HWOO HUANG LINDA v. FU BEING SAN AND OTHERS

HCA4888/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4888 OF 2001

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J U D G M E N T

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1. There were two applications before me on 22 March 2002. One was the adjourned hearing of the Summons dated 13 November 2001 whereby the plaintiff ("Hwoo") seeks continuation until trial or further order of the interlocutory injunction ("the injunction") granted ex parte by Deputy Judge Lam on 12 November 2001. The other was a Summons dated 8 January 2002 by the 1st and 2nd defendants (respectively, "Fu" and "Hung"), seeking a stay on the ground that Hwoo breached an exclusive jurisdiction clause requiring disputes to be brought "in the Court in the United States of America" or, alternatively, on the ground of "forum non conveniens".

2. There was only time on 22 March 2002 to hear the stay application (counsel having agreed that summons should proceed first). The hearing of the injunction summons was adjourned to 12 April 2002.

Background

3. Hwoo, who was the chairman of Far Eastern Airlines in Taiwan from 1987 to 1995, resides in Spain and holds a Spanish passport. She has relatives in Taiwan and often visits Taipei to see her mother. Fu is a Taiwanese national residing in the US. Hung is a Taiwanese national residing in Japan. The 3rd defendant ("Emeral") is a BVI company incorporated on 19 January 2001. Hwoo, Fu and Hung are shareholders and directors of Emeral.

4. Hwoo says that in late January 2001, at a discussion between her and Fu at the home of Chern Yaun Shen in Taiwan, Fu expressly represented the following:-

(1) Fu and Hung had developed a special bio-technology ("the bio-technology") which had received many patents throughout the world.

(2) Hung had been working for many years in Japan on research relating to the bio-technology.

(3) Fu and Hung were negotiating with Mitsui Corporation of Japan for the sale of the bio technology at a price of US$150 million.

(4) There would be a wide market for the bio-technology.

(5) The profits from the commercial exploitation of the bio-technology would run into the hundreds of millions of US dollars.

Hwoo alleges that Fu told her that funding for a business to exploit the bio-technology required between US$10 to US$20 million.

5. In Paragraph 5 of her Statement of Claim Hwoo further claims that, by the above express representations, Fu implicitly represented the following:-

(1) The bio-technology was an extremely valuable product with a market value in the region of US$150 million.

(2) Fu and Hung intended to exploit the bio-technology commercially.

(3) Fu and Hung held the opinion, based on facts known to them, that the commercial exploitation of the bio-technology would be a profitable investment.

(4) Fu and Hung intended to apply funds invested in a business for the commercial exploitation of the technology solely for the legitimate purposes of the business.

6. Hwoo claims that, in reliance on Fu's express and implied representations (collectively, "the representations"), she signed a Letter of Intent dated 3 February 2001. The Letter of Intent, which was in Chinese, provided as follows:-

"2. Party B [Hwoo] shall contribute US$20 million as Business Set-up Fund and agrees to pay a deposit as earnest money of US$0.1 million on or before 1 February 2001 and the whole amount of the said Fund on or before 10 March 2001.

....

4. Party A agrees to Party B becoming a member holding the equity rights of the allied bio-chemical business. Party A and Party B agree that the proportion of equity rights to be held by Party B shall be set out expressly in a formal contract through sincere consultation.

5. Party B agrees to Party A running the entire business wit full powers, and authorizes Party A's general manager BEING-SAN FU to draw up a plan for the operation for the business, which shall be submitted to Party B for acknowledgement and consent prior to the execution of the said formal contract. The detailed terms and conditions for co-operation shall be carefully drawn up by Party A and Party B through consultation."

Pursuant to cl.2 of the Letter of Intent, Hwoo transferred US$0.1 million to Fu.

7. On 25 February 2001 Hwoo, Fu and Hung entered into a Deed of Business Cooperation ("the Deed"). The Deed, which was in Chinese, provided as follows:-

"IT IS HEREBY AGREED as follows:-

-- Party A [Fu and Hung] shall provide all its own bio-chemical technology or that related to its Group, including the market and system under its proprietorship which are now in operation, to the operation of the new business to be established hereinafter by Parties A and B [Hwoo]. Party A shall not establish any other new business of its own.

-- Party B shall hold 12% of the equity rights in the newly established holding company.

-- All branches to be established or co-operative companies to be established through merger with any third party the world over shall be, in principal, co-operative companies with the participation of the holding company.

....

-- Party A shall provide Party B with a business operation plan within two months.

-- Party B shall, on or before 10 March, remit the Business Set-up Fund (not technological intellectual property rights fund) in the sum of US$19.9 million into a bank account of the new company to be designated by Party A. In addition to a US$0.1 million which was paid by Party B on 1 February , the total amount of the Business Set-up Fund to be paid by Party B is US$20 million.

-- Party A agrees that, in the event that huge profit is earned after the operation of the holding company is on track, the board of directors shall give priority to distributing a special bonus of US$10 million to Party B as an expression of thanks to the support given by Party B to the establishment of the business. However, such distribution shall in no way affect any of the equity rights already held by Party B.

....

-- Parties A and B shall faithfully comply with the aforesaid provisions of co-operation (the spirit of the Letter of Intent entered into by both parties on 1 February 2001 and the other letters is hereby incorporated by reference) and make their best endeavour to achieve the targets as envisaged by them. In the event of any doubt, the parties shall settle it through sincere consultation. When there is any need to institute legal proceeding, the two parties agree to seek adjudication in the court inside the United States of America."

8. On 5 March 2001 Hwoo, Fu and Hung as Emeral's directors appointed Adcor (Hong Kong) Limited ("Adcor") to be Emeral's secretary. The three directors resolved that Emeral's minutes, books and record be kept in Hong Kong or such other place as they might think fit. They allotted shares among themselves as follows: Hwoo 12 shares, Fu 10 shares and Hung 78 shares. They also resolved to open banks accounts ("the ABN AMRO Account") in Emeral's name with ABN AMRO Bank NV, Hong Kong.

