BOTANIC LTD v. CHINA NATIONAL UNITED OIL CORPORATION

HCA 1852/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1852 OF 2005

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D E C I S I O N

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Introduction

1.  This is the Defendant’s application pursuant to Order 12, rule 8 of the Rules of the High Court and the inherent jurisdiction of the Court to set aside the Plaintiff’s Re-Amended Concurrent Writ of Summons on the ground that Beijing in the People’s Republic of China (“PRC”) is the forum conveniens for the matters in respect of which this action is brought whilst Hong Kong is the forum non conveniens.  In the alternative, the Defendant seeks leave to file and serve a defence and counterclaim on the Plaintiff.  In the course of the hearing, Mr Ronny Wong SC, counsel for the Defendant, confirms that the Defendant is not seeking to set aside the Re-Amended Concurrent Writ of Summons or its service on the Defendant, but is only seeking to ask the Court, in the exercise of its inherent jurisdiction, to stay the matter in favour of the forum in Beijing.

The factual background

2.  The dispute between the parties arose under the following circumstances.  These factual circumstances were ascertained from the affirmations filed by the parties and contemporaneous documents. 

3.  The Plaintiff is a company incorporated in the British Virgin Islands (“BVI”) with a business address in Hong Kong.  There are three shareholders in the Plaintiff, namely George Chang, Tanny Vong and Ben Lin.  They respectively hold 40%, 40% and 20% of the shares in the Plaintiff.  Tanny Vong, Ben Lin and Fok Kwong Yin were directors of the Plaintiff at the material time.  Tanny Vong was allegedly removed from her directorship on 5 February 2005.

4.  The Defendant is a PRC state-owned enterprise with its registered address and centre of management in Beijing.  It is in the business of, inter alia, import and export of crude oil and produce oil.  Its shareholders are PetroChina Company Limited and Sinochem Corporation.  It is a member of the China National Petroleum Corporation (“CNPC”) group. 

5.  The Defendant used to have a three-year contract for supply of Orimulsion oil back in 2001 (“2001 Contract”) with Petroleos de Venezuela SA (“PDVSA”), a Venezuelan company or its subsidiary, Bitumenes Orinoco SA (“BITOR”).  Orimulsion oil is a strategic commodity in the PRC.  It was supplied to the Defendant at a concessionary price subject to the restriction that it could only be used for fuel purpose.  The 2001 Contract was due to expire on 31 March 2004.  

6.  On 3 November 2003, PDVSA initiated discussion with the Defendant on renewing the 2001 Contract.  At the suggestion of He Lianzhong, an official of the National Development and Reform Commission of the State Council of the PRC (“ND&R Commission”), the Defendant enlisted the assistance of George Chang in lobbying for the supply of Orimulsion oil.  The Plaintiff was then acquired by George Chang as the corporate vehicle in his negotiation with PDVSA/BITOR on behalf of the Defendant. 

7.  In a letter dated 7 June 2004 from the Defendant to BITOR, the Defendant’s general manager, Zhang Tong, referred to the Plaintiff as the Defendant’s representative in the negotiation.  In a subsequent letter dated 15 June 2004, Zhang Tong wrote to George Chang setting out the proposed terms of engagement with the proposed term of the agency agreement ending on 21 June 2004.  There were exchanges of e-mails between Tanny Vong from Beijing and George Chang from Venezuela on the proposed terms on 16 June 2004.  Then Tanny Vong on behalf of George Chang made a counter-proposal to Liu Zhongqiu, the Defendant’s vice president in Beijing.  The counter-proposal was accepted by the Defendant with the validity of the term of engagement extended to 25 June 2004 (“June Agreement”).  The acceptance of the June Agreement was evidenced by the Defendant’s letter dated 16 June 2004 to the Plaintiff.  The June Agreement was negotiated and entered into in Beijing.  Then by a letter dated 5 July 2004, the June Agreement was extended to 26 August 2004.

8.  It is common ground that there was a meeting at the Shatin Clubhouse of the Hong Kong Jockey Club on 14 August 2004 attended by George Chang, Ben Lin, Tanny Vong and He Lianzhong.  The purpose of the meeting and what happened at the meeting were in dispute.  According to the Plaintiff, at the meeting He Lianzhong on behalf of the Defendant agreed to allocate to the Plaintiff one-sixth of the volume of Orimulsion oil actually supplied by PDVSA/BITOR to the Defendant as a reward for the Plaintiff’s services in procuring the supply (“Oral Agreement”).  But, according to the Defendant, the meeting was just a social occasion in which loose talks were exchanged and no agreement was reached.

9.  It is also common ground that after the meeting, Tanny Vong and Liu Zhongqiu signed a written agreement entitled “Supplementary Agency Agreement Between China Oil and Botanic Ltd 25 August 2004” (“Supplementary Agency Agreement”) under which the Defendant agreed to remunerate the Plaintiff for its services by allocating one-sixth of the actual volume of Orimulsion oil supplied by PDVSA/BITOR to the Defendant.  The Supplementary Agency Agreement was signed in Beijing by Tanny Vong “pp Ben Lin” as director of the Plaintiff and Liu Zhongqiu as vice president of the Defendant.

10.  No agreement for supply of Orimulsion oil was concluded between the Defendant and PDVSA/BITOR by the end of November 2004.  In about October/November 2004, the Defendant’s delegation went to Venezuela to negotiate for the supply of Orimulsion oil.  PDVSA/BITOR sent a draft contract to the Defendant on 2 November and 6 November 2004.  On 8 November 2004, the Defendant’s vicepresident, Shen Dingcheng, signed and returned the contract to PDVSA/BITOR.  However, PDVSA/BITOR did not sign back the contract until 23 December 2004 on the occasion of the state visit by President Chavez of Venezuela to the PRC (“2004 Contract”).  Over 1.9 million metric tons of Orimulsion oil was supplied to the Defendant pursuant to the 2004 Contract, but the Defendant did not remunerate the Plaintiff for its services. 

11.  Following that, there was a difference in opinion between George Chang and Tanny Vong as to the tactics the Plaintiff should adopt in pursuing its claim against the Defendant.  The difference subsequently led to a dispute between George Chang and Tanny Vong.  There are minutes of the Plaintiff’s board meeting purportedly held on 17 January 2005 limiting Tanny Vong’s authority to negotiation and liaison; and another minutes of the board meeting purportedly held on 5 February 2005 resolving that Tanny Vong be removed as a director of the Plaintiff.

12.  At about the same time, Tanny Vong wrote to the Defendant seeking confirmation of the Plaintiff’s appointment as the Defendant’s agent, but the Defendant did not respond.  The letter was signed by Tanny Vong “pp Ben Lin” as director of the Plaintiff.  It appeared that some understanding was reached between Tanny Vong and the Defendant in February 2005 that while the Plaintiff was not entitled to remuneration for procuring the 2004 Contract, the Defendant would discuss other business ventures with the Plaintiff so as to enable the Plaintiff to recoup its cost and expenses in the aborted agency transaction.  However, the Plaintiff denied that Tanny Vong had authority to act for the Plaintiff and alleged that her authority was limited to negotiation and liaison with the Defendant only. 

13.  Following all those events, a meeting came to be held in the Defendant’s office in Beijing on 1 April 2005 attended by George Chang, Ben Lin, Roy Chan and Yuan Tai Gang on behalf of the Plaintiff and by Zhang Tong, Wang Lei and Chen Xu on behalf of the Defendant.  There is a dispute as to the length of the meeting and the matters discussed therein.  But it is common ground that at the meeting, Ben Lin on behalf of the Plaintiff signed a declaration to the effect that pursuant to the resolution of the Plaintiff’s board of directors, Tanny Vong was removed as a director of the Plaintiff on 5 February 2005, that she no longer represented the Plaintiff in business negotiation, that what she did in all her prior negotiation with the Defendant was restricted to business negotiation and liaison and had no binding effect on the Plaintiff.

14.  On another front, the difference between Tanny Vong and George Chang escalated into a dispute.  In a letter dated 25 April 2005 from Tanny Vong’s solicitors, Louis KY Pau & Company, Solicitors, Tanny Vong accused George Chang of having failed to perform the agency agreement with the Defendant and of making unjustified claims against the Defendant causing substantial damage to her trusted relationship in the PRC.  Then, in their reply dated 29 April 2005, the Plaintiff’s then solicitors, DLA Piper Rudnick Gray Cary UK LLP, retorted that Tanny Vong was not the beneficial owner of the shares in the Plaintiff registered under her name, but was the nominee of He Lianzhong.

15.  Another development since that dispute is that He Lianzhong was held under detention on 12 July 2006 in connection with allegations of bribery.  In the course of the hearing of the present application, he was convicted and sentenced to twelve years’ imprisonment by the People’s Court.  He appealed against the sentence but his appeal was dismissed.

16.  The Concurrent Writ of Summons was issued on 21 September 2005.  It was amended and re-amended.  The Statement of Claim only came to be issued on 23 October 2006 after more than a whole year’s delay.  On 6 November 2006, the Defendant took out the present summons.  No defence has yet been filed by the Defendant.

