SOCIETE GENERALE v. HANIL BANK

Practice and procedure - application by defendants for stay of proceedings on grounds of forum non conveniens - simultaneous application by plaintiffs for summary judgment whether court should first hear the O.14 application to determine if there is in fact a triable issue before addressing the stay application.

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J U D G M E N T

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Fuad, V.-P.:

1. These consolidated appeals are from orders dated 24th April 1992 made by Mr. Ronny K.W. Tong, Q.C., sitting as a Deputy Judge of the High Court. The orders all relate to the same matter of practice and procedure.

2. The two plaintiffs concerned in the four actions are French banks with branches in Hong Kong; the three defendants are Korean banks which each has some form of representative office in Hong Kong.

3. On 25th January 1992 the plaintiff banks issued writs against the defendant banks indorsed with claims for various sums and/or damages, with interest, for breach of contract arising out of or under letters of credit issued by them in Seoul and negotiated by the plaintiffs. The sums involved are as follows:

 

CL-11 of 1992
Societe Generale v. Koram Bank		US$1,091,206
CL-12 of 1992
Societe Generale v. Hanil Bank	(a)	US$1,081,332
	(b)	US$1,078,581
	(c)	US$1,038,221
CL-14 of 1992
Banque Nationale de Paris v. Hanil Bank		US$220,690
CL-15 of 1992
Societe Generale v. Bank of Seoul	(a)	US$1,081,907
	(b)	US$1,083,810

4. In relation to each of the four actions the following steps were taken by the respective parties:

(i) On 27th March 1992, a Statement of Claim was filed;

(ii) On 9th April the plaintiff issued a summons applying for summary judgment under RSC O.14. Each summons was due to be heard on 8th May;

(iii) Also on 9th April the defendant issued a summons under the inherent jurisdiction seeking to have all further proceedings stayed on the ground of forum non conveniens (asserting that Korea was the appropriate and natural form). Each summons was fixed for hearing on 15th July with one further day reserved;

(iv) After abortive efforts by the solicitors for the defendants to get the plaintiffs' solicitors to agree that the stay applications should be heard first, on 21st April the defendant took out a summons applying for an order that the O.14 hearing be adjourned until after the summons seeking a stay had been disposed of.

5. We were told that the defences the defendants will advance in their respective actions, broadly speaking, will be that the payments made by the plaintiffs were made in breach of their duties as negotiating bankers, in that they were made against false commercial documents in respect of non-existent commercial transactions. The defendants would seek to show that the falsification of documents arose out of a massive concerted series of frauds involving members of the staffs of both the plaintiffs and defendants (as well as a number of other banks not involved in these actions) of which the plaintiffs were or ought to have been aware, or on notice. They say that a number of alleged participants in the conspiracy, involving a total of over US$55 million, are in custody in Korea, where criminal investigations are still in train.

6. The defendants' 21st April summonses came before the deputy judge on 24th April. He heard them together and gave the extempore judgment from which this appeal arises on the same day. Counsel informed us that the hearing lasted about half an hour. After giving the background of the matter and summarising the burden of counsel's submissions, he expressed the view that where the jurisdiction of the court had properly been invoked, the plaintiff had a legitimate interest and expectation that his claim would be determined in accordance with the procedure of the forum of his choice. He recognised that the position might well be different if the jurisdiction had been invoked contrary to an exclusive jurisdiction clause, which was not the case here. It had been conceded that the jurisdiction of the court was properly founded. The defendant, however, had sought to persuade the court that there was some other forum before which the present dispute could be more suitably tried for the interests of the parties and for the ends of justice: The Spiliada [1987] AC 460.

The deputy judge concluded his judgment as follows:

" Inherent in [the defendants'] argument is the supposition that there is a question to be tried. Indeed, a majority of the relevant factors considered to be relevant to the exercise of the Court's discretion in such an application is concerned with identifying the forum best suited to try the dispute with the least expense and most convenience.

