T & K ELECTRONICS LTD v. THE TAI PING INSURANCE CO LTD

1997, No. CL-61

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

COMMERCIAL LIST

_______________

_______________

_______________

J U D G M E N T

_______________

1. This application involves the construction of a foreign jurisdiction clause: more particularly, whether such a clause is to be construed as exclusive in nature absent reference on its face to such exclusivity.

2. The matter arises in this way. The Plaintiff is the assured under two policies of insurance made with the Defendant as underwriter. Under these policies, in consideration of the premium paid, the Defendant agreed to insure goods sold and delivered by the Plaintiff by parcel post from Hong Kong to Johannesburg against all risks of loss, including theft.

3. The inevitable occurred. Both shipments of goods were stolen on 18th January 1996 after collection by the consignees. Under the terms of the policies, the Defendant apparently remained on risk; accordingly, the Plaintiff claimed the sum of HK$2,340,177.61, and the Defendant declined to meet the claim on the basis, I understand, of allegations of material non-disclosure.

4. Be that as it may. Proceedings were issued by Writ dated 20th February 1997, which in turn were met by the Defendant's Summons dated 27th March 1997 for, inter alia, a stay of proceedings. The Summons in question was issued erroneously under Ord. 12 r. 8, whereas what was actually being sought, as Counsel accepted, was a discretionary stay of proceedings under the Court's inherent jurisdiction. No procedural point was taken, and in argument the application was mounted on two distinct bases, first, that the proceedings were issued and served in breach of what was contended to be an exclusive foreign jurisdiction clause, and second, on well-known Spiliada principles (Spiliada Maritime Corp. v. Cansulex Ltd., [1987] 1 AC 460 (H.L.).)

5. Of these two grounds, the thrust of the argument at the hearing went to the issue of the alleged exclusivity of the clause. This particular clause in question, which was in like terms in each of the policies, read as follows:

"This insurance is subject to English Jurisdiction."

6. The existence in a contract of an exclusive foreign jurisdiction clause is of considerable significance in arguments as to whether jurisdiction, which otherwise plainly exists as of right, should be exercised over a civil dispute; in instances where such an exclusive jurisdiction clause exists, the Court retains a discretion whether to grant a stay of proceedings brought in breach of such clause, "but the discretion should be exercised by granting a stay unless strong clause for not doing so is shown": per Lord Goff in The Pioneer Container, [1994] 2 AC 324 (at 347F), a decision of the Privy Council on appeal from the Hong Kong Court of Appeal. The importance attached to the presence of an exclusive foreign jurisdiction clause derives from the principle that parties should abide by their agreements, so that, if such a clause exists, the starting point is that proceedings should be stayed, the burden of proof then being on the Plaintiff, which has commenced proceedings in breach of such contractual term, to show why a stay should not be granted.

7. How, then, is the issue of the exclusivity or otherwise of such a clause to be approached? As Staughton L.J. noted in Sohio Supply Co. v. Gatoil (USA) Inc., [1989] 1 Lloyd's L.R. 588 at 591, when faced with a like issue in that case, "the question is one of the construction of this contract and nothing more." In his judgment in Sohio the learned Judge approved the views expressed by the authors of Dicey and Morris on The Conflict of Laws, who put the matter thus:

"It is a question of interpretation, governed by the law applicable to the contract, or more accurately, the law governing the jurisdiction agreement, whether a jurisdiction clause is exclusive or non-exclusive, i.e. whether it requires proceedings to be brought in a particular forum, or simply confers jurisdiction on the courts of a particular country without requiring proceedings to be brought there. Some authorities suggest that the clause must provide in terms that the jurisdiction of the chosen court be exclusive, but it is submitted that the question is whether on its true construction the clause obliges the parties to resort to the relevant jurisdiction, irrespective of whether the word "exclusive" is used. It is also a question of interpretation whether the claim which is the subject matter of the action falls within its terms. If there is no express choice of the law to govern the contract, the law of the country of the chosen court will usually, but not invariably, be the applicable law." (Emphasis added).

8. I adopt the submission therein made, which in my view is correct as a matter of principle. On this basis, therefore, is the Plaintiff in the present case obliged to litigate this dispute in England?

9. Mr. Smith, who appears on behalf of the Defendant in this application, says yes. He directed my attention to the judgment of Hobhouse J. in Berisford Plc. v. New Hampshire Insurance [1990] 2 QB 631 (and in particular to the learned Judge's analysis at 636-638). In that case Hobhouse J. was faced with a clause identical in form to that in this case, and held, on the facts before him, that the words "this insurance is subject to English jurisdiction" were inapt to create an obligation on either party, which would require clear words, and that to construe them as requiring the assured to sue only in England was to go beyond their natural meaning. However, whilst the actual decision of Hobhouse J. was against him, Mr. Smith adverted to the analysis of the learned Judge in that case, who had suggested that in construing the clause in question three possibilities existed: either the parties intended to provide for the exclusive jurisdiction of the English court, or that the words were permissive, in the sense that the parties agreed that any action brought in England was properly brought and could not be objected to, or that the words were intended to be declaratory in that the English courts would in any event have jurisdiction on the particular facts of that case.

