PACIFIC AEROSUPPLIES LTD v. DAKOTA AIR PARTS, INTL INC

HCA1233/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1233 OF 2010

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BETWEEN

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JUDGMENT

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Introduction

1.  The plaintiff is a company incorporated in Hong Kong, but carrying on the business in Vietnam of purchasing and exporting of devices usable and unusable in the military business.

2.  The defendant is a company incorporated in the state of North Dakota in the US, with its principal place of business located in Fargo. Its business involves the purchase of helicopter and fixed wing components and parts, for their onward sale.

3.  The plaintiff and the defendant entered into contractual arrangements pursuant to the terms of an Exclusive Distributorship and Partnership Agreement dated 9 September 2008 ("the Distribution Agreement"), which was supplemented and/or varied by a General Understanding and Addendum to Distribution Agreement ("the Addendum") dated 16 February 2009 (together "the Contract").

4.  A dispute has arisen between the plaintiff and the defendant under the Contract, and the plaintiff commenced proceedings in Hong Kong by the writ in this action dated 13 August 2010. The endorsement of claim on the writ identifies claims to damages and delivery up of devices for military business ("the Devices") arising from alleged breaches of the Contract. The subsequently served Statement of Claim maintains those claims, but also adds a claim for an alleged non-delivery of goods (apparently outside the scope of the contractual arrangements under the Contract).

5.  In September 2010, by two affidavits of Mr. Randall Ivan Arthur dated 9 and 24 September 2010 respectively, the plaintiff made ex parte application for leave to issue a concurrent writ for service upon the defendant out of the jurisdiction at its address in Fargo or elsewhere in the USA. Leave to serve out was granted by the order of Master R Lai dated 4 October 2010.

6.  By summons dated 4 April 2011, the defendant applies to set aside the order permitting service out of the jurisdiction on the twin grounds that (a) in making the application for the order, the plaintiff failed to make full and frank disclosure of matters material to the court's determination, and (b) having regard to all the circumstances of the case, it is not a proper case for service out of the jurisdiction.

7.  The relevant evidential material filed on behalf of the plaintiff is contained in the first two affidavits of Mr. Arthur, and his third affidavit dated 3 May 2011. The relevant evidential material filed on behalf of the defendant is contained in the two affidavits of Kurtis Hemelstrand McConn dated 30 March 2011 and 26 May 2011.

8.  At the hearing, the plaintiff was represented by Mr. Simon Westbrook SC, and the defendant was represented by Mr. Stewart Wong SC and Ms. Elizabeth Cheung of Counsel.

Applicable principles

9.  The principles applicable on this application are well settled and are not in dispute. Though I am grateful to Mr. Westbrook and Mr. Wong for supporting their own submissions with authority, I think the principles can be set out shortly as follows, without extensive reference to authority.

10.  At this hearing, just as on the original application for service out, the burden is on the plaintiff to establish a good arguable case on the merits and to satisfy the court on forum conveniens grounds.  There is no burden on the defendant to demonstrate some other forum than Hong Kong as the natural forum.

11.  Where the claim is in contract, and there is an exclusive jurisdiction clause in favour of one particular forum, the court will normally give effect to that agreement unless there is "strong cause" for exercising the court's discretion not to give effect to that agreement.

12.  In the context of considering forum conveniens, it is usually understood that the question of foreign public policy is best considered by the courts of that foreign jurisdiction. Put another way, no court of any other jurisdiction is likely to be able conscientiously to resolve with any confidence that it can reach a correct answer as to a matter of foreign public policy.

13.  Just as with any other ex parte application, an application for service out carries with it the duty to make full and frank disclosure of all material facts relevant to the consideration of the court. Facts which are material to the consideration of an application for service out include all material facts relevant to the consideration as to whether to assume jurisdiction over the defendant and the dispute in question.

14.  Materiality is to be decided by the court, and not by one party, and the duty of full and frank disclosure is a continuing duty extending to material changes (or discovery of material information) both up to and after the granting of ex parte order.

15.  In most cases, the existence, or prospect, of concurrent and overlapping proceedings in a foreign jurisdiction between the same parties is likely to be a matter of materiality which must ordinarily be disclosed on an application for leave to serve out of the jurisdiction.

16.  The court has a broad discretion as to how to react to a finding of material non-disclosure. It might, but need not, result in the setting aside of the order made; essentially it is a question of degree. If there is deliberate concealment, that might be punished by discharge of the order even if the undisclosed information was not central to the decision. But even inadvertent non-disclosure of information which may be central to the decision might lead to the discharge of the order, notwithstanding the lack of personal misconduct by the party or the solicitor concerned.

17.  Even if an ex parte order is set aside on the basis of a finding of material non-disclosure, it remains open to the court to make a similar order at the inter-partes hearing, if the making of such an order seems just and appropriate in the circumstances.