The applicable legal principles

17.  The law applicable to an application for stay in favour of an alternative jurisdiction has been very well settled since the decision of the House of Lords in Spiliada Maritime Corporation and Cansulex Ltd [1986] 3 WLR 972.  Spiliada was applied by the Court of Appeal in Hong Kong in Adhiguna Meranti [1987] HKLR 904.  In that case, Hunter JA set out a three stage approach at 907F-908B, summarising the effect of Spiliada (the page references hereunder are to the report of Spiliada in [1986] 3 WLR):

(1)  Is it shown that Hong Kong is not only not the natural or appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong (p. 986H).  The evidential burden here lies upon the applicant, i.e. the defendant.  The emphasis is upon ‘appropriate’ rather than ‘convenient’ because this is not simply a matter of practical convenience.  Failure by the applicant at this stage is normally fatal.

(2)  If the answer to (1) is yes, will a trial at this other forum deprive the plaintiff of any ‘legitimate personal or juridical advantages’? (pp. 987F, 991-3).  The evidential burden here lies upon the plaintiff (pp. 986A and 987G).

(3)  If the answer to (2) is yes, the court has to balance the advantages of (1) against the disadvantages of (2): see Abidin Daver per Lord Brandon at p. 419.  Deprivation of one or more personal or juridical advantages will not necessarily be fatal to the applicant provided that the court is satisfied that notwithstanding such loss ‘substantial justice will be done in the available appropriate forum’ (p. 991H).  The court must try to be objective (p. 991F).  Proof of this, which can fairly be called the ultimate burden of persuasion, rests upon the applicant for the stay.  By these means, he establishes that on balance the other forum is more suitable ‘for the interests of all the parties and the ends of justice’.  This may be another way of saying that the plaintiffs’ choice of forum has been shown to be so inappropriate as to deserve the pejorative description of ‘forum-shopping’ and to be restrained accordingly, cp. Lord Reid in The Atlantic Star [1974] AC 436.

As with the exercise of any discretion, the court will take into account all the circumstances of the case and decide whether it would be in the interest of justice to stay the action.  The court will consider factors such as the conduct of the parties.  The court will not make any finding of fact which is in dispute: see Wo Fung Paper Making Factory Ltd And Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346.

STAGE I : ARE THE beijing courts cleaRLY OR DISTINCTLY  MORE APPROPRIATE THAN THE HONG KONG COURTS

18.  In Stage I, the burden is on the Defendant to show that the Beijing courts are clearly or distinctly more appropriate than the Hong Kong courts for the trial of this action.  The emphasis is on appropriateness rather than convenience.  The court is required to focus on the appropriateness of a forum from point of view of the trial of the action, i.e. which is the forum in which the case may be tried more suitably for the interests of all the parties and the ends of justice.  This involves identifying the forum with which the action has the most real and substantial connection: per Lord Keith in The Abidin Daver [1984] AC 398.  The court must first look for connecting factors which include not only factors affecting convenience or expenses (such as availability of witnesses), but also other factors such as the law governing the relevant transactions, and the places where the parties respectively reside or carry on business: per Lord Goff of Chieveley in Spiliada at 987.  For this purpose, it is necessary to examine the parties’ case and identify the likely issues at trial.

The parties’ case

19.  The Plaintiff’s cause of action is in breach of agency agreement.  Its claim is based on the Oral Agreement made between the Plaintiff and the Defendant on 14 August 2004 at a meeting held in the Shatin Clubhouse of the Hong Kong Jockey Club.  The meeting was attended by George Chang and Ben Lin acting for and on behalf of the Plaintiff; and He Lianzhong acting for and on behalf of the Defendant.  The Oral Agreement is evidenced by the Supplementary Agency Agreement and a letter dated 7 December 2004 from the Defendant to the Plaintiff.  Further, it is the Plaintiff’s case that it had duly performed the Oral Agreement so that by about October 2004 when the Defendant’s delegate visited Venezuela or alternatively December 2004 when the 2004 Contract was signed it had successfully procured or facilitated the approval of supply of Orimulsion oil to the Defendant.  The Plaintiff claims that about 1,974,856 metric tons of Orimulsion oil was supplied to the Defendant between December 2004 and December 2005.  Accordingly, the Plaintiff makes a liquidated claim of US$31,268,553.65 on the basis that the volume of Orimulsion oil allocated to it should be 329,142.67 metric tons or US$28,500,000 on the basis that the volume of Orimulsion oil allocated should be 300,000 metric tons.  The calculations are based on the market price of Orimulsion oil less the cost of the oil to the Defendant and the handling cost.

20.  No defence has yet been filed by the Defendant.  The Defendant’s case as revealed in its affirmations is as follows.  The only agency agreements entered into by the parties were the June Agreement and the Supplementary Agency Agreement which was supplementary to the June Agreement, but both agreements had lapsed without the Plaintiff having secured any supply contract for the Defendant.  As for the meeting on 14 August 2004, the Defendant says that it was only a social occasion in which loose talks were exchanged and no agreement of any kind was reached.  Specifically, the Defendant disputes that He Lianzhong was its agent or authorized representative having authority to make any binding agreement on behalf of the Defendant.  Further, if He Lianzhong was an agent of the Defendant, the Defendant disputes the validity of the Oral Agreement under PRC law because unknown to the Defendant He Lianzhong is a beneficial shareholder of the Plaintiff.  In respect of the Supplementary Agency Agreement, the Defendant denies the validity of the signature of Liu Zhongqiu on the agreement under PRC law.  Furthermore, the Defendant challenges the legality of the Oral Agreement and Supplementary Agency Agreement under PRC law as the Plaintiff was not an authorized entity for importing or selling oil in the PRC.  Lastly, the Defendant disputes that the 2004 Contract was procured by the Plaintiff but alleges that it was secured through diplomatic intervention by the Ministry of Foreign Affairs of the PRC.  The Defendant’s case is that the negotiation by the Plaintiff had become thwarted and the Defendant came to enlist the assistance of the Ministry of Foreign Affairs.  It was only with the assistance of the Ministry of Foreign Affairs and after promises of aids by the PRC Government to the Venezuelan Government that the 2004 Contract came to be signed by PDVSA/BITOR in Beijing on 23 December 2004 on the occasion of the state visit by Venezuelan President Chavez to the PRC.

21.  The factual issues raised by the parties’ case are:

(a)  In relation to the June Agreement:

whether the parties had entered into the June Agreement.

(b) In relation to the meeting on 14 August 2004 and the Oral Agreement:

(1)  whether the Oral Agreement in the terms as alleged by the Plaintiff was made on 14 August 2004;

(2)  whether the Defendant had held He Lianzhong out as having authority to act for the Defendant; and

(3)  whether He Lianzhong is a beneficial shareholder of the Plaintiff.

(c) In respect of the performance of the agency agreement between the parties, whether it be the June Agreement, the Oral Agreement or the Supplementary Agency Agreement:

(1)  whether the Plaintiff was in repudiation for having failed to procure a concluded supply contract for the Defendant by 26 August 2004;

(2)  whether the 2004 Contract was procured by the Defendant’s own effort and/or the PRC Government, without the Plaintiff having provided any services; and

(3)  the quantum of damages. 

22.  The legal issues raised by the parties are:

(a) In respect of the agency agreement between the parties, whether it be the June Agreement, the Oral Agreement and Supplementary Agency Agreement, which system of law is applicable to that agreement.

(b) In respect of the Oral Agreement:

(1)  whether in his capacity as an official of the ND&R Commission, He Lianzhong had authority to make any agreement with the Plaintiff binding on the Defendant;

(2)  whether the Oral Agreement made by He Lianzhong on behalf of the Defendant is invalid under PRC law by reason of his beneficial shareholding in the Plaintiff; and

(3)  whether allocation of Orimulsion oil to the Plaintiff as remuneration for its services for procuring the 2004 Contract under the Oral Agreement is illegal under PRC law.

(c) In respect of the Supplementary Agency Agreement:

(1)  whether the signature of Liu Zhongqiu, vice president of the Defendant, on the Supplementary Agency Agreement is invalid under PRC law;

(2)  whether the signature of Tanny Vong “pp Ben Lin” on behalf of the Plaintiff is invalid under PRC law and whether there was no ratification of her signature by the Plaintiff; and

(3)  whether the Plaintiff’s declaration made at the meeting on 1 April 2005 had the effect of renouncing the Supplementary Agency Agreement.

23.  Despite the numerous issues raised by the parties, there are only two primary issues.  Firstly, what was the agency agreement between the parties: was it the June Agreement made in Beijing as supplemented by the Supplementary Agency Agreement or the Oral Agreement made in Hong Kong as supplemented by the Supplementary Agency Agreement.  Secondly, what is the law applicable to that agreement.  The other issues will have to be determined in the light of the conclusion to be reached in respect of these two primary issues.

Some general observations - the Plaintiff’s and Defendant’s lack of presence in Hong Kong

24.  Mr Wong SC has put in the forefront of his argument the fact that the Plaintiff has no presence in Hong Kong.  Presumably that is to fortify his argument on the Defendant’s lack of connection with Hong Kong.  Mr Chan SC submits that such argument is not sustainable.  Counsel spent much time debating on this issue, which I do not think is necessary and I do not intend to rehearse counsel’s argument in full.

