XU ZIMING v. RUIFENG PETROLEUM CHEMICAL HOLDINGS LTD

HCA 450/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 450 OF 2013

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Introduction

1. The plaintiff is a PRC resident.  The defendant is a Cayman Islands company listed on the GEM board of the Hong Kong Stock Exchange.

2. This action was commenced by writ on 13 March 2013.  On the same day, the Statement of Claim was also served.

3. On 18 April 2013, the plaintiff issued an Order 14 summons seeking to enter final judgment of HK$15,000,000.

4. On 16 May 2013, the defendant issued another summons pursuant to Order 12, rule 8 of the Rules of the High Court seeking to stay this action on the ground of forum non conveniens.

5. By a Consent Summons dated 25 November 2013, the parties agreed to adjourn all proceedings pending the outcome of a winding‑up petition against the defendant.

6. The winding‑up petition against the defendant was later dismissed.

7. The plaintiff then applied to restore these proceedings.  Hence, this hearing to determine the defendant’s stay application.

Factual background

8. The plaintiff’s pleaded case against the defendant is relatively straightforward.  The plaintiff claims that:

(1) the defendant has dishonoured a promissory note payable to the plaintiff in the sum of RMB140,000,000 (equivalent to about HK$175,000,000) (the “Promissory Note”); and

(2) the defendant has dishonoured three cheques in the total sum of HK$15,000,000 (collectively, the “Cheques”).

9. In relation to the Promissory Note:

(1) the defendant was the maker of the note and it was given to the plaintiff;

(2) the note was dated 7 December 2011 and payable to the plaintiff within three months after that date (ie 7 March 2012);

(3) the interest rate is stated to be 5% per annum (Clause 2);

(4) the note is governed by and is to be construed in accordance with the laws of Hong Kong and the defendant agrees to submit to the non‑exclusive jurisdiction of the Hong Kong courts (Clause 6);

(5) on 7 March 2012, the note was presented to the defendant but it was dishonoured; and

(6) notwithstanding the applicability of section 50 of the Bills of Exchange Ordinance, Cap 19 (“BEO”), oral notice and written notice of dishonour were given to the defendant by the plaintiff on respectively 8 March 2012 and 28 December 2012.

10. In relation to the Cheques:

(1) all three cheques were drawn by the defendant on the Wing Hang Bank in favour of the plaintiff and were delivered to the plaintiff by the defendant on 22 August 2012;

(2) they were duly presented for payment on 28 August 2012 and were dishonoured; and

(3) notwithstanding the applicability of section 50 of the BEO, notice of dishonour of the Cheques was given by the plaintiff to the defendant in writing on 18 February 2013.

11. From its affidavit evidence, the defendant admits to the following:

(1) the defendant issued the Promissory Note and the maturity date was 7 March 2012;

(2) the defendant could not repay the amount of RMB140 million due under the Promissory Note by the maturity date;

(3) the defendant issued the Cheques; and

(4) the defendant did not have enough “cash inflow” and the Cheques were dishonoured.

12. It is noteworthy that in the defendant’s affidavit evidence and skeleton submissions, there is no challenge to the validity or the enforceability of the Promissory Note and the Cheques.  The defendant seems to only dispute jurisdiction.  To put it simply, the defendant has not raised or identified any defence to the plaintiff’s claims.  In short, the defendant has not raised any issues to enable the court to look beyond the terms and conditions on the face of the Promissory Note and the Cheques.

13. The defendant’s affidavit evidence also mentioned the following matters that are not disputed as part of the background to these proceedings:

(1) On 14 September 2010, the defendant entered into an agreement with a Ms Ou Aihua to purchase an entity referred to as Foshan Ruifeng which was carrying on the business of oil processing.

(2) Foshan Ruifeng needed cash and started borrowing from banks.

(3) When the bank loans became due, Foshan Ruifeng was unable to make the repayments and had to borrow from private sources to repay the bank loans.

(4) In around October 2011, the plaintiff lent to Foshan Ruifeng, with the defendant as a guarantor, a total sum of RMB 240 million which loan was made through four entities under seven loan agreements (“Loan Agreements”).

(5) Foshan Ruifeng and the defendant were unable to make the repayments under the Loan Agreements.

