HALLER AG AND ANOTHER v. HALLER AG AND OTHERS

HCA 2988/2018

[2022] HKCFI 652

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2988 OF 2018

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D E C I S I O N

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A. OVERVIEW

1.  By Summons dated 15 January 2021 the 2^nd defendant, China Meheco Corporation (“D2”), applies for the following order (“Summons”):

(1)   The “Service Out Order” (as defined in §27 below) be discharged;

(2)   The “1^st Extension Order” (as defined in §29 below) and the “2^nd Extension Order” (as defined in §33 below) be discharged;

(3)   A declaration that the Court has no jurisdiction over D2 in respect of the Plaintiffs’ (“Ps”) claims;

(4)   A stay of this action in favour of arbitration pursuant to s.20 of the Arbitration Ordinance (Cap 609) (“AO”); and

(5)   Alternatively, all further proceedings in this action be stayed on the ground of forum non conveniens.

2.  In summary, D2 contends that:

(1)   Ps have failed to satisfy the jurisdictional gateway under O.11 r.1(1)(c) as there is no real or genuine issue between Ps and the anchor defendant (Jurisdictional Gateway Ground).

(2)   There were material non-disclosures in Ps’ ex parte applications for leave to serve out and extension of the writ (Material Non-Disclosures Ground).

(3)   There is a prima facie case that P1’s claims are governed by arbitration clauses in favour of the CIETAC arbitration in Beijing and, as such, the action should thus be stayed pursuant to s.20(1) of the AO (Arbitration Clause Ground).

(4)     The Beijing court, rather than the Hong Kong court, is the most natural and appropriate forum for the present proceedings.  This action should be stayed on forum non conveniens grounds (Forum Non Conveniens Ground).

B.      BACKGROUND

B1.    Parties

3.  The following facts and matters are based on Ps’ case as pleaded in the Amended Statement of Claim (“ASOC”) filed on 11 February 2021 or facts which are not in dispute.

4.  The 1^st Plaintiff, Haller AG (“P1”) and the 2^nd Plaintiff, DFT Deutsche Finetrading AG (“P2”), are companies incorporated in Germany[1].  Mr Dirk Oliver Haller (“Haller”) has been Ps’ CEO.

5.  The 1^st Defendant, Vestey International Group Ltd (“D1”), is a Hong Kong company.  According to the annual return filed at the Companies Registry on 10 April 2014, on 26 June 2013, Mr Michael Rolf Perlitz (“Perlitz”) became the sole shareholder of D1, and was its only director. 

6.  D2 is a State-owned company established in the Mainland[2]. Mr Du Yong Tao (“Du”) is the Manager of D2’s legal department.   

7.  JH Brain GmbH (“JHB”) is a German company controlled and operated by Mr Wang Tao (“Wang”).  It engages in import, export and distribution of food products. 

B2.    Relevant Contracts

8.  By 4 contracts dated between November 2013 and January 2014, Ps agreed to purchase from JHB 4 consignments of bluefin frozen tuna (“4 Tuna Cargoes”), with each consignment being “in transit” by sea from Spain to Hong Kong[3].

9.  Ps in turn entered into 4 contracts in writing entitled “Order Confirmation” whereby they  agreed to sell, and D2 agreed to buy, the 4 Tuna Cargoes upon the terms stated therein (collectively “POCs”).  Details of the POCs are as follows[4]:

Date	Number	Parties	Amount US$
15/11/2013	1209	P1, D2	2,481,705
22/1/2014	1301-2	P2, D2	826,770
22/1/2014	1301-1	P1, D2	828,165
22/1/2014	1302	P1, D2	1,658,190
Total			5,794,830

10.  D2 countersigned and returned the POCs to Ps[5]. This is disputed by D2.

11.  The POCs (and each of them) provided that:

(1)  payment should be made through the documentary collection and bill of exchange methods (clause 7);

(2)  Ps should send bills of lading and non-transferrable bills of exchange to D2 through their respective banks, and D2 should immediately sign, stamp and send the same back to its bank (clause 8)[6]; and

(3)  arbitration in Hamburg[7] (“Hamburg Arbitration Clause”). 

12.  Ps drew 4 bills of exchanges on D2 (“BoEs”) payable at Bank of China Limited’s (“BOC”) head office, and D2 accepted the same by applying its chop thereon together with handwritten notes that it would pay the amounts on the maturity dates.  Details of the BoEs are as follows[8]:

Number	Drawer/ Drawee	Accepted	Maturity	Amount
570168	P1/D2	15/11/2013	31/3/2014	2,481,705
811143	P2/D2	22/1/2014	22/5/2014	826,770
570209	P1/D2	22/1/2014	26/5/2014	826,165
570210	P1/D2	22/1/2014	9/6/2014	1,658,190
Total				5,792,830

13.  On 29 November 2013, 17 and 18 February 2014, D2 (through D1) presented the bills of lading to the carriers and took delivery of the 4 Tuna Cargoes[9].

14.  By 4 “Acknowledgement of Debt” dated 18 November 2013, 23 January 2014 and 21 February 2014 signed by 2 persons on behalf of D2 (collectively “Acknowledgements”), D2 irrevocably:

(1)  confirmed that it had received the 4 Tuna Cargoes;

(2)  acknowledged that it owed Ps the amounts stated in the invoices “free of any objections, set-offs and/or counter-claims.  All known or unknown defenses which do not result from this Acknowledgement of Debt are excluded”; and

(3)  confirmed to make full payments against the invoices at their due dates “by encashment of the accepted Bill of Exchange”[10].

15.  On their respective maturity dates, Ps through National Bank presented the BoEs to BOC for “clean collection”, but the same were dishonoured by D2.  In late 2014 or early 2015, BOC returned the unpaid BoEs to National Bank which, in turn, provided the same to Ps.[11]

16.  On 13 May 2015 Du (on behalf of D2) emailed a purported Tripartite Agreement dated 16 January 2014 made between P1, D1 and D2 in relation to POC 1209, followed by 2 similar Tripartite Agreements in respect of the other Tuna Cargoes (collectively “TPAs”)[12]. The authenticity of the TPAs is in dispute.

17.  Under the TPAs, D2 is entitled to delay or refuse to pay the amounts due under the BoEs until D2 received payments from D1 under the corresponding sub-sale of the 4 Tuna Cargoes[13]. Prior to that, Ps never heard of D1 and did not know about any intended sub-sale of the 4 Tuna Cargoes[14].

B3.    Ps’ claims and D2’s case

18.  On the above bases, Ps claim that they are entitled to payment under the BoEs.  Further, D2 acted in breach of the POCs and is liable to pay the prices under the POCs[15].  

19.  In the ASOC, Ps claim against D1 and D2:

(1)  the prices payable under the POCs[16];

(2)  a declaration that the TPAs “do not exist and the purported copies provided by [D2] to P1 and/or P2, and the ‘original’ documents of which the said copies are copies, are forgeries”[17];

(3)  a declaration that D2 is liable to Ps upon the BoEs, the Acknowledgements and the POCs[18]; and

(4)  alternatively, damages for breach of contract[19].

20.  On the other hand, it is D2’s case that:

(1)   It had entered into an arrangement to purchase tuna from P1[20]. However, D2 never signed the POCs and they were forgeries.  D2 only has possession of Order Confirmations 1209,1301 and 1302(collectively “DOCs”), which were entered into between P1 and D2.  The DOCs did not contain the Hamburg Arbitration Clause.  D2 only knew about the split of Order Confirmation 1301 into 1301-1 and 1301-2 when Wang told D2 that P1 had made a mistake in submitting the documents to the bank, and 1301-1 and 1301-2 were for use at the bank only.  D2 did not sign them[21].