25.  In brief, Mr Wong SC’s principal attack is that the Plaintiff is a BVI company which has not been registered under Part XI of the Companies Ordinance and has no business registration record.  The Plaintiff’s name plate was not shown in its office at Shun Tak Centre.  It has no individual telephone line and had no evidence of having carried out any business in Hong Kong.  Mr Wong SC submits that the office at Shun Tak Centre was merely a conduit for channelling correspondence from Tanny Vong in Beijing to George Chang in Panama or elsewhere.  As regards the position of George Chang, Mr Wong SC’s attack is that George Chang is the holder of a Panamanian passport and is domiciled in Panama.  George Chang has deep rooted connection with South America, probably Panama, rather than Hong Kong.  He has no properties in Hong Kong.  The Hong Kong companies which George Chang has shares in or control as director are to serve his business in South America. 

26.  Despite those criticisms, there is incontrovertible evidence that the Plaintiff operated from an office in Shun Tak Centre which it shared with other companies of George Chang.  Ben Lin who is a director of the Plaintiff is resident in Hong Kong and operated the Plaintiff’s office in Hong Kong.  Though not a director, George Chang is one of the three shareholders of the Plaintiff and the key person in carrying out the agency agreement and in managing the affairs of the Plaintiff.  He spent more than half of his time in Hong Kong.  He also owns the office premises in Shun Tak Centre through his company, Mayfield Property Inc.  The Plaintiff claims that important decisions as to the management of the Plaintiff and the negotiation with PDVSA/BITOR were made by George Chang and Ben Lin in Hong Kong.  There is at least some evidence that the Plaintiff has its brain and central administration in Hong Kong.  The fact that the Plaintiff has not been registered under Part XI of the Companies Ordinance or has been in breach of revenue requirements are neither here nor there.  It is also not unusual for companies of this nature to be set up solely for a single project and as such the fact that it does not carry on any other business or has no business track record is of no significance.

27.  In my view, the Plaintiff’s as well as the Defendant’s lack of connection with Hong Kong is only one of the factors in deciding whichis the natural forum for this litigation.  It is not the function of this Court to make definitive finding of fact on any issue for the purposes of the present proceedings.  Suffice it is to say that there is evidence in support of the Plaintiff’s presence in Hong Kong.  In any event, on the facts of this case, this is not an issue of much significance from point of view of the trial of the action.  It may be relevant as to the jurisdiction of the Court, but jurisdiction has not been challenged by the Defendant.  The issue may also be relevant in determining the law applicable to their agency agreement. 

Some general observations - The law applicable to the agency agreement

28.  As I have said, the primary issue is what was the agency agreement between the parties.  The Plaintiff relies on the Oral Agreement and the Supplementary Agency Agreement.  The Defendant denies the existence of the Oral Agreement and says that the only agreement it had with the Plaintiff was the June Agreement as supplemented by the Supplementary Agency Agreement.  If this issue is resolved in favour of the Plaintiff, it is the Plaintiff’s case that the Oral Agreement being made in Hong Kong is governed by Hong Kong law.  If this issue is resolved in favour of the Defendant, it is the Defendant’s argument that the June Agreement as supplemented by the Supplementary Agency Agreementbeing entered into in Beijing are governed by PRC law.  Depending on how this issue is resolved, the system of law which is found to be applicable to the agency agreement clearly has a significant impact on the trial of the action.

29.  I am conscious that the function of this Court at this stage of the proceedings is not to make any finding of fact, but that does not preclude me from making some provisional finding of fact from incontrovertible evidence and evidence which are not in dispute, if necessary for the purpose of identifying the various connecting factors necessary for the disposal of the present application.

30.  Mr Wong SC submits that the alleged Oral Agreement was a contrived attempt to concoct the only alleged nexus between the alleged agency agreement and Hong Kong so as to meet the requirements for serving the Re-Amended Concurrent Writ of Summons on the Defendant out of jurisdiction.  Indeed, there are many incontrovertible documents suggesting the existence of the June Agreement between the Plaintiff and the Defendant which was entered into in Beijing.  On the other hand, the Oral Agreement is never alluded to in any of the contemporaneous correspondence.  The use of the word “supplementary” in the title of the Supplementary Agency Agreement clearly implies that it is supplementary to an existing agreement rather than a record of the Oral Agreement reached at the meeting on 14 August 2004.  I think it is highly likely that the Supplementary Agency Agreement was meant to be supplemental to the June Agreement.  By this observation, I should not be taken as having made any finding of fact. 

31.  The June Agreement was made in Beijing. The Supplementary Agency Agreement was prepared by Tanny Vong in Beijing.  It was signed by Tanny Vong “pp Ben Lin” on behalf of the Plaintiff and by Liu Zhongqiu on behalf of the Defendant in Beijing.  Mr Chan SC, counsel for the Plaintiff, argues that when Tanny Vong signed the Supplementary Agency Agreement, she did not do so in her capacity as a director of the Plaintiff but as the long arm of Ben Lin.  Ingenious as that argument may be, the fact remains that the place of execution of that agreement was in Beijing.  Hence, it is likely that the making of any agency agreement which formed the basis of the Plaintiff’s cause of action was in Beijing and not in Hong Kong.  There is, therefore, a strong likelihood that the Oral Agreement, even if it existed, and the Supplementary Agency Agreement were supplemental to the June Agreement entered into in Beijing. 

32.  The June Agreement, the Oral Agreement as well as the Supplementary Agency Agreement do not contain any choice of law clause.  In the absence of such a clause, the court will look to the system of law with which the transaction was most closely connected as the applicable law.  The factors to be considered are the place of residence or business of the parties, the place where the relationship between the parties was centred, the place where the contract was made or was to be performed or the nature and subject matter of the contract: see Cheshire and North’s Private International Law, 13^th Edition, pp 565-566.  The Plaintiff is a BVI company, though it has a place of business in Hong Kong.  Even on its own case, its only business was to enter into and perform the agency agreement.  Its services to be rendered under the agency agreement was mainly performed in a third country, namely Venezuela.  Thus from point of view of the applicable law to the agency agreement, the single most important consideration of all the above considerations is the place where the agency agreement was entered into.  Further, in an agency contract, the law governing the contract will be the place where the relationship between principal and agent was created and also if the principal and agent lived in different countries then the law of the place where the principal carried on business was to be given considerable weight particularly where it was the agent which had sought out the principal in the principal place: see: The Conflict of Laws Vol 2, para 33-407.  Assuming that the June Agreement and the Supplementary Agency Agreement were made in Beijing and that it was the Plaintiff who sought out the principal in Beijing, the applicable law of the June Agreement and Supplementary Agency Agreement would be PRC law.  There is therefore a strong likelihood that all those agreements are governed by PRC law and that a number of pertinent legal issues would have to be resolved according to PRC law.

Factual issues

33.  Though the Plaintiff has not yet had the opportunity to plead to the June Agreement, it appears that much of the evidence relied on by the Defendant in respect of the negotiation leading to the making of the June Agreement is also relied on by the Plaintiff as evidence of holding out by the Defendant of He Lianzhong’s authority to act on behalf of the Defendant.  The contemporaneous documents are apparently not in dispute.

34.  In respect of the OralAgreement, the hottest issue in dispute is what happened during the meeting in Shatin Clubhouse of the Hong Kong Jockey Club on 14 August 2004, the role played by He Lianzhong and the holding out of him as the Defendant’s agent.  These disputes have to be resolved on the evidence of live witnesses.  The Plaintiff’s witnessesare George Chang and Ben Lin.  The Defendant’s witnesses are Tanny Vong, Liu Zhongqiu and He Lianzhong.

35.  In respect of the Supplementary Agency Agreement, the Defendant disputes the Plaintiff’s allegation that it was countersigned by Ben Lin and a copy was sent to the Defendant.  Mr Wong SC refers to the copy of the Supplementary Agency Agreement exhibited to the Plaintiff’s solicitors’ affirmation filed in support of its application for service of the Re-Amended Concurrent Writ of Summons out of jurisdiction which did not bear Ben Lin’s countersignature.  This casts doubts on the Plaintiff’s allegation.  Be that as it may, the material witnesses are Tanny Vong and Ben Lin. 

36.  In respect of performance of the agency agreement, the hottest issue in dispute is whether the 2004 Contract was procured through the effort of the Plaintiff or through diplomatic intervention by the PRC Government.  Apart from George Chang and Ben Lin, the Plaintiff has named five Venezuelan witnesses.  The Defendant’s witnesses have not yet been fully identified.  Presumably, theyinclude senior officials of the Defendant and officials of the Ministry of Foreign Affairs and the ND&R Commission.