9. On 6 March 2001 Hwoo, Fu and Hung entered into a Deed of Covenant in Hong Kong in these terms (translated from the original Chinese):-

"THIS COVENANT is made by [Hung, Hwoo and Fu] that, commencing from 8 hours on the morning of 6 March 2001, they shall selflessly unite in devoting themselves to the development of all biological technologies and the related business under the flag of [Emeral] with the aim of global development and the establishment of an everlasting business so as to improve the supply of food and hygiene of human kind, establish a new standard for medicine and health of the 21st century, protect and mend the day-to-day deteriorating global ecological environment and rejuvenate China's science, technology and economy and benefit the whole human kind."

10. On 12 March 2001 Hwoo remitted US$19.9 million to the ABN AMRO Account. Hwoo says she did this in reliance on the representations.

11. On 16 May 2001 further shares in Emeral were allotted as follows: Hwoo 5,988 shares, Fu 4,990 shares and Hung 38,922 shares. Consequently, Hwoo held a 12% share in Emeral. while Fu and Hung held 10% and 78% respectively.

12. Hwoo alleges that the representations were false. More specifically, she says that:-

(1) The bio-technology is not worth anything like US$150 million.

(2) Fu and Hung "did not hold the opinion, based on facts known to them, that an investment in a business exploiting the technology would be a profitable investment".

(3) Fu and Hung "did not intend to apply the funds invested by [Hwoo] in the business solely for the legitimate purposes of the business".

13. Hwoo also says that she transferred a total of US$20 million as aforesaid by reason of the undue influence exerted on her by Fu. Hwoo contends that Fu held himself out as a qualified medical practitioner who had administered medicine to her mother. Accordingly, she "reposed trust and confidence in [Fu]" and "did not receive independent legal advice before transferring the sum of US$100,000 to [Fu] and US$19.9 million to [Emeral]".

14. By reason of the alleged misrepresentation and undue influence, Hwoo claims a proprietary interest in the US$20 million transferred to Fu and Emeral. Hwoo accuses Fu and Hung of dissipating a significant part of the US$20 million which had been intended for the development of the bio-technology. In particular, Hwoo says Fu and Hung caused some US$12.9 million to be transferred from the ABN-AMRO Account into accounts controlled by Fu or Hung, their nominees or associates. Hwoo says that, unless restrained by injunction, Fu and Hung intend to continue dissipating Emeral's remaining funds in the ABN AMRO Account for purposes unrelated to Emeral's legitimate business.

15. Hwoo additionally claims (in Paragraph 28 of her Statement of Claim) that Fu and Hung have breached the Deed in that:-

"on or about 23rd July 2001 the 1st and/or 2nd Defendants procured the incorporation in Hong Kong of a company with the name Emeral Holdings Limited without informing the Plaintiff."

By Prayer 12 of her Statement of Claim, Hwoo claims damages for breach of the Deed.

16. As stated above, Hwoo obtained the injunction on 12 November 2001. The injunction roughly falls into two parts: an injunction freezing the remaining monies remaining in the ABN-AMRO Account and a Mareva injunction restraining Fu and Hung from using personal funds in bank accounts here.

17. A writ was issued on 13 November 2001 and a Statement of Claim on 30 November 2001.

Discussion

18. When Hwoo obtained the injunction, she also received leave to serve writs on the Defendants outside the jurisdiction. Since then writs have actually been served on Fu and Hung here in Hong Kong. Thus, Mr John Scott SC (who appears for Fu and Hung) accepts that Hong Kong jurisdiction has been founded on the basis of presence here and it is unnecessary to consider whether leave to serve outside the jurisdiction had rightly been granted initially.

19. On the stay application, the parties' submissions covered three issues:-

(1) Had Fu and Hung taken a step in the proceedings such that they must be deemed to have submitted to Hong Kong jurisdiction and waived any right to apply for a stay to some other forum?

(2) Did the Deed contain an exclusive jurisdiction clause whereby Hwoo was obliged to litigate disputes with Fun and Hung in the US?

(3) Is Hong Kong the "forum conveniens" or is the US a more appropriate forum for the trial of this action?

20. The 3rd issue requires application of the principles in Spiliada Maritime Corporation v. Cansulex Ltd [1987] 1 AC 460 and The Adhiguna Meranti [1987] HKLR 904 (CA). But counsel before me also treated the 3rd issue as including a consideration whether, if I found that the Deed contains an exclusive jurisdiction clause, I should exercise a discretion to override the clause on one or more of the grounds in The El Amria [1981] 2 Lloyds Rep 119 and decline to stay these proceedings to the US.

Whether Fu and Hung have submitted to Hong Kong jurisdiction

21. When is a party deemed to have submitted to Hong Kong jurisdiction?

22. Had Fu and Hung been disputing the validity of the Order granting leave to serve a writ outside the jurisdiction, Order 12 rule 8 would have applied. Since writs have now been served on Fu and Hung in Hong Kong, Order 12 rule 8 is not applicable and Fu and Hung's challenge to a Hong Kong forum rests on the Court's inherent jurisdiction to stay its proceedings.

23. But it is helpful to look at Note 12/8/1 to Order 12 rule 8 in Hong Kong Civil Procedure 2002, p.120 which concerns submission to jurisdiction. The Note reads:-

"[Order 12] Rules 7 and 8 (which should be read together) came into their present form in 1979. The policy underlying them is that a defendant should not be regarded as having submitted to the jurisdiction of the court by reason only of the fact that he appeared in the proceedings for the purposes (a) contesting the jurisdiction of the court, (b) asking the court to dismiss or stay proceedings on the ground that the dispute should be substituted to arbitration or to the determination of the courts of another country, or (c) to protect, or obtain the release of, property seized or threatened with seizure in the proceedings."

