CHINA CONSTRUCTION BANK (ASIA) CORP LTD v. SHANGHAI PUDONG DEVELOPMENT BANK CO LTD

HCA 1323/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1323 OF 2014

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D E C I S I O N
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Background

1.  China Construction Bank (Asia) Corporation Limited (“Plaintiff”) commenced these proceedings on 17 July 2014 against Shanghai Pudong Development Bank Co Ltd (“Defendant”).  ThePlaintiff’s claims are made as the negotiating bank under 3 letters of credit (“Letters of Credit”) issued by the Defendant, and 3 bills of exchange (“Bills”) drawn under the Letters of Credit, in the aggregate sum of US$8,593,720.  The Bills were issued by the Defendant on the application of Jiangyin Haigang International Logistics Co Ltd (as agent for Jiangsu Hualuo Trading Co Ltd ) and Daluo Energy Resources and Material Co Ltd) (together “Purchasers”), as buyers of goods from the sellers, C-Star Shipping Co Ltd and Kam Fung International Investment Ltd (together “Beneficiaries”).  Under the Letters of Credit, each of the Beneficiaries drew a bill of exchange in favor of the Plaintiff, and the Bills so issued were negotiated and purchased by the Plaintiff on the strength of the Defendant’s acceptance of the Bills.

2.  The Letters of Credit were expressed to have been issued by the Defendant in Nanjing, to expire in the country of the negotiating bank, and to be available with any bank by negotiation.  The terms of the Letters of Credit provide for presentation of the documents required under the Letters of Credit (“Documents”) within 21 days after the issue of the Letters, and require the Documents to be sent to the Jiangyin branch of the Defendant. 

3.  On 12 December 2013, the Plaintiff presented the Documents under the Letters of Credit to the Jiangyin branch of the Defendant, and asked for remittance of the payment due to the Plaintiff’s bank account in New York.  The Defendant refused to pay the sum of US$8,593,720 to the Plaintiff, on the basis that Orders (“Stop Orders”) had in March 2014 been made by the Intermediate People’s Court in Wuxi in the Jiangsu province (“Intermediate Court”), in proceedings which were issued by the Purchasers against the Beneficiaries (“Jiangsu Proceedings”), with the Defendant joined as third party, whereby the Defendant was ordered not to make payment under the Letters of Credit.  In the Jiangsu Proceedings, the Purchasers claimed that the transactions under the Letters of Credit were fictitious, that there was fraud, and that the Plaintiff had knowledge of the fraud and were not bona fide.

4.  Despite applications made by both the Defendant and the Plaintiff to the People’s Higher Court in Jiangsu (“Higher Court”) to set aside or review the Stop Orders, the Stop Orders were maintained.  In its Decision of 21 July 2014, the Higher Court considered that the Purchasers had made out their case of fraud and the creation of fictitious documents under the Letters of Credit, and that the issue of whether the Defendant and the Plaintiff had negotiated and made payment under the Bills in good faith had to be tried.

5.  On 14 July 2014, the Plaintiff commenced these proceedings against the Defendant in Hong Kong, to seek payment under the Bills.

6.  In August 2014, the Intermediate Court joined the Plaintiff as a party in the Jiangsu Proceedings.  The Jiangsu Proceedings were tried before the Intermediate Court on 18 December 2014 and 6 January 2015. The Plaintiff did not attend the trial (having reserved its position as to the jurisdiction of the Intermediate Court), despite having been subpoenaed and having been served with notice of and the documents pertaining to the trial.  By its decisions dated 27 February 2015, the Intermediate Court found that there was fraud as alleged by the Purchasers, but that the Plaintiff had acted bona fide in its negotiation of the Bills.  The Purchasers appealed against the decisions of the Intermediate Court, and it is not disputed that as a result of and pending such appeal, the Stop Orders of the Intermediate Court remain in effect.  The appeals are yet to be heard by the Higher Court.

7.  On 4 November 2014, the Defendant applied by Summons to stay or dismiss these proceedings, on the basis that Hong Kong is not the appropriate forum, as the Jiangsu court is clearly and distinctly the more appropriate forum for determination of the dispute between the parties under the Letters of Credit and the Bills.  On 16 June 2015, the Master refused the stay application, and the Defendant appeals against that decision.

Whether Hong Kong the appropriate form: legal principles

8.  The parties do not appear to be in dispute as to the legal principles generally applicable to the determination of the question of forum non conveniens.  In summary, the Court is to determine the forum in which the case can be tried more suitably for the interests of all parties and the ends of justice (Hong Kong Civil Procedure 2016, para 11/1/10B).  The appropriate forum is one with which the action has the most real and substantial connection, and the Court looks at factors to show where a trial of the action can most appropriately be conducted.  The principles are laid down in The Spiliada [1987] AC 460, as summarized in DGC v SLC [2005] 3 HKC 293, and need not be repeated here.