These considerations will fall to the ground if in fact there is no question to be tried in the sense that the Defendant has no arguable defence to the Plaintiff's claim. It is therefore only logical and indeed sensible that this Court, when asked to do so, should first determine whether in fact there is a triable issue to be sent to the other forum if indeed there is another more natural and proper alternative forum.

Put it another way, the Plaintiff will suffer a material juridical disadvantage if he is forced to go to a foreign Court and suffer the corresponding delay in time and extra costs despite the fact that in the eyes of this Court, the Defendant has really no defence to his claim. To stay the Plaintiff's claim in these circumstances will not be in the interests of the parties nor for the end of justice.

In my judgment, there is no conceivable ground why the Plaintiff's O.14 application should be deferred until after the Defendant's application for a stay is heard and I so rule. The Defendant's application must be dismissed."

7. In the light of these appeals, the O.14 applications were adjourned to be heard on the same day as the stay applications, with liberty to restore to an earlier date if these appeals are not successful.

8. The defendant Korean banks say that in reaching his decision in each case, the deputy judge erred in law or exercised his discretion upon erroneous principles: by permitting each plaintiff's O.14 application to proceed, he was in effect directing that the whole action proceed despite the fact that there was an outstanding application for a stay; expressly or by implication, he had pre-judged the stay application without a proper hearing; and he had made a premature finding in relation to the stay application in that he had held that the plaintiff's right to apply for summary judgment was a "legitimate juridical advantage".

9. The defendants also say that the deputy judge erred in law in that he had wrongly failed to follow, or properly to distinguish what they say was the procedural principle implicit in the decision of Plowman, J. on a preliminary point raised in Bettinson v. Bettinson [1965] Ch 465.

10. It is convenient here to discuss that case. In June 1955 a husband began divorce proceedings against his wife in California. They were Americans and both domiciled in the USA. In connection with those proceedings, in October 1955, a judge of the Chancery Division in London ordered the wife to deliver up certain documents and chattels which were "community property". She disobeyed the order in respect of most of the items. Two years later the Californian court dismissed the husband's petition for divorce and granted the wife the equivalent of judicial separation on her cross-petition. The court awarded her most of the community property as well as alimony. On the husband's failure to obey that order, the wife issued a writ in England claiming arrears of alimony. The husband thereupon applied for a stay of proceedings on the ground that the wife was in contempt of the October 1955 order and therefore precluded from applying to the court. On the hearing of the husband's summons, the wife submitted that the court should decline to hear the husband's summons, arguing that the rule that a party in contempt will not be heard was confined to proceedings in the same cause.

11. Mr. Dicks (who has represented the defendants all along) relies upon what Plowman, J. is reported to have said at p.468 when ruling on the preliminary point raised by the wife:

" I feel bound to resist the temptation to decline to hear [the husband's] summons, which is threatening to take five days of judicial time, simply for the reason that, in my judgment, whenever the court is asked to stay proceedings it has a discretion whether to stay them or not.

It was submitted by Mr. Ross-Munro that it had been held in certain old decisions, Clark v. Dew 1 Russ. & M. 103 and Taylor v. Taylor 1 Mac. & G. 397 that the rule that a party in contempt shall not be heard must be confined to proceedings in the same cause; but in neither of those cases did the point directly arise whether, on an application to stay proceedings, the court always has a discretion, and that, as I say, is the point on which I feel bound to decide this preliminary point.

So, for better or for worse, I must hear the application and then, in the light of what is said, decide, at the end of it, whether this is a proper case in which to exercise the discretion or not.

I think that we must go on."

12. In commenting upon this reliance by the defendants, the deputy judge observed that Bettinson dealt "with a wholly different point. The wife in that case was submitting ... that as a matter of principle the husband's application should not be allowed to proceed."

13. I will say here that I do not read anything said by Plowman, J. in that case as authority for the proposition, if I have correctly understood Mr. Dicks, that whenever a stay application is made, the court must proceed to entertain it in priority to any other matter with which it is seised, whatever the surrounding circumstances might be. In my judgment, Bettinson is an authority which does no more than confirm that (a) the court always has a discretion whether or not to accede to a stay application and (b) a party in contempt in one cause may, nevertheless, be heard in another.

