XCHRX KONINKLIJKE PHILIPS ELECTRONICS N.V. v. LASER MEDIA INTERNATIONAL LTD.

HCA 19408/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 19408 OF 1999

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J U D G M E N T

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1. This is an appeal from the decision of Master Cheung made on 14 April 2000 in terms of which she refused an application for a stay of proceedings brought by the Defendant ('Laser Media'). Laser Media had sought an order from the Master declining jurisdiction on the basis that the most appropriate forum to determine the proceedings was not Hong Kong but the Netherlands.

The factual background

2. The Plaintiff ('Philips') is a company having its registered office in the Netherlands. It is, to use common parlance, an international conglomerate dealing in the development, manufacture and marketing of electronic products.

3. The Defendant, Laser Media, is a company having its registered office in Hong Kong which carries on the business of manufacturing and distributing magnetic media products; that is, compact discs, video discs and the like.

4. At all times material to this matter, Philips has asserted its ownership (together with certain other international companies) of various patents relating to compact disc and video disc systems. It has further asserted that it has authority to represent the co-owners of the patents in granting licences to third parties who wish to commercially exploit these patents.

5. On 3 June 1999, Philips entered into two separate licensing agreements with Laser Media. In terms of the first agreement, Laser Media was entitled to manufacture and sell compact disc products (the 'compact disc agreement') while the second entitled it to manufacture and sell video disc products (the 'video disc agreement'). In both agreements the licensed geographical area was China, including Hong Kong. In consideration for the benefits obtained, Laser Media agreed to pay royalties and also to submit regular accounts to Philips to enable Philips to check the accuracy of the royalty calculations.

6. It appears that Laser Media did not submit accounts nor were royalty payments made. Philips made a number of written demands seeking compliance with the terms of the contracts. Initially, Laser Media pleaded 'liquidity problems' for non-payment and sought extensions of time. However, upon service of a writ, it defended the action and subsequently sought the stay of proceedings which is the subject matter of this judgment.

Jurisdiction: the compact disc agreement

7. Clause 12.06 of the compact disc agreement reads:

"This Agreement shall be governed by and construed in accordance with the laws of The Netherlands.

Any dispute between the parties hereto in connection with this Agreement (including any question regarding its existence, validity or termination) shall be submitted to the competent courts of The Hague, The Netherlands, provided always that, in case Philips is the plaintiff, Philips may at its sole discretion submit any such dispute to either the competent courts in the venue of Licensee's registered office, or to any of the competent courts in the Territory.

Licensee hereby irrevocably waives any objection to the jurisdiction, process and venue of any such court and to the effectiveness, execution and enforcement of any order or judgment (including, but not limited to, a default judgment) of any such court in relation to this Agreement, to the maximum extent permitted by the law of any place whose law might be claimed to be applicable regarding the effectiveness, enforcement or execution of such order or judgement." [my emphasis]

8. Clearly, while the compact disc agreement is governed by the laws of the Netherlands, Philips, in its sole discretion, has the right to institute action against Laser Media in any of the competent courts of the mainland or Hong Kong. It has chosen to institute its action in Hong Kong. Laser Media, in terms of the contract, has waived any objection to that choice of jurisdiction.

Jurisdiction: the video disc agreement

9. Clause 12.04 of the video disc agreement reads:

"This Agreement, its validity, its interpretation and performance shall be governed by the Laws of the Netherlands as if this Agreement were wholly executed and wholly to be performed in the Netherlands.

All disputes arising out of or in connection with the interpretation or execution of this Agreement shall be finally settled by the competent courts of The Hague, The Netherlands."

10. Mr Barlow, who appeared for Laser Media, proceeded on the basis that this clause gave exclusive jurisdiction to the courts of the Netherlands to determine all matters arising out of the video disc agreement. Accordingly, by instituting action in Hong Kong, Philips had breached a term of the contract. Mr Bartlett, who appeared for Philips, argued that no such exclusive jurisdiction was bestowed on the Dutch courts, not at least in respect of disputes related to performance of the contract.