Even though Order 12 rule 8 is not apposite here, it would be odd if what did not amount to submission for the purposes of Order 12 rule 8 could be regarded as submission to a Hong Kong forum for the purposes of the inherent jurisdiction.

24. Mr Scott drew my attention to Roussel-UCLAF v. G.D. Searle & Co. Ltd and G.D. Searle & Co. [1978] 1 Lloyds Rep 225, where the defendants applied to stay proceedings to arbitration. The Court had to decide whether the defendants had disqualified themselves from applying for a stay (either under Arbitration Act 1975 s.1 or the inherent jurisdiction) because they had taken a step in the action by resisting (successfully) the plaintiff's application for an interlocutory injunction. In granting a stay, Graham J reasoned as follows (at 231 col.1):-

"On the whole, I think that the statute is contemplating some positive act by way of offence on the part of the defendant rather than merely parrying a blow by the plaintiff, particularly where the attack consists in asking for an interlocutory injunction. Such a remedy against the defendant might well be necessary whether the action was ultimately stayed or not, in order to preserve, for example, the property the subject of the action in the meantime; and, as a practical matter, in such a case it would not be of importance whether the application to stay was made before, at the same time, as or after the application for an injunction. Here it is not suggested that the plaintiffs were in any way embarrassed or taken by surprise by the making of the application to stay at the date at which it was made and I see no reason to penalise Searle (UK) in that respect."

Mr Scott submits that for Hwoo to contend that Fu and Hung have waived a right to contest jurisdiction, Hwoo must similarly point to "some positive act by way of offence" rather than a mere defensive response on the part of Fu and Hung.

25. Pressing his argument by analogy with the situation in arbitration, Mr Scott cited the following passage from Mustill and Boyd, The Law and Practice of Commercial Arbitration in England (2nd ed.), pp.472-3:-

"(c)(iii) 'Step in the proceedings'

The application for a stay must be made after appearance, but before the applicant has delivered any pleadings or has taken any other step in the proceedings. The taking of a step nullifies the jurisdiction of the Court to grant a stay; it is not simply a matter which is to be weighed when the Court exercises its discretion.

The reported cases are difficult to reconcile, and they give no clear guidance on the nature of a step in the proceedings. It appears, however, that two requirements must be satisfied. First, the conduct of the applicant must be such as to demonstrate an election to abandon his right to stay, in favour of allowing the action to proceed. Second , the act in question must have the effect of invoking the jurisdiction of the Court. An extra-judicial proceeding in the action, such as obtaining by correspondence a consent to the enlargement of time for delivery of pleadings, is not sufficient.

The circumstances which accompany an act may be looked at to see whether the act amounts to an election to give up the right to a stay. Thus, an application to the Court which might otherwise amount to a step in the proceedings is deprived of this characteristic of the applicant makes it clear -- by stating that his application is without prejudice to a subsequent request for a stay, or by simultaneously taking out a summons to stay -- that he intends to insist on a reference to arbitration.

An act carried out as a preliminary to proceedings is not a step in proceedings. Moreover, a defendant does not necessarily taken a step himself if he invites the plaintiff to take a step: for example, where he calls for the delivery of a statement of claim so that he can find out the nature of the allegations made against him.

The making of an application for interim relief, such as an injunction or the appointment of a receiver, designed to maintain the status quo pending the award is not a step in the action, since it is not inconsistent with a desire to have the substantive dispute decided by arbitration...."

I accept that by analogy the passage from Mustill and Boyd provides guidance in assessing whether there has been a submission to jurisdiction in the context of applications for stay to a different jurisdiction.

26. Pulling the various threads above together and bearing in mind what Mustill and Boyd say about the authorities being hard to reconcile, I derive the following guidelines (which are not intended to be an exhaustive statement of the law) for evaluating whether there has been a submission to Hong Kong jurisdiction in the present case:-

(1) A party may be treated as having submitted to the jurisdiction if he files a pleading setting out his case on the substantive merits of an action.

(2) A party may be treated as having submitted to the jurisdiction if he invokes the Court's jurisdiction to obtain an interlocutory or final order requiring the opposite party to perform some act (for example, disclose documents, provide further and better particulars, or answer interrogatories).

(3) A party does not submit to the jurisdiction if he merely acts to preserve the status quo pending the mounting and resolution of an application to challenge forum.

(4) A party does not submit to the jurisdiction if he merely takes defensive action in interlocutory injunction proceedings brought by the other side.

(5) A party may be able to preserve an option to challenge forum, despite having engaged in conduct which might be regarded as submission to the jurisdiction, if before or at the time of such conduct he makes it clear that his action is without prejudice to the bringing of a challenge to forum.

(6) The Court should adopt a common sense approach. It must not be overly subtle or astute to find that a party has submitted to the jurisdiction. Otherwise the question of submission could easily become a technicality trap for the unwary. The real question is whether a party's conduct is so inconsistent with maintaining an option to challenge forum that the party should be assumed to have waived such option. In the case of any doubt, the party proposing to challenge forum should probably be given the benefit of that doubt.

27. I now apply these guidelines.

28. Mr Wright (who appears for Hwoo) accepts that mere acknowledgment of service of the writ by Fu and Hung does not amount to submission to a Hong Kong jurisdiction. But he submits that their opposition to the injunction, including unsuccessful resistance before Chung J on 23 November 2001 to Hwoo's application for discovery in aid of the injunction, amounts to a submission. Mr Wright stresses that Fu and Hung did not reserve their right to challenge jurisdiction when before Chung J; nor did they express any reservation in their Joint Affidavit opposing the injunction.