37.  In respect of quantum of damages, it is only a question of assessment of the value of one-sixth of the Orimulsion oil actually supplied to the Defendant by BITOR.  This would be the difference between the market price of the oil and the contract price with PDVSA/BITOR plus handling cost.  The Defendant claims that the market price of Orimulsion oil in the PRC market is much lower than the price in the international market because the oil was sold to the Defendant at a concessionary price with the restriction that it may only be used as fuel oil.  Be that as it may, the question of what was the market price in the PRC is expected to be largely a matter of documentary evidence, albeit from documents originating from Beijing.  The question of contract price and handling cost is also a matter of record.  The Defendant’s contention that expert evidence is required is difficult to sustain.  In any event, if experts are required, such experts could be available elsewhere or be flown from the PRC to Hong Kong, if the trial is to be held in Hong Kong.

Availability of witnesses

38.  From point of view of trial of the action on the factual issues, the only material consideration is availability of witnesses.  Mr Wong SC argues that the material witnesses are all in Beijing and not in Hong Kong.  With respect, I do not think that is a balanced view.  The material witnesses for the Defendant’s case are in Beijing but the material witnesses for the Plaintiff’s case are in Hong Kong or Venezuela.  Availability of witnesses of both parties must be considered.

39.  The Plaintiff’s witnesses are George Chang, Ben Lin, Briceno, Sanabria, Martinez, Chavez, and Zabede.  George Chang and Ben Lin are resident in Hong Kong, while the other witnesses are resident in Venezuela.  Briceno was a member of the board of directors for BITOR until 1 June 2006.  Sanabria was the general manager of marketing and supply department of BITOR and was one of the members of BITOR’s team responsible for negotiating the 2004 Contract with the Defendant.  Martinez was the president of BITOR who signed the 2004 Contract during the state visit of President Chavez to the PRC.  Chavez is the successor of Martinez as the president of BITOR.  Those witnesses have knowledge of the Plaintiff’s participation in procuring the 2004 Contract and would rebut the Defendant’s allegation that the Defendant procured the 2004 Contract without the help of the Plaintiff.  Zabede was the Plaintiff’s vice president of Latin America involved in all the preparation work leading to the conclusion of the 2004 Contract.  There is no suggestion that any of the Plaintiff’s witnesses have difficulties attending trial in either forum.  However, according to George Chang, all the Venezuelan witnesses, though willing to testify for the Plaintiff in the Hong Kong courts, are not prepared to go to the PRC to give evidence.  Those witnesses said that they did not trust the legal system in the PRC and believed that if they were to give evidence against the Defendant, a state-owned corporation in the PRC, they would be subject to much pressure and would even face reprisal from the Defendant.

40.  In summary, the Plaintiff would have no problem with its witnesses if the trial is to be conducted in Hong Kong, but will be deprived of the benefit of material and key witnesses if the trial is to be conducted in Beijing.

41.  The witnesses in the Defendant’s camp are: Liu Zhongqiu, He Lianzhong, Zhang Tong, Wang Lei, Dong Xiao, Chen Xu, Tanny Vong and some senior officials of the Defendant, CNPC group, the ND&R Commission and the Ministry of Foreign Affairs.  Those senior officials have not yet been identified and the nature of their evidence have not been disclosed.  The nature of the evidence to be given by most of the named witnesses is obvious from the affirmations filed on behalf of the Defendant.  Except for Tanny Vong, all the witnesses are PRC nationals.  According to the Defendant, all those witnesses have difficulties coming to testify in Hong Kong.

42.  Tanny Vong was born in Macau and is a holder of a Portuguese passport.  She is also a Hong Kong resident holding a Hong Kong PermanentIdentity Card.  She is now working and residing in Beijing.  She considers herself as domiciled in Beijing.  She said on oath that she may not come to Hong Kong to testify for the Defendant because of her business and engagement in Beijing.  According to the Defendant, previously Tanny Vong might not even leave Beijing without the permission of the Beijing Municipal People’s Procuratorate as she had to stay in Beijing to assist in the prosecution of He Lianzhong.  But that impediment has now been removed with the imprisonment of He Lianzhong.  The following is what Tanny Vong said in paragraph 3 of her 2^nd Affirmation:

“As to whether I can come to Hong Kong, it is never my evidence or that of the Defendant that I cannot come to Hong Kong.  However, it is then a gratuitous remark on the part of George Chang as made in paragraph 122(d) of his affirmation that I could have come to Hong Kong on short notice.  I hardly have any idea of how short was the notice George Chang meant.  The very fact is that I have been domiciling in Beijing for 10 years and I intend to do so in the near future.  I get my job and my business there.  Hence, although I am willing to assist the Defendant, I will have to pay priority to my job and business there so much so that if any requirement of the Defendant such as attendance at court will crash with my business commitment then I will not be able to assist the Defendant.  As to the making of my 1^st affirmation and this one, the true fact is that I could only make them after repeated pressings by the Defendant and [Defendant’s solicitors] and at times convenient for me to come to Hong Kong which was solely for the purpose of making the affirmations.”

Thus, the true position is not that Tanny Vong is not willing or will not come to testify in Hong Kong, but that she will not be able to attend court if it crashes with her business commitment.  She had flown from Beijing to Hong Kong on three separate occasions between November 2006 and August 2007 for the purpose of making her affirmations in support of the present application.  She is a willing witness.  Her difficulty in coming to testify in Hong Kong is just a matter of logistics.

43.  As for He Lianzhong, he is now incarcerated in prison in Beijing.  It is impossible for him to come to testify in Hong Kong.  According to the opinion of the Plaintiff’s PRC lawyers, a person who has been arrested in relation to a criminal case or is serving a prison sentence following a criminal conviction cannot be treated as a witness in a civil case.  That person can only be treated as a person who is related to the civil case in question.  There is no mechanism in place for the taking of evidence from such a person as would be available in a normal civil case where witnesses can be examined and cross-examined in court by the parties.  No authority has been quoted in support of the above proposition.  

44.  The Defendant’s PRC lawyers disagree with that opinion.  They referred to articles 65 and 70 of the《中華人民共和國民事訴訟法》(Civil Procedure Law of the People’s Republic of China)(“Civil Procedure Law of the PRC”) which provide:

“Article 65     The people’s court has the power to investigate the case and collect evidence from relevant units and individual persons.  The relevant units and individual persons must not refuse to give evidence.

  The people’s court must distinguish the authenticity or fakeness of the evidential documents produced by the relevant units and individual persons and determine their effect through examination.”

“Article 70   All units and individual persons who have knowledge of factual information concerned in a case shall have the obligation to give evidence at the court hearing.  The persons in charge of the relevant units shall provide support to the witness to give evidence.  Where it is indeed difficult for a witness to appear at the court hearing to give evidence, he can submit a written statement of affidavit with the approval of the people’s court.” 

According to the Defendant’s PRC lawyers, there is no such legal concept of a “person who is related to a civil case”.  They are of the opinion that there is no restriction on an arrested person or a prisoner to give evidence in a civil case, albeit taking evidence from such a person or prisoner is subject to the approval of the people’s procuratorate or the prison warden, which is a different procedure from the normal procedure of taking evidence.  The Defendant’s PRC lawyers’ opinion is consistent with the inquisitorial nature of the proceedings before the PRC courts and with the provisions in the Civil Procedure Law of the PRC.  Anyway, it is the common opinion of the experts on both sides that it is possible for the Beijing court to take a statement from He Lianzhong and that lawyers for the parties may be allowed to be present when the evidence is being taken.  But the Defendant’s PRC lawyers go further to say that with the approval of the people’s procuratorate or the prison warden, the court also allows the parties’ lawyers to raise questions to the arrested person or prisoner, which in essence has the effect of examination and cross-examination.

45.  Thus, the position of He Lianzhong is this.  If the trial is to take place in Beijing, He Lianzhong would be obliged to give evidence and the Beijing court has power to take evidence from him.  It appears that He Lianzhong may not attend the PRC court to testify as would a prisoner in Hong Kong under a body order, but there is a mechanism for him to give a statement to a Beijing court and with the approval of the people’s procuratorate or the prison warden, the parties’ lawyers may ask him questions which would have the effect of examination and cross-examination.  If the trial is to take place in Beijing, the Defendant would have the benefit of the evidence of He Lianzhong to the above extent.  The Defendant will be deprived of the benefit of the above procedure if the trial is to take place in Hong Kong.  However, there is nothing to suggest that the Defendant would be precluded from accessing He Lianzhong and obtaining a statement from him.  He Lianzhong has all along expressed his willingness to assist the Defendant in this action.  Given the state interest which is at stake, it is inconceivable that the Defendant could not obtain all the assistance it would need from the prison warden.  He Lianzhong’s statement would be admissible in Hong Kong under the Evidence Ordinance.  If the trial is to take place in Hong Kong, the Defendant would have nothing to loose but the Plaintiff would be deprived of the chance of cross-examining He Lianzhong.  On balance, from point of view of He Lianzhong’s testimony, the Hong Kong forum is an advantage to the Defendant and a disadvantage to the Plaintiff.  But that is a disadvantage which the Plaintiff would have to live with for choosing the Hong Kong forum. 