14. In seeking to uphold the decision appealed against, Mr. Mills-Owens, Q.C. (who did not appear in the court below) submitted that the deputy judge had exercised a discretion with which an appellate court could only interfere on well established principles. There was no rule of law, principle or practice that an application for a stay, whatever the grounds, must be heard before any other matter which was before the court. In practical terms, he suggested, it is as if the judge had refused an adjournment (of the O.14 application due to be heard on 8th May) and he reminded us of what was said by the Court of Appeal in Maxwell v. Keun [1928] 1 KB 645. I will not cite all the passages read to us from the judgments; this is what Atkin, L.J. said at p.653:

"The other point that was made by the defendants was that this was a discretionary order, and that the Court of Appeal ought not to interfere with the discretion of the learned judge. I quite agree the Court of Appeal ought to be very slow indeed to interfere with the discretion of the learned judge on such a question as an adjournment of a trial, and it very seldom does do so; but, on the other hand, if it appears that the result of the order made below is to defeat the rights of the parties altogether, and to do that which the Court of Appeal is satisfied would be an injustice to one or other of the parties, then the Court has power to review such an order, and it is, to my mind, its duty to do so."

15. I accept, of course, that the learned deputy judge was indeed exercising a discretion. When there is more than one application before the court, the judge will often have to decide in what order they should be heard, even if he decides to deal with them on the same occasion, one after the other, as did Kaplan, J. in the case to which I will shortly refer. The judge must be able to control the ordering of the business in his court, and it will be rare that an appellate court does not respect and uphold his decision to that end. The defendant banks, therefore, have assumed a very heavy burden. However, if they are able to show that the judge has erred in principle in his approach to the matter before him, so that his decision has wrongly deprived them of an important right, this court is bound to redress the position.

16. I will say, in passing, that I did not understand Mr. Dicks, on behalf of the defendants, to be contending that whenever an application for a stay is before the court, irrespective of the grounds upon which it is based and the surrounding circumstances (including the stage the proceedings sought to be stayed have reached when the application is made) it must be heard in advance of any other matter which is before the court whatever its nature may be.

17. Mr. Mills-Owens pointed out that it was plain that Hong Kong law applied to the controversy between the parties and it was a perfectly straightforward case - the plaintiffs, having paid out under the letters of credit were, prima facie, entitled to payment. It was obviously less expensive to determine the O.14 application first for, if it were successful, it would obviate the necessity of the much longer and expensive "stay" hearing. It was, he submitted, perfectly legitimate for the plaintiffs, who could not be shown to have acted in breach of any contractual undertaking in taking proceedings in Hong Kong, to utilise the O.14 procedure. He accepted that the position might be different (as the judge had observed) if there had been an exclusive jurisdiction clause to take into account.

18. Mr. Mills-Owens contended that what happens in the context of arbitration agreements is instructive and analogous; in respect of applications for a stay based upon a foreign arbitration clause (even where such a stay is compulsory) the courts routinely determine applications for summary judgment before considering the application for a stay. One example counsel cited was Sethia Ltd. v. State Trading Corporation of India Ltd [1986] 1 Lloyd's Rep 31 (C.A.). In that case the plaintiffs issued a O.14 summons and the defendants, some three weeks later, took out a summons to stay the action because the contract contained an arbitration clause (under s.1 of the Arbitration Act 1975). Both summonses came before the same judge. He dealt first with the application for summary judgment. He concluded there was no arguable dispute between the parties and so he gave judgment for the plaintiffs and, having done so, concluded that there was nothing left to refer to arbitration. He therefore made no order on the stay application.

At p.31, Kerr, L.J. said:

" I need not refer to the provisions of O.14, which are well known. But it is important to bear in mind that s.1 of the Arbitration Act, 1975, obliges the Court to stay an action and to refer the matter to arbitration unless the Court is satisfied - and I read the relevant words -

... that there is not in fact any dispute between the parties with regard to the matter agreed to be referred.