29. Mr Wright acknowledges that on 20 November 2001 Messrs Tony Kan & Co. (then solicitors of Fu and Hung) wrote as follows:-

"We refer to your client's Summonses for continuation of the Injunction Order and for the disclosure order respectively dated 13th November 2001 and dated 19th November 2001 and both returnable on forthcoming summons day, i.e. this Friday, 23rd November 2001 at 10:00 am.

Without prejudice to our client's rights to dispute the jurisdiction of the Court and without waiving any irregularity in the writ or the service thereof or in the order for service out of the jurisdiction, we are instructed that our clients would oppose to both summonses on the grounds, including but without limitation, of merits and material non-disclosure."

But, Mr Wright says, while on its face the letter reserves the right to challenge jurisdiction, Fu and Hung did not actually apply for a stay until after some delay. The delay itself is indicative of a submission to the jurisdiction (Mr Wright argues) at some time before the taking out of the stay application.

30. Finally, Mr Wright points to a letter dated 13 December 2001 from Messrs Tony Kan & Co. in the following terms:-

"We write to invite your client's agreement for an extension of 28 days of the time for our clients to file and serve their defence.

Kindly let us have your reply by close of business today, failing which we should apply to the Court for the extension we are seeking."

The letter resulted in a Consent Summons dated 17 December 2001 signed by Hwoo's solicitors and those of Fu and Hung whereby Fu and Hung obtained leave to serve and file a Defence by 11 January 2002 with the costs of the application going to Hwoo in any event. Mr Wright suggests that this seeking an extension for a Defence amounts to an invocation of the Court's jurisdiction and an election to abandon any right to dispute the Hong Kong forum.

31. Following Roussel, I do not think that mere opposition to the injunction, including its ancillary discovery order, constituted a step in the action or submission to the jurisdiction. Resistance to such orders by Fu and Hung was not inconsistent with a desire to stay the proceedings to the US. On the contrary, opposition was purely defensive in nature with the objective of enabling Fu and Hung to maintain unrestricted access to their Hong Kong funds.

32. If there was doubt as to Fu and Hung's intentions with regard to jurisdictional challenges, Messrs Tony Kan & Co.'s letter of 20 November 2001 made it clear that steps taken by Fu and Hung to challenge the injunction were without prejudice to any later application for a stay.

33. What of the time which elapsed between the 20 November 2001 letter and the stay summons on 8 January 2002?

34. Had Order 12 rule 8 applied, Fu and Hung would have had "the time limited for service of a defence" in which to take out a stay application. There is apparently no equivalent provision when the inherent jurisdiction is invoked. But it seems to me reasonable that, in applying for a stay under the inherent jurisdiction, a party should at least have a similar period of time as under Order 12 rule 8 in which to seek a stay. In consequence of the Consent Summons of 12 December 2001, the time for service of a Defence was extended to 11 January 2002. Thus, I think that Fu and Hung's application on 8 January 2002 was taken out within an acceptable period of time. In the circumstances of this case I am not prepared to infer a waiver of any forum challenge by reason only of the lapse of time between 20 November 2001 and 8 January 2002.

35. Was the Consent Summons for an extension of the time to file a Defence itself a submission to the jurisdiction?

36. It was not in my judgment. Had no extension been obtained, Hwoo would have been at liberty to enter judgment in default of defence against Fu and Hung. There would then have been little point to fighting the injunction. The application to extend time was purely a defensive step to preserve the status quo pending resolution of the dispute over the injunction and pending launch of Fu and Hung's stay application.

37. The Consent Summons is not an interlocutory application seeking an order that the Plaintiff do some positive act. Nor is it an attempt to file a pleading dealing with the merits as opposed simply to obtaining an extension of the time in which (if thought appropriate) a pleading might be filed. To my mind, the obtaining of the extension was not an unequivocal election by Fu and Hung to argue substantive merits here and waive opposition to a Hong Kong forum.

38. I therefore reject Mr Wright's arguments on the submission issue and hold that it is open to Fu and Hung to challenge Hong Kong jurisdiction.

Whether the Deed contains an exclusive jurisdiction clause

39. This issue concerns the construction of the following words (collectively, "the forum clause") in the Deed:-

"In the event of any doubt, the parties shall settle it through sincere consultation. When there is any need to institute legal proceeding, the two parties agree to seek adjudication in the court inside the United States of America."

40. Both Mr Scott and Mr Wright cited Sohio Supply Co. v. Gatoil (USA) Inc. [1989] 1 Lloyds Rep 588 and Yu Lap Man v. Good First Investment Ltd [1999] 1 HKC 622 (CA) as exemplifying the approach in determining whether a clause should be treated as an exclusive jurisdiction clause. The fact that the forum clause does not explicitly impose exclusive jurisdiction is inconclusive. The question:-

"is whether on its true construction the clause obliges the parties to resort to the relevant jurisdiction, irrespective of whether the word 'exclusive' is used" (Gatoil at 591 col.2 (Staughton LJ quoting a footnote in Dicey & Morris on the Conflict of Laws)).

As an aid to construction I can, in addition to looking at the plain meaning of the words used by the parties, take account of the factual matrix or surrounding circumstances in which the forum clause was agreed. See Gatoil at 591 col.2 - 592 col.1 and Yu Lap Man at 626-7.

41. Both Mr Scott and Mr Wright latched onto the fact that the Deed was agreed by the parties without recourse to lawyers. But each counsel drew a different inference from that common premise. Mr Scott submitted that the absence of lawyers suggested that the parties only intended to litigate in the US. Mr Wright contended that it was doubtful that lay persons would consider the forum clause as imposing an obligation to litigate solely in the US.