18.  Lastly, it seems to me that when a court is dealing with an application to set aside an order permitting service out of the jurisdiction, the ultimate question is whether the court should maintain the exercise of its jurisdiction because it is the forum conveniens, or whether the court should decline the exercise of its jurisdiction because it is not (or not shown) that it is the forum conveniens.

19.  Therefore, the question of the appropriate forum might be dealt with first. But where there are overlapping arguments on the two points of non-disclosure and forum, it may be convenient to look at the allegations of non-disclosure first.

20.  Before doing so, it might be helpful to set out the basis of the ex parte application and the evidence filed in support of it.

Basis of application for leave to serve out

21.  The plaintiff applied for leave to serve the defendant out of the jurisdiction in reliance upon Order 11 rule 1(1)(d)(iii) & (iv), namely that the claim is brought on a contract which by its terms or by implication is governed by Hong Kong law, and which contains a term to the effect that the Court of First Instance shall have jurisdiction to hear and determine any action in respect of the contract.

22.  This application was made on the basis that Clause 16 of the Distribution Agreement provides that:

"This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong and the parties irrevocably submit to the exclusive jurisdiction of the Courts of Hong Kong."

23.  The facts that the Contract is governed by Hong Kong law, and that the exclusive jurisdiction clause identifies Hong Kong courts as the jurisdiction to hear disputes arising under the Contract, were two of the factors put forward as also demonstrating that Hong Kong is the forum conveniens. The other factors included that: the plaintiff is a Hong Kong company; a joint-venture company was set up in Hong Kong under the Contract to handle accounting matters in the distribution of expenses and proceeds from the venture; the company held a bank account in Hong Kong; and, the plaintiff is legally represented in the Hong Kong proceedings.

24.  It is fair to point out that Mr. Arthur did identify that the only other forum that might be available to the parties in the action is in North Dakota, "being the jurisdiction in which the defendant is incorporated and where the remaining stock of the Devices is stored". But the next sentence states that the plaintiff "is residing in Hong Kong and would be disadvantaged if obliged to bring proceedings in North Dakota".

25.  The order granting leave to serve out was not granted on Mr. Arthur's first affidavit, but only after he had provided his second affidavit in response to requisitions raised by the Master. The second affidavit exhibited certain documents relating to the claim for delivery up (but did not – at least, not clearly – identify that that claim was not brought under the Contract, and so was not caught by the exclusive jurisdiction clause).

Alleged material non-disclosure

26.  The defendant asserts four matters of material non-disclosure: (1) failure to disclose the plaintiff's intention to commence proceedings against the defendant in the US; (2) failure to disclose US national security concerns; (3) failure to disclose the defendant's lack of assets in Hong Kong; and (4) wrongly stating that the plaintiff is "resident" in Hong Kong.

(1) Non-disclosure of US proceedings

27.  As I have pointed out above, although the ex parte application was made by the affidavits dated 8 and 24 September 2010, the Master made the order granting leave to serve out of the jurisdiction only on 4 October 2010.

28.  On the next day, 5 October 2010, the plaintiff commenced proceedings against the defendant in the United States District Court for the District of North Dakota ("the US Proceedings"), and filed a motion for a preliminary injunction against the defendant restraining the disposal of the Devices and the proceeds of sale of the Devices.

29.  It is accepted on behalf of the plaintiff that the instructions relating to the commencement of the US Proceedings had been given to the US lawyers before 4 October 2010. It also seems that the plaintiff's Hong Kong lawyers assisted in the preparation of the documents for obtaining an injunction in the US Proceedings.

30.  In fact, both the US lawyers and Hong Kong lawyers had been instructed by as early as on or around 12 August 2010 (just before the issue of the writ in Hong Kong).

31.  There is no reference in the affidavits leading the ex parte application to any US proceedings. The explanation offered by Mr. Arthur on behalf of the plaintiff is that at the time of the making of the first and second affidavits, and at all times prior to the order being granted on 4 October 2010, "the plaintiff had not made a final determination whether or not it would seek an injunction in the US". It is also argued that the US Proceedings were only commenced as the plaintiff was forced to commence them, because of the intransigence of the defendant in failing to give any undertaking in relation to its dealings with the Devices or the proceeds of sale of the Devices.

32.  Unfortunately, it seems to me that the passage relating to another possible forum in Mr Arthur's first affidavit is misleading. First, the very basis as to why North Dakota might be another forum is because the defendant is incorporated there and the remaining stock of the Devices is stored there. Yet, as far as I can understand it, those two facts are precisely the reasons why the plaintiff chose to commence the US Proceedings. Also, active consideration was being given to the commencement of those proceedings – and it would seem instructions had actually been given to commence those proceedings – before the order was made on 4 October 2010.