10. In Berisford, op. cit., the insurer was an American company which carried on business in London, and which could properly be sued in England. Further the contract of insurance was made in London and was governed by English law. For those reasons an action on the contract could have been brought in England anyway, and the printed clause on the policy stating that the insurance was subject to English jurisdiction was not only reasonably capable of being construed as declaring the availability of English jurisdiction to foreign parties who took out insurance on that standard form with the Defendant insurer but, as the Judge held, was the only sensible meaning that could be given to the words in that case.

11. By way of contrast, submitted Mr. Smith, in the present case neither party to the contract is English nor based in England. Unlike Berisford, he contended, plainly there is no good reason for construing the words as being declaratory. And as to the words being permissive in intent, Hobhouse J. had rejected that possibility "out of hand" in Berisford, and Mr. Smith maintained that the same would apply here. He went further. As the insurance contracts in this case were expressly subject to "English Practice" there was every reason to suppose that the parties intended that dispute should be referred exclusively to the English courts. It would be surprising, Mr. Smith said, if the parties had contemplated that questions of English insurance practice should be decided in jurisdictions other than England, and even more so if they took the trouble to refer to English jurisdiction in the policies.

12. I am unable to agree with Mr. Smith's argument. Clearly the clause in question is not declaratory, as was the situation in Berisford. The fact situation of the present case makes it abundantly clear that a majority of the "connecting factors" were and are with Hong Kong; for example, as Mr. Hui, Counsel for the Plaintiff, pointed out, the policy was made in Hong Kong, the Plaintiff is a company incorporated and mainly operating in Hong Kong, the Defendant is a company incorporated and registered in China but mainly operating in Hong Kong by its representative office here, the insured amount and the premium of the policy was in Hong Kong Dollars, all available evidence, both in terms of witnesses and documents is in Hong Kong, and the substantive insurance law and civil procedure in Hong Kong is, in this field at least, virtually identical with that in England.

13. However, whilst not declaratory, I can see no reason why the clause in question should not legitimately be regarded as permissive. Although in Berisford Hobhouse J. rejected the possibility, that was solely a function of that particular factual situation; simply because Hobhouse J. declined to accept that approach in Berisford does not mean that such cannot apply here. To the contrary, I believe that it does. In his judgment, Hobhouse J. specifically considered the judgment of Staughton L.J. in Sohio, op. cit., and observed:

"It is to be noted that Staughton L.J. was inclined to put insurance contracts into a different category where a permissive clause could make commercial sense. However, the same canons of constructions are to be applied in relation to this type of clause as any other mutual contractual provision. It is a matter of construing the words used in accordance with their natural meaning and in the light of the surrounding circumstances in which the contract was made: see, for example, Cannon Screen Entertainment Ltd. v. Handmade Films Distributors) Ltd. (unreported), 11 July 1989.

In the present case, in my judgment, the words used are inapt to create any obligation. If an obligation was intended it could easily have been so stated in clear words. The provision appears in the underwriter's printed form of policy which is issued to the assured. The mutuality of the clause must in practice be very limited. Under English law where a contract has been placed through brokers it will be very rare indeed that an underwriter will ever have to start an action against an assured. The primary relevance of the clause must be to actions to be brought by the assured against the underwriter. To construe this wording as requiring the assured to sue only in England is to go beyond the natural meaning of the words actually sued. Further, to construe the words as declaratory is not to deprive them of significance. It is a statement to the assured, who may be foreign, that the rights that he has under the policy are capable of enforcement in the English courts. Such is an apt interpretation having regard to the legal and commercial relationships created by the document and having regard to the words actually used. Such a clause, even though creating no obligation to sue only in England is a contractual acknowledgement of the jurisdiction of the English courts and a contractual agreement to the invocation of that jurisdiction.

Therefore I conclude that this clause is not an exclusive jurisdiction clause. ..." (Emphasis added).

14. In the circumstances of this case, in particular the clear connections with Hong Kong, and bearing in mind the established principles in this area, I am firmly of the view that the clause in question is no more than a contractual acknowledgement of English jurisdiction, and that it does not oblige the invocation of such jurisdiction; for the purposes of the law applicable to such characterisation, no point is taken that for these purposes there is any difference between English and Hong Kong law. Accordingly, I do not accept the Defendant's submission that this clause should be construed as an exclusive foreign jurisdiction clause, and I decline the application to stay proceedings on the basis thereof.

15. That is sufficient in itself to decide the case on Mr. Smith's primary point. A further matter has arisen, however, which in my view buttresses the conclusion I had otherwise reached. It is this. Perusal of the papers post-hearing revealed a "Specimen" Institute English Jurisdiction Clause, the terms of which read as follows:

"This insurance shall be subject to the exclusive jurisdiction of the English Courts, except as may be expressly provided herein to the contrary."