9.  The Court applies a 3 stage test: (1) Is it shown that there is another available forum clearly and distinctly more appropriate than Hong Kong? (2) If the answer to (1) is yes, will a trial at the other forum deprive the plaintiff of any legitimate personal or juridical advantages? (3) If the answer to (2) is yes, the Court has to balance the advantages of (1) against the disadvantages of (2).

10.  The Court has emphasized that it is wrong simply to load up factors which point to any particular jurisdiction, and should instead focus on the appropriateness of a forum from the point of view of the trial of the action.  In Rambas Marketing Co LLC v Chow Kai Fai David [2001] 3 HKC 250, the Court explained (at p 255):

“The burden is on the defendant to show that the courts of Nevada are clearly or distinctly more appropriate than the Hong Kong courts for the trial of the action. Mere convenience is not enough nor is it enough simply to point to factors which connect a case or the parties to any particular jurisdiction. The approach in forum non conveniens applications is not just an exercise in building up factors which point to a particular jurisdiction. The court is required to focus on the appropriateness of a forum from the point of view of the trial of the action. This would be in part explain the need to identify the particular court in favor of which the action is to be stayed, for it is to the appropriateness of a forum from the point of view of the trial of the action that the court’s attention is directed.”

11.  The issue in dispute in this case is the extent to which the Court should be satisfied at this stage as to the merits or adequacy of the defence raised by the Defendant, in its application for stay. 

12.  The Plaintiff relies on Rambas Marketing Co LLC v Chow Kai Fai David [2001] 3 HKC 250, Chow Fu Hsien v K Vision International Investment (HK) Ltd HCA 2884/2004, 14 November 2006 and Bayer Polymers Co Ltd v ICBC Hong Kong Branch [2000] 1 HKC 805, in support of the proposition that the Defendant in this case must identify a defence on the merits with sufficient particularity to demonstrate real issues requiring resolution between the parties to justify a stay of the proceedings.  Rambas Marketing Co LLC and Bayer Polymers Co Ltd are cited and referred to in para 11/4/8J Hong Kong Civil Procedure 2016, where the learned editor observed that the real purpose of outlining a defence is not to fend off summary judgment, but to identify the issues for trial, without which the defendant may not be able to point to any other jurisdiction as being clearly or distinctly more appropriate than Hong Kong.

13.  In Bayer Polymers Co Ltd, the Court referred to Adria Services YU v Grey Shipping Co Ltd (Folio 212/1993, unreported), where Clarke J (as he then was) granted  O 14 judgment notwithstanding a stay application, and explained:

“ ... In my judgment if the plaintiffs satisfy me that the defendants have no arguable defence then, save in an exceptional case, the right course would be to refuse a stay and to give judgment, because there would then be no real issues between the parties which should be tried either here or elsewhere.”

The same judge elaborated on this in Standard Chartered Bank v Pakistan National Shipping Corp & Ors [1995] 2 Lloyd’s Rep 365 at 378, as follows:

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

14.  Leading Counsel for the Defendant relies on Melvin Waxman & Anr v Li Fei Yu, unreported, HCA 1972 /2012, 19 July 2013 to argue that it is sufficient if the Defendant can identify issues for trial.  He also referred to  Hanil Bank v Societe Generale [1993] 1 HKLR 308, where the Court of Appeal held that if there is an application for stay on grounds of forum non conveniens and at the same time a cross application for summary judgment, the Court should determine the application for stay first.  As the Court observed in Hanil Bank:

“Where a party applies for a stay on the grounds of forum non conveniens he is inviting the court to make an order that no further proceedings in the action be entertained in that court. ... It does not seem right to me, that where an application for a stay is timeously and properly made, a party should be able to pre-empt a consideration of what is the natural or appropriate forum for the resolution of the dispute between the parties by relying on the O 14 procedure with the intent of establishing, in the very court in respect of whose exercise of jurisdiction the stay has been sought, that a trial is not necessary. ... In my view, as a matter of principle, since it was not suggested that the stay applications were tactical moves to create delay, or otherwise frivolous or vexatious, the defendants were entitled to seek to have their applications heard before the court turned its attention to the O 14 applications...”

15.  I have no doubt the above is the correct approach.  However, such approach of considering a stay application before an application for summary judgment does not mean that the defendant seeking a stay does not have to identify a defence, or issues requiring a trial.  That has to be done, before the Court cannot be satisfied that there is a trial which has to be stayed to the appropriate forum.  So long as there are issues for a defence which can be identified, it may not be possible or appropriate for the Court, in every case, to consider the merits of the defence raised (Melvin Waxman & Anr v Li Fei Yu). 