33.  Further, the reason which is put forward for dismissing the possibility of North Dakota being an appropriate forum was that the plaintiff is residing in Hong Kong and so would be disadvantaged if obliged to bring proceedings in North Dakota. With respect, that sentence can only have been understood as a clear assertion that the plaintiff would not wish to contemplate the disadvantage of bringing proceedings in North Dakota, the assertion being offered at precisely the time the plaintiff was in fact considering, or had instructed, the commencement of such proceedings.

34.  (I leave aside for the moment the matter relating to the statement that the plaintiff "is residing in Hong Kong", as that can be dealt with separately.)

35.  I am afraid I simply fail to understand why it was thought that it was necessary to commence proceedings in the US in the face of the plaintiff's own assertion of the existence of an exclusive jurisdiction clause providing for resolution of disputes in Hong Kong. Prior to the hearing, no convincing explanation has been even offered as to why the injunction which was sought and partially obtained in the US Proceedings could not have been sought in these proceedings. However, in submission, Mr. Westbrook suggested (on instructions) that the plaintiff’s US lawyers had advised that the US court would not honour a Hong Kong worldwide Mareva injunction, and so there would have to be proceedings in the US in any event, and to avoid duplication of costs it was felt that proceedings in the US should be brought.

36.  First, I note that if this was so, there was no reason why the Master could not have been informed of that during the ex parte process of the application for leave to serve out.  Secondly, I do not know why this explanation has not subsequently been offered in evidence before this hearing. Thirdly, the submission does not say why an order could not have been obtained in Hong Kong; it only seeks to explain why one was not in fact sought in Hong Kong.  Fourthly, I would have thought the obvious thing to have done would have been to have obtained an injunction in Hong Kong (perhaps at the same time as seeking leave to serve out) and then to have sought an order in US giving that effect, or for enforcement if necessary.  If that is not possible, that would seem likely to be the case for any final order as might be made in Hong Kong, but that potential situation was the consequence of agreeing the exclusive jurisdiction clause.

37.  I am not attracted to the argument that when the plaintiff realizes that its contractually agreed arrangements are not ideal when it comes to enforcement (of interlocutory or final orders), it can ignore the agreement for some purposes, whilst standing on it for others.

38.  The decision to commence the US Proceedings must amount to a deliberate choice to act in breach of the exclusive jurisdiction clause. Even if no final decision had been made by 4 October 2010, the active preparation for the commencement of the US Proceedings was in my view plainly material to the consideration as to whether or not to grant leave to serve out of the jurisdiction, particularly where that application was based largely upon the existence of the exclusive jurisdiction clause.

39.  It is to be noted that the motion for preliminary injunction filed by the plaintiff in the US Proceedings specifically identifies the Hong Kong proceedings as being "a parallel action".

40.  I am also not impressed by an argument that a deliberate decision was made to withhold informing the court of the potential, indeed likely, commencement of the US Proceedings because of some concern about removing the element of surprise that would accompany an urgent injunction application. With respect, that argument makes no sense for a number of reasons.

41.  First, what was being told to the court was contained in material for an ex parte application; by definition, that material would not be provided to the defendant (at least in the first instance).

42.  Secondly, if an element of surprise was genuinely a matter of concern, there is no reason why an application for the relevant injunction could not have been brought on an ex parte basis in Hong Kong in these proceedings at the same time as seeking leave to serve out of the jurisdiction. (Applications for leave to serve a defendant out of the jurisdiction are frequently an accompaniment to an application for an array of injunctions, for example Mareva injunctions, which are said to require both urgency and secrecy.)

43.  Thirdly, the application for the injunction in the US Proceedings was actually made on notice to the defendant. This is not surprising, and was probably simply procedurally correct, in the circumstances of the prior exchanges of correspondence between the parties' lawyers, and which must have raised in the defendant's mind the possibility at least that the plaintiff would apply for some sort of interim injunctive relief over the Devices and the retained sales proceeds.

44.  Fourthly, it might be said that any genuine concern about the status and location of the Devices, and any claim to proceeds of sale by the defendant of those Devices, is something which the plaintiff ought to have had in mind when it agreed to the exclusive jurisdiction clause. Presumably, though perhaps neither hoped for nor expected, there was always a "risk that the defendant could dispose of the Devices or put them and/or all sales proceeds out of the reach of the plaintiff" (Mr Arthur's words).

45.  I accept that concerns about enforcement may well not have been anticipated at the time that the exclusive jurisdiction clause was agreed. Once those concerns had been identified, and the plaintiff considered that it must act in breach of the clause, it seems to me to be obvious that it should have brought that fact to the attention of the Master, when it was seeking leave to serve out of the jurisdiction largely on the basis of that clause.