(2)   For each DOCs, D2 entered into a sales contract with D1 for resale of the same tuna with a small profit margin (collectively “Sub-Contracts”).

(3)   P1, D1 and D2 executed the TPAs in respect of each of DOCs.  Clause 3 provided that D2 would only be liable to pay P1 after D1 had paid D2.  Clause 5 contained an arbitration clause in favour of CIETAC arbitration in Beijing (“CIETAC Arbitration Clause”).

(4)   Since D1 had not paid D2 for the tuna purchased, D2 was under no obligation to pay Ps[22].

21.  It is common ground that the parties never communicated directly with each other when they entered into the relevant agreements, and all communications were made through Wang[23]. 

B4.    Hamburg Arbitration

22.  On 3 June 2015, Ps commenced an arbitration in Hamburg against D2[24] (“Hamburg Arbitration”).  D2 challenged the jurisdiction of the Hamburg arbitral tribunal (“Hamburg Tribunal”) on the basis that D2’s signatures on POCs were forged. 

23.  After hearing factual evidence and expert evidence on handwriting[25], on 12 and 20 December 2018, the Hamburg Tribunal issued 4 arbitral awards in respect of Ps’ claims based on each POCs and found that there was a lack of evidence to prove that D2’s signatures on the POCs were genuine, and declined jurisdiction to hear Ps’ claims.

B5.    Service out and extension of writ

24.  On 27 December 2018, Ps issued the writ in this action against D1, D2 and BOC. 

25.  On 20 September 2019, Ps served the writ on D1 and BOC in Hong Kong[26].

26.  On 8 October 2019, Ps applied ex parte for leave to issue a concurrent writ and to serve the same on D2 out of jurisdiction relying on the affidavit made by their solicitor, Mr John Xavier Butler (“Butler 1^st”).  Leave was sought under the “proper or necessary party” gateway (O.11 r.1(1)(c)) on the basis that D1 and BOC are anchor defendants[27].

27.  On 15 October 2019, Master Grace Chan granted leave to Ps to issue a concurrent writ and serve the same on D2 at its address in Beijing in the Mainland (“Service Out Order”). 

28.  On 4 December 2019, Ps filed an affidavit of their solicitor, Mr Andrew David Horton (“Horton 1^st”), in support of an ex parte application for extension of the writ for 6 months.  The “good reasons” for seeking extension were that:

(1)  the Hamburg Tribunal had declined jurisdiction to hear the dispute in December 2018;

(2)  although Ps had served the writ on D1 and BOC on 20 September 2019, they had yet to hear from the Court as regards the application for leave to serve out of jurisdiction[28].

(3)  D2 admitted the sums claimed before it produced the TPAs which were forgeries and, D2 is a necessary and proper party to the action; and

(4)  The process of serving a defendant in the Mainland can take over a month and, there is a risk that the writ would expire before it could be served in the Mainland.   

29.  On 13 December 2019, Master Lai extended the validity of the writ for 6 months from 26 December 2019 to 26 June 2020 (“1^st Extension Order”).

30.  On 8 January 2020, the concurrent writ was issued against D2.  On 13 January 2020, Ps’ solicitors requested the Registrar to serve the concurrent writ on D2 through the Judicial Authorities of the Mainland (“Request”).  However, the courts were closed during GAP[29] from 29 January 2020 to 4 May 2020, and Ps’ solicitors were unable to follow up on the Request.

31.  On 15 May 2020, Ps’ solicitors wrote to the Registrar to enquire about the Request.  On 1 June 2020, they received a fax from the Court to the Higher People’s Court of Beijing to follow up on the service out process. 

32.  On 22 June 2020, Ps’ solicitors enquired about the service but was told that the Beijing court had not responded.  On the same day, Ps filed Butler 2^nd in support of an ex parte application for a further extension of the writ for 6 months “as a precautionary measure” for the same reasons stated in Horton 1^st.

33.  On 7 July 2020, Master Chow extended the writ for 6 months, up to 26 December 2020 (“2^nd Extension Order”).

34.  On 28 July 2020, the concurrent writ was served on D2 out of jurisdiction in Beijing[30].  On 19 August 2020, D2 through its solicitors acknowledged service of the writ.

B6.    Claim against D1

35.  On 19 October 2020, Ps discontinued their claims against BOC.

36.  On 21 December 2020, Ps filed their statement of claim (“SOC”) seeking payment of the amounts due under the POCs or the BoEs.  The prayer did not refer to either of the defendant.   

37.  On 15 January 2021, D2 issued the Summons.  In Du 1^st filed on 27 January 2021, he said that in the SOC,  no claim or relief is pursued against D1[31].

38.  It was only until 11 February 2021 when the ASOC was filed that the material facts directed against D1 were added viz., (1) the allegation that the TPAs were forgeries; (2) the claim is made against both defendants; and (3) a declaration that the TPAs were forgeries.

C.      DISCUSSION

C1.    Jurisdictional Gateway Ground

39.  The principles governing application for leave to serve a foreign defendant out of the jurisdiction are well-established. 

40.  The applicant has to satisfy the Court that (1) there is a good arguable case that the case comes within the gateway; (2) there is a serious issue to be tried on the merits of the case; and (3) in all the circumstances Hong Kong is clearly or distinctly the appropriate forum for the trial of the dispute (Fong Chak Kwan v Ascentric Limited [2021] 6 HKC 401 §12; Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd[2012] 1 WLR 1804, §71, per Lord Collins). 

41.  Where the applicant relies on the “proper or necessary party” gateway (O.11 r.1(1)(c)), the applicable principles are stated in Nilon Ltd v Royal Westminster Investments SA [2015] BCC 521, §15[32], per Lord Sumption:

“In AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2011] UKPC 7; [2012] 1 WLR 1804 the Judicial Committee also set out the principles applicable to the ‘necessary or proper party’ head of jurisdiction (at [73] et seq.), and emphasised these points:

(1)      The necessary or proper party head of jurisdiction was anomalous, in that, by contrast with the other heads, it was not founded upon any territorial connection between the claim, the subject matter of the relevant action and the jurisdiction of the English courts.

(2)      Caution must always be exercised in bringing foreign defendants within the jurisdiction under that head, and in particular it should never become the practice to bring in foreign defendants as a matter of course, on the ground that the only alternative requires more than one suit in more than one different jurisdiction.

(3)      The fact that the defendant within the jurisdiction (D1 or the ‘anchor defendant’) is sued only for the purpose of bringing in the party outside the jurisdiction (D2) is not fatal to the application for permission to serve D2 out of the jurisdiction, but it is a factor in the exercise of the discretion.

(4)      The action is not properly brought against D1 if it is bound to fail.

(5)      If a question of law arises on the application which goes to the existence of jurisdiction, the court will normally decide it, rather than treating it as a question of whether there is a good arguable case.

(6)      The question of the merits of the claim is relevant to the question of whether the claim against D1 is ‘bound to fail’ and to the question whether there is a ‘serious issue to be tried’ in relation to the claim against D2; and there is no practical difference between the two tests, and they in turn are the same as the test for summary judgment.

(7)      In considering the merits of the claim, whether the claim against D1 is bound to fail on a question of law should be decided on the application for permission to serve D2 (or to discharge the order), but it would not normally be appropriate to decide a controversial question of law in a developing area, particularly because it is desirable that the facts should be found so that any further development of the law should be on the basis of actual and not hypothetical facts.