42. Mr Scott thought it helped to study the sentence immediately before that referring to litigation in the US. Disputes were first to be resolved by "sincere consultation" which could take place anywhere even over the telephone. Hence (Mr Scott reasoned) no particular venue was stipulated for such consultation. But if there was some "doubt" which could not be removed by consultation and there arose a need to institute legal action, proceedings had to be in the US. The non-expression of a venue for consultation contrasted with the expression of a specific forum for litigation. This (Mr Scott concluded) pointed to the US being intended as an exclusive forum.

43. At the end of the day I am not persuaded by either counsel's arguments based on the factual matrix. They do not seem to be compelling one way or the other. I believe instead that the key to the proper classification of the forum clause lies in an examination of the nature of the US jurisdiction designated by the forum clause.

44. The forum clause evidences an agreement to litigate in the US, but where in the US? The US is comprised of state and federal jurisdictions. Literally read, the forum clause enables a dispute to be brought before any US state court or federal court, whether or not such court was a convenient forum and whether such court had a significant or trivial link to the parties or their business. If the clause is viewed thus, it is hard to see how the parties could have intended to confer exclusive jurisdiction en bloc to any US court whatsoever. The notion of "exclusive jurisdiction" connotes particularity, that is, a discriminating choice of a specific jurisdiction, typically for some reason rendering it desirable to impose an obligation to litigate in that geographical location and no other. This particularity is at odds with a wholesale, indiscriminate designation of any US state or federal jurisdiction as an acceptable forum.

45. If the parties had actually intended the forum clause to be exclusive in character, they would effectively be saying by it: "We do not care where in the US any one of us brings proceedings or whether such US forum is appropriate, convenient or relevant to us or our business venture, so long as suit is brought inside and only inside the US." From an objective viewpoint, such stance does not seem logical. It is hard to believe that is what ordinary, reasonable persons would have in mind in agreeing to litigate "inside the United States of America". In my view, it is more probable that the parties (if they had addressed their mind to the point at all) intended the forum clause as a permissive stipulation. In other words, whether or not the US was convenient, appropriate or relevant to the parties and matters arising from the Deed, each agreed to submit to a US forum if any one of them happened to bring suit there.

46. I do not say that it is impossible ever to have an exclusive jurisdiction clause covering more than 1 geographical location or jurisdiction. But, in the absence of clearer words or circumstances indicating that such was the intended effect, I am unable to hold that the parties so intended in this case.

47. I therefore hold that the forum clause was not an exclusive jurisdiction clause.

Whether Hong Kong is the "forum conveniens"

48. Given that the forum clause is not an exclusive jurisdiction clause and that Hwoo has established jurisdiction here as of right by serving writs on Fu and Hung in Hong Kong, the burden is on Fu and Hung to show that Hong Kong is not the appropriate forum.

49. The 3-stage approach to be taken in assessing whether Fu and Hung have established a case for a stay is set out in The Adhiguna Meranti at 907F-908B:-

"(I) Is it shown that Hong Kong is not only not the natural or appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong ([Spiliada] p.986H). The evidential burden is here upon the applicant. The emphasis is upon 'appropriate' rather than 'convenient' because this is not simply a matter of practical convenience. The purpose is to identify the forum 'with which the action has the most real and substantial connection' per Lord Keith in the ABIDIN DAVER [1984] AC 398. The principal factors are enumerated at [Spiliada] p.987D.

(II) If the answer to (I) is yes, will a trial at this other forum deprive the plaintiff of any 'legitimate personal or juridical advantages'? ([Spiliada] pp.987F, 991-3). The evidential burden here lies upon the plaintiff (pp.986A and 987G).

(III) If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II), ABIDIN DAVER per Lord Brandon at p.419. Deprivation of one or more personal or juridical advantages will not necessarily be fatal to the applicant provided that the court is satisfied that notwithstanding such loss 'substantial justice will be done in the available appropriate forum' ([Spiliada] p.991H). The court must try to be objective (p.991F). Proof of this, which can fairly be called the ultimate burden of persuasion, rests upon the applicant for the stay. By these means he establishes that on balance the other forum is more suitable 'for the interests of all the parties and the ends of justice'. This may be another way of saying that the plaintiffs' choice of forum has been shown to be so inappropriate as to deserve the pejorative description of 'forum-shopping' and to be restrained accordingly, cp. Lord Reid in The 'ATLANTIC STAR' [1974] AC 436."

50. In connection with Stage (I) a line of cases has highlighted the importance of identifying the particular court in favour of which an action is to be stayed.

51. In S Megga Telecommunications Ltd. v. Etowaru Co. Ltd [1995] 2 HKC 761 (CA), at 765I Bokhary JA stated:-

"Guiding the courts in their approach to applications to stay proceedings on the ground of forum non conveniens is this basic principle laid down by Lord Goff in Spiliada Maritime Corp v. Cansulex Ltd. [1987] 1 AC 460 at p.467C:-

'The basic principle is 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 the appropriate forum for the trial of the action, ie in which the case may be tried more suitably for the interests of all the parties and the ends of justice.'

That was not stated as merely a factor to be taken into account when deciding whether or not to exercise a discretion to stay proceedings on the ground of forum non conveniens. It goes to whether the discretion exists."

52. More recently, Recorder Geoffrey Ma SC said in Rambas Marketing Co. LLC v. Chow Kam Fai David [2001] 3 HKC 250, at 253B:-

"Particularly in view of the remarks of the Court of Appeal in Greenwood Ltd. v. Pearl River Container Transportation Ltd. (CA27/1994), 25 May 1994, unreported), it would be advisable in future for the court or tribunal in favour of which the applicant seeks a stay of the Hong Kong proceedings, to be identified in the summons or motion. This is so because the availability of another forum having competent jurisdiction said to be the appropriate forum, must be shown before the court even begins to exercise its discretion in this type of application: see the remarks of Bokhary JA in S Megga Telecommunications Ltd. v. Etowaru Co. Ltd. [1995] 2 HKC 761, at 765I."

