MAN ROLAND (CHINA) LTD v. PICC PROPERTY AND CASUALTY CO LTD

HCA 456/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 456 OF 2005

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J U D G M E N T

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Introduction

1.  This is an application for a permanent stay of this action in favour of the Shenzhen Intermediate People’s Court on the basis that Hong Kong is forum non-conveniens.  The Plaintiff is suing the Defendant on a policy of insurance.  The Defendant submits that this should be litigated in Shenzhen.

How the action comes about

2.  The Plaintiff is a company incorporated in Hong Kong.  It is part of the Man Group, a German industrial conglomerate which manufactures in Germany, amongst other things, substantial and expensive printing machinery.  The Plaintiff distributes these printing machines in Greater China which it defines as the People’s Republic of China (“PRC”), Hong Kong, Macau and Taiwan.  With the growth of the PRC market, the Plaintiff has concentrated on that market and has offices in five major cities there.  Perhaps in order to emphasise this it has, since 24 September 2003, re-named itself Man Roland (China) Limited from its previous name of Man Roland (Hong Kong) Limited and it has also given itself a Chinese name using Chinese characters.  This having been said I think it is fair to say that its “epicentre” in this region is Hong Kong, from which it directs its Greater China operations which it has done successfully, so that it now has customers in the PRC who operate printing factories there.

3.  The Defendant is a substantial insurance company incorporated in the PRC.  Its head office is at Beijing.  It also has a branch in Shenzhen which has a significant part to play in the matter that gives rise to this application.  It also has very real connections with Hong Kong, being registered here as a Part XI overseas company and is listed on the Hong Kong Stock Exchange from which it, no doubt, is able to tap into the substantial Hong Kong capital market.  This having been said it should be observed that it does not carry on an insurance business in Hong Kong.  It is prevented from doing so by virtue of the Insurance Companies Ordinance.

4.  As a PRC insurer, it is only one of about four insurance companies in the PRC to provide cover for risks relating to the installation of machinery in the PRC.  As such it is approached by non-PRC customers who require such cover.  These may well be from Hong Kong but are also from elsewhere outside the PRC.

5.  In about August 2003, the Plaintiff wished to arrange insurance cover for the installation of its machinery in Hong Kong, Macau and PRC.  Such policies are designated Erection All Risks (“EAR”) policies.  Its broker in Hong Kong suggested that it should take a policy from Eagle Star for Hong Kong and one from the Defendant for the PRC and Macau.  This was acceptable to the Plaintiff and on 10 August 2003 the Defendant issued such a policy in favour of the Plaintiff.  The designated place of issue for the policy was Shenzhen and the policy was printed on the Defendant’s letterhead issued by the Shenzhen branch.  This policy was subsequently cancelled by the Defendant which then proceeded to issue an identical policy on 19 February 2004, save that the period of cover differed.  Both policies expired on 10 August 2004.  Nothing turns on this, neither does the fact that the Plaintiff has complained that it was not aware of the fact that a new policy had been issued.  This action and this application relate to the 2004 policy.

6.  On 3 November 2003, the Plaintiff entered into a contract to sell one of its German parent’s printing machines Model 906-6LV to Brilliant Printing Limited (“Brilliant”) which it was to install at Brilliant’s factory in Shenzhen.  The cost of the machine was nearly 2.4 million Euros which comes to approximately HK$23.43.  Brilliant would appear to be a Hong Kong company based in Tsuen Wan which carries out its printing processes from its Shenzhen factory.

7.  On 31 May 2004, the Plaintiff installed the machine when in the final stages of the installation process, known as the “registry printing test”, which was being done by a Mr Andrew Leung, an engineer employed by the Plaintiff and a Mr Joy Lee, a technician from the Plaintiff’s Shenzhen office, it was discovered that a screw from within the machine had come loose, fell into the machine and damaged six cylinders in the machine.

8.  In early June 2004, the machine was repaired by means of what is known as a Dalic in situ electroplating method, since when the machine has been operational.  Sometime after this repair some of the repaired cylinders were also replaced.