(8)      The question whether D2 is a proper party is answered by asking:

‘supposing both parties had been within the jurisdiction would they both have been proper parties to the action’”

42.  Mr Johnathan Chang SC (leading Ms Adela Mao) does not dispute the above principles but emphasises that:

(1)  an anchor defendant should not be used as a “jurisdictional trojan horse” to allow the plaintiff to bring in a foreign defendant (Inchcape JDH Ltd v Baltrans Exhibition and Removal Ltd [1997] HKLRD 1278 at 1282B-C); and

(2)  it would not be in the interest of justice to “serve the protagonist out of the jurisdiction because the minor player is domiciled within the jurisdiction”.  To do so would be to “allow the tail to wag the dog” (JSC BTA Bank v Granton Trade Ltd [2010] EWHC 2577 (Comm) §28).

43.  Mr Chang submits that D1 is being used as a “jurisdictional trojan horse” to bring in D2 for the following reasons. 

44.  First,it was only after D2 had taken out the Summons that Ps amended the SOC to seek a declaratory relief against “both Defendants” that the TPAs did not exist.  Ps’ claim against D1 was plainly an afterthought and artificially added in an attempt to bring in D2 to the jurisdiction.

45.  Second, the ASOC does not disclose any “real issue” or “serious issue to be tried” between Ps and D1 given that:

(1)   The only relief sought against D1 is a declaration that the TPAs provided by D2 to P1 are forged, which is an allegation directed only at D2, not D1.  Ps does not allege that D1 was complicit in the alleged forgery.   

(2)   In his affirmation filed in HCMP 146/2018 on 31 January 2018 (“Perlitz 1^st”)[33], Perlitz said that he had never signed the TPAs or instructed anyone to do so.  D1 is not contesting Ps’ claims and is in substance a co-plaintiff.

(3)   There is no prospect of the Court granting the declaration against D1 as it has no utility against D1 in light of the sole director’s confirmation that he had never signed the TPAs, and Ps did not assert a belief that it would face any claim by D1 against them (cf. Citigroup Global Markets Ltd v Amatra Leveraged Feeder Holdings Ltd & Ors [2012] 2 CLC 279 at §§37-38, 58-59).   

(4)   In view of Perlitz’s stance, there is no prospect of D1 taking any step to oppose Ps’ claim, and no one else has authority to cause D1 to oppose the claim.

46.  Third, Ps failed to comply with O.11 r.4(1)(d).  In Butler 1^st, there was no statement to the effect that there was a real issue between Ps and D1 which was reasonable for the Court to try.  It lends further support to D2’s case that even Ps accepted there is no genuine dispute between Ps and D1 in this action.

47.  Mr Edward Alder, counsel for Ps, submits that there is a real issue between Ps and D1 in that:

(1)  The issue is the existence of the TPAs (and their effect on D2’s obligation to pay under the BoEs).  This is the same issue which Ps seek to try against D2.

(2)  D2 asserts that the TPAs are genuine and relies on them as the bases for refusing payments under the BoEs.  D1 is obviously a proper party to that claim as it was one of the parties to the TPAs.  Indeed, the action would be mis-constituted without D1.

(3)  The mere fact that the anchor defendant is sued only for the purpose of bringing in the foreign defendant is not fatal to the application (Altimo Holdings, §§76-79). If the claim against D1 is properly brought and constituted, Ps’ motive is irrelevant.  The claim for declaratory relief has to be tried somewhere.  If it were Germany, Ps would need the German equivalence of leave to serve out for both D1 and D2.  Hong Kong is D1’s home jurisdiction and is a perfectly proper place to bring this action.  This is not a “Trojan Horse” case as D2 asserts. 

(4)  The claim against D1 raises a serious issue to be tried and would survive a striking out, which is a very low standard.

(5)  The merit of Ps’ case on the TPAs is overwhelming.  Whether a declaration will be granted in the Court’s discretion is a matter for trial.

48.  The test for “necessary or proper party” is the same as an application for joinder under O.15 (Altimo Holdings, §87).  The “fundamental rationale” is to facilitate the trial of a common question of law or fact (Inchcape JDH Ltd, 1286C-D).  This is obviously satisfied as D2 was the 3^rd party to the putative 3-party agreements.  It is appropriate that a declaration on the validity of the TPAs be tried amongst, and the outcome bind, all 3 parties.   

49.  As for the foreign non conveniens requirement, the existence of proceedings in the forum against the anchor defendant “virtually concludes the issue” (Republic of Angola v Perfectbit Ltd [2018] EWHC 965 (Comm) [122] per Bryan J).  The claim must proceed somewhere.  Realistically, Hong Kong is the only place where the claim can proceed against all 3 parties. 

50.  I deal with the points made by Mr Chang in turn. 

51.  I do not think that the claim in relation to the TPAs or the declaratory relief sought were mere afterthoughts or that they were artificially added in an attempt to bring D2 to the jurisdiction, having regard to the following matters:

(1)  When the writ was issued, the Endorsement of Claim already contained statements that Ps had no knowledge of the TPAs and the same are “false and/or fraudulent and have been concocted by [D1] and/or [D2] and/or parties unknown so that [D2] can avoid its payment obligations under the [POCs], which it has admitted per Appendix B”.  A declaration was sought that the TPA “is false and/or fraudulent and is null and void”. 

(2)  In Butler 1^st (§§19-24) Ps asserted that the TPAs were forgeries for the reasons stated therein. 

(3)  In §25 of Butler 1^st, Ps said that they sought a declaration that the TPA is null and void, which affects both D1 and D2. 

(4)  At the time Ps applied for leave to serve out of jurisdiction, they did not know whether the person(s) who had acted on behalf of D1 in signing the TPAs would come forth to uphold the validity of the TPAs and, if so, the bases for doing so.  

(5)  It was on the facts and matters stated in the Endorsement and Butler 1^st that Ps applied for leave to serve out of jurisdiction under the “necessary or proper party” gateway. 

52.  I do not consider the matters pleaded (or not pleaded) in the SOC supports Mr Chang’s contention that Ps’ claim in respect of the TPAs was an afterthought, as it was filed on 21 December 2020, that is, 14 months after the Service Out Order had been granted. In any event, the SOC has since been amended to re-introduce the averments in relation to the TPAs and the declaration that the TPAs are forgeries, in line with what were stated in the Endorsement and Butler 1^st.   

53.  I turn to the requirement of “real issue”.  In my view, there is a real issue and a serious issue to be tried between Ps and D1 as to the authenticity and validity of the TPAs. There are 3 main reasons for this.

54.  First, although Perlitz confirmed (in Perlitz 1^st) that he had never signed the TPAs on behalf of D1, one must not lose sight of the fact that he also said in the same affirmation that until Haller contacted him in November 2017, he had never heard of D1 and never consented to act as its director nor taken transfer of any shares in D1.  He confirmed that he had not given instructions to a corporate secretarial company to file documentation in relation to D1.  The passport number stated in the forms filed at the Companies Registry was that of his old passport which he had provided to his former employer (BSH International GmBH) and he believed that someone who had access to his identity document and his signature had impersonated him and forged his signatures on the documents filed at the Companies Registry and the TPAs. Indeed, he was not in Hong Kong on the date the TPAs were purportedly signed in Hong Kong, and he would never have signed a document in Chinese as he did not understand Chinese. 

55.  If one accepts what was stated in Perlitz 1^st, it would mean that he has never been appointed as a director or shareholder of D1.  It follows that he would not have any authority to act on behalf of D1, and cannot decide whether D1 should contest Ps’ claim. 

56.  As matter now stands:

(1)  It remains unknown who signed the TPAs on behalf of D1, whether D2 had any involvement in the preparation and execution of the TPAs, and whether there was anything which put a “third party” (i.e. D2) on enquiry that the person who purportedly signed the TPAs did not have the requisite authority to do so on behalf of D1[34].