46.  Liu Zhongqiu is the vice president of the Defendant.  According to Chen Xu, the director of the Legal Affairs Department of the Defendant, in that position, Liu Zhongqiu has to obtain permission from CNPC if he is required to come to Hong Kong to give evidence.  In addition, he has been suspended from office and is being investigated in connection with the case of He Lianzhong.  Now that the trial of He Lianzhong was concluded, there is no suggestion from the Defendant that Liu Zhongqiu is in anyway involved with the case of He Lianzhong or will be put under detention or subject to prosecution.  There is also no suggestion from the Defendant that permission from CNPC would not be forthcoming.  Indeed, Chen Xu had come to Hong Kong on the same three occasions between November 2006 and August 2007 as did Tanny Vong, for the purpose of making affirmations in connection with the present application. 

47.  As for the other witnesses, they are all senior officials of CNPC, the ND&R Commission and the Ministry of Foreign Affairs.  According to Chen Xu, they may not come to Hong Kong without first obtaining permission from the Hong Kong and Macau Affairs Office of the State Council.  The application procedure is cumbersome and it is gravely inconvenient to the witnesses due to their heavy workload.  Chen Xu said that it is by no means certain that permission will be granted as a matter of course.  He cited the notice issued by the PRC Government《中共中央辦公廳國務院辦公廳關於轉發《中央紀委、中組部、中央外事工作領導小組辦公室、人事部、外交部、公安部、國家安全部、監察部、國務院港澳辦關於加強黨政機關縣(處)級以上領導干部出國(境)管理工作的意見》》(“the Notice”).  He referred in particular to clause 2 of the Notice and quoted the possibility that approval may be withheld if one of the various levels of the approving authority takes the view that those officials have more important tasks to attend to than going to Hong Kong to testify for the Defendant.  The Notice prescribes the application procedure, the various levels of approving authorities, the application forms to be used, the restrictions on the activities of officials outside the PRC and the control of passports issued to officials for the purpose of their entry into another country.  The Notice provides for a more relaxed procedure for officials leaving the PRC for official business than those leaving for personal purposes.  I am unable to discern form the Notice any prohibition against the witnesses from leaving the PRC for the purpose of giving evidence in connection with a state-owned corporation and on a matter in which the state is interested.  If the relevant approving authority would take the view that those senior officials are too important to be released to contest a US$31 million claim against a state-owned corporation, it would only serve to reflect that their evidence is not worth what the Defendant is contending.  If the relevant approving authority would refuse permission to enable those witnesses to come to give evidence in Hong Kong because of government bureaucracy, this is the consequence the Defendant would have to live with for failing to procure clearance for those witnesses to leave the PRC.  This Court is not going to be influenced by government bureaucracy, let alone that of an outside jurisdiction.  Except for a vague speculation, there is indeed no suggestion from the Defendant that permission from the Hong Kong and Macau Affairs Office would not be forthcoming.  

48.  In summary, the Defendant’s position is this.  He Lianzhong is now incarcerated in prison and cannot testify in either forum.  But, for reasons as explained, in respect of his testimony, whether the trial is to take place in Beijing or in Hong Kong would make little difference to the parties.  In respect of the other witnesses, the Hong Kong forum is very inconvenient.  Apart from the expenses and the travelling, the witnesses’ work or business schedule would suffer more disruption if they have to travel to Hong Kong.  So too would the business of the Defendant and the Ministry of Foreign Affairs.  There may also be disruptions during the course of the trial in order to accommodate the witnesses’ travel arrangement and their work or business commitment.  But put at the highest, this is a matter of expenses and inconvenience which can be minimised by good logistical arrangement.

49.  The Venezuelan witnesses of the Plaintiff are unwilling to testify before the PRC court while the Defendant’s witnesses are unwilling to testify in Hong Kong.  The next question is how to balance between the disadvantage to the Plaintiff if the trial is to take place in Beijing against the disadvantage to the Defendant if the trial is to take place in Hong Kong.  Mr Wong SC submits that the Venezuelan witnesses’ lack of confidence and fear of reprisal from the Defendant are wholly unjustified and that their concern and fear must be measured against some objective standard.  He refers to Lord Diplock’s dicta in Rockware Glass Ltd And MacShannon,[1978] AC 795 at 812.  In that case, four Scotsmen employed by English companies sustained injuries in industrial accidents in Scotland.  They brought actions in England against their employers because of their lawyers’ belief that the damages awarded in England would be higher and the legal process shorter and less costly.  Their actions were stayed upon the application of their employers.  The House of Lords held it was appropriate to stay the actions in favour of the Scottish forum which was the natural forum.  That was a case before Spiliada and the focus of the House of Lords was on the inconvenience to the defendants and the oppressive or vexatious conduct of the plaintiffs in bringing action in England instead of in the natural forum in Scotland.  In that context, Lord Diplock said at 812:

“In considering inconvenience it would, in my view, be wrong to confine this to the convenience of the parties themselves.  Witnesses, too, who are required to play a part essential to the administration of justice, are entitled to consideration, and so is disruption caused to others by the absence from their place of work of witnesses required to be present at the court of trial.  This it is that prima facie makes the Scottish courts the only natural or appropriate forum for each of these actions and throws upon the plaintiffs the onus of showing what Lord Reid called “some reasonable justification” for the his choice of an English court or, as I have ventured to express it, of showing that if they brought their actions in a Scottish court they would be deprived of a legitimate personal or juridical advantage which would have been available to them in the High Court of England.

  The advantage must be a real one.  The plaintiff’s own belief that there is an advantage or, what is more likely to determine where the action is to be brought, the belief of his legal advisers, however genuinely it may be held, is not enough.  The advantage that is relied upon as a ground for diverting the action from its natural forum must be shown objectively and on the balance of probability to exist.  So long as it was necessary to show “oppressive” or “vexatious” conduct by the plaintiff in the ordinary meaning of those words, the test remained subjective; an unsubstantiated but bona fide belief by the plaintiff or his legal advisers in an advantage to be obtained for him by suing in the English courts might be a sufficient answer to the defendant’s application for a stay.  Since The Atlantic Star [1974] AC 436 this is no longer so.”

Lord Salmon and Lord Keith also held respectively at pages 821 and 830 that unproven belief cannot in law constitute a reasonable justification for bringing an action in England or make it unjust to send the plaintiffs back to their own country to litigate in the natural forum.  Mr Chan SC argues that Rockware Glass Ltd And MacShannon is distinguishable from the present case as that case was a concerned with the belief of the parties and not their witnesses, whom the parties have no control.

50.  As I have already mentioned, Rockware Glass Ltd And MacShannon was decided before Spiliada and the focus of the House of Lords was on the issue of reasonable justification for the plaintiffs’ choice of forum as against the natural forum.  Since Spiliada, the test for stay of proceedings on the ground of forum non conveniens has evolved slightly differently.  However the rationale expressed by Lord Diplock on reasonable justification and inconvenience to witnesses remains a valid consideration.  In the first of the above passages, Lord Diplock did refer to witnesses.  However, that was in the context of weighing the inconvenience to the witnesses and the parties and not in the context of considering the unwillingness of the witnesses to testify in the other forum.  As far as the issue of reasonable belief in the plaintiffs’ choice of forum discussed in the second of the above passages is concerned, his Lordship was clearly referring to the plaintiffs and not the plaintiffs’ witnesses.  The same is true of the dicta of Lord Salmon and Lord Keith.  The issue here is not whether the Plaintiff has a reasonable belief of advantage or disadvantage in its choice of forum, but whether its witnesses are willing to testify in the Beijing forum.  In this regard, the witness’ subjective belief or lack of foundation for that belief has to be considered in a somewhat different light.

51.  Despite the apparent similarity between the position of the Plaintiff and that of the Defendant, there is a real distinction between them.  In the Plaintiff’s case, the witnesses have no difficulties travelling to either forum but refuse to testify in the Beijing forum.  In the Defendant’s case, the position of He Lianzhong apart, it would be inconvenient for the witnesses to travel to Hong Kong to testify because of the cumbersome procedure in applying for permission, their heavy workload, the disruption to the witnesses’ work or business and the disruption to the business of the Defendant or the Ministry of Foreign Affairs.  But, a distinction must be drawn between the parties’ own witnesses and third party witnesses.  By parties’ own witnesses, I mean the parties themselves and those witnesses who are in a fiduciary relation with or under an obligation to the parties such that it is reasonably possible for the parties to oblige them to testify in relation to the parties’ business.  These include the parties’ agents, employees and directors if the party is a corporate body.  In some cases, these witnesses are synonymous with the parties themselves.  By third party witnesses, I mean witnesses who are truly unrelated to the party intending to call them.  Their cooperation to testify for the party is gratuitous in nature.  In assessing the issue of availability of witnesses in the present context, the will of the third party witnesses must carry more weight than that of the parties’ own witnesses.  The subjective belief of third party witnesses cannot be measured against any objective standard or reasonableness.  Whether the belief is founded or not is irrelevant, because the party is at the mercy of his witnesses.  But the court must be wary not to allow such belief to be used as a charter to hijack the court into assuming or abandoning its jurisdiction.