9.  On 7 June 2004, the Plaintiff informed the insurance brokers Winport, who had by now replaced the brokers who had originally arranged the insurance cover of the claim.  The Defendant then appointed Garson Adjusters and Surveyors to deal with the claim on its behalf.  Garson’s then carried out a thorough investigation which included an inspection of the machine.  On 17 December 2004, Garson’s wrote to the Plaintiff’s solicitors to inform them that they were denying liability on behalf of the Defendant.  This letter is at bundle B, 155-156.  Repudiation was under two broad headings, firstly, a failure by the Plaintiff to provide adequate information as to the method of installation of the machine and its testing, together with supporting documents and, secondly, due to a failure to take reasonable precautions to prevent loss.  The main allegation being that a protective guard had been removed with the ultimate consequence that the screw which had come loose fell into the machine.

10.  It is clear from this that the trial, wherever it is to take place, will be of a highly technical nature with experts being called on both sides, apart from Mr Leung and Mr Lee who did the repairs, as well as the presentation of much technical data which I am told will be in English, more of which later.

11.  Having received this rejection, the Plaintiff has now sued on the policy to be reimbursed for the cost of repairs which exceed $9 million.

12.  The question now is to determine where the case is to be tried.

The relevant legal principles in forum cases

13.  The legal principles are well-settled and, unsurprisingly, Mr Shieh, SC, for the Defendant the applicant for the stay, and Mr Pow, SC, for the Plaintiff, are agreed on those principles.  What is in contention is the effect that the various issues that will need to be determined at the trial will have in deciding the appropriate forum.

14.  The starting point, about which there is also no dispute, is that this court’s jurisdiction to try the action has been properly founded as of right by service on the Defendant at its place of business in Hong Kong.  This being so the Defendant carries the burden of satisfying me that “there is another forum which is clearly and distinctly more appropriate than Hong Kong”.  Mr Shieh has plumped for the Shenzhen Intermediate People’s Court.

15.  Mr Pow starts by submitting that given that Hong Kong’s jurisdiction has been properly invoked as of right the court should not disturb the Plaintiff’s choice of forum in the absence of very good reason to the contrary.  [New Link Consultants Ltd v Air China [2005] 2 HKC 260]  What this means in practice, says Mr Pow, is that if the Defendant fails to satisfy the court that Shenzhen is clearly and distinctly more appropriate than Hong Kong for the trial of the action or, if the matter is equally balanced between the two jurisdictions, then the Defendant will not have discharged the burden and must be taken to have failed.

16.  The prime authority in all such matters is the speech of Lord Goff of Chievely in the Spiliada Maritime Corporation v Consulex (1987) AC 460.  At 476B-D he said that it is for the Defendant to satisfy the court that there is some other available forum, having competent jurisdiction which is the appropriate forum for the trial of the action, i.e., in which the case may be tried more suitably for the interests of all the parties and the ends of justice.  In determining this central question, the court must look to see what factors there are which point in the direction of another forum and determine whether the connecting factors would point to that other forum as being; “that with which the action has the most real and substantial connection”, per Lord Goff in the Spiliada at 478A supra.  As Mr Shieh reminds me, it is not a question of mere convenience but one of “the suitability or appropriateness of the relevant jurisdiction”.  This having been said, it seems to me, that matters of convenience such as the location of witnesses will inevitably sound in the question of “suitability or appropriateness”.

17.  The exercise to be undergone was expressed in this way by Mr Recorder Ma, SC (as he then was) in Rambas Marketing Co. LLC v David Chow [2001] 3 HKC at 255B-C :

“Mere convenience is not enough nor is it enough simply to point to factors which connect a case or the parties to any particular jurisdiction.  The approach … is not just an exercise in loading up with 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.”

The Defendant’s case on connecting factors

18.  At this juncture, I am examining the matter on what is usually referred to as the first stage of what is a three-stage process.  This comes, in Hong Kong, from the Court of Appeal’s decision in The Adhiguni Meranti [1987] HKLR 904 following and applying the principles set out in the Spiliada (ibid).  It is sufficient to observe that in this matter, the application will be one and lost at the first stage.  I will not be required to consider the second or third stages where the Plaintiff, who carries the second stage burden if it fails at the first stage, is not alleging any deprivation of juridical advantage by being forced to litigate in Shenzhen if the Defendant were to succeed at this first stage.