(2)  D2 continues to rely on the TPAs as the main (if not the only) ground in refusing to pay the amounts payable under the BoEs.  D2 does not accept that the TPAs were forgeries or that they are void.  In effect, D2 is seeking to uphold the TPAs as against D1 and P1 on the basis that it had no knowledge of the forgeries, and it dealt with the persons who purportedly signed the TPAs on behalf of D1 and P1 in the belief that they had the apparent authority to act on their behalf.   

(3)  It is artificial to say that there is no real issue on the validity of the TPAs as between P1 and D1, when D2 is a party to the same agreements and has been relying on such agreements as if they are valid and binding upon all parties. 

57.  The issues identified in §56(1)-(2) above are relevant to the question as to whether D2 is entitled to require P1 to abide by the TPAs, and not to demand D2 to pay the amounts under the BoEs until D2 has been paid by D1.  These issues can only be determined by the Court after considering the parties’ evidence and the documents to be disclosed. 

58.  Second, I am unable to accept Mr Chang’s contention that there is no utility for the Court to grant the declaration sought as between P1 and D1.  The starting point is that a declaration, once granted by the Court, binds all parties to the proceedings.  It is artificial to focus on the position between P1 and D1 alone.  In any event, for the reasons stated in §56(1)-(2) above, D2 will contend that the person(s) who purported to act on behalf of D1 and P1 had proper authority to execute the TPAs on their behalf, both in this action and in any subsequent enforcement proceedings which may be brought by Ps in any other jurisdictions.   

59.  Third, although Butler 1^st did not contain the exact wordings stipulated in O.11 r.4(1)(d), Mr Butler did depose that there are “serious issues to be tried” between Ps and all 3 defendants (at §26), after he set out the reasons for asserting that the TPAs were forgeries and seeking a declaration against D1 and D2 (at §§19-25).  This is at best a technical irregularity which can be waived by the Court, and I consider that it is appropriate to do so having regard to the merit of Ps’ case against D1 and D2 and the fact that no prejudice (none has been alluded to) has been caused to D2.   

60.  Apart from the “real issue” requirement, Mr Chang does not make any submissions in response to the points made by Mr Alder.  As the points are not in dispute, nothing further needs to be said.

C2.     Material Non-Disclosures Ground

C2.1   Service Out Order

61.  It is common ground that where, as here, Ps applied ex parte for leave to serve out of jurisdiction, they have a duty to make full and frank disclosure of all material facts in the application, and must proceed with the highest of good faith.  The principles may be summarised as follows:

(1)   The Court must be informed of all facts that are relevant to the  weighing question in deciding whether or not to make the order. The test to materiality is an objective one, to be decided by the Court and not by the applicants or their lawyers. 

(2)   The duty of disclosure covers significant factual, legal and procedural aspects of the case, including those adverse to the applicants. 

(3)   Material facts include not only those known to the applicant but also any additional facts which should be known if proper enquiries were made.

(See Hong Kong Civil Procedure 2022, §11/4/22; Tiong King Sing v Sam Boom Peng Yee [2011] 5 HKLRD 651 §13, per Chung J; Re Wang Huimin [2021] HKCFI 3472 §§74-76, per Ng J; Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350, 1356G-H, per Ralph Gibson LJ).

62.  The principles governing the Court’s discretion whether to re-grant an ex parte order discharged on the ground of material non-disclosure, are summarised in Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642 §56 (CA) as follows:

(1)  If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.

(2)  Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order.  That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(3)  The court should assess the degree and extent of the culpability with regard to non-disclosure.  It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order.  Equally, there is no general rule that a deliberate breach will attract that sanction.

(4)  The court should assess the importance and significance to the outcome of the application of the matters which were not disclosed to the court.  In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.

63.  Mr Chang submits that there were material non-disclosures when Ps applied ex parte for the Service Out Order in that:

(1)   They did not disclose the Hamburg Arbitration including the evidence pointing to a lack of evidence to prove that D2 had signed on the POCs and the awards.

(2)   Ps argue that such disclosure was unnecessary because no conclusive findings were made by the Hamburg Tribunal which bind the Hong Kong Court[35]. However, the evidence presented by the parties in the Hamburg Arbitration was relevant to the Court’s assessment of the merits of Ps’ claims, and whether they had a “good cause of action” and “serious issue to be tried” against D2 as Ps represented[36]. A relevant matter must be disclosed even if the Court’s decision may have been the same (Citibank N.A. v Express Ship Management Services Ltd [1987] HKLR 1184 at 1190C). 

(3)   As regards the jurisdictional gateway, Ps did not disclose any potential argument that there is no real dispute between Ps and D1 which, in turn, impacted on whether D1 was a mere “jurisdictional trojan horse” and whether D2 was a “necessary and proper party” to Ps’ claim against D1.  Whilst the writ included a claim against D1 (and D2) for conversion and conspiracy, Ps did not put forward such claim to the Master[37]. In any event, in light of Perlitz 1^st, Ps plainly did not intend to pursue their claim against D1, evidenced by the SOC and ASOC. 

(4)   Ps made no attempt to disclose any factors that might point against Hong Kong as the forum conveniens.  Obvious factors would include those identified in §§106-109 below.

64.  I do not think that the Hamburg Arbitration and the awards rendered were material to the application for the Service Out Order for the following reasons:

(1)  The Hamburg Tribunal only dealt with the question as to whether it had jurisdiction to determine Ps’ claim in reliance on the POCs. 

(2)  The Hamburg Tribunal’s awards do not concern, let alone determine, the substantive issue as to whether or not Ps are entitled to rely on the POCs. Much depends on the circumstances in which Ps received and acted on the POCs, specifically whether the knowledge and acts of the person(s) responsible for liaising between Ps and D2 (including Wang)  can be attributed to, or be regarded as the acts of, Ps and D2. 

(3)  On D2’s own case, it did purchase the 4 Tuna Cargoes albeit pursuant to the DOCs, the terms of which are materially the same as the POCs.  Thus, even if Ps cannot rely on the POCs, D2 would still be liable to pay the amounts due under the DOCs unless the TPAs are valid and binding upon P1.   

65.  As for jurisdictional gateway, for the reasons stated in §§51 - 59 above, I do not accept D2’s contention that there is no real dispute between Ps and D1 or that D1 was a mere jurisdictional “Trojan Horse”.  In any event, Ps did disclose the material facts regarding the TPAs, the bases for asserting that they were forgeries and why D2 is a necessary and proper party to the claim in §§19-25, 29 and 30 of Butler 1^st. 

66.  I do not consider that Ps were under a duty to disclose any factors that might point against Hong Kong as the forum conveniens,  let alone those “obvious factors” identified by Mr Chang for the following reasons:

(1)  The “necessary or proper party” gateway was not founded upon any territorial connection between the claim, the subject matter of the action and the jurisdiction of the Hong Kong court (see §41 above). 

(2)  The existence of proceedings in the forum against the anchor defendant “virtually concludes the issue” as to foreign non conveniens (see §49 above). 

(3)  Ps did mention the material facts relevant to the issue as to whether or not Hong Kong is the appropriate forum to determine the dispute at §§31-37 of Butler 1^st.

(4)  The duty of making full and frank disclosure did not require Ps to identify all conceivable arguments which D2 might raise in an application for a stay on forum non conveniens ground. 

C2.2   1^st Extension Order

67.  Mr Chang seeks to discharge the 1^st Extension Order on 2 grounds:

(1)  The statement in Horton 1^st §28 that “[Ps] were continuing the Hamburg arbitration proceedings against [D2]” was plainly untrue.  This is because the Hamburg Arbitration awards were delivered on 12 and 20 December 2018, prior to issuance of the writ on 27 December 2018.