52.  Except for Zabede, the Plaintiff’s vice president for Latin America, who is presumably the Plaintiff’s employee or agent and therefore the Plaintiff’s own witness, the other Venezuelan witnesses are third party witnesses from BITOR.  They are not willing to testify in the PRC courts because of their lack of confidence in the PRC legal system and fear of reprisal from the Defendant.  Mr Chan SC echoed their sentiment by referring to the Defendant’s affirmations in which the Defendant’s PRC lawyers regarded He Lianzhong’s conviction as an absolute certainty well before He Lianzhong was being charged with any offence.  It is true from what was reported in the local news that more often than not prosecution followed a detention and a conviction followed a prosecution.  But there were also exceptions, few as there may be.  It is not known if there were more that were not reported.  On the other side of the coin, He Lianzhong’s conviction also demonstrates the determination of the PRC Government and the PRC courts in upholding justice.  This is not necessarily negative.  I have been referred to a number of PRC decisions in which the PRC courts held against the PRC Government or a state-owned corporation.  In Xinjiang Xingmei Oil-Pipeline Co Ltd v China Petroleum & Chemical Corp [2005] 2 HKC 292, Stone J accepted, at paragraph 43, the expert evidence from an ex PRC judge that it is not uncommon for judgments of the PRC courts to be rendered against state-owned enterprises in civil and commercial claims.  I know of a few more such cases.  I think Mr Chan SC’s comments about the Venezuelan witness’ fear for their personal safety and liberty in litigating against a state-owned organization is clouded and oversweeping.  The fear of reprisal is wholly unfounded especially in view of the overall shortage in supply of oil as against the ever increasing demand and particularly the fact that the PRC is an oil thirst importing country.  But, lack of confidence and fear is very subjective.  For people in that part of the world not being aware of the recent development in the PRC in terms of technology, economy and legal system is not surprising.  The Venezuelan witnesses’ lack of confidence in the PRC legal system and fear of reprisal is unfounded but understandable.  There is nothing to suggest that their lack of confidence and fear is not genuine or that it is an excuse put up by the Plaintiff to resist the Defendant’s application.  In any event, it is not the function of this Court to make a finding of fact on that issue based on affidavit evidence.  Regard must be given to their unwillingness to testify in a particular forum when assessing the availability of those witnesses.

53.  Except for Tanny Vong, the witnesses to be called by the Defendant are its own witnesses.  In the case of Tanny Vong, the question is one of logistics.  As for the other witnesses, the question is only one of inconvenience and expenses.  It is not the Defendant’s contention that it is impossible for its witnesses to travel to Hong Kong or that permission will not be given by the CNPC or the Hong Kong and Macau Affairs Office.  In fact the evidence has shown that some of the Defendant’s witnesses are frequent flyers.  Liu Zhongqiu, Zhang Tong and Dong Xiao had been to Venezuela to meet with representatives of PDVSA/BITOR.  Liu Zhongqiu had been to London, Russia and Kazakhstan.  In addition, Liu Zhongqiu and He Lianzhong were frequent visitors to Hong Kong, while Chen Xu and Tanny Vong had been to Hong Kong on three occasions between November 2006 and August 2007.  Those witnesses have no difficulties obtaining permission to fly all over the world on many occasions for official purpose.  The difficulty to the Defendant is not real.  It is all a matter of expenses and inconvenience.

54.  Whichever the forum, the Venezuelan witnesses will have to travel to that forum to testify.  If the trial is to take place in Beijing, the Venezuelan witnesses would have to take a longer trip while the Defendant’s witnesses would be spared of the need and expenses to travel to Hong Kong and other inconvenience.  The inconvenience and additional expenses to the Plaintiff is minimal.  If the trial is to take place in Hong Kong, all the Defendant’s witnesses would have to travel to Hong Kong.  The inconvenience and expenses to the Defendant would be substantial.  But this is not an exercise of balance of inconvenience.  The issue is whether the Beijing forum is clearly or distinctly the more appropriate forum.  The Venezuelan witnesses have indicated that they will not testify before the Beijing forum.  Their fear and worry is unfounded but understandable.  But they are truly third party witnesses.  More regard must be given to the will of third party witnesses than the inconvenience to the parties’ own witnesses and the parties’ cost.  On the other hand, the Defendant’s claim of cumbersome procedure in seeking permission for its witnesses to travel to Hong Kong and their heavy work commitment has been unduly amplified and is wholly bureaucratic.  The Court is very accommodating to special needs of witnesses, particularly those who had to travel from abroad to testify in Hong Kong.  But the Court will not go that far as to surrender its jurisdiction in favour of bureaucracy.  Expenses apart, the disadvantage to the Defendant is all a matter of inconvenience which is not insurmountable and can be minimised by good logistical arrangement.

55.  In the eventual analysis, put at the highest the disadvantage of the Hong Kong forum to the Defendant is one of expenses and inconvenience only, whereas the disadvantage of the Beijing forum to the Plaintiff is one of impossibility which will result in its being deprived of the benefit of the evidence of its Venezuelan witnesses and, more importantly, of a fair trial.  Viewed in the round, on the issue of availability of witnesses, the Beijing forum cannot be said to be clearly or distinctly more appropriate than the Hong Kong forum.

The legal issues

56.  I have identified the various legal issues involved.  In respect of the question of the applicable law of the agency agreement, it must be determined in accordance with the lex fori, which is Hong Kong law.  On that basis, I have given a preliminary view that there is a strong likelihood that the agency agreement is governed by PRC law.  I have no doubt that there are a number of pertinent legal issues which would have to be resolved by PRC law.  Mr Wong SC refers me to the observation of Stone J in Xinjiang Xingmie Oil-Pipeline Co Ltd v China Petroleum & Chemical Corp at paragraph 24 that while Hong Kong court can decide on the application of PRC law, it is common sense that no court applying another system of law can perform this function as surely as the ‘Home’ court.  Mr Wong SC submits that it suffices if this Court comes to a view that there are pertinent issues which are to be resolved by PRC law then it will point to the place of the governing law to be the natural and appropriate forum.  I agree with that proposition.  However, the question now before me is not just which is a natural and appropriate forum, but whether the Defendant has shown that the Beijing forum is clearly or distinctly more appropriate than the Hong Kong forum.  In this respect, the probative value of the governing law of the contract in dispute depends on whether the legal issues involved are complicated or not.  If the legal issues are straightforward, the identity of the governing law will be a factor of rather little significance: see Dicey & Morris, para 12-029.  Unless the balance is strongly in favour of the Beijing forum, the Plaintiff’s choice of the Hong Kong forum should rarely be disturbed.  To disturb that choice, the Defendant must show not only that there are pertinent legal issues which are to be resolved by PRC law, but that those issues are so complicated that it is clearly or distinctly more appropriate for the Hong Kong courts to give way to the other forum. 

57.  The parties have produced a number of conflicting expert opinion on PRC law in respect of the legal issues raised.  I do not intend to rehearse the arguments in those legal opinions in full nor is it necessary for me to come to any views, not even provisional ones, as to how the legal issues will be resolved.  I only need to assess, based on those legal opinion, whether the legal issues raised in this case are likely to be so complicated that it would be appropriate for the trial to be conducted in the other forum which is more experienced and knowledgeable in the applicable law. 

58.  As to the issue whether the alleged Oral Agreement made by He Lianzhong on behalf of the Defendant is invalid under PRC law by reason of his beneficial shareholding in the Plaintiff, the legal issue is one of conflict of interest.  Even according to the Defendant’s PRC lawyers, this is only a short and simple point which would not involve any complicated issues of PRC law.

59.  On the issue of illegality of the Oral Agreement and Supplementary Agency Agreement, the Plaintiff’s PRC lawyers are of the opinion that the Plaintiff was only procuring PDVSA/BITOR to supply oil to the Defendant which had the relevant approval from the authorities to import oil.  The Plaintiff was not agreeing to import or sell any oil in the PRC.  As to the transfer of the allocated volume under the Supplementary Agency Agreement, it was expressly stated in paragraph 3 of that agreement that the Plaintiff shall have the right to transfer the allocated volume to any other third parties to be identified and mutually agreed, to be entitled to the margin gained from the transaction and that the transaction shall be conducted by way of lawful and contractual arrangements and/or through the Defendant on terms and conditions to be mutually agreed.  Thus the allocation would not involve import and resale of oil by the Plaintiff.  The resale transaction would be carried out by the Defendant such that the Plaintiff would be entitled to the margin from the transaction.  The Defendant’s PRC lawyers’ opinion is that the validity of the Supplementary Agency Agreement depends on further negotiation between both parties in respect of the identity of the purchaser and details as to terms of the resale.  Hence, they are of the opinion that the Supplementary Agency Agreement is inoperative under PRC law for want of certainty.  On the basis of the opinion of the parties’ PRC lawyers, the issue does not appear to me to be at all complicated. 