19.  Mr Shieh has identified three factors in particular which will be decisive.  The location of witnesses, the governing law of the contract and the parties place of business.

Witnesses

20.  In this regard the factual issues need to be identified.  The principal feature is the cause or causes of the breakdown of the machinery.  In this regard the Plaintiff’s main factual witnesses will be Mr Andrew Leung, a Hong Kong resident and Mr Joy Lee a Shenzhen resident.  They were present when the machine broke down and both, particularly Mr Leung I would have thought, will have much to say on this matter.  Both witnesses are able to attend the court in Hong Kong but the difference with Mr Lee is that he would be compellable by the Shenzhen court to attend the trial there which would not be the case were the matter to be tried in Hong Kong.  Mr Shieh says that where the Plaintiff has not been fully co-operative (which is denied by it), the Plaintiff may choose not to call Mr Lee.  If that were to be its attitude in Shenzhen, the Defendant could do something about that by taking steps to compel his attendance.

21.  Mr Shieh also points to the fact that a number of Brilliant’s staff were present at the moment of breakdown and some of them may be able to throw light on what may have gone wrong.  There may be some difficulty getting them to come to Hong Kong and perhaps identifying who they are.  The Defendant, as the insurer, has no first hand knowledge of what happened and the PRC’s inquisitorial system is perhaps better placed to look into the matter with that court being able to carry out its own investigations and speaking to the witnesses, which the adversarial common law system in Hong Kong would not be able to achieve.

22.  The other feature of the case is that the machine is physically present in Shenzhen, making it possible for that court to examine the machine itself which would be problematic, although not impossible, for a Hong Kong judge to do.

23.  Overall, Mr Shield submits that evidential convenience would therefore favour Shenzhen.

The governing law

24.  Mr Shieh submits that the proper law of the contract can be, but is not always so, a powerful connecting factor with a particular jurisdiction.  This will depend on the particular issues involved and the degree of difficulty raised by the legal issues.  The more complex the issues, the stronger the connection with the jurisdiction of the law governing the contract.  Here, there is no express statement in the policy as to which jurisdiction’s laws will govern the policy.  In such circumstances, the matter is really a neutral feature which favours neither party.  But, if pushed to it, Mr Shieh would say that PRC law is the proper law of the contract.  He support this with reference to Dicey & Morris at 32-107 :

“In determining the country or system of law with which the transaction had its closest and most real connection, all matters had to be taken into consideration.  The principal matters were the place of contracting, the place of performance, the places of residence or business of the parties and the nature and subject matter of the contract.  Although the greatest weight was given to the law of the place of performance, especially where the contract was made in one country but was to be wholly performed in another, the place of performance was no more than an important consideration in determining the applicable law of the contract.”

Unsurprisingly, Mr Shieh stresses that the machinery was to be erected in Shenzhen and that it is with Shenzhen that the subject matter of the contract has the greatest connection with the result that he has established a good arguable case that PRC law is the proper law.

The place of business of the Plaintiff and the Defendant

25.  In this regard it is submitted that although a Hong Kong company, the Plaintiff is actively involved in the PRC with offices in five cities there.  The Defendant is very much a PRC company.  It transacts no insurance business in Hong Kong.

Conclusion

26.  If one has regard to all of these features and bearing in mind that this policy was issued in the PRC, the machinery is located there, the damage which gives rise to the dispute occurred there and that a number of witnesses are from Shenzhen, who are only compellable before the Shenzhen court, Mr Shieh submits that the Defendant has been able to demonstrate that Shenzhen is clearly and distinctly the more appropriate forum for the resolution of this dispute than Hong Kong.

The Plaintiff’s reply

27.  Mr Pow has sought to analyse the matter under four heads :

(i)	The Defendant’s residence;
(ii)	The issues in the case;
(iii)	The proper law of the contract; and
(iv)	The factors affecting the trial process relative to each issue.