The submissions of both parties have proceeded on the basis that the summonses under O.14 and s.1 are the reverse sides of the same coin, and we have been referred to Mustill and Boyd on Commercial Arbitration at pp.90-92. Without expressing any concluded view on everything which is stated there, it seems to me that the position can be summarized as follows. If a point of law is raised on behalf of the defendants, which the Court feels able to consider without reference to contested facts simply on the submissions of the parties, then it is now settled that in applications for summary judgment under O.14 the Court will do so in order to see whether there is any substance in the proposed defence. If it concludes that, although arguable, the point is bad, then it will give judgment for the plaintiffs. This course will also be adopted where there is a counter-application for a stay of the action. If the contract between the parties contains an arbitration clause to which s.1 of the 1975 Act applies, then the Court is not thereby precluded from considering whether there is any arguable defence to the plaintiff's claim. If the Court concludes that the plaintiff is clearly right in law then it will still give judgment for the plaintiffs. In the same breath, as it were, it will then have decided that in reality there was not in fact any dispute between the parties. If the Court is satisfied that the plaintiffs are clearly right in law, and that the defendants have no arguable defence, then it will not avail the defendants to have raised a point of law which the Court can see is in fact bad. In those circumstances the defendants cannot be heard to say that there was a dispute to be referred to arbitration. But if the Court concludes that the plaintiffs are not clearly entitled to judgment because the case raises problems which should be argued and considered fully, then it will give leave to defend and it is therefore then bound to refer the matter to arbitration under s.1 of the 1975 Act."

19. This approach has been adopted in Hong Kong where the judge had before him a summons under O.14 as well as one under s.6A(1) of our Arbitration Ordinance, see: Metallgesellschaft H.K. Ltd. v. Chinapart Ltd., Civil Appeal No. 144 of 1989, 20th March 1990 (unreported) where Sir Derek Cons, V.-P., gave the judgment of the court.

20. Mr. Mills-Owens also referred us to Texaco Ltd. v. Eurogulf Shipping Co. Ltd. [1987] 2 Lloyd's Rep. 541 which was an example of an action in which the plaintiffs had made good their case, so far as liability was concerned, under O.14, but not as to the quantum of damages. Hirst, J. refused to grant a stay on liability and entered judgment for the plaintiffs on that issue. Only the issue of the measure of damages was therefore sent to arbitration.

21. Section 1(1) of the UK Arbitration Act 1975 and section 6A(1) of the Arbitration Ordinance, Cap. 341 are in identical terms. Where a non-domestic arbitration agreement is involved a court is permitted to refuse a stay, which would otherwise be mandatory, if it is, inter alia, "satisfied that ... there is not in fact any dispute between the parties with regard to the matter to be referred." When a party to an arbitration agreement chooses to institute an action and applies for summary judgment under O.14, if it is successful, the practical result will be that any cross-application for a stay will be refused because it will have been demonstrated that there is "in fact" no "dispute" left to be referred to arbitration. It seems that the same approach is adopted where the grant or refusal of a stay is discretionary.

22. In the field of arbitration, then, however illogical it might perhaps appear, the practice has grown up, and seems to be regarded as settled, of permitting the court to assume what on the face of it is the exclusive jurisdiction accorded to the arbitrator by agreement of the parties, on the basis that a dispute which involves a hopeless defence to a claim is in reality no dispute at all.

23. I have not been persuaded that this practice should be applied where an application for a stay on the basis of forum non conveniens falls for determination. Certainly no example has been shown to us of a case where a party has been allowed to contend, in limine, that however well merited his opponent's grounds for a stay application on that basis might be, he can prevent any consideration of that application if he is able to demonstrate, by resort to the O.14 procedure, that his claim is incontestable, so that if he obtains summary judgment no action will be left to try and therefore no proceedings left to stay.