60.  As for the validity of the signature of Liu Zhongqiu on the Supplementary Agency Agreement, Liu Zhongqiu signed on the agreement as the vice president of the Defendant.  The Defendant’s company chop was not affixed on the agreement.  There is no dispute that Liu Zhongqiu was neither the legal representative nor the chairman of the board of directors of the Defendant.  Chen Xu said that though Liu Zhongqiu had authority to sign the supply contract with BITOR, that did not mean he had the authority to sign the agency agreement.  According to the Defendant’s PRC lawyers, the company chop affixed on an agreement or the signature of the legal person of the company are prima facie evidence that the company has authorized the conclusion of the agreement.  Their opinion is that where an agreement is signed by a person claiming to be acting for and on behalf of the company, it would be prudent for the other contracting party to require production of a proxy letter, otherwise the other contracting party would have to run the risk that the person signing did so without authority and the concept of implied or ostensible authority under the common law has no place in PRC law. 

61.  The Plaintiff’s PRC lawyers relies on 43 of the《中華人民共和國民法通則》(General Principles of the Civil Law of the People’s Republic of China) (“Civil Code of the PRC”) which provides:

“Article 43     An enterprise legal person shall bear civil liability for the operational activities of its legal representative and other personnel.”

They also rely on articles 48 and 50 of the《中華人民共和國合同法》(Contract Law of the People’s Republic of China)(“Contract Law of the PRC”).  Article 50 of the Contract Law of the PRC provides that acts of staff of companies exceeding his authority would be binding on the company as against third party, unless the third party has notice of the lack of authority.  They are of the opinion that the effect of those provisions is that as Liu Zhongqiu was the vice president of the Defendant, the Defendant shall assume civil liability in respect of his acts done in the performance of such operational activities.  They also rely on acts done by the Defendant after signing of the agreement as ratification.  The Defendant’s PRC lawyers dispute the correctness of the translation of article 43 by the Plaintiff’s PRC lawyers.  They say that the words “other personnel” should be translated as “other functional staff members”.  They further argue that the functional activities refer to the activities of the legal representative and those activities carried out by the functional staff members within the scope of power or authorization conferred by the company.  Those activities do not include unauthorized or ultra vires activities.  The dispute over the translation could be easily resolved by reference to the official text.  From the legal arguments as I have outlined above, it does not occur to me that the issue about the invalidity of Liu Zhongqiu’s signature on the Supplementary Agency Agreement is a complicated one under PRC law.

62.  On the issue whether the signature of Tanny Vong “pp Ben Lin” on behalf of the Plaintiff is invalid under PRC law, the Plaintiff’s PRC lawyers’ opinion is that the question of the authority of officers purporting to act for the company is governed by the law of the place of incorporation of the company, i.e. BVI law rather than PRC law.  As such this is not an issue to be put into the weighing pan.  The Defendant’s PRC lawyers draw a distinction between “capacity of rights” or “capacity of conduct” and an agent’s authority.  They opine that the former is governed by the doctrine of lex personalis, while the latter is governed by the most close connection test under the international conflict of laws, which on the facts of the present case is PRC law.  Then they refer to article 184 of the《最高人民法院關於貫徹執行《中華人民共和國民法通則》若干問題的意見(試行)》(Opinions (for Trial Implementation) of the Supreme People’s Court on Certain Issues on the Implementation of the General Principles of the Civil Law of the People’s Republic of China) (“Supreme Court Opinion on the Civil Code”) which provides:

“Article 184        The domestic law of a foreign legal entity shall be the law of the country where that legal entity is registered.  The capacity of conduct of a legal entity shall be governed by the domestic law of that legal entity.

  Where a foreign legal entity conducts civil activities in the territory of our country, the activities shall be in compliance with the legal provisions of our country.”

63.  Based on their similar opinion as set out in paragraph 60, the Defendant’s PRC lawyers are of the opinion that under PRC law, Tanny Vong’s signature on the Supplementary Agency Agreement is not binding on the Plaintiff.  Their opinion is on the basis that they have not been shown any corporate document of the Plaintiff confirming Tanny Vong’s appointment as chairman of the Plaintiff’s board of directors or its legal representative.  They further opine that her signature would be on behalf of the Plaintiff only if she was authorized by the Plaintiff to sign the agreement or that the Plaintiff later ratified her signature.  Hence, the Defendant’s PRC lawyers opine that there was no ratification by the Plaintiff.  They also refer to the Plaintiff’s declaration made on 1 April 2005 that Tanny Vong’s authority was only limited to negotiation and liaison as evidence of the limitation of Tanny Vong’s authority and lack of ratification. 

64.  As with the previous issue, I am quite unable to agree that the issue of the validity of Tanny Vong’s signature under PRC law is complicated.

65.  I am of the view that none of the legal issues raised can be described as complicated.  In view of the ever increasing commercial relationship between Hong Kong and the PRC, the Hong Kong courts had on numerous occasions to deal with issues of PRC law, including some complicated ones.  More literature on PRC law is now available.  PRC statictes are available through the internet.  Precedents on PRC law is building up in our own cases.  More bilingual judges have received legal education in PRC law.  I think Hong Kong courts are best placed, apart from the PRC courts, than any other jurisdictions in applying PRC law.  The legal issues are not so complicated as to make it clearly or distinctly more appropriate that Hong Kong courts should give way to the Beijing forum.  Viewed in the round, on the question of pertinent legal issues, the Beijing forum cannot be said to be clearly or distinctly the more appropriate than the Hong Kong forum.

State secret

66.  Another reason advanced by the Defendant in support of its application that Hong Kong is not the appropriate forum is that the Defendant is wary that there may be evidence in the nature of state secrets which cannot be divulged in a Hong Kong court, except with approval from the appropriate state organ and a trial in the Hong Kong forum would not qualify for such approval.  But such approval is not necessary in a trial before a Beijing court.

67.  According to the Defendant’s PRC lawyers, Hong Kong SAR is treated in the similar manner as an “external place” is treated in respect of the《中華人民共和國保守國家秘密法》(Law of the People’s Republic of China in Guarding State Secrets (“State Secrets Law of the PRC”) and the《中華人民共和國保守國家秘密法實施辦法》(Methods for the Implementation of the Law of the People Republic of China on Maintaining the State Secrets) (“Implementation Methods of the State Secrets Law of the PRC”).  I have no difficulties accepting this opinion as it accords with article 18 of the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China.  They further opine that if the Defendant intends to disclose as part of its defence a state secret in a Hong Kong court action, the Defendant would have to comply with the State Secrets Law of the PRC and the Implementation Methods of the State Secrets Law of the PRC as if Hong Kong is an external place or a foreign country. 

68.  The Defendant’s PRC lawyers quoted articles 2 and 8(3) of the State Secrets Law of the PRC and asserted that the diplomatic dealings between the PRC Government and the Venezuelan Government which led to the Venezuelan Government influencing PDVSA/BITOR to eventually sign the 2004 Contract is a state secret.  These articles provide as follows:

“Article 2   State secrets refer to matters relating to the safety and interests of the State, knowledge of which is only limited to certain number of people within certain period of time as specified in accordance with the legal procedure.”

“Article 8   State secrets include the following secret matters that fall under the provisions of Article 2 of this law:   

(1)   secret matters relating to major decisions on the state   affairs;

(2)   secret matters relating to military activities and the building up of the national defence;

(3)   secret matters relating to the diplomatic and foreign  affairs activities and matters on which an external confidential obligation is imposed;

(4)   secret matters relating to the national economy and social   development;

(5)   secret matters in science and technology;

(6)   secret matters relating to activities of maintaining the state safety and investigations of criminal offences;

(7)   other matters that must be kept as state secrets as specified by the secret maintaining authorities of the State.

  Matters that do not fall under Article 2 of this law are not state secrets.

  Secret matters of political parties that fall under Article 2 of this law belong to state secrets.”

69.  The Plaintiff offered no expert opinion to contradict the Defendant’s PRC lawyers’ opinion on this issue.  However, with respect to the Defendant’s PRC lawyers, their opinion does not even sound logical.  Reading article 8 as a whole does not convey the impression that any secret matters relating to diplomatic and foreign affair activities referred to in article 8(3) as such are state secrets.  As provided by the penultimate provision in that article, to qualify as state secrets, those matters have to fall under article 2, i.e. those matters must relate to the safety and interests of the state, the knowledge of which is only limited to certain number of people within a certain period of time as specified in accordance with the legal procedure. 

70.  I would assume that the diplomatic intervention related to interests of the state.  However, no opinion has been advanced by the Defendant’s PRC lawyers or evidence tendered by the Defendant as to the number or class of people to whom particulars of the diplomatic dealings have been limited and the period of time within which such information is classified as state secrets.  Quite to the contrary, Chan Xu has freely divulged in his affirmations not only that the 2004 Contract was procured as a result of diplomatic intervention but also the promise of aid to the Venezuelan Government as an inducement in the diplomatic intervention.  Article 24 prohibits any person from divulging state secrets in private contacts or correspondence.  Article 31 provides that any person in breach of article 24 may be investigated for criminal responsibility.  Chan Xu is the director of the Legal Affairs Department of the Defendant.  He must be knowledgeable about PRC law and about these provisions of the State Secrets Law of the PRC.  He would not have so divulged the above unless it is not a state secret or has been declassified.