The Defendant’s residence

28.  Mr Pow says that the Defendant has far stronger connections with Hong Kong than it is willing to admit.  It is registered here as a Part XI company and maintains a place of business where it has been served with the proceedings and is listed on the Hong Kong Stock Exchange.  The Plaintiff suggests that these are good grounds for saying that it is active in the Hong Kong insurance market albeit perhaps not in an overt way.  It has a close connection to at the brokers LRW and subsequently with Winport.  It has a “technical support” arrangement with Eagle Star in Hong Kong, the terms of the policy (in English) are identical to those of Eagle Star and the policy is denominated in Hong Kong dollars.  Further, the Defendant admits to serving Hong Kong-based clients.  Overall, Mr Pow submits that these factors serve to establish a real connection with and participation in the Hong Kong insurance market.

Issues in the case

29.  Without a formal defence it is only possible to form a provisional view of the issues at trial.  These appear to be the following :

(1)	Whether the breakdown of the machinery was due to faulty design defective material or casting or bad workmanship other than faults in erection,
(2)	Whether the damage was due to wilful default or negligence caused by the Plaintiff or its representative,
(3)	Whether the Plaintiff has failed to take all reasonable precautions to prevent loss and damage,
(4)	Whether the Plaintiff has failed to supply adequate claim information,

On quantum;

(5)	Whether the loss and damage is of the type which can be repaired to restore the items damaged to their condition immediately before the occurrence of this damage,
(6)	Whether repair by electroplating was sufficient for that purpose or whether replacement cylinders were necessary,
(7)	Whether the sum claimed relates to replacement of six or two cylinders,
(8)	What is the proper cost of electroplating.

All of these issues will need to be considered in relation to the evidence that is expected to be led and the location and identity of the witnesses who will give this evidence.

Proper law of the contract

30.  Although the policy does not have a governing law clause, Mr Pow has made a strong and detailed submission to the effect that Hong Kong law must govern the policy.  He correctly submits that the Defendant needs to show a good arguable case that PRC law governs the contract which it must do with “some degree of assurance at least on a provisional basis”.  See China Reliance Finance Co. Ltd v China Three – Gorge Economic Development Corporation, CACV 296.  In this regard, he seeks to make three points which would tend to show that Hong Kong law applies.  Firstly, that the Defendant has contented itself with the wholesale adoption of the standard terms and conditions of the Eagle Star’s terms it being a Hong Kong insurer.  From this it is submitted that it can be inferred that the parties had chosen Hong Kong law.  Alternatively, he says that when one has regard to all the relevant factors concerning the place of performance of the contract, the place of business of the parties and the subject matter of the policy, Hong Kong has the closest and most real connection.  Lastly, if I were to find that the Defendant has failed to point out any differences between Hong Kong and PRC law, the Defendant will have failed to show a connection in favour of the Shenzhen court.

31.  As to inferred intention to adopt Hong Kong law, Mr Pow points to the Defendant’s real business presence in Hong Kong, to which I have already made reference.  Secondly, that the Plaintiff is a Hong Kong customer and the policy was contracted with it in Hong Kong.  The negotiations were conducted through a broker in Hong Kong, the circumstances indicating that the broker was acting as agent for both parties at that point.  The risk, which is covered as a Hong Kong risk, arising out of a Hong Kong sale of goods between the Plaintiff and its customer in Hong Kong, Brilliant which is based in Tsuen Wan.  This, notwithstanding that the machinery was installed in Shenzhen, the contract is a Hong Kong sale of goods contract which would be sued on in Hong Kong.  Lastly, Mr Pow emphasises the deliberate choice by the Defendant of Hong Kong standard terms and conditions to suit its Hong Kong customer.

32.  As to performance, the policy is silent as to where any indemnity is to be paid but all payments are expressed in Hong Kong dollars.  This is the only currency of the policy.  The premiums are all payable in Hong Kong dollars.