24. However, the O.14 procedure is sometimes mentioned as a factor to be considered in the balancing exercise a judge has to do in deciding whether or not a proper case has been made out for a stay - if it has been argued that prejudice to the party opposing a stay will be occasioned if a stay is granted because he would lose the benefit of the summary procedure (see e.g. Trendex Trading Corp. v. Credit Suisse [1980] 3 All ER 721, at p.736 per Robert Goff, J., as he then was, (at first instance).

25. In my view Mansour v. Mansour [1990] FCR 17, which was not referred to the deputy judge, is a useful case. The facts are not relevant to the purpose for which I cite it. One of the matters before the Court of Appeal was an application for leave to appeal against an order refusing to stay the action upon the grounds of forum non conveniens. At pp.18-19, Lord Donaldson, M.R. had this to say:

" Reverting to the application for leave to appeal in respect of Sir Neil Lawson's refusal to stay on grounds of forum non conveniens, the grounds of his refusal were that the application was much too late, that it was a tactical move and that there was no evidence that the Egyptian courts would determine the dispute between this husband and wife. For my part, I would have some doubts about the last of those reasons. ...

But the other two reasons are in a quite different position. The application was very late and may well have been a tactical move; but, for my part, I think much the most important consideration was that the application was made so late. If people want to raise the issue that the action would be more conveniently tried in a foreign court, they should do so at the very outset before costs are incurred in the proceedings. Mr. Turner says that we can take care of the matter of costs by an order for costs. Well, may be one could but I think it is of paramount importance that any application of this nature, which in effect is in much the same position as an application based upon the proposition that the court has no jurisdiction, should be made at the outset and that no steps, or very minimal steps, should be taken in the action before it is made. So, for my part, I would certainly refuse leave to appeal that order."

26. I think that this passage entitles Mr. Dicks to apply the epithet "quasi-jurisdictional" to the application made by the defendants for a stay. No doubt, too, if a party does not apply for a stay at the very outset of the proceedings a court, in exercising its discretion, will consider whether any delay is a ground for the refusal of the application, especially if the circumstances point to a tactical move. Suppose, for example, an action is instituted in Hong Kong, and O.14 proceedings are set in train and reach an advanced stage. Suppose then, suddenly and without any previous intimation, the defendant applies for a stay on the grounds of forum non conveniens, the court might well feel that it is a tactical move with the intent of delaying judgment and refuse to postpone the hearing of the O.14 proceedings. In the case before us, neither party suggests that his opponent has taken out his summons in an effort to steal a march upon him. They agree that each summons was quite fortuitously issued on the same day.

27. Before the judge, Mr. Dicks for the Korean banks relied upon the decision of Kaplan, J. in Pan Lloyd Shipping Ltd. v. Cho Hung Bank CL117 of 1991 (unreported) where the issue which divides the parties to this appeal was discussed. I will review the learned judge's judgment in some detail for reasons which will appear. In that case the plaintiffs, a Libyan company, sued a Korean bank which, although it did no banking business in Hong Kong, had a small representative office here. The action was founded upon a guarantee. The plaintiffs had previously commenced proceedings in Korea against the Korean bank and the Korean company whose obligations the former had guaranteed. The Korean proceedings raised the same issues and they had advanced to the stage when some hearings had already taken place. Korean law applied both to the guarantee and to the agreement upon which the Korean company had been sued.

28. The plaintiffs issued a summons on 29th August 1991 applying for summary judgment on the claims based on the guarantee. On 24th September the defendant took out a summons for a stay of proceedings relying on (i) an exclusive jurisdiction clause (ii) forum non conveniens considerations and (iii) the Korean proceedings (lis alibi pendens).

29. Both summonses came on for hearing before Kaplan, J. on the same day. He ruled that the stay application should be heard first but having decided to reserve judgment on those issues he felt it would be a waste of effort and costs if he did not go on to hear the O.14 summons and rule upon both in one judgment. He therefore heard the O.14 summons after hearing the stay summons and gave his reserved judgment, on 17th February 1992.