53. In this case the stay summons does not identify a particular court in favour of which a stay is sought. The summons only asks that "all further proceedings in this action be stayed ... on the grounds:-

(1) that having regard to all the circumstances of the case it is not a proper case for service out of the jurisdiction within Order 11 Rule of the Rules of the High Court and the Court in its discretion should refuse to grant leave for such service;

(2) of forum non conveniens;

(3) that by the contract made between the Plaintiff and the 1st and 2nd defendant dated 25th February 2001 referred to in paragraphs 10 and 11 of the Indorsement of Claim it was expressly agreed that all legal proceedings to resolve disputes between the parties arising out of the said contract should be brought in the Court of the United States of America."

Although one might read the reference to "Court of the United States of America" in Paragraph 3 of the summons as implying that a stay for forum non conveniens is being sought to a US Court, the question remains: which US state or federal court?

54. Fu and Hung's affidavit evidence does not take the matter further. The 5th Affidavit of Fu Being San dated 21 March 2002 (which was served by fax on Hwoo's representatives the night before the hearing of the stay application) exhibits at "FBS-24" an Opinion of Elia Weinbach, an American lawyer admitted to practice in California and New York. The Opinion does not identify any specific court to which the proceedings should be stayed. The closest Mr Weinbach gets to substantiating the availability of some US Court to handle the parties' dispute is as follows:-

"6. Based on my experience, courts in the United States will not refuse jurisdiction solely on the ground that a jurisdiction clause does not specify which state or federal court has jurisdiction. When courts in the United States or in the state courts are faced with a question of contractual interpretation, they will attempt to interpret the mutual intent of the parties from the language of the agreement or contract. Where such language is ambiguous, the courts will try to interpret the language in a way as to give the parties what they intended. Where the language is hopelessly ambiguous, the courts may permit parol evidence from the parties to determine their actual intent."

As far as forum non conveniens is concerned, Mr Weinbach only gives us a basis on which US courts will not turn away jurisdiction. The Opinion does not say when US courts will accept jurisdiction and which specific US court or courts are prepared to accept jurisdiction on the facts of this case. Mr Weinbach's general evidence is insufficient to discharge Fu and Hung's burden.

55. Thus, Fu and Hung fall at the initial hurdle of the Stage (I) process. The failure to identify (and adduce cogent evidence on the availability of) any particular forum, whether in the US or elsewhere, means that the Court lacks a foundation on which to exercise a discretion whether or not to stay the proceedings to a specific forum. "Forum non conveniens" is at heart a comparative exercise. An applicant claims that some other forum is relatively more appropriate than the Hong Kong Court to hear the trial of an action. If the Court does not know which particular other court is said to be more appropriate, it cannot begin to conduct the requisite comparative exercise.

56. On this ground alone, I would refuse a stay.

57. I would go further. Even if it were assumed that the failure to identify a specific forum is not fatal and can be overlooked, I would still hold against Fu and Hung's application as a matter of discretion. I explain why below.

58. Mr Scott submitted that certain Factors favoured a US forum:-

(1) The proper law of the Deed and the putative law of the misrepresentation are both US law by reason (Mr Scott argues) of the following matters:-

(a) The parties conducted their transactions in US currency.

(b) Hung once resided in the US.

(c) Emeral's major business operations were intended to be carried out in the US, in particular Emeral's production line was to be established there with the bio-technology's secret "mother" bacteria being located in Dallas.

(d) Emeral leased land in the US with an option to purchase the same for the purpose of building production plants in the US.

(e) Emeral's management centre was intended to be in the US.

(2) The forum clause.

(3) Money was remitted from the ABN AMRO Account to 3rd parties in the US or US subsidiaries of Emeral.

(4) The consideration payable to Hwoo under the Deed was expressed in US currency.

(5) Fu resides in the US and owns real property there.

(6) Fu and Hung both undertake to submit to US jurisdiction.

59. Recorder Ma SC pointed out in Rambas at 255B that:-

"The approach in forum non conveniens applications is not just an exercise in loading up factors which point to any 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."

Bearing this in mind, one's first impression of Mr Scott's list of factors is that most of them appear peripheral to the question of appropriateness to the trial of Hwoo's action. But let me evaluate each proposed factor more closely against the Spiliada/Rambas touchstone.

60. Factor (1) is problematic. First, it runs into a different manifestation of the problem already encountered in relation to the construction of the forum clause. What does it mean for "US law" to be the proper law? As far as private international law is concerned, there are 50 state jurisdictions and 1 federal jurisdiction in the United States. The laws of each state and the federal law of the US may differ in many ways from each other. Which specific state or federal law or combination of such laws is alleged to be the "US law" proper to the contract?

61. Second, consider the argument that Emeral intended to carry out business operations in the US as indicative of a "US proper law". There is evidence that the parties planned bio-technology operations for Texas (where the mother bacteria is to be situated), Delaware (where the headquarters of the parties' Life Spring Biotechnology Institute ("Life Spring") would be registered), New York (where Life Spring's head office was to be) and California (where Life Spring's R&D Institute was tentatively to be located in addition to the business' factory and plant). There is also evidence of planned ventures in China, Taiwan, Indonesia, Japan, Mississippi, Canada, Singapore, India, the Middle East and Africa. Given the abundance of jurisdictions (both within and without the US) being targeted for business operations by the parties, which body of "US law" is said to be the law with which the Deed is most closely connected as a matter of fact?

62. Third, consider the question of the law governing the alleged misrepresentations. Those misrepresentations pre-date the Deed. The misrepresentations were made in Taiwan in late January 2001 by a Taiwanese national residing somewhere in the US (Fu) to a Spanish national with Taiwanese connections (Hwoo). The Deed only came into being about a month later in Hong Kong. In these circumstances it is not obvious why the "putative law" governing the misrepresentation should necessarily be "US law", whatever that expression might encompass.