46.  Nor do I think the complaint of non-disclosure is properly met by saying that no substantive claims were made in the US Proceedings, because there was only sought (and granted) a preliminary injunction relating to the goods and proceeds, pending resolution of the action filed in Hong Kong. That the US Proceedings might have been, and might now be, viewed as merely ancillary to the substantive proceedings in Hong Kong and purely to preserve assets which happened to be in the USA (as Mr Westbrook submits) only goes to the weight that might be given to the factor of the existence of those proceedings in considering whether or not to grant leave to serve out of the jurisdiction. It does not mean that the existence, or prospect, of such proceedings was simply immaterial.

47.  Indeed, I would think that proper disclosure would require mentioning the prospect of the US Proceedings, but with the explanation which is now put forward as to their true purpose, and with an argument that the US Proceedings would not for that reason make Hong Kong not the natural forum.

48.  In my view, this was a matter clearly of materiality, and the failure to make any reference to the US Proceedings (or their considered and likely commencement) was a serious material non-disclosure.

49.  Let me make clear, however, that though I find the non-disclosure to have been deliberate, I make no finding of any bad faith on the part of the plaintiff or Mr Arthur. Rather, the deliberate decision not to raise at least a strong possibility of the plaintiff commencing the US Proceedings against the defendant seems to have been the result of (if I may say so) poor judgment.

(2) Non-disclosure of US national security concerns

50.  The defendant's criticism is of the plaintiff's failure to have disclosed to the Master that the subject matter of the Contract, namely the Devices, are considered Significant Military Equipment by the US Government. The defendant says this gives rise to questions of US national security, and US public policy.

51.  The plaintiff, on the other hand, states emphatically that there are no national security concerns or issues of public policy regarding the Devices.

52.  The defendant, therefore, relies upon views expressed in the US proceedings by the US Court in judgments dated 8 February 2011 and 27 May 2011. For example, in the latter judgment, the Court stated:

"This case is complicated by national security concerns. At the centre of the dispute are highly regulated war surplus helicopter parts and other military surplus items. The import, export, purchase, and sale of the parts is regulated by the United States government and it is unclear if they can be removed from the United States, even if the parties agreed to their removal. This Court has personal and subject matter jurisdiction to decide the merits of the dispute."

53.  On the other hand, the plaintiff has filed evidence from a US attorney formerly employed by the US Department of Defence in Washington DC, that there are no national security concerns. It is said that Vietnam is no longer a prohibited country under US law, and the Devices can be imported and exported with appropriate licences. Particular reliance is placed upon the fact that the claim does not seek delivery to the plaintiff outside the US, and the confirmation in evidence that the plaintiff does not intend to remove the Devices from the US.

54.  It seems to me that there is also some force in Mr. Westbrook's submission that the possible national security concerns have little to do with which court is better placed to decide legal title to the Devices. But they would be more relevant to a claim to delivery up of the Devices to the plaintiff.

55.  In any event, these statements relied upon by the defendant as have been made by the US Court were all well after the preparation of the material which led the ex parte application, and unless there is clear evidence that national security concerns would obviously relevantly arise in the context of the resolution of the disputes falling to be determined in the Hong Kong proceedings, it would seem a little harsh to penalise the plaintiff for not knowing in September 2010 what was pointed out by the US courts in February and May 2011.

56.  Mr. Wong says the plaintiff well knew the trade in the Devices was highly regulated by the US Departments of State, Defence and Commerce.  He also points to Mr. Arthur's first affidavit which specifically refers to some regulatory matters, albeit in the context of a complaint which the plaintiff was considering making about the defendant. But I am not sure this really gives rise to the same points on national security and public policy as are since raised.

57.  Ultimately, even if more might have been made of the tight regulatory context, I am not persuaded that this was a non-disclosure of such materiality as would lead to the setting aside of the order granting leave to serve out of the jurisdiction.  (The point may be more important in the context of forum generally.)

(3) Non-disclosure of the defendant's lack of assets in Hong Kong

58.  There is no reference in the affidavit material leading the ex parte application to the presence or absence of any assets of the defendant in Hong Kong. The defendant criticises this as a non-disclosure of the material fact of the lack of assets of the defendant, because this would impact on whether the service out order would have a "legitimate benefit".

59.  I do not think the plaintiff answers this point by raising arguments that the way in which the point is taken suggests the defendant would not comply with any orders of the Hong Kong courts. Such arguments are misdirected. Surely the real point is that the absence of assets of the defendant in Hong Kong, as perhaps showing some lack of readily available legitimate benefit through enforcement in Hong Kong, more readily identifies the lack of any connection between the defendant and Hong Kong.