30. The judge noted that the plaintiffs had agreed that they could not obtain summary judgment for the whole of their claim in view of the issues raised. The plaintiffs had also accepted that in so far as the court might decide that there was a triable issue in relation to a portion of the claim, that part should be stayed in favour of the Korean courts, since Korea was clearly the more appropriate forum for the resolution of the dispute.

31. In his judgment, Kaplan, J. fully reviewed the opposing arguments submitted to him. He then went on to state his opinion that the correct approach was for the court to ask itself whether Korea was clearly the most appropriate forum for the resolution of the dispute, a question which should be asked before addressing the O.14 arguments. It was common ground that Korea was by far the most appropriate forum.

32. The question whether the court should exercise the discretion in favour of a stay should, he said, be answered in relation to the action as a whole. The defendants should not be subjected to two sets of proceedings. Since everything connected the suit with Korea, the Korean courts should be seized with the whole dispute and not merely that part which the plaintiffs could not establish under O.14 in Hong Kong. The piecemeal approach was not correct. In his view the interests of justice required that the whole dispute be litigated in Korea even though the plaintiffs were in a position to show that there was no defence to some part of the claim.

33. Kaplan, J. concluded his judgment on that issue as follows:

"It is agreed that the discretion which I have to refuse to grant a stay is exercisable whether I am dealing with the Exclusive Jurisdiction Clause, the inherent jurisdiction approach or on the basis of a lis alibi pendens. For these reasons, therefore, it seems wholly appropriate to exercise my discretion in favour of granting a stay in relation to the whole proceedings and declining therefore to assume the O.14 jurisdiction in relation to that part of the claim which Mr. Smith has invited me to do. Each of the three bases is sufficient. The cumulative effect of all three is overwhelming."

34. The learned judge then indicated what his view would have been had he been prepared to assume jurisdiction in relation to the O.14 summons, in case the matter went further.

35. This is how the deputy judge distinguished Kaplan, J.'s decision:

" ... in that case, it was conceded by the plaintiff that a substantial part of his claim must go to trial in Korea in that his application for summary judgment only covered part of his claim. No such concession is made here. There, there was also an exclusive jurisdiction clause. Indeed, proceedings in the Korean Court had already been commenced in respect of the same subject matter. Furthermore, in Pan Lloyd, the two summonses were in fact heard by the learned judge at the same time."

36. While, of course, the learned deputy judge's observations are quite correct, it must not be overlooked that Kaplan, J. made it plain (at p.16) that he felt it right to consider the stay application before addressing the matters raised by the O.14 application, and that he did so.

37. 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. If he is successful, then a court in another forum will ultimately determine the issues between the parties, as they stood at the time the stay was granted, whether it turns out that the defence relied upon was strong or weak. It may be that the foreign court will have procedures to enable it to deal summarily with hopeless defences. Whether or not such procedures are available to it (and I note that Robert Goff, J. in Trendex did not regard this as a factor of fundamental importance) the court's function will be to adjudicate on all the issues and decide in whose favour judgment should be given.

38. 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.

39. In my respectful opinion, the deputy judge's discretion was exercised on erroneous principles on the facts and in the circumstances of this case. 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, and since their opponents would not agree, they were forced to make the application which gave rise to this appeal. By saying at the bottom of page 3 of his judgment. "The position may well be different if the jurisdiction was invoked [by the plaintiffs] contrary to an exclusive jurisdiction clause" it seems to me that the deputy judge was implying that he might have considered exercising his discretion differently had the stay application been based on stronger grounds. With respect, it cannot be right for a factor of this kind to be allowed to influence his decision when the merits of the stay applications had not been gone into.

40. I would allow the appeals and set aside the orders of the deputy judge. I would direct that the stay applications be addressed by the court before the O.14 applications.

Nazareth, J.A.:

41. I agree.

Liu, J.:

42. I also agree.

Fuad, V.-P.:

43. The appeals are therefore allowed. In handing down these judgments we make an order nisi that the respondents to each appeal pay the costs of the appeal as well as those of the proceedings before the deputy judge.