63. Finally, assume that a specific body of US law can be identified as the proper law of the Deed and the putative law of the misrepresentation. No evidence has been adduced to show that such body of law differs significantly or at all from Hong Kong law. The Court has scant material (if any) by which to assess the weight to be given in the Stage (I) process to the alleged applicability of US proper law as a factor pointing to a stay.

64. As for Factor (2), if (as I concluded) the forum clause is non-exclusive in nature, it cannot be a weighty indicator towards the US. As already discussed, there is little evidence to guide the Court on the relevance or irrelevance of US law to these proceedings. Nor is it apparent why a US court is more appropriate for the trial of the specific action brought by Hwoo, merely because the parties are amenable to litigation anywhere in the US.

65. Factor (3) seems fortuitous and immaterial. Hwoo is primarily seeking to enforce alleged property rights in monies deposited in the ABN AMRO Account and alleged personal rights against Fu, Hung and Emeral. She seeks declarations that the US$20 million paid by her remains her property. She seeks damages, equitable compensation and an account against Fu, Hung and Emeral. She does not seem at present to be seeking to trace her alleged monies into the hands of 3rd parties in the US or elsewhere in the world. It is therefore unclear how the mere fact that some (but not all) of the money transferred from the ABN AMRO Account went to the US, makes it more appropriate to stay this matter to a US court.

66. Factor (4) seems trivial. The Hong Kong Court is accustomed to dealing with foreign currency transactions (including contracts involving payments in US dollars) on a daily basis.

67. It is not apparent how Factor (5) points to trial of this matter in a US court as being more appropriate. It is also unclear on the evidence in which US state or states Fu's real property is located and what connections such locations might have to the trial of this action.

68. Little weight can be placed on Factor (6). If Fu and Hung are genuinely seeking to stay the action to the US as the more appropriate forum, one would expect at a minimum that they would submit to US jurisdiction whether or not they undertook to do so.

69. Thus, independently of the failure to specify a particular US court, I reject the Factors relied on by Fu and Hung as pointers to a US forum.

70. For completeness, I deal with the factors which Mr Scott submitted militated against a Hong Kong forum. Mr Scott identified these Negative Factors as follows:-

(1) None of the parties are Hong Kong residents.

(2) The forum clause.

(3) Many witness are not Hong Kong residents and are not readily available to attend trial in Hong Kong. As examples, Mr Scott named Mr and Mrs. Chern (Taiwanese residents), Ai Chu Yeh (plant manager of the Dallas factory) (Texas) and Michael Foo (Fu's brother who manages Emeral's US business) (US).

(4) None of Emeral's real properties are in Hong Kong.

(5) Most of the underlying transactions concerning Hwoo's allegation of dissipation involve Japanese or US entities.

71. Negative Factor (1) is factually correct. But, of the four parties, only Fu is resident in the US. On the other hand, Emeral's company secretary (Adcor) is a Hong Kong entity and Emeral's papers are apparently kept in Hong Kong.

72. I have dealt with Negative Factor (2) when considering the forum clause as a pointer to the US.

73. As for Negative Factor (3), it is unclear to me precisely what material evidence Michael Foo and Ai Chu Yeh will be giving at the trial. As far as the Cherns are concerned, Taiwan is substantially closer to Hong Kong than to the US. If the Cherns are called to give evidence by one party or other on what happened in January 2001 when Fu allegedly made false representations to Hwoo, it would seem relatively more convenient for the Cherns to fly to Hong Kong rather than Taiwan.

74. Further on Negative Factor (3), Stella Kong, Stanley Poon, Anne Chee and Tammy Chan of ABN AMRO Bank may be called as witnesses to give evidence about the opening and operation of the ABN AMRO Account from time to time. All four persons live and work in Hong Kong. I note that there is a dispute among the parties over the events surrounding a transfer of US$3.4 million to Saintech International Ltd ("Saintech"), a Hong Kong company of which Fu is a director and 49% shareholder. One or more of Stella Kong, Stanley Poon, Anne Chee and Tammy Chan are alleged by one party or another to have been present or not present when the transfer was made.

75. I therefore think that the factor of availability of witnesses points to Hong Kong, rather than away from it.

76. Negative Factor (4) does not seem to me to be relevant in determining whether trial in Hong Kong or the US is more appropriate.

77. I have touched upon Negative Factor (5) when discussing Factor (3). The fact that one of the transfers from the ABN AMRO Account was for the substantial amount of US$3.4 million to Saintech (a Hong Kong company) goes some way towards supporting rather than undermining a Hong Kong forum.

78. Looking at the case in the round, I think that a powerful factor in Hong Kong's favour is the fact that to a large extent this action concerns the ownership of US$19.9 million deposited into the ABN AMRO Account in Hong Kong pursuant to a Deed signed by the parties in Hong Kong. This factor cries out for trial in Hong Kong, especially when juxtaposed against the contention that the matter might best be litigated anywhere in the US because of the presence of (to my mind) largely random and disparate American elements.

79. For the foregoing reasons, I decline to grant the stay sought by Fu and Hung.

80. The parties' submissions focused on the Stage (I) process. But Mr Wright briefly advanced submissions relating to Stages (II) and (III). He said that, if Hwoo were compelled to litigate in the US, she would be deprived of a legitimate personal and juridical advantage. This was because the legal costs of a successful plaintiff are generally not recoverable in the US, so any recovery by Hwoo against the Defendants would be diminished by her costs. This would allegedly cause injustice. Given my view on Stage (I), it is unnecessary to consider Mr Wright's submissions on Stage (II). We do not get to Stage (II). But had we reached Stage (II), I would not have held on the available evidence that Hwoo would be deprived of substantial justice in the US by reason only that a successful plaintiff cannot generally recover legal costs there.