60.  The defendant is incorporated in North Dakota, and its controlling mind and management operate from Fargo. Save for any indirect interest in the bank account in Hong Kong held by the joint-venture company, the defendant has no assets in Hong Kong.

61.  On the other hand, the materiality of the lack of assets in Hong Kong is at least to some extent balanced by the defendant's willing choice of Hong Kong as the dispute resolution forum on matters arising under the Contract. It seems to me that where a party agrees to the jurisdiction of a particular forum, particularly if it is on an exclusive basis, there is far less room for it to suggest general forum non conveniens points by reference to the lack of any other connection with that jurisdiction.

62.  Further, the need to identify some "legitimate benefit" comes from a reference in Fonu v. Demirel [2007] EWCA Civ 799. But that was the case of an application for leave to serve out of the jurisdiction based upon the equivalent of our Order 11 rule 1(1)(m), ie that the proceedings were brought to enforce a foreign judgment or arbitration award. In such a case, it is readily understandable why it would be necessary to point to the presence of assets within the jurisdiction as capable of showing the "legitimate benefit" of dragging a foreign defendant to the jurisdiction.

63.  But I do not think that the case is authority for any proposition that in every case for application for leave to serve out of the jurisdiction the presence or absence of assets in the jurisdiction of the defendant must be identified. I note that the notes to Order 11 in the Hong Kong Civil Procedure 2011 at Note 11/1/9A also agree that the presence of assets in the jurisdiction is clearly not sufficient for the grant of leave to serve out, nor has it traditionally been regarded as necessary. However, it may be that a requirement for assets against which a judgment can be enforced, or some other scope for enforcement, can in certain cases be found in the requirement that the applicant satisfy the court that its case is a proper one for the exercise of the discretion to grant leave.

64.  Ultimately, I do not think that this was a non-disclosure – save perhaps that the absence of assets in Hong Kong is a factor identifying the lack of any real connection of the defendant to Hong Kong. In any event, it is certainly not of such materiality that it should sound in the setting aside of the order granting leave to serve out the jurisdiction.

(4) Residence of the plaintiff

65.  It is trite law that, irrespective of its place of incorporation, a company is "resident" at the place where its central management and control lies.

66.  I reject the submission that I think is made on behalf of the plaintiff (through Mr. Arthur's 3rd affidavit) that simply because the plaintiff is a Hong Kong company, with a Hong Kong address and a bank account in Hong Kong, that means its controlling mind is and has always been in Hong Kong. That is not correct. There is simply no evidence of the exercise of control or management in Hong Kong.

67.  I would also add that the suggestion that any assistance can be drawn from the fact that the plaintiff has Hong Kong lawyers seems to me nonsensical.

68.  In my view, simply to identify the plaintiff as a Hong Kong company is not, on the facts of this case, full and frank disclosure. That seems to me to be particularly so where the place of residence is specifically tied to an assertion of disadvantage if the plaintiff were to be obliged to bring proceedings not in Hong Kong, but in North Dakota.

69.  Some materiality in the non-disclosure seems to be obvious in the fact that whatever the asserted disadvantage, the plaintiff was taking active steps in preparation for in fact bringing proceedings in North Dakota.

70.  Again, I am afraid that the answer offered by the plaintiff through Mr. Arthur's evidence does not properly meet the defendant's complaint. He first recognises that two of the directors of the plaintiff are usually resident in Australia, and the third is usually resident in Vietnam. He then says that neither Australia nor Vietnam were potential forums for the dispute between the parties, and the failure to mention their residences was a mere oversight.

71.  He then says that he did not turn his mind to the inclusion of this information, as the residence of the plaintiff's directors was not a matter that may have led the court not to grant the order sought. But he goes on to state that, to the contrary, the residence of the directors in Australia and Vietnam is a factor favouring the convenience of Hong Kong rather than North Dakota, as both locations are in a similar time zone to, closer, and have regular flights to, Hong Kong.

72.  This seems to me to be a clear recognition of the materiality of the place of residence of the controlling mind of the plaintiff. Mr. Arthur now wishes to assert that it is material in favour of the plaintiff, but the point is that it was material. That the disclosure, if made, might not have changed the order which was in fact made does not mean that the disclosure need not have been made.

73.  But in any event, I am not sure that the place of residence of the plaintiff's directors is a factor in favour of Hong Kong. That seems to me to be approaching the question from the wrong direction. The primary burden on the plaintiff is, and was, to demonstrate that Hong Kong is the natural forum, the forum conveniens; the burden is not necessarily satisfied simply by pointing to greater or lesser geographical proximity of directors to Hong Kong.

74.  I also note that affidavits for use in the US Proceedings had been sworn on behalf of the plaintiff in Australia. The movement of any relevant documents from the place of management and control to either Hong Kong or North Dakota is likely to be equally convenient (in its ordinary sense).