(2)  Ps failed to draw to the attention of the Court that normally it is not a good reason to extend the writ just because Ps wished to wait for some future development in other proceedings (Pacific Electric Wire & Cable Co Ltd & Ors v Hu Hung Chiu & Ors [2011] 1 HKLRD 1000 at §28).

68.  There is no merit on either ground:

(1)  It was stated in §29 of Horton 1^st that the Hamburg Tribunal had declined jurisdiction in the matter in December 2018. This was a clear statement that the Hamburg Arbitration had already come to an end.  The position was even clearer when one read §30 of Horton 1^st, where he referred to the writ having been issued following the Arbitral Tribunal’s decision to decline jurisdiction.   

(2)  I do not read Horton 1^st as saying that Ps desired to hold up the writ “while some other case is tried or to await some future development”, which was the statement cited by Reyes J in Pacific Electric Wire & Cable Co Ltd, §28.  To the contrary, Ps stated that the Hamburg Tribunal had declined jurisdiction, such that they had to pursue their claims in this action.

C2.3   2^nd Extension Order

69.  Mr Chang argues that there was material non-disclosure when Ps applied for the 2^nd Extension Order in that there was no reference to the potential argument that the limitation period for Ps’ claims under the BoEs had expired at the time of application.  In this regard: 

(1)   The discretion to extend the validity of the writ does not arise unless Ps first establish matters amounting to good reason for extension or at least capable of so amounting (Chow Ching Man & Others v Sun Wah Ornament Manufactory Limited & Others [1996] 2 HKLR 338 (CA), 341B-C). 

(2)   It is incumbent upon Ps to present the relevant limitation points “clearly, unequivocally and comprehensibly” (China Medical Technologies (in liquidation) v Bank of China (Hong Kong) Ltd [2019] 2 HKLRD 710 §§83-84, per Lam VP).  This is because extending the validity of the writ at a time when Ps’ claims were already time-barred deprives D2 of a limitation defence.

(3)   Ps’ pleaded case is that the BoEs were presented for payment on their maturity dates and were dishonoured upon presentation[38].  The maturity date of the 4^th BoE was 9 June 2014.  The limitation period for Ps’ claims, based on the BoEs or POCs, would have expired on 9 June 2020, being 6 years after the maturity date  (s.4(1) of the Limitation Ordinance (Cap 347) (“LO”); McGee, Limitation Periods, 8^th ed, §10.026). 

(4)   The Court should discharge the 2^nd Extension Order and refuse a re-grant so that Ps cannot retain an advantage to which they were not entitled, irrespective of the merits of the application (Excel Courage Holdings Limited, §§56-58; Re Wang Huimin, at §75). 

70.  Mr Alder does not take issue with Chang’s submission that the limitation period applicable to the claim under the BoEs expired on 9 June 2020. Nor does he dispute that Ps did not disclose any potential arguments on the limitation point in Butler 2^nd.  

71.  The failure to disclose the limitation point was material and warrant a discharge of the 2^nd Extension Order.

72.  However, for the reasons set out in §§73 – 80 below, I would exercise my discretion to re-grant an extension on the same term as the 2^nd Extension Order.

73.  First, at the time Ps applied for the 2^nd Extension Order (22 June 2020), the writ was still valid. There was no issue of limitation on Ps’ claim under the BoEs. The key question which Ps had to, and did, address in Butler 2^nd was whether there were “good reasons” for the Court to further extend the writ.

74.  Second, the delay in serving the concurrent writ on D2 in the Mainland were attributed to (1) the mis-communications between the Court and Ps’ solicitors regarding the Service Out Order which resulted in a delay of 2 months; (2) the closure of courts for over 3 months during GAP; and (3) the time taken by the Registrar to make the Request with the Mainland authorities. Thus, there was a delay of 5 months through no fault of Ps or their solicitors. Without this delay, it would not have been necessary for Ps to apply for the 2^nd Extension Order. These were exceptional circumstances which by themselves justify the Court granting the 2^nd  Extension Order.

75.  Third, the non-disclosure was not deliberate. In view of the unexpected closure of the courts and the delay resulting from such closure, it was understandable that in Butler 2^nd, Ps’ solicitors only focussed on explaining the reasons for the delay in making the Request and why the concurrent writ had yet been served on D2. 

76.  Fourth, Ps did present the defence advanced by D2 to their claim. In Horton 1^st (relied upon by Ps in seeking the 2^nd Extension Order), he pointed out the fact that D2 had relied on the TPAs and argued that Ps had agreed that the amounts under the BoEs were not payable until it received the corresponding payment from D1. This means that on D2’s case, there was no breach of the BoEs and no issue on limitation.

77.  Fifth, as matter now stands, Ps do have a strong claim against D2 as the BoEs were ordinarily payable upon presentation.  The burden is on D2 to prove that the TPAs existed and are binding upon P1.  In view of the merit of Ps’ claim and the exceptional circumstances which justified an extension of the writ, had Ps identified the potential argument on limitation, the Master would most likely have come to the same conclusion and granted the 2^nd Extension Order.

78.  Sixth, although not a weighty factor in itself, there is no real prejudice to D2 in the Court re-granting the 2^nd Extension Order. The only prejudice identified by Mr Chang is the fact that Ps are foreign companies and do not appear to have assets in Hong Kong. However, as pointed out by Mr Alder, the action has been funded by the insurer pursuant to the credit insurance obtained by Ps. The insurer is a substantial insurer owned by the German Government.

79.  Seventh, Ps and their solicitors were not guilty of any delay in applying for the Service Out Order or the 1^st and 2^nd Extension Orders.  There is no reason why Ps should be deprived of the benefit of the writ.

80.  Lastly, I consider that the appropriate and proportionate remedy to reflect the fact that Ps were guilty of material non-disclosure would be to order Ps to pay the costs of and occasioned by the discharge,  of the 2^nd Extension Order and a re-grant of an order in the same terms (“Costs of Re-grant”), to be paid on indemnity basis.  

81.  By letter dated 18 February 2022 to the Court, Ps’ solicitors sought to re-open the Summons and adduced new evidence in the form of the 2^nd Affidavit of Haller (“Haller 2^nd”) which, they said, is relevant to the limitation point. Ps’ solicitors said that after the hearing, their clients had provided some new documents to them which showed that:

(1)   The parties continued to negotiate on 4 draft Prolongation Agreements (in English) made between D2 and P1 or P2 (collectively “draft PAs”) from early June 2014 to mid-July 2014;

(2)   The draft PAs had been signed by Ms Sun Jia (“Sun”) and bore D2’s chop and were sent to Ps in mid-July 2014 (“1^st PAs”). In clause C thereof, D2 acknowledged that the outstanding debts owed in respect of the BoEs and/or the POCs;

(3)   Subsequently, Ps “counter-offered” by sending the revised PAs, with more detailed terms, to D2 (“2^nd PAs”);

(4)   D2 then put forward a further revised PA dated 24 July 2014 in respect of POC 1209, which was signed by Sun and bore D2’s chop (“3^rd PA”);

(5)   As D2 has acknowledged the debts in the PAs, Ps are entitled to rely on s.23(3) of the LO, which provides that the right of action to recover any debt “shall be deemed to have accrued on and not before the date of the acknowledgement”. It is unnecessary for Ps to have counter-signed the PAs;

(6)   On the above bases, the limitation period for the debts under the BoEs and/or the POCs expired at the earliest on 24 July 2020;

(7)   Further, there was subsequent acknowledgement in September 2014. Reliance is placed on §3.4 of the statement of claim filed in Hamburg Arbitration (“Hamburg SOC”) where Ps pleaded that “[D2] also asked [P1] in September 2014 to make an agreement clarifying that partial payments on the outstanding purchase price could also be made by a subsidiary of [D2]”. D2 did not deny this fact; ; and

(8)   There was thus no occasion for Butler 2^nd to raise the limitation point at the time Ps applied for the 2^nd Extension Order.    