El Amria considerations

81. In this section of my judgment I briefly set out what I would have held if I had found that forum clause was an exclusive jurisdiction clause. But before that I should quickly deal with two arguments advanced by Mr Wright to escape the consequences of a finding that the forum clause was exclusive in character.

82. First, Mr Wright argued that, since his case was based on misrepresentation and undue influence, the claim fell outside the terms of the Deed and was not governed by the forum clause.

83. When it was pointed out to Mr Wright that Paragraph 28 and Prayer 12 of the Statement of Claim pleaded breaches of the Deed, Mr Wright made what came to be described as a "floating concession". He said that, if I found that the forum clause was exclusive in character, he would abandon the claims in Paragraph 28 and Prayer 12 without prejudice to his right to bring the claim at a later date (presumably in a US forum) and without prejudice to the future deployment of the matters mentioned in Paragraph 28 as evidence supporting his case on misrepresentation and undue influence.

84. Given my conclusion on the forum clause, Mr Wright's floating concession has not crystallised and there has been no abandonment of Paragraph 28 and Prayer 12. Nonetheless, I record my view that such "floating concessions" should be viewed sceptically by the Court. Such concessions hint at "forum shopping" or the artificial tailoring of one's case to suit an argument for a particular forum.

85. I doubt that the concession really assists the Court or the party making it. To the extent that Mr Wright by his floating concession preserved the option to litigate a discrete issue in the US, there would be a danger of multiplicity of proceedings: misrepresentation and undue influence being canvassed in Hong Kong and breach of contract in the US. That is undesirable. All related facts and matters should be tried in a single forum to avoid limping judgments, one forum finding one way and another forum coming to an opposite conclusion on the same or connected issues. The authorities are unanimous that the risk of multiple proceedings is an important factor in the exercise of a discretion to grant or refuse a stay. See, for example, The M.C. Pearl [1997] 1 Lloyds Rep 566, at 569 (col.1) (per Rix J). Thus, despite the concession, I would still have had to bear in mind the possibility of US proceedings in connection with Paragraph 28 in deciding whether or not to grant a stay given (on the hypothesis now being explored) an exclusive nature to the forum clause.

86. In any case, I agree with Mr Scott that the words "any need to institute legal proceedings" in the forum clause plainly embrace any dispute (whether contractual, tortious or otherwise) relating to or arising from the bio-technology business into which the parties embarked as a result of the Deed. Characterising Hwoo's claim as one for tortious misrepresentation or undue influence does not advance Mr Wright's argument. The claim would still be subject to the forum clause.

87. Second, Mr Wright argued that since he was seeking relief from misrepresentation and undue influence, the Deed had been avoided and the forum clause disappeared with it. Asked when Hwoo had avoided the Deed, Mr Wright replied that such happened at about the time of the ex parte application before Deputy Judge Lam.

88. Here again I agree with Mr Scott. On the assumption that Mr Wright's allegations of misrepresentation and undue influence are justified, the Deed would only be voidable at Hwoo's option. The Deed would not be void ab initio. Consequently, when commencing suit ex parte, Hwoo would (on the hypothesis of an exclusive forum clause) still have been under an obligation to litigate in the US in respect of matters arising out of the Deed before its putative avoidance.

89. Compare the similar situation in Mackender, Hill and White v. Feldia AG, Brachfield and Sons SA and Diamil SRL [1966] 2 Lloyds Rep 449, at 455 (per Lord Denning MR):-

"Even if there was non-disclosure, nevertheless non-disclosure does not automatically avoid the contract. It only makes it voidable. It gives the insurers a right to elect. They can either avoid the contract or affirm it. If they avoid it, it is avoided in this sense, that the insurers are no longer bound by it. They can repudiate the contract and refuse to pay on it. But things already done are not undone. The contract is not avoided from the beginning but only from the moment of avoidance. In particular, the foreign jurisdiction clause is not abrogated. A dispute as to non-disclosure is 'a dispute arising under' the policy and remains within the clause: just as does a dispute as to whether one side or other was entitled to repudiate the contract..."

See also to the same effect Diplock LJ at 458.

90. I return to the question whether I would have exercised my discretion to override the forum clause if it were exclusive in nature. The relevant test has been stated in The El Amria [1981] 2 Lloyds Rep 119, at 123-4 (per Brandon LJ):-

"(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 do 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 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 plaintiff would be prejudiced by having to sue in the foreign court because they 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."

91. In my judgment, the matters mentioned in Paragraph 78 of this Judgment, constitute "strong cause" for this litigation to remain in Hong Kong rather than be stayed to somewhere in the US. This "strong cause" is bolstered in my mind by the presence in Hong Kong of some potential witnesses (for example: Stella Kong, Stanley Poon, Tammy Chan and Anne Chee); the fact that a number of key witnesses are Chinese and likely to give evidence in Cantonese or Mandarin (for example: Hwoo, Fu and Hung); and the fact that a significant number of key documents are in Chinese.

92. Accordingly, had I found the forum clause to be exclusive in nature, I would nonetheless have held that Hwoo had discharged the burden of showing strong cause. I would have exercised my discretion to refuse a stay.

Conclusion

93. Fu and Hung have failed in their application to stay these proceedings. I make an order nisi that the costs of the stay summons be to Hwoo in any event, to be taxed if not agreed.

94. There was some suggestion that the continuation or discharge of the injunction could be a relevant factor in the grant or refusal of a stay. I note here that I have not regarded the eventual fate of the injunction as a significant factor to my decision to refuse a stay. In other words, the views expressed in this Judgment will be unaffected by the outcome of the injunction summons.