75.  In my view, the residence of the plaintiff (which I find to be outside Hong Kong) is probably a neutral fact in the consideration of the appropriate forum, but it is certainly not any weighty factor pointing to Hong Kong.

76.  I consider that there was a material non-disclosure, by the incorrect and misleading way in which the plaintiff was described as being resident in Hong Kong, as part of the context why there would be disadvantage to it if it were obliged to bring proceedings in North Dakota.

77.  I might add that I have taken into account the chronology of the two sets of proceedings, namely that the Hong Kong proceedings were commenced by writ on 13 August 2010, whereas the US Proceedings were commenced on 5 October 2010. However, the material point seems to me that the US Proceedings were commenced contemporaneously with the application for leave to serve the writ out of the jurisdiction, and (though the existence of the Hong Kong proceedings had been brought to the attention of the defendant) the Hong Kong proceedings were not yet properly under way precisely because no order had yet been granted to serve a foreign defendant out of the jurisdiction.

Conclusion on non-disclosure

78.  In conclusion, though I do not accept all of the allegations of material non-disclosure as have been made by the defendant, I do think that there has been material non-disclosure by the plaintiff in the making of the ex parte application.

79.  I have found that non-disclosure to have been in part deliberate (though through ill judgment, not bad faith), in part through a failure to provide full disclosure, and in part through the provision of incorrect and misleading information (again, apparently through ill judgment, not bad faith).

80.  I think the overall degree of materiality of the non-disclosure is serious and it would entitle me in the exercise of my discretion to set aside the order granting leave to serve out of the jurisdiction.

81.  Nevertheless, it seems to me that before making that decision, I can consider the practical benefits of setting aside the ex parte order in the light of the other challenge made by reference to forum conveniens generally. If I do not think this is a case suitable for service out, that is probably the end of the matter. If I do think this is a case suitable for service out, the matters of non-disclosure might probably best sound in costs.

Forum conveniens

82.  I specifically bear in mind that there would have to be "strong cause" not to hold the plaintiff and the defendant to their contractual bargain that they would resolve their disputes in Hong Kong.

83.  On behalf of the plaintiff, Mr. Wong submits that the material non-disclosure of the US Proceedings goes beyond the mere arguments arising from non-disclosure; he says it vitiates the plaintiff's own arguments on Hong Kong being the forum conveniens. This is because the reliance on the exclusive jurisdiction clause – the strongest point, at least, for the plaintiff – has been significantly weakened by the plaintiff's own choice in commencing the US Proceedings in breach of that clause.

84.  Indeed, Mr Wong says that the commencement of the US Proceedings evinces the plaintiff's clear intention not to abide by the terms of clause; it has chosen to litigate in a forum which is not Hong Kong. As he puts it, this has "neutralised" the jurisdiction clause. The very rationale for holding the parties to their bargain has gone when one of the parties had acted in breach of the bargain, and the other does not wish to enforce it.

85.  In response, the plaintiff asserts (through Mr. Arthur's evidence), that the plaintiff has not submitted itself to the US courts, and it seeks to emphasise that it was in effect forced by the defendant to commence the US Proceedings, and did so only as an adjunct to, and to obtain orders ancillary to, and for the purposes of protecting its claims in, the Hong Kong proceedings.

86.  I confess that I find the logic of the suggestion that the plaintiff has not submitted to the US jurisdiction to be somewhat difficult to follow. Even at first blush, it seemed to me that the commencement of the US Proceedings was precisely the invocation of the US Court's jurisdiction by the plaintiff.

87.  In any event, this is plainly the view of the US court as well. In the 27 May 2011 judgment, which dismissed the plaintiff's application in the US Proceedings to dismiss the defendant's Counterclaim in those proceedings on the basis of improper forum, the judge said:

"[The plaintiff] contends the courts in Hong Kong have exclusive jurisdiction over the issues related to [the defendant's] counterclaims. [The plaintiff] in effect, asserts the forum selection clause contained in the [Contract] deprives this Court of jurisdiction over [the defendant's] counterclaims even though [the plaintiff] invoked this Court's jurisdiction when it commenced the instant action and sought relief by way of a preliminary injunction. [Is the plaintiff] has consented to the jurisdiction of the Court. It is disingenuous to say that jurisdiction is proper for purposes of injunctive relief but lacking over [the defendant's] counterclaims."

88.  I accept that the plaintiff was at pains in the US Proceedings to point out that it wished to pursue the preliminary injunction in the US, but to have the merits of its claim determined in Hong Kong. But, the problem it seems to have faced was the procedural consequence of commencing the US Proceedings, where it may be that the procedures would not recognise proceedings seeking only interim injunctive relief, and no final relief (see below).