16. Such specimen clause was part of a number of such clauses available for incorporation within the marine policy form of insurance contract in question in these proceedings; for example, this contract specifically included the Institute War Clauses (Sendings By Post), the Institute Strikes Clauses (Cargo), the Institute Radioactive Contamination Exclusion Clause, and the Institute Marine Policy General Provisions (Cargo).

17. The existence of this Institute English Jurisdiction Clause was not drawn to my attention during the course of the hearing, and subsequent correspondence with the parties confirmed that this clause indeed formed no part of the contract in question. Written submissions were received on the point; in this connection, I decline the Defendant's request not to have regard to the presence of this clause, which was clearly available for incorporation into the contract but which, as a matter of fact, had not been so incorporated. In my view, the specific non-incorporation of an exclusive English jurisdiction clause is a matter of which I may legitimately take notice, albeit I have done so in this instance purely as a supplementary consideration. If, as now seems established, the Defendant had the option of incorporating such a standard clause, and chose not to do so, plainly this is a relevant consideration in construing the general jurisdiction clause which was so included; and in this context I further reject the Defendant's subsequent (and ingenious) suggestion that in some way this Institute English Jurisdiction Clause was not referred to in the schedule because the schedule itself contained the words "This insurance is subject to English Jurisdiction".

18. There remains for consideration only the Defendant's alternative contention that there should be a stay under the application of normal Spiliada principles. This was but faintly argued, understandably in my view. Given the matrix of facts in this particular case, it would have required enthusiasm over and above the call of duty to seriously suggest to the Court that Hong Kong was not the natural or appropriate forum, and that there was another forum, namely England, which was clearly or distinctly more appropriate than Hong Kong for the resolution of this dispute.

19. Although this aspect of the case was not pressed, in his skeleton argument Mr. Smith had suggested that in any consideration of the case in Spiliada terms, the presence of a non-exclusive jurisdiction clause (as I have found it to be) created a strong prima facie case that English jurisdiction was appropriate, such that the legal burden of proof shifted to the Plaintiff to show that there were special circumstances by reason of which justice required that the trial should nevertheless take place in Hong Kong; this submission was based upon the recent judgment of Mr. Justice Cresswell in The "Rothnie" [1996] 2 Lloyd's L.R. 206 (at 211). And since, continued Mr. Smith, the Plaintiff in this case had put up no special circumstances requiring the trial take place in Hong Kong, ergo that burden had not been discharged, and accordingly the Court should exercise its discretion to stay the proceedings.

20. It is fair to say that Mr. Smith did not elaborate upon this line of argument in oral submission; possibly he detected a degree of judicial resistance to this proposition. With great respect to the learned Judge in The "Rothnie", in my view it does not assist to embark upon a Spiliada type of analysis in terms of a shifting legal burden of proof; indeed such a course seems to me to be an inappropriate approach and one with which I am unable to agree. The ineluctable starting point in any discretionary stay argument not involving an exclusive foreign jurisdiction clause is that jurisdiction has been established as of right; it is therefore for the Defendant, who seeks to invoke the discretion of the Court, who must discharge the burden upon it to persuade the Court to grant a stay of proceedings. And, as is the situation in the present case, the existence or otherwise of a non-exclusive jurisdiction clause is simply one factor to be placed into the discretionary 'mix', so to speak. In my judgment, to arrogate the effect now suggested to a non-exclusive jurisdiction clause would be to elevate such clause to the level of its exclusive counterpart, which in my view is unwarranted in principle or on the authorities (see, for example, Evans Marshall & Co. Ltd. v. Bertola S.A. [1973] 1 WLR 349 at 361); indeed, to take the example of the present proceedings, it would be distinctly odd, given the abundance of "connecting factors" with Hong Kong, if the mere presence of such a non-exclusive jurisdiction clause in itself produced a shift of the legal burden of proof to the detriment of a Plaintiff who, as in this case, is able to invoke the jurisdiction of this Court as of right.

21. To the contrary, probably the proper analysis, and one which Mr. Justice Cresswell indeed accepted as a valid alternative view, is that the existence of the non-exclusive jurisdiction clause is a relevant factor in the evaluation of the jurisdiction with which the action has its most real and substantial connection, albeit I respectfully differ from the characterisation that such a clause constituted a "very strong" factor, as the learned Judge alternatively suggested; it seems to me that such a non-exclusive clause is simply an element within the factual matrix upon which the Court is asked to take a view in each case. In my judgment it would be unfortunate if, in the frequent stay applications brought in this jurisdiction, such dicta in The "Rothnie" should form the basis of an incursion into, or a change of emphasis within, the application of established Spiliada principles in stay applications not involving an exclusive jurisdiction clause.

22. The Defendant's summons is dismissed with costs in any event, such costs to be taxed if not agreed. Absent agreement thereon, I will hear the parties as to directions with regard to the further conduct of this case.

23. I thank Counsel for their assistance.