The issues for trial

16.  In this case, I accept that the issues in dispute between the Plaintiff and the Defendant have been adequately identified.  The Plaintiff claims that the Defendant, having accepted the Bills presented to the Defendant, is liable for the amount of the Bills.  It is true, as highlighted by the Plaintiff, that the Defendant had not claimed in the Jiangsu Proceedings that the Plaintiff had acted in bad faith.  In its application to the Higher Court for review of the Stop Orders, the Defendant had submitted that the Plaintiff had negotiated the Bills in good faith, and that the Defendant had itself accepted the Bills in good faith.  The Defendant sought to explain that it was not in a position to present evidence as to the Plaintiff’s involvement in the fraud, and had left it to the Purchasers to present their case in the Jiangsu Proceedings. 

17.  Whatever its stance in the Jiangsu Proceedings, the Defendant has in these proceedings sought to rely on the claims made and evidence adduced by the Purchasers in the Jiangsu Proceedings, as to the Plaintiff’s involvement in the fraud alleged by the Purchasers, and as to the Plaintiff’s alleged knowledge of the fictitious transactions.  The Defendant therefore claims in these proceedings that the Plaintiff had not acted bona fide in respect of the Letters of Credit and its negotiation of the Bills thereunder.  This is evident from the affirmation of Wang Xinyan filed in support of the stay application.  If it is established that the Plaintiff did not negotiate the Bills in good faith, the Defendant has a good defence to the claims made by the Plaintiff under the Bills in these proceedings.  The fact that the Plaintiff has filed an affirmation to refute the claims of bad faith made by the Purchasers cannot mean that this issue is conceded, and not disputed by the Defendant.  Whether or not the Defendant can ultimately establish the Plaintiff’s bad faith at trial, in the appropriate forum, is another matter and need not be investigated further at this stage.  The Intermediate Court found that there was fraud, but that the Plaintiff had acted in good faith in the negotiation of the Bills.  However, this is the subject matter of the Purchasers’ appeal to the Higher Court, and the issue of the Plaintiff’s good faith has not been  finally determined by the Jiangsu court.

Is Hong Kong the more appropriate forum?

18.  Having identified the issue for trial, the question to be decided is whether there is some other available forum which is the appropriate one for the trial of the action.  It is for the Defendant to establish that first, Hong Kong is not the natural or appropriate forum and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. The essence and purpose of the exercise is as set out in paragraph 8 above.

19.  The first relevant factor which I take into consideration is the fact that there are Jiangsu Proceedings which have been tried by the Intermediate Court, with judgment handed down, and a pending appeal.  I bear in mind the observation made by the author of The Conflict of Laws in Hong Kong 2^nd edition (at para 3.095) (and cited in Oracle (China) Software Systems Co Ltd v CITIC 21 CN Company Limited HCA 105/2012, 18 September 2013), that the existence of parallel litigation in other jurisdictions is simply one factor to be taken into account in the forum conveniens discretion.  I also bear in mind that there may not be an exact identity of parties and relief between the Jiangsu Proceedings and this action.  Nevertheless, the Intermediate Court ordered the Plaintiff to be joined in the Jiangsu Proceedings, and at the stage when the Plaintiff applied for the review of the Stop Orders, the Plaintiff invoked PRC law to argue that the Stop Orders should not be made. 

20.  The Defendant argued that the Plaintiff had participated in the Jiangsu Proceedings and had submitted to the jurisdiction of the Intermediate Court, but Leading Counsel for the Defendant highlighted the fact that even if the Plaintiff had not expressly and unreservedly submitted to the jurisdiction of the Intermediate Court, the Plaintiff had implicitly acknowledged (through its PRC lawyers’ opinion) that it would accept and be bound by the final judgment of the Higher Court, if it should find that the Plaintiff had not negotiated the Bills in good faith.   If the Higher Court upholds the judgment of the Intermediate Court, the Stop Orders would be lifted and the Defendant maintains that it would then be in a position to pay the Plaintiff, but if the Higher Court reverses the judgment of the Intermediate Court and holds that the Plaintiff had knowledge of the fraud and was not acting in good faith, the Plaintiff as a party to the Jiangsu Proceedings, and as it acknowledges, would be bound by the findings of the Higher Court, in which case it will have no claim against the Defendant in these proceedings in Hong Kong.  The Defendant argues that the proceedings in Hong Kong are unnecessary, and the Jiangsu Court is the more appropriate forum for the trial of the issues in dispute.

21.  Whether or not the Hong Kong proceedings are stayed, the appeal in the Jiangsu Proceedings commenced by the Purchasers will continue.  The Defendant highlighted the risk of inconsistent outcomes in the Jiangsu Proceedings and the Hong Kong proceedings should they be allowed to continue, and the oppression which may be caused to the Defendant which is enjoined by the Intermediate Court from making payment to the Plaintiff.