89.  Even if the commencement of the US Proceedings does not entirely remove the ability of the plaintiff properly to place the usual reliance as will be placed on an exclusive jurisdiction clause, any such reliance must at least be significantly weakened. Put another way, depending on the other circumstances, it may be that the fact of the commencement of the US Proceedings (together with those other circumstances) is capable of amounting to "strong cause" why the parties should not be held to their jurisdiction bargain.

90.  As to the other circumstances, there are in substance no factors connecting the dispute to Hong Kong. As I have dealt with just now, though the plaintiff is a company incorporated in Hong Kong, the natural persons who are in control of the plaintiff do not control it in or from Hong Kong.

91.  The asserted disadvantage for the plaintiff to litigate in North Dakota does not sit well with the fact that the plaintiff actually commenced litigation against the defendant in North Dakota (even if it might – perhaps mistakenly – have hoped to do so on a fairly limited basis).

92.  There is also no real substantial connection of the defendant with Hong Kong (as I have dealt with little earlier). I also take into account that there seems to be no evidence that any material witnesses, or relevant documents, are in Hong Kong. Even if documents relating to the operation of the bank account in Hong Kong have any relevance, there is not likely to be any difficulty in transmitting those documents to North Dakota. But in reality, the matters relating to the bank account in Hong Kong seem mainly to deal with the mechanics of the sharing of expenses and income from the business venture. There is no particular plea in the Statement of Claim which makes any part of the dispute between the parties turn on that account as such; the alleged breach is simply in the failure to have placed funds in that account.

93.  One factor which seems to point strongly in favour of North Dakota as the natural forum is that the US Proceedings will apparently deal with and decide the matters which are the subject of dispute in the Hong Kong action. This is because those matters are framed by the Complaint (filed by the plaintiff) as answered by the Counterclaim (filed by the defendant). Directions have been given in relation to the resolution of the disputes identified by those pleadings, and a trial date has been fixed, though some time away in February 2013.

94.  The plaintiff makes the point that no substantive claims were made in the US Proceedings, because the Complaint sought only a preliminary injunction pending resolution of the action filed in Hong Kong. That may be so, but the factual matters pleaded in support of the application for that injunction are of course broadly the same as those now set out in the Statement of Claim in the Hong Kong proceedings. Further, in a document filed in the US Proceedings to oppose the motion for preliminary injunction, the defendant asserted that pursuant to the rules of procedure (the same rules relied upon by the plaintiff in seeking the injunction) the issuance of an injunction would require the court eventually to hear the dispute on its merits or conduct a hearing on the issuance of a permanent injunction.

95.  The filing of the Complaint has also led to the filing of the Counterclaim. The plaintiff complains that the Counterclaim in the US Proceedings has been brought by the defendant to seek to obtain procedural tactical advantage for the purposes of this application. However, I accept the evidence filed on behalf of the defendant that under the applicable US Federal Rules of procedure, the defendant was obliged to make a counterclaim if it arises out of the same transaction or subject matter as raised by the claim, failing which the counterclaim might be lost.

96.  The evidence as to the effect of the rules was not substantially challenged by the plaintiff.  In any event, the rules seem also to identify that it was perfectly open to the defendant to avail itself of the plaintiff's express invocation of the jurisdiction of the US Court, by filing a counterclaim.  The plaintiff must be taken to have known the effect of the rules, as it was at all times represented by US lawyers.

97.  Further, matters relating to US national security and US public policy are likely to arise. Though the point is emphatically disputed by the plaintiff, the defendant asserts points which will trigger a determination of the extent, if any, of the impact of matters of US national security and US public policy. I do not think I can simply ignore that those matters have been triggered, simply because the plaintiff denies that they are relevant.

98.  If the plaintiff is correct, that is a matter which is almost necessarily best decided in a US court. I am conscious, as I say this, of the potential for abuse by a defendant simply raising an allegation of foreign public policy merely as a means to generate a (non-genuine) factor pointing strongly in favour of a foreign forum. But I do not think on that evidence filed on this application that I am in any position to proceed on the basis that the US public policy points raised by the defendant are entirely without any proper basis and are not genuine. I have already quoted a passage from the 27 May 2011 judgment in which the US Court has accepted that the case is complicated by national security concerns. (A similar statement was also made in the earlier US court Decision dated 8 February 2011, albeit more obviously in the context of the then application for the preliminary injunction).

99.  I also accept Mr Wong's submission that the US national security or public policy points are arguably of relevance to the plaintiff's claim to delivery up of the Devices to it, and where the plaintiff's ability to identify other persons who would be licensed to receive and sell the Devices does not fully meet this point.