(6) Inter alios, the plaintiff, the defendant and Foshan Ruifeng entered into a subsequent loan repayment agreement (“Loan Repayment Agreement”) whereby: (a) Foshan Ruifeng issued two cheques in the total sum of RMB 100 million to the plaintiff’s agent in the PRC, and (b) RMB 140 million would be settled by way of a promissory note issued by the defendant with the interest of the note to be negotiated later.

General legal principles

14. The applicable law relating to applications for stay of proceedings in favour of an alternative jurisdiction is well settled and trite.  A helpful summary of the principles are contained in the recent decision of Mimmie Chan J in Ko Nga Chun v Companhia de Desenvol Vimento Wui San Limitada, HCA 277/2012 (Judgment dated 31 December 2013).  At paragraph 13, the learned judge held as follows:

“13. The principles set down in The Spiliada [1987] AC 460, for the stay of proceedings on the ground that some other forum is the appropriate forum, are summarized in paragraph 11/1/10B of Hong Kong Civil Procedure 2014. The court will choose that forum in which the case can be tried more suitably for the interests of all the parties and for the interests of justice. Upon an application for a stay of proceedings, the burden of proof lies on the defendant to show that the court should exercise its discretion to grant a stay. The defendant is required to show not merely that Hong Kong is not the natural or appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than the forum in Hong Kong. In considering whether there is another forum which is more appropriate the court will look for that forum with which the action has the most real and substantial connection, eg in terms of convenience or expense, availability of witnesses, the law governing the relevant transaction and the places where the parties reside or carry on business. If the court concludes that there is no other available forum which is more appropriate than the Hong Kong court, it will normally refuse a stay. If however, the court concludes that there is another forum which is prima facie more appropriate, the court will normally grant a stay unless there are circumstances militating against a stay, eg if the plaintiff will not obtain justice in the foreign jurisdiction. The fact that the granting of a stay of Hong Kong proceedings may deprive the plaintiff of a legitimate personal or juridical advantage available to him under the Hong Kong jurisdiction will not, as a general rule, deter the court from granting a stay if it is satisfied that substantial justice will be done to all the parties in the appropriate forum.” [Emphasis supplied]

15. Further, it is helpful to note the approach of Deputy High Court Judge To (as To J then was) in Botanic Ltd v China National United Oil Corporation, HCA 1852/2005 (Decision dated 25 August 2008).  At paragraph 82, the learned judge had this to say:

“82. … The approach in forum non conveniens applications is not just to load up factors which point to any particular forum, but to take a broad overall view of the factual circumstances bearing in mind the nature of the controversy in dispute and focus on appropriateness from point of view of the trial of the action. It is not just an exercise of balancing the convenience or inconvenience but of determining whether Hong Kong is not only not the natural or appropriate forum for the trial but that there is another forum which is clearly or distinctly more appropriate. The burden of proof is on the defendant and it is a very high burden.” [Emphasis supplied]

The defendant’s position

16. The defendant’s stay application is made on two alternative bases:

(1) The defendant’s primary argument is that the plaintiff’s claim in this action falls within the scope of the exclusive jurisdiction clause in the Loan Repayment Agreement, such that the parties are obliged to litigate this matter in the Chinese courts in Guangzhou.

(2) Alternatively, the Chinese courts in Guangzhou are the most appropriate forum for the trial of this case.

The plaintiff’s response to the defendant’s application

17. Mr Robin D’Souza, counsel for the plaintiff, submitted that the defendant’s application for a stay should be refused because:

(1) The defendant has not identified any defence and there are no real issues which should be tried either here in Hong Kong or elsewhere;

(2) The defendant’s reliance on the jurisdiction clauses in the Loan Agreements and the Loan Repayment Agreement is misplaced and is a red‑herring;

(3) The defendant is unable to overcome the hurdle of the non‑exclusive jurisdiction clause in the Promissory Note; and

(4)  The defendant’s attempt to load up factors pointing towards PRC courts does not assist the defendant in showing that the PRC courts are clearly or distinctly more appropriate than Hong Kong.

18. I agree with the plaintiff’s position.

The lack of defence or arguable defence

19. As noted above, the defendant has not identified any defence to the plaintiff’s claims herein on the Promissory Note and the Cheques.  I agree with Mr D’Souza that this is unsatisfactory.  The court is thus unable to identify what the issues are between the parties, and the court is unable to consider the question of appropriateness of the forum from the point of view of the trial.