82.  Directions were given for D2 to file affidavit in response to Haller 2^nd and a further hearing for the parties to address the Court on the limitation point.

83.  As pointed out by Mr Chang, the so-called new evidence was something which D2 dealt with in §37 of Zhou 1^st, where he referred to the discussion between the parties on the PAs and exhibited (1) 4 unexecuted draft PAs emailed from Wang to D2 on 5 June 2014 and (2) an unexecuted PA in respect of POC 1209 sent by Wang to D2 on 22 July 2014 (“Unexecuted PA”). It was open to Mr Alder to refer the Court (at the hearing on 25 January 2022) to the Unexecuted PA and submitted that D2 had acknowledged the debt under POC 1209, such that the limitation period applicable to the claim under the corresponding BoE only expired on 22 July 2020. However, this is only relevant to the question of costs, and has no bearing on the merit of the arguments.

84.  D2’s response to the PAs (and the various versions thereof) may be summarised as follows:

(1)   D2 never signed the 1^st PAs;

(2)   In the Hamburg SOC, Ps’ pleaded case was that the 2^nd PA had not been signed by D2;

(3)   Although in Sun’s email to Wang dated 8 July 2014, she sent the draft PAs prepared by D2’s legal department, they were sent alongside with other draft agreements which described D2 as an agent of D1 and had no obligation to pay Ps until it received payment from D1;

(4)   D2 had since 10 April 2013 ceased to use the chop appearing in the 1^st PAs and the 3^rd PA;

(5)   Sun (who has left the employment of D2) Ma Huimin (in-house counsel of D2) that she “would not have signed” any of the PAs as the same had not been confirmed by the parties;

(6)   In any event, Sun acting alone did not have authority to sign any PAs on behalf of D2. Consistent with this, the Sales Contracts, the DOCs and the TPAs were all co-signed by Sun and Zhou; and

(7)   As D2 never executed any of the PAs, there was no acknowledgement in writing of the debts capable of extending the limitation period under s.24(1) of the LO.  

85.  At the hearing, Mr Alder submits that the email dated 8 July 2014 and the draft PAs attached thereto constitute acknowledgement in writing as required by s.24(1) of the LO. As I understand his argument, the mere fact that D2 has come up with and sent to Wang the draft PAs with Clause C was sufficient to constitute acknowledgement in writing in respect of the debts. It is not necessary for D2 to have signed the PAs.

86.  I am unable to accept the submissions given that:

(1)   the draft PAs were sent alongside with (a) the draft 延期付款協議 (defer payment agreement) between D1 and D2; and (b) the draft 確認書 (confirmation letter) to be signed by P1, P2, D1 and D2 which stated, inter alia, that if D1 did not pay the amounts in full, D2 had the right to refuse paying the amounts under the POCs. One cannot just focus on Clause C in the draft PAs and ignore the contents of the other draft agreements sent to Wang at the same time; and

(2)   where, as here, the factual issues are hotly disputed between the parties, it is necessary to consider all the emails and draft agreements exchanged between the parties to see whether there is “a sufficiently clear admission or acknowledgement” (Limitation Periods, 8^th ed., §18-025).

87.  In light of the conflicting evidence adduced the parties, it is not possible to form any definitive view as to whether or not the executed PAs relied on by Ps (and hence the acknowledgments of debts) were valid and binding upon D2. It suffices to say that it appears from the chain of correspondence exchanged that Sun was the person acting on behalf of D2 in negotiating with Wang on the terms of the PAs, and D2 did not take issue with the acknowledgement contained in Clause C of the various versions of draft PAs throughout July 2014. This lends support to Ps’ contention that there was an acknowledgement of the debts payable under the BoEs on 8 July 2014 or 22 July 2014. The acknowledgement was in writing and if signed by D2, the limitation period would only began to run from July 2014.

88.  In the end, I do not find the new evidence to have any bearing on my holding that there was material non-disclosure at the time Ps applied for the 2^nd Extension Order. The fact remains that Ps did not deal with the limitation point in any way, let alone by reference to the PAs.

89.  However, the new evidence adduced by Ps and D2 do show that by July 2014, the parties were still negotiating on the terms of the various draft agreements and no reference whatsoever was made to the TPAs which, according to D2, had already been signed by Ps, D1 and D2 6 months ago (on 16 January 2014).  This reinforces my preliminary view that Ps do have a strong claim on the BoEs.

C3.    Arbitration Clause Ground

90.  Section 20(1) of AO recites Article 8(1) of the UNCITRAL Model Law, which provides that:

“A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

91.  A stay under s.20 is mandatory where the applicant shows a prima facie or plainly arguable case that (1) an arbitration agreement exists; (2) the arbitration agreement is capable of being performed; (3) there is in reality a dispute or difference between the parties, and (4) the dispute is within the scope of the arbitration agreement. Unless the point is clear, the proceedings should be stayed for arbitration (Magnus Leonard Roth v Vitaly Petrovich Orlov [2020] HKCFI 525 §§20-23, per Anthony Chan J; PCCW Global Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309, §§49-60, per Tang VP (as he then was)). 

92.  In the present case, what divide the parties is whether the first and fourth requirements are met. 

93.  Mr Chang submits that both requirements are met for the following reasons. 

94.  First, there is no authority in Hong Kong on the standard to which D2 must prove where one party alleges that the arbitration agreement is forged. The Hong Kong court should adopt the approach of the Singapore courts:

(1)   Singapore approach: Once the applicant shows a prima facie basis that the arbitration agreement existed, the court proceedings would be stayed and the matter would go to the arbitral tribunal to decide whether such existence could be established on the usual balance of probabilities standard (Malini Ventura v Knight Capital Pte Ltd [2015] SGHC 225 §36).

(2)   English approach: The court must itself be “satisfied” that the arbitration agreement existed, either by deciding the issue using available evidence or by directing a trial on the issue (Albon (t/a NA Carriage Co) v Naza Motor Trading Sdn Bhd [2007] 2 All ER 1075 §14 and §16). 

(3)   The Singapore approach is more consistent with the AO’s legislative design and should be adopted in Hong Kong. 

(4)   The English statutory regime is different.  Rule 62.8(3) of the English Civil Procedure Rules (which replicates O.73 r.6(2) of the then Rules of the Supreme Court) empowers the court to decide whether an arbitration agreement has been concluded, or to give directions to enable it to be decided. 

(5)   No such provision exists in Hong Kong (PCCW Global Ltd §60). 

(6)   The Hong Kong position is that unless the point is clear, the court should not attempt to resolve the issue. It is for the arbitral tribunal to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement (Wing Bo Building Construction Co Ltd v Discreet Ltd [2016] 2 HKLRD 779 §48; Lau Lan Ying v Top Hill Co & Another[2021] HKCFI 290 §37, per Marlene Ng J).

(7)   Unlike the English regime which gives court the primacy to determine the existence and validity of arbitration agreements, both Hong Kong and Singapore adopt Article 16 of the UNCITRAL Model law, which provides that an arbitral tribunal may rule on the “existence or validity of the arbitration agreement” (see s.34(1) of AO; Singapore International Arbitration Act s.3(1)). This embodies the “competence-competence” principle, which dictates that an arbitral tribunal is deemed competent to rule on matters of its own jurisdiction (Lau Lan Ying §37). The same primacy for arbitral tribunals applies in Singapore (Malini Ventura §36). 