11. It is apparent from the face of clause 12.04 that in all respects the law of the Netherlands governs the contract. The applicable law in interpreting the clause is therefore the law of that country. But there has been no evidence of relevant Dutch law placed before me. The principle that foreign law is a matter of fact and must be proved is well established. Equally well established is the principle that the burden of proving foreign law lies on the party who seeks to base its claim or defence upon it. In short, in the present case, the burden has rested on Laser Media. But, as I have said, no evidence has been produced. In such circumstances the court must apply the law of its own jurisdiction: English courts apply English law, Hong Kong courts apply the law of Hong Kong. In this regard, for example, see the Parchim [1918] AC 157 at page 161:

"No doubt the municipal law with reference to which the parties enter into the particular transaction is material in considering their intention as to the passing of the property; and if it appears that they contracted with reference to a municipal law other than English, and it be further proved that that municipal law is different in any material respect from the English law, this will of course be taken into account in determining their intention. But having regard to the presumption that unless the contrary be proved the general law of a foreign country is the same as the English law, the mere fact that the contract was entered into with reference to the law of another country will be immaterial. Having regard to the history of English mercantile law, the presumption referred to is itself quite reasonable."

12. The question, therefore, is one of identifying the true construction of Clause 12.04 employing the principles of Hong Kong law.

13. Mr Bartlett has pointed to the fact that the clause does not seek to confer a general jurisdiction. It is instead quite specific concerning the two limited areas of jurisdiction that are conferred upon the Dutch courts, those areas being related to matters of 'interpretation' or 'execution'. He has argued that these two terms are not to be interpreted in any broad, generalist manner. That this must be so is apparent, he has said, when the wording of the first part of the clause (stating the governing law) is contrasted with the second part of the clause (conferring jurisdiction). The first part refers specifically to the 'validity' of the agreement; to matters of its 'interpretation' and also to matters of 'performance'. The second part, however, specifically omits reference to 'validity' or 'performance'. In short, Mr Bartlett has argued that while it is arguable that exclusive jurisdiction has been conferred on the Dutch courts in respect of disputes arising out of the fundamental matters of interpretation and execution, no such jurisdiction has been conferred in respect of matters related to performance of the contract.

14. I agree. In my judgment, that is the plain and clearly restrictive drafting of the jurisdiction clause. I believe it also makes sound commercial sense. Matters of 'performance' involve such routine matters as suing for moneys due or seeking statements of account. Such matters can best and most efficiently be dealt with by local courts. Referring such 'everyday' matters to the courts of the Netherlands could well result is unnecessary cost and delay.

15. Despite the potential problems, I see no reason why the parties to a contract cannot agree to confer jurisdiction in respect of limited matters only. In this regard, the authors of Conflict of Laws, Dicey and Morris 13th ed state at page 428 (12.080):

" It is also a question of interpretation whether the claim which is the subject matter of the proceedings falls within its terms. Where the jurisdiction agreement is governed by English law, the court may presume the agreement was intended to apply to all disputes arising between the parties and; which are connected with the contract in which the agreement was contained. Accordingly, if the claimant seeks to frame his claim in tort, or in equity, and contends that the jurisdiction agreement does not extend to non-contractual claims, he will need to persuade the court that the parties intended to permit the claimant to frame a claim to fall outside the jurisdiction agreement; in the absence of a sensible commercial justification for such an intention (which would pave the way for the possibility of inconsistent judgments), the court is likely to interpret the dispute as one falling within the scope of the agreement." [my emphasis]

16. But I have already identified what I consider to be sensible commercial justification for such an intention being expressed in clause 12.04.

17. As for matters to be raised in any possible defence (in so far as they may be relevant), no evidence has been placed before this court to state what those matters will be. In his second 'skeleton argument' Mr Barlow asserted a number of matters that are apparently to be contested by Laser Media. But, with respect, I do not see that unsupported indications placed in a skeleton argument (filed on the morning of the hearing) can be given weight.

18. In the circumstances, I am satisfied that clause 12.04 does not confer exclusive jurisdiction in the manner claimed by Mr Barlow. It cannot, therefore, be argued that the institution of proceedings in Hong Kong in respect of the video disc agreement was a breach of contract.