20. Stone J encountered a similar situation in Bayer Polymers Co Ltd v Industrial and Commercial Bank of China, Hong Kong Branch [2000] 1 HKC 805, where there was apparently no defence or the defence was lacking in merits.  At page 808C to F, Stone J stated as follows:

“…after reviewing the argument and distinguishing cases wherein there existed an exclusive jurisdiction clause, he noted:

…The position here is different because the Court has a discretion whether to grant a stay. It appears to me that in a case where a defendant has no arguable defence on liability and quantum that would be a strong reason to refuse a stay because, as I said in the Adria Services Y.U. case, there would be no real issues between the parties which should be tried either here or elsewhere.

I agree with this approach. Although there is no O 14 application before me, Mr Yuen has not succeeded in identifying for the court’s consideration any particular case on the merits which his client wishes to put forward, and it seems to me that in such circumstances the court should weigh firmly in the balance the apparent absence of merits on the part of the defendant bank…

In my judgment, therefore, this is sufficient for the plaintiff to win on this head alone…” [Emphasis supplied]

Misplaced reliance on jurisdiction clauses by the defendant

21. Further, I agree with Mr D’Souza that the defendant’s attempt to rely on the jurisdiction clauses under the Loan Agreements and the Loan Repayment Agreement is misplaced and is a red‑herring.

22. The defendant is wholly unable to explain why the court should even consider the Loan Agreements and the Loan Repayment Agreement in the first place, or why the court should have to look beyond the Promissory Note and the Cheques.  It is, of course, trite that the Promissory Note and the Cheques, as bills of exchange, are contracts in their own rights separate from the underlying agreements.

Non-exclusive jurisdiction clause in the Promissory Note

23. On the other hand, the defendant is clearly bound by the non‑exclusive jurisdiction clause under the Promissory Note, where the defendant has expressly stated that it agrees to submit to the non‑exclusive jurisdiction of the Hong Kong courts.

24. I agree with Mr D’Souza that in the present case:

(1) The Promissory Note was issued by the defendant;

(2) The Promissory Note states clearly (in Clause 6) that the defendant agrees to submit to the non‑exclusive jurisdiction of the Hong Kong courts;

(3) Hong Kong courts was the named forum;

(4) The plaintiff initiated proceedings in the named forum;

(5) The defendant now seeks to stay these proceedings for another forum despite having agreed to submit to the Hong Kong courts; and

(6) Despite a very heavy burden on the defendant to discharge, the defendant has not provided any explanation as to why the “non‑exclusive jurisdiction clause” in the Promissory Note should not apply or why the defendant should be entitled to avoid a forum to which it had, by contract, agreed to submit [see: Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd [2008] 5 HKLRD 631 (CA)].

Other factors

25. The defendant submitted that the forum that has the most real and substantial connection with the trial of the present dispute is the Guangzhou court.  The defendant further submitted that the Loan Agreements and the Loan Repayment Agreement are all closely connected to the PRC, in that:

(1) The lenders under the Loan Agreements are all PRC companies/individuals.

(2) The plaintiff is a PRC resident and citizen.

(3) The primary debtor in all the agreements, Foshan Ruifeng, is a PRC company.

(4) The loans were made in RMB and were made to Foshan Ruifeng, for its use in the PRC for its PRC business operations.

(5) The Loan Repayment Agreement was made in the PRC.

(6) The performance of the Loan Repayment Agreement (ie repayment of money) was in the PRC, where the plaintiff is located.

(7) The proper law of the Loan Repayment Agreement should be PRC law.

26. I do not agree with the defendant’s submissions.  In my view, the loading up by the defendant of factors which may point to the PRC as the appropriate forum is quite meaningless, when the defendant has simply failed to state “the nature of the controversy in dispute” between the parties, particularly as regard the Promissory Note and the Cheques sued upon by the plaintiff [see: paragraph 15 above].  In the circumstances, the court is simply not in a position to focus on appropriateness of the forum “from point of view of the trial of the action”.

Disposition

27. For the reasons set out above, I dismiss the defendant’s application under paragraph 1 of its summons filed herein on 16 May 2013.

28. I further order that the time for filing and serving the Defence herein be extended to 28 days from the date hereof.

29. The costs of the application be paid by the defendant to the plaintiff in any event, such costs are to be taxed if not agreed.

30. The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

31. Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.