95.  Second, the available evidence establishes at least a prima facie case that the TPAs had been signed by P1.  The existence of the TPAs is consistent with the following contemporaneous emails exchanged between D2 and Wang:

(1)   The email dated 18 November 2013 to Ms Sun Jia (D2) where Wang said that a TPA already executed by P1 would be sent to D2 for counter signature.  All parties agreed that Wang was D2’s only point of contact with Ps regarding the transactions[39].

(2)   The email dated 18 November 2013 from Ms Sun Jiujiang (Wang’s assistant) to D2 requesting counter signature of the attached TPA for DOC 1209, which had already been executed by P1 and D1.

(3)   The email dated 21 January 2014 from Wang, requesting D2 to sign the TPAs for DOC 1301 and 1302 which had already been executed by P1.

(4)   The email dated 22 April 2015 from D2 to Wang, stating that the TPAs would be provided to Euler Hermes AG (a German company providing credit insurance cover for Ps) in response to their payment demand.

96.  Third, the 3 reasons given by Ps are not sufficient to establish a clear case that the TPAs were forgeries:

(1)   Ps argue that the TPAs were “uncommercial” for P1[40]. However, the mere fact that an agreement may be unfavourable to one party is no reason for suggesting that the agreement is forged.  Commercially, parties often agree to bear more risks for greater rewards.  P1’s price margins were much greater than D2’s modest fees[41]. The fact that P1 obtained full credit insurance over 95% of the shipment value[42] lends support to the commerciality for P1 to enter into the TPAs. 

(2)   Ps claim they had no knowledge of and had not entered into the TPAs.  This stands to be tested at trial. 

(3)   Ps rely on Perlitz 1^st to contend that D1 had no valid directors or shareholders who could have executed the TPAs at the time[43].  Again this stands to be tested at trial. 

97.  Fourth, the Hamburg Arbitration demonstrated the importance of expert handwriting evidence, which would put the forgery allegations to rest.  As no expert handwriting evidence has been filed, the Court is not in a position to rule on the genuineness of the TPAs.

98.  Lastly, forgery is a serious allegation requiring proof by cogent evidence.  No such evidence was adduced to rebut D2’s prima facie case that an arbitration agreement exists.  The issue should be left to the arbitral tribunal to decide.

99.  On the other hand, Mr Alder submits that:

(1)  The second element for a stay under s.20(1) viz., “the agreement is null …” is preceded by the words “it finds that” where “it” means the Court.  This is unlike the first element “in a matter”and “which is the subject of an arbitration agreement”.  The wording of the section appears to give the Court more work to do in determining the second element, that is, the Court must make (or decline to make) a finding.

(2)  Where there is a dispute as to the existence of an arbitration agreement, the onus is on the applicant to show that there is a good prima facie or plainly arguable case predicated on cogent evidence that an arbitration agreement exists (Pacific Crown Engineering Ltd v Hyundai Engineering & Construction Co Ltd [2003] 3 HKLRD 440, §16, per Burrell J, applied in PCCW Global Ltd).

(3)  The approach of the Singapore court is similar to that of Hong Kong (Malini Ventura).

(4)  The English court has 4 “options” in terms of what determinations it may make or what should be left to the arbitral tribunal.  As regards burden of proof and the applicable tests, the learned authors come down in favour of an approach similar to the Hong Kong (Merkin & Flannery on the Arbitration Act 1996, 6^th ed, 2020, §§9.1-9.9).

(5)  Where the party resisting the stay asserts solely that the arbitration agreement itself is a forgery, the English Court is very likely to resolve that issue itself and not send it to the arbitral tribunal (Fiona Trust & Holding Corp v Privalov [2008] 1 Lloyd’s Rep 254, §17, per Lord Hoffmann; Albon (No.3), §§14-23, per Lightman J, applied in Albon v Naza Motor Trading (No. 4) [2008] 1 All ER (Comm) 351 §4, per Longmore LJ; Merkin §9.7.3 p.180). 

(6)  Although there is no Hong Kong case directly on point, the following authorities are instructive:

(a)  LexisNexis Annotated Arbitration Ordinance [20.11] and [34.07] suggest that the English approach applies to cases where the arbitration agreement itself is said to be forged.

(b)  In T v TS [2014] 4 HKLRD 772 where the defendant sought a stay, Mimmie Chan J acceded to the submission that the Court should determine finally whether an arbitration agreement (which the plaintiff admitted existed or previously existed) had become inoperative, and resolved the matter.

100.  It seems to me that save for the absence of rule 62.8(3) of the CPR, the English regime is not so different from that of Hong Kong/Singapore:

(1)   Under s.9(1) of the Arbitration Act 1996, “A party to an arbitration agreement against whom legal proceedings are brought…in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter”. Section 9(4) provides that “the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed”.

(2)   The 2 issues which the court has to consider, as mandated by s.9 of the Act, are: (a) whether the matter “which under the agreement is to be referred to arbitration” and (b) if so, whether the court is “satisfied” that the agreement is null and void, inoperative or incapable of being performed.  

(3)   The same 2 issues fall to be considered under s.20(1) of the AO viz., (a) whether the dispute is “the subject of an arbitration agreement”; and (b) if so, whether the court “finds” that the agreement is null and void, inoperative or incapable of being performed.

101.  Although counsel put the points in different ways, the consistent theme running in all the authorities cited is that where one party alleges that the arbitration agreement was a forgery, if the issue cannot be resolved on the evidence available, the court would have to decide whether to resolve the issue or stay the action so as to enable the issue to be resolved in arbitration. In such situation, the stay is granted by the court in the exercise of its inherent jurisdiction, rather than a stay under the equivalent provision of s.20 of the AO (Albon (No.3), §§13-16 & 23-24, per Lightman J; Malini Ventura, §§30-34). In deciding whether to grant such a stay, the Court requires the party seeking a stay to show at least a prima facie case that the arbitration agreement existed. Such requirement is necessary,  otherwise a party can simply derail an action commenced by the other party by producing a forged arbitration agreement, and asks the court to stay the action in favour of a forum which the other party never agreed to.    

102.  As matter now stands, I do not think that there is a prima facie case that the arbitration agreement existed:

(1)  The position of D2 is curious.  On the one hand, it contends that there is no real dispute between P1 and D1 as to whether the TPAs were forgeries, apparently in reliance on Perlitz 1^st.  However, when it comes to a stay, its stance is completely opposite in that D2 effectively asks the Court not to accept the evidence in Perlitz 1^st.  It is not open to a party to blow hot and cold on the same factual issue. 

(2)  In any event, for the reasons set out in §§53 - 56 above, the preponderance of the evidence (which has not been challenged by D2) shows that the TPAs were in all likelihood the products of forgeries in that someone had forged the signature of Perlitz without his knowledge or consent.

(3)  The emails adduced by D2 (summarised in §95 above) only show that Wang (and those acting at his behest) repeatedly represented to D2 that P1 had signed the TPAs. There is no evidence to suggest that P1 was aware of these exchanges or made any representation that Wang had the requisite authority to sign the TPAs on its behalf or that P1 had signed any of the TPAs.

103.  For these reasons, I am not satisfied that there is a prima facie case that the CIETAC Arbitration Clause existed.  It follows that there is no basis for the Court to order a stay of this action in favour of arbitration in CIETAC Beijing, whether under s.20 of the AO or in the exercise of its inherent jurisdiction. 

C4.    Forum Non Conveniens Ground

104.  The principles have been fully stated in SPH v SA (2014) 17 HKCFAR 364 §51.  “The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?” (§51(1)). 