33.  As to residence, the Plaintiff is a Hong Kong company which conducts business from here in China using, as necessary, its PRC branch offices.  As to the subject of the policy, there is of course the Shenzhen connection because the machinery was installed there and the policy was issued by the Defendant’s Shenzhen office and the Defendant is a PRC entity headquartered at Beijing.  These are legitimate factors favouring the Defendant.

How the trial is affected by the issues

34.  Where the evidence will rely heavily on experts who will refer to voluminous technical data and reports prepared in English and whose evidence will be given in English, the connection with the Hong Kong court is considerably strengthened.  In Shenzhen all of this technical material would have to go into Chinese which, although perfectly possible, will add to expense and inconvenience and, with technical matters, translations may sometimes not carry felicitously into Chinese from the original language.  Of the factual witnesses, Mr Leung is a Hong Kong resident as is Mr Ma who was the project team leader.  As to Mr Joy Lee, the Plaintiffs are prepared to make him available.  The loss adjustor’s evidence and the other experts have prepared reports in English and the experts are likely to give evidence in English.  The Defendant has referred to the prospect that some of Brilliant’s employees in Shenzhen were present when the machine broke down and it would be more convenient to have a trial in Shenzhen to accommodate them.

35.  Mr Pow says that overwhelmingly, on the likely trial issues, be it the nature of the evidence and the witnesses who will give that evidence, Hong Kong is the more convenient location for the trial.

36.  Mr Shieh has, of course drawn attention to the location of the machinery in Shenzhen.  Mr Pow has to accept this but says that photographs will be more than adequate together with the many expert reports that speak to the technical data, the damage and its likely cause.

37.  Mr Shieh has also relied on the inquisitorial system which governs the practice of the law in the PRC and how this might be better suited to the gathering of evidence and the interviewing of PRC witnesses which may be difficult for a Hong Kong court which cannot compel the attendance of such witnesses.  This is a matter which undoubtedly needs to be properly weighed by me in determining this matter.

The result

38.  As with the majority of applications of this sort, there are factors which favour both parties, some being weighter than others.  At the end of the day, I am required to make a broad appraisal of the situation, which does not mean overlooking the detail but, giving each of the relevant factors proper consideration, recognizing that some will carry more weight than others.  Ultimately, I must answer a single question which is whether the Defendant has been able to show that not only is Hong Kong not the appropriate forum but that Shenzhen is clearly and distinctly the more appropriate forum for the resolution of this dispute.

39.  I am satisfied that it is the Plaintiff which has demonstrated that the proper law governing this policy of insurance is Hong Kong law.  This is, through and through, a Hong Kong policy for all the reasons that Mr Pow has suggested, I having already set out his principal arguments in this regard.  This factor would immediately weigh heavily in the Plaintiff’s favour and serve to establish a strong and real connection with Hong Kong.  If any terms need to be interpreted then a Hong Kong court would be ideally suited to carry out that task.

40.  I am also satisfied that the Plaintiff is essentially a Hong Kong company which, of course, trades in the PRC but that does not detract from its Hong Kong character.  The Defendant, whilst a PRC insurer, also has a very real presence and connection here through its Part XI status and its listing on the Hong Kong Stock Exchange.

41.  As to the nature of the evidence and the witnesses who will give that evidence all of the principal witnesses will be from Hong Kong and all of the vitally important technical evidence is in English, from Hong Kong witnesses, which would also favour Hong Kong as the place of trial.

42.  Whilst I appreciate that the policy of insurance was issued out of the Defendant’s Shenzhen office and the some of the witnesses, as well as the machinery, are based there I do not believe that these features, when weighed against those which favour the Plaintiff can come close to tip the scales in favour of Shenzhen.  The burden on the Defendant is not an easy one in this case and in my judgment it has failed, by some distance, to show that Shenzhen is clearly and distinctly the more appropriate forum for the trial of this action.  The application must therefore be dismissed with costs.  The order for costs will be an order nisi. 

43.  I would also wish to express my gratitude to both counsel for their assistance, where every single point that could be extracted by either side in support of its case has been brought to my attention.