22.  I agree that the existence of the Jiangsu Proceedings and the advanced stage to which those proceedings have developed, and the fact that they deal with the same focus of the dispute between the Plaintiff and the Defendant, are strong factors in favor of a stay of the Hong Kong proceedings.

23.  The Letters of Credit were drawn on the Nanjing branch of the Defendant.  The Documents under the Letters of Credit were also to be sent to the Nanjing branch of the Defendant, with which the Plaintiff dealt.  The payment under the Bills was to be transmitted by the Defendant to the Plaintiff’s account in New York, although the Plaintiff had made payment to the Beneficiaries in Hong Kong when it purchased and negotiated the Bills. 

24.  Whether Hong Kong law or PRC law should be the relevant governing law, on the evidence available, it does not appear that there is substantial difference between the laws of Hong Kong and of the Mainland as to the Defendant’s liability under the Bills, in that the Plaintiff would be entitled to payment from the Defendant, unless it can be established that the Plaintiff had not acted in good faith.  Neither the Hong Kong Court nor the Higher Court should have difficulty in applying the relevant law for the determination of the parties’ rights and liabilities under the Bills.

25.  Both the Plaintiff and the Defendant carry on business in Hong Kong.  The Defendant carries on business on the Mainland, and has a branch in Hong Kong and elsewhere.  The Defendant was served with these proceedings in Hong Kong.  The Plaintiff is incorporated in Hong Kong but it claims in its evidence to be one of the 4 largest banks on the Mainland.

26.  For the trial of the issue of the fraud alleged against the Beneficiaries and the Plaintiff’s alleged knowledge of the fraud and of the fictitious transactions under the Letters of Credit, the essential witnesses would be those called by the Purchasers.  The Defendant claims that the Purchasers which are alleging fraud and the Plaintiff’s knowledge of the fraud are in Jiangsu.  The witnesses who are in a position to speak to the fraud, and the documentary evidence seized and obtained by the Jiangsu police in respect of the fraud, are all in Jiangsu.  In relation to the documentary evidence, I accept the Plaintiff’s submissions, that there is no evidence that the documents now with the Jiangsu police or authorities cannot or will not be made available in Hong Kong.  As for the availability of witnesses, although the key witness of the Plaintiff, who is alleged to be the person who had facilitated the Beneficiaries’ fraud and who allegedly had knowledge of the fictitious scheme involving the Letters of Credit, is in Hong Kong, I accept that there might be difficulties in compelling the Purchasers’ witnesses on the Mainland to attend trial in Hong Kong.  It is also conceivable that not all of such witnesses would be able to come to Hong Kong for the trial.  The Plaintiff claimed that no witnesses were in fact called to give evidence in the Jiangsu Proceedings.  Whether the position will remain unchanged at the rehearing in the appeal before the Higher Court is unclear, but the Defendant should not be precluded or prejudiced in its efforts to procure witnesses to come and give evidence at the trial in Hong Kong, or to compel the Jiangsu police and authorities (if necessary) to produce documents at the trial.

27.  Considering the fact that the Intermediate Court already heard the evidence and had given judgment in the Jiangsu Proceedings on the issue of the Plaintiff’s good faith, that the appeal has been lodged and is to be heard, the presence of both the Plaintiff and the Defendant on the Mainland, the proximity of the majority of the witnesses to Jiangsu, the fact that the Defendant cannot compel the attendance of the Jiangsu witnesses to appear at the trial of this action in Hong Kong, I consider that the Jiangsu Higher Court is the forum with which the action has the most real and substantial connection.  Bearing in mind all the factors referred to in the preceding paragraphs, I agree that the Hong Kong Court cannot be seen to be the natural or appropriate forum, and that the Jiangsu Higher Court is more appropriate than Hong Kong to determine the issue in dispute between the Plaintiff and the Defendant in this action. 

Whether there is any juridical advantage of which the Plaintiff will be deprived

28.  The Plaintiff refers to the fact that the Intermediate Court had acted in contravention of various directives, and that there was delay in the proceedings, to support its assertion that it will not be able to obtain substantial justice in the Jiangsu courts.  I am not satisfied that there is any cogent evidence, as is required, that justice will be denied to the Plaintiff if the matter should continue to be tried in the Higher Court (The Abidin Daver [1984] AC 398, 410F-411F).  As Leading Counsel for the Defendant emphasized, the fact that the Intermediate Court ruled in favor of the Plaintiff on the issue of good faith is evidence of the fact that the Plaintiff is able to obtain justice on the Mainland, contrary to its claims. 

Conclusion

29.  I allow the appeal, and grant the Defendant’s application to stay these proceedings, on the ground that the Defendant has shown that there are issues for trial, and that the Jiangsu Court is the more appropriate forum for the trial.  I will make an order nisi that the costs of the appeal (including those incurred below) should be paid by the Plaintiff to the Defendant, with certificate for 2 Counsel.