105.  Where the proceedings are not instituted as of right, the burden is on the plaintiff to show, in seeking to persuade the court to grant an order to serve out, that Hong Kong is clearly the appropriate forum for the trial of the action (Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd[2008] 5 HKLRD 631 §22(2), per Ma CJHC (as he then was)).

106.  Mr Chang submits that Hong Kong court is not the natural forum and that Beijing No. 4 Intermediate People’s Court (“Beijing Court”) is the more appropriate forum for 3 reasons.

107.  First, as regards the question of governing law:

(1)   On D2’s case, clause 5 of the TPAs provides that the TPAs, the DOCs and the Sales Contracts are governed by Mainland law. 

(2)   On Ps’ case, the parties’ dealings are governed by the POCs.  Apart from the fact that the destination port of the tuna products was Hong Kong, the transactions between Ps and D2 had no connection with Hong Kong[44].  Applying the 3-stage test in determining the governing law of contracts, the transactions between Ps and D2 could not have been governed by Hong Kong law (Johnston, The Conflicts of Laws in Hong Kong, 3^rd ed., §§5.004-5.009).

(3)   Where the dispute is to be tried under foreign law, trying it in Hong Kong will not only involve the expense of investigating and proving foreign law, but also the risks of Hong Kong court arriving at wrong conclusions of foreign law (張才奎所託管中國山水投資有限公司股份v張才奎 (HCA 1661/2014, 13 May 2015) §76, per Godfrey Lam J (as he then was)).

108.  Second, the key witnesses and documents are outside Hong Kong:

(1)   Neither Ps nor D2 are companies incorporated or based in Hong Kong.

(2)   All of D2’s potential witnesses, including the key handlers of the subject transactions, i.e. Mr Zhou Yinghui and Ms Sun Jia, and Wang all reside in the Mainland[45]. Except Ms Zue Lo, all of Ps’ potential witnesses, including Haller and Perlitz, reside in Germany[46].

(3)   The documents relating to the underlying transactions are located at BOC’s head office and D2’s office, both in the Mainland[47].

109.  Third, as regards the language of the proceedings, Ps’ suggestion that Haller may be handicapped in giving oral evidence in Beijing court[48] is a non-issue.  According to Du, the Beijing Court  is Beijing’s designated court for handling foreign-related disputes, and is fully accustomed to handling translated documents and hearing evidence in foreign languages[49].

110.  Mr Alder submits that Hong Kong is the only place where the action can proceed for all parties[50]. The dispute has the following connections with Hong Kong:

(1)  On D2’s case, the transactions were sales by a German party to a Hong Kong party (D1) and D2’s role was minor.  Perlitz acquires the shares in D1 while he was in Hong Kong;

(2)  The 4 Tuna Cargoes were shipped to Hong Kong;

(3)  It may be necessary to call Ms Lo as a witness and she is based in Hong Kong;

(4)  Save that the 4 BoEs went through the banking system in BOC’s head office, no relevant events took place in the Mainland;

(5)  All correspondence were conducted by D2 via emails sent from the Mainland, but there were many communications from Ps which took place in Germany; and

(6)  The evidence in the case is almost entirely documentary and can be examined anywhere.  The alleged forgeries pertaining to the TPAs is not going to depend on viva voce evidence from P1’s or D2’s witnesses as they are not the forger. 

111.  In my view, Hong Kong court is the more appropriate forum for the trial of this action for the interests of all parties and the ends of justice, having regard to the following matters:

(1)  The existence of proceedings in the forum against the anchor defendant “virtually concludes the issue” (Republic of Angola v Perfectbit Ltd).  See §49 above. 

(2)  Ps commenced this action against D1 as of right.  The claim will have to be tried in Hong Kong as against D1. 

(3)  D1, the anchor defendant, is a Hong Kong company.  The validity of the acts carried out by D1 must be determined in accordance with the law of the place of incorporation (i.e. Hong Kong law).  This is crucial as one of the main issues which divides the parties is whether the TPAs were valid and binding upon P1, D1 and the third party who claimed to have acted upon them (i.e. D2).  The Hong Kong court is best placed to determine this issue in the interests of all parties. 

(4)  On D2’s case, the TPAs were only made between P1, D1 and D2. As P2 is not a party to the TPAs, its claim under the POCs against D2 will have to be tried in this action. 

(5)  Although the POCs and the DOCs did not contain any governing law clause, they provided that Hong Kong was the place for delivery of the 4 Tuna Cargoes.  On D2’s case, it entered into the corresponding Sales Contracts with D1, a Hong Kong company, and the place of performance was in Hong Kong.  Applying the 3-stage test, there is a cogent basis to suggest that the governing law of the POCs (on Ps’ case) and the DOCs (on D2’s case) is Hong Kong law.

(6)  It may be necessary to call the persons who carried out the transfer of shares to Perlitz and his appointment as director of D1 in Hong Kong (including Ms Zue Lo) to give evidence on who had provided the relevant instructions to them.  Although it is not clear at this stage who provided the instructions on behalf of D1, it is not inconceivable that such persons were also involved in obtaining the signatures of P1 on the TPAs.

(7)  Apart from the above issues which concern the TPAs, D2 has not identified any other issue which requires any oral evidence of any witnesses.  As far as documentary evidence is concerned, the Hong Kong court is in as good a position as any court in examining such evidence.

(8)  D2 has not commenced any proceeding in Beijing Court.  There is no evidence to suggest that the Beijing Court will accept jurisdiction to hear Ps’ claim or D2’s counterclaim. There is thus no proper basis to suggest that Beijing Court is the more appropriate forum for the trial of this action. 

(9)  Lastly, if the present action is stayed in favour of Beijing Court, Ps will be deprived of a legitimate advantage as their claim under the BoEs will likely become time barred, assuming the Beijing Court is prepared to accept jurisdiction and considers that the claim under the BoEs is governed by Hong Kong law. 

D.      DISPOSITION AND COSTS

112.  For the reasons set out above, I hold that:

(1)  Ps were entitled to rely on the “necessary or proper party”  gateway under O.11 r.1(1)(c) in applying for leave to serve the concurrent writ on D2 out of jurisdiction;

(2)  Ps were not guilty of material non-disclosures when applying for the Service Out Order and the 1^st Extension Order;

(3)  There was material non-disclosure when Ps applied for the 2^nd Extension Order. However, justice of the case is served by requiring the Court to re-grant an order in the same term as the 2^nd Extension Order;

(4)  There is no prima facie case that the TPAs existed and, therefore, no basis for the Court to grant a stay under s.20 of the AO; and

(5)  The Hong Kong Court is clearly the more appropriate forum for the trial of this action between all parties and in the interest of justice.

113.  The Summons is dismissed. 

114.  As for costs, I make a costs order nisi that:

(1)   D2 do pay the costs of and occasioned by the Summons, save and except (a) the Costs of Re-grant and (b) the costs of and occasioned by Ps’ application to adduce Haller 2^nd including the hearing on 3 March 2022 (“Costs of New Evidence”) on a party and party basis;

(2)   Ps do pay the Costs of Re-grant to D2 on an indemnity basis; and

(3)   Ps do pay the Costs of New Evidence on a party and party basis.

115.  All the above costs are to be assessed by way of gross sum assessment. For this purpose, Ps and D2 shall provide their respective statement of costs within 7 days of this Decision, and the paying party shall provide its comments on the statement, if any, within 7 days thereafter. The parties’ solicitors are invited to consider whether the costs payable by the other would cancel out the costs in its favour, such that there should be no order as to costs in respect of the Summons.