The 'El Amria' principles

19. But assuming I am wrong in my interpretation of the construction of clause 12.04 and assuming that despite the silence of Laser Media, there do exist issues of dispute, I believe that, having regard to all the circumstances, Philips has, under the principles laid down in the El Amria: Aratra Potato Co. v. Egyptian Navigation Co. [1981] 2 Lloyds Rep. 119, shown a strong case why a stay should not be granted.

20. Laser Media is a Hong Kong company. It has its offices here. I am told that its directors are resident in Hong Kong. I am further told that negotiations leading up to the signing of the agreements took place in Hong Kong between those representing Laser Media and the local subsidiaries of Philips. As a result, all the witnesses who speak to evidential (as opposed to legal) matters will in all likelihood be resident here or within reach in factory premises in the Mainland. It follows that the relevant documentary records - accounts and the like - will be held either in Hong Kong or within tolerable reach in the Mainland. In purely commercial terms, I sympathise with Mr Bartlett's protestation that it seems inherently absurd for Laser Media in such circumstances to desire a trial in the Netherlands which will mean the movement of the great majority of the witnesses and documentary material to the Hague.

21. It is also relevant, in my view, that Philips has as of right instituted action under the compact disc agreement in Hong Kong. No objection is taken to that. Even if the present action is stayed, therefore, there is nothing to prevent Philips instituting action again in respect of the compact disc agreement here in Hong Kong. That will lead to a multiplicity of actions; a most undesirable result, one that will add to costs and inconvenience and could lead to conflicting judgments.

22. It is, of course, accepted that the law of the Netherlands governs both contracts and Mr Barlow has based much of his argument on the undesirability of having to bring Dutch lawyers to Hong Kong and for our Court to be forced to adjudicate on Dutch law. The conflict of laws is a matter specifically averred to in the El Amria decision. But Laser Media has placed no evidence before this court to say what the intended areas of dispute will be, whether those areas will raise legal issues of complexity or whether Dutch law differs from our law in Hong Kong in respect of those issues. In such circumstances, the Court is unable to assess the degree to which Dutch law may or may not influence the litigation.

The 'Spiliada' principles

23. In all the circumstances, I am satisfied that this appeal does not fall to be decided according to El Amria principles. It is rather an issue of forum non conveniens and is to be determined according to the principles laid down in Spiliada Maritime Corp. v. Cansulex Ltd [1987] A.C. 460.

24. In applying the principles enunciated by Lord Goff, I find it difficult to see how Laser Media has discharged the burden placed upon it of showing that the jurisdiction of the Netherlands is clearly or distinctly more appropriate than Hong Kong. For the reasons already given in this judgment, I fail to see how it can be said the forum which has the most real and substantial connection with the proceedings is the Netherlands.

25. Although both contracts are governed by Dutch law, no evidence has been placed before me to show that Dutch law is different in any relevant respect from the law of Hong Kong. In the absence of such evidence, it is to be presumed that all relevant law will be the same.

26. Can a trial be conducted with less inconvenience and expense in the Netherlands? There is no evidence to indicate that. Mr Barlow spoke of the expense of bringing Dutch legal experts to Hong Kong. But in that regard he is handicapped by two matters; first, there is no evidence that particular matters of Dutch law are required to be determined and second, there is no evidence that Dutch law is different from the law of Hong Kong.

27. Laser Media is itself a Hong Kong company with no stated connections with the Netherlands. Its staff, it is to be presumed, work in Hong Kong or the Mainland. Its accounts and general records are presumably to be found in Hong Kong or in the Mainland. Laser Media may have its factories in the Mainland but in geographical terms that is a great deal closer than the Netherlands. In summary, all the indicators are that it would be far more convenient in terms of the availability of witnesses and relevant documentary records if the trial was held in Hong Kong. Laser Media has done nothing to disprove that.

28. I have already spoken of the fact that Philips has instituted action against Laser Media as of right in Hong Kong in respect of the compact disc agreement. There is no need to repeat the potential dangers of having separate actions in Hong Kong and the Netherlands.

29. On these matters alone, I have come to the conclusion that Laser Media has not discharged the burden on it of showing that the Netherlands is the appropriate forum. All the evidence before this court indicates that Hong Kong is the natural forum. As a result, the appeal is dismissed with costs awarded to Philips.