Kong as opposed to Guangzhou should not be overplayed, he submitted, such relatively minor inconveniences being commonplace in the modern international commercial environment. Moreover, continued Mr Jat, regarding the proceedings apparently ongoing before the Guangzhou Maritime Court, the Plaintiff was not a party to such proceedings between the Defendant and Hunan Leader, and there was no evidence whatever before the Court to show that if this action were indeed to be stayed in favour of Guangzhou, that necessarily there would be in place one action rather than two. A further consideration was that in any event the Plaintiff may be in difficulties in any litigation with or involving Hunan Leader in Guangzhou because of an arbitration clause in the sale contract providing for arbitration in Beijing or Shanghai or Shenzhen, and whilst circumstances may or may not permit this point to be taken, this nevertheless provided a potential obstacle in the Plaintiff's path.

20. Further, maintained Mr Jat, there were substantial additional practical difficulties. In the PRC Courts all documents in this case would have to be translated into Chinese, whereas in Hong Kong only a relatively small number of documents would have to be translated into English. In addition, the Plaintiff would have the juridical disadvantage of having to put up substantial court fees in the PRC together with paying the costs of translators, whilst there was an inability to recover lawyers' fees, and low interest was payable on judgment debts. Perhaps more important was that there was no evidence before the Court that the Defendant had any substantial assets in the PRC, so that whether a PRC judgment could be enforced in Hong Kong was far from clear; certainly it was not possible to register a PRC judgment under the current statutory arrangements. Nor was there any evidence that the applicable substantive PRC law was materially different from Hong Kong law. Looking at the matter in the round, therefore, Mr Jat submitted that the Defendant had not demonstrated to the Court that the Guangzhou Maritime Court was clearly or distinctly more appropriate than the Hong Kong forum in resolving the current dispute between the Plaintiff and the Defendant.

21. Mr Ng's response was that in terms of the various financial disadvantages as were asserted regarding litigation in Guangzhou, for example, Court fees, costs of translation and so forth, these were but submissions by the Plaintiff's legal advisors, and pointedly no figures had been produced as to the relative financial cost of litigation in Hong Kong when compared with Guangzhou; accordingly, this could not be accepted as a factor of any real weight. It was also unclear how such financial disadvantages, if any, compared with the amount of the claim. And so far as the issue of enforceability of a judgment of the PRC Court was concerned, he submitted that in any event such a judgment was clearly enforceable at common law. Further, in respect of the more important issue as to the status of the ongoing Guangzhou proceedings, the only party who was not currently present before the Guangzhou Court was the Plaintiff, and there was no doubt that if the Plaintiff was willing to sue in respect of the same subject matter, the Guangzhou Maritime Court would indeed try the case, so that if this case was stayed in favour of the Guangzhou Maritime Court there was indeed every possibility of achieving the desirable state of "one-stop adjudication". And regarding Mr Jat's rhetorical query as to the progress of the existing Guangzhou proceedings, to the effect that if they were about to succeed, there would be little point in staying the present proceedings in favour of Guangzhou, Mr Ng said that the progress of the Guangzhou proceedings was clearly in evidence, and that on the evidence the stage that those proceedings had presently reached was that of the Guangzhou Maritime Court accepting jurisdiction over the dispute between the Defendant and the Hunan entities with reference to the issuance of the bills of lading, and Hunan's authority so to do. It followed, concluded Mr Ng, that this was indeed an appropriate case for the Court to exercise its discretion in favour of a stay, and the Defendant asked for an order in terms of paragraph (2) of its summons.

22. In terms of broader forum non conveniens considerations, this perhaps is not the easiest case fairly to evaluate. Undoubtedly the existence of what appear to be ongoing proceedings in the Guangzhou Maritime Court between the Defendant herein and Hunan Leader and Hunan Yatong provide impetus in favour of the application for a stay of the Hong Kong litigation, Mr Ng in effect arguing (I think) that in the present circumstances what amounted to the head action was taking place in this jurisdiction, whereas the equivalent of third party proceedings was occurring in Guangzhou. However, in my view the Court reasonably could have expected substantially more information from the Defendant as to the existing Guangzhou litigation, in particular as to the manner in which the present litigation between the Plaintiff and Defendant could be related to or assimilated with the current Guangzhou action, whether as part of those proceedings or as an action collateral thereto; and, if the latter, what provision could be made, for example, as to contemporaneous trial before the same judge (and assuming, for this purpose, the absence of any jurisdictional difficulties). This seems to me to be important in the context of the present debate; inconsistency of judicial findings is not a problem arising solely in litigation in parallel jurisdictions, nor for that matter does it seem entirely accurate to assert that the same issues arise for decision before the Hong Kong and Guangzhou courts, broad commonality of background facts notwithstanding. In my view information of this nature is important in a situation in which, as here, the existence and subject matter of related litigation is prayed in aid as an integral element in support of a forum non conveniens application, and I resist the notion that, absent appropriate evidence, the Court should accept an argument bearing within it the assumption that some appropriate form of 'consolidation' (if I may use the term loosely) can be effected within or in the context of the current Guangzhou proceedings.

23. Be that as it may. I have reflected upon the totality of the evidence, together with the detailed and cogent submissions of Counsel for both parties, and after weighing in the balance the various matters urged upon me, I have come to the conclusion that, at bottom, the Defendant has not done sufficient to discharge the burden upon it to justify the ordering of a stay of the present proceedings in favour of the Guangzhou Maritime Court. Proceedings begun in Hong Kong as of right are not lightly disturbed, a principle epitomised by the burden imposed upon a party making an application for a stay purely on the forum non conveniens basis, and on the evidence before me I decline, in the exercise of my discretion, to hold that the Guangzhou Maritime Court is "clearly or distinctly more appropriate" than the Hong Kong forum for the trial of the action, or that in the circumstances it would be just for such a stay to be ordered.

24. Accordingly, the Defendant's alternative application is refused.

ORDER

25. It follows from the foregoing that the Defendant's application by summons dated 13th September 1997 is dismissed. I make an Order nisi that the costs of and occasioned by the application should be to the Plaintiff in any event, to be taxed if not agreed.

26. I thank both Counsel for the assistance they rendered to the Court.