100.  There is no question that the US Court has accepted that it has personal and subject matter jurisdiction to decide the merits of the dispute. Such a finding was necessary for the making of the preliminary injunction, and the point has been repeated in the judgment dismissing the application to dismiss the Counterclaim. I note that the plaintiff's argument in the US Proceedings was that no discovery was needed in those proceedings since the merits of the dispute will be decided in Hong Kong, but it was held that the court's determination that it has jurisdiction over the Counterclaim renders the motion moved. There are also earlier orders relating to discovery in the US Proceedings, which do not appear to be limited to discovery in the Counterclaim.

101.  It is right to point out that the US Court also accepted that the High Court in Hong Kong might also have concurrent jurisdiction to decide some or all of the issues, and nothing in the judgment was intended to address issues of comity, which could be revisited after the Hong Kong Court has had the opportunity to consider jurisdictional issues.

102.  I take that to mean that were I to decide that Hong Kong is the forum conveniens, the US court would take that into account in considering whether or not to allow the US Proceedings to continue. But, as I think is common ground, one can only speculate as to what the US court might choose to do in those circumstances. Certainly, I cannot be sure that the US Court would put a stop to the US Proceedings – not least in the circumstances that it has apparently identified the involvement of matters of US public policy.

103.  In this context, it is perhaps instructive that the only matter left over for possible further consideration in the US Proceedings was any issue of comity. The US court did not simply adjourn the plaintiff's application to dismiss the Counterclaim pending my decision on jurisdiction. Though I do not give the point too much weight, this might at least suggest no natural inclination to stay the US Proceedings.

104.  In any event, this gives rise to the spectre of the possibility of two sets of proceedings, with potentially inconsistent decisions, as well as the duplication of expenditure in money and other resources. The potential for inconsistency would also seem to be greater where one of the decisions may involve an application of policy, rather than just the application of what is likely to be a relatively similar law as would be used to reach the other decision.

105.  That the Contract provides for the application of Hong Kong law is, of course, a factor pointing in favour of Hong Kong as the natural forum. Just as matters of US law or public policy might be thought best to be decided by a US court, so would matters of Hong Kong law be thought best to be decided by a Hong Kong court.

106.  Mr Westbrook relies on a passage in the 8 February 2011 Decision in the US Proceedings, where the court stated (in the context of a consideration of the likelihood of success on the claim, when deciding whether or not to grant any interim injunctive relief):

"This is a complicated commercial relationship that may well be decided according to the laws of Hong Kong, the legal principles of which are unfamiliar to this Court."

107.  But in the same paragraph, it was also stated:

"Nevertheless, the parties executed an integrated written agreement, which provides that the ownership of the "Devices" is with [the plaintiff]. Any doubt about the ownership of the inventory is clarified by the addendum. … Thus, the relief sought by [the plaintiff] is modest."

108.  This is consistent with, and I accept, Mr. Wong's submission that the disputes to be determined in this case are mainly factual disputes, and that there is not raised any, or any particularly difficult, issue of Hong Kong law. Having looked again at the Statement of Claim, I do not see the matter as giving rise to difficult legal issues.

109.  If one is to balance the perhaps competing indicators of a desire to have matters of US public policy decided by the US Court and matters of Hong Kong law to be decided by the Hong Kong court, in the circumstances of this case it seems to me that the balance points in favour of the US Court.

110.  I also take into account the separate claim of the non-delivery of goods raised in the Statement of Claim, which is not a part of the claim which would be caught by the exclusive jurisdiction clause in the Contract in any event.

Conclusion on Forum Conveniens

111.  It was common ground between the parties that I am to answer the question, whether it has been made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction, by reference to the circumstances as pertain as at the date of the hearing.

112.  In the exercise of my discretion, for reasons I have given, it seems to me that in the current circumstances the case is not a proper one for service out of the jurisdiction under Order 11.

Conclusion on application

113.  As I have indicated, on the basis of what I have found to be serious material non-disclosure, I would have been minded to set aside the ex parte order for service out of the jurisdiction. But I probably would not have done so had I considered that the case is in any event a proper one for service out of the jurisdiction.

114.  But, I have in the exercise of my discretion come to the view that in the current circumstances an order for service out of the jurisdiction should not lie.

115.  The defendant must therefore succeed on its application.

Costs

116.  At the hearing, I heard short submissions as to what might be an appropriate costs order depending on the possible permutations of my decision as regards non-disclosure and forum conveniens.

117.  But where I have in effect found in favour of the defendant on both the points, and in particular that this is a case not suitable for service out of the jurisdiction in the prevailing circumstances, I think it would be accepted that the costs would follow the event.

118.  Therefore, I order the plaintiff to pay the defendant's costs of the action and of this application, to be taxed if not agreed.

119.  For the avoidance of doubt, in the exercise of my discretion, I do not accede to the defendant's application for a certificate for two Counsel.