71.  Diplomatic and foreign affair activities are secret matters.  But such secrecy is time sensitive.  Article 15 of the State Secrets Law of the PRC contains provisions for periodic review and declassification of state secrets.  Diplomatic activities such as diplomatic meetings and agenda of such meetings are clearly secrets before the meetings take place because of the need to preserve confidentiality and protect security of the diplomatic officers, but not necessarily so after.  This is especially so if the meetings and agreements reached therein have been reported.  Chen Xu freely disclosed in his affirmations that essentially the 2004 Contract was procured as a result of the governmental aids offered to the Venezuelan Government.  Almost four years have lapsed since the alleged diplomatic intervention and the 2004 Contract had been fully performed for almost three years thereafter.  Against this background and together with Chen Xu’s disclosure of the nature of the diplomatic intervention, there is not much of any secrecy that is left to be disclosed.  These points have not been covered by the Defendant’s PRC lawyers.

72.  Then, they quoted article 22 of the Implementation Methods of the State Secrets Law of the PRC and opined that if a submission is filed with the relevant PRC organs for approval of disclosing certain state secrets to the Hong Kong court, the relevant PRC organs have to be convinced that the relevant authorities of the Hong Kong SAR also grant disclosure of Hong Kong secrets to a court in the PRC for trial of civil case (“equality test”) and that disclosure of such state secrets to the Hong Kong court will be to the benefit of the PRC (“mutual benefit test”).  They are thus of the opinion that a trial in Hong Kong will not satisfy the equality test because of lack of reciprocal arrangement between the PRC and Hong Kong on disclosure of secrets to courts in each other’s jurisdiction, will not satisfy the mutual benefit test because the relevant PRC organs will not be convinced that disclosure of state secrets to the Hong Kong court will be to the benefit of the PRC and that the Hong Kong court will not provide the necessary undertaking not to disclose the state secrets.  Article 22 of the Implementation Methods of the State Secrets Law of the PRC provides:

“Article 22    In matters of external contacts and cooperation, where provision of a state secret is requested by the other party for justifiable reasons and through proper channels, a submission must be filed with the relevant authorized organs for approval in accordance with the provisions of the competent state authority, on the basis of the principles of equality and mutual benefit, and the other party should be requested to undertake the obligation, in certain manner, to keep the secret confidential.”

73.  On the face, this article does not appear to me to be relevant.  It appears to be an implementation provision for the purpose of giving effect to article 21 of the State Secrets Law of the PRC which provides:

“Article 21     When state secrets have to be furnished for the benefits of contacts and cooperation with foreign countries, approval must be obtained beforehand in line with the prescribed procedures.”

 The external contacts and cooperation mentioned in article 22 of the Implementation Methods of the State Secrets Law of the PRC clearly refers to the contacts and cooperation mentioned in article 21 of the State Secrets Law of the PRC.  Thus article 22 is applicable only to disclosure of state secrets to and at the request of another state for the purpose of mutual benefits and cooperation with that other state.  It has no application to providing state secrets to a Hong Kong court.  After all, the Hong Kong court will not request for any state secrets from the PRC Government.  It is not a requesting state.  The equality test, mutual benefits test and undertaking by the Hong Kong court mentioned by the Defendant’s PRC lawyers are wholly inapplicable and irrelevant.  The Defendant’s PRC lawyers are forcing a wrong key into a wrong knock.

74.  Lastly, the Defendant’s PRC lawyers opine that if the action is heard before a PRC court, there is no need for the Defendant to seek approval for disclosure of a state secret in the court proceedings.  The party only needs to inform the court that it is a state secret within certain secret classification so that the court shall take appropriate measures in dealing with such state secret.  They cited article 120 of the Civil Procedure Law of the PRC which states:

“Article 120  The people’s court shall try civil cases in open hearing sessions, unless the cases relate to a secret of the State, personal secret or there are legal provisions otherwise.”

75.   Again, I am not convinced that article 120 of the Civil Procedure Law of the PRC has done away with the need for approval to disclose a state secret before a PRC court.  That article only appears to provide for trying of a case relating to a state secret and not about approval for disclosure of a state secret.  It does not seem to have the effect of displacing article 24 of the State Secrets Law of the PRC which expressly prohibits any form of disclosure of state secrets whether by private contact or correspondence or discussion in public place.  Even if the proceedings are to be held in camera, the state secrets would have to be disclosed to the Defendant and its witnesses.  The Defendant’s PRC lawyers’ opinion is manifestly inadequate as being so inconsistent with the State Secrets Law of the PRC. 

76.  This Court is not bound to accept the opinion of a party’s expert in foreign law, even if that opinion is not contradicted by any expert opinion from the other party.  In approaching an expert opinion on foreign law, the court must consider if that opinion is consistent with the statute and authorities referred to by the expert.  It must assess the credibility of that opinion and consider if that opinion makes real sense.  It may accept that opinion if it does and reject it if it does not.  Here, the Defendant’s PRC lawyers merely asserted that Chen Xu’s allegation of diplomatic intervention is a state secret.  They offered no explanation as to why that allegation falls under article 2 and article 8(3) of the State Secrets Law of the PRC.  Their opinion about article 22 of the Implementation Methods of the State Secrets Law of the PRC is manifestly unsatisfactory.  Their opinion about the benefit to the Defendant if the trial is to take place in Beijing is questionable.  The Defendant bears the burden of proving the foreign law it relies on.  I am not satisfied on the evidence of its PRC lawyers and Chen Xu’s evidence that it has discharged the burden in respect of state secret issue.

Expert evidence on the relationship between the Defendant and the ND&R Commission

77.  In respect of the Plaintiff’s allegation that He Lianzhong was an authorized representative of the ND&R Commission, the Defendant’s PRC lawyers are of the opinion that if the action is tried in Hong Kong, the Defendant will have to lead expert evidence on the relationship between the Defendant and the ND&R Commission, whereas such evidence is not necessary as the PRC courts have better knowledge of the governmental set up of the PRC Government and the relationship of the bodies in the State Council.  I am a little bewildered by that proposition.  If the relationship is relevant, whether relied on by the Plaintiff or by the Defendant, it will have to be proved by evidence.  The Defendant’s proposition suggests that such evidence is not necessary in the Beijing forum.  In other words, the Beijing courts have cognisance of the relationship.  This is a concept which is similar to our concept of judicial notice.  But there is no legal opinion in support of that proposition.  Even if the evidence can be economised in the Beijing forum, this factor is only of very marginal utility to the Defendant.

The language issue

78.  On the language issue, Mr Chan SC submits that the Beijing forum is definitely not clearly or distinctly appropriate.  All correspondence and documents concerned right up to the Defendant’s refusal to perform their obligation are all in English.  In particular, the Supplementary Agency Agreement and the 2004 Contract are in English.  If the trial is to take place in the Beijing forum, the volume of documents to be translated from English to Chinese is large.  In addition, the Venezuelan witnesses will give evidence in English necessitating interpretation.  Apart from the question of the cost involved, Mr Chan SC is concerned about the standard of interpretation and translation in the PRC.  The Defendant’s PRC lawyers’ answer to that concern is that there is no shortage of competent translation service in the PRC and that there is a system for resolving disputes in translation.  Though I have not been informed of any system of certification in the Beijing forum as we have in Hong Kong, the situation in the PRC is no different in substance from that in Hong Kong.  If a party is not satisfied with any interpretation or translation, he is at liberty to dispute that interpretation or translation.  In the case of dispute in interpretation arising in the course of trial, such dispute may be disruptive and costly in term of the court time wasted.  In general, the standard of English on the other side of the border is notably improving.  One can note from the correspondence issued by the Defendant that the standard of English used is of an absolutely high standard.  I do not think Mr Chan SC’s concern about the standard of translation and interpretation is a real one.

79.  Mr Chan SC is also concerned about the English language proficiency of the judges in the PRC in trying this case.  Though the Defendant’s PRC lawyers suggest that some PRC judges know English, they do not go as far as to say that arrangement will be made to ensure that the judge seized with the case would have a sufficient command of English.  They only suggest that some judges know English and will use their knowledge of English in deciding the case.  Mr Chan SC says that as the official language in the PRC is Chinese and the language used in the PRC courts is Chinese, it is unlikely that there is any official test on the standard of English of the individual judges.  Hence, he submits that one just does not know whether the judge’s knowledge of English is really proficient enough.  My comment about the level of English standard in the PRC in the preceding paragraph does not address this particular concern of Mr Chan SC.  The officials responsible for the correspondence from the Defendant are engaged in international commercial business which may require them to possess a high level of English proficiency.  But this is not necessarily so for judges, especially as the language of the courts in the PRC is Chinese.  This observation is not meant to be derogatory of the ability of judges in the PRC as English proficiency is not their expertise.  At least, it is not the Defendant’s PRC lawyers’ opinion that there are arrangements to ensure that the judge seized with the case has a sufficient command of English.  If a judge uses his untested knowledge of English to decide the case, all kinds of problems will arise, particularly if that forms the basis of his inarticulate premises for the decision.  This is a case which is likely to be more English orientated than Chinese.  In the circumstances, Mr Chan SC’s worry is real and not at all unfounded.

80.  On the other hand, the advantage of the Hong Kong forum is plain and obvious.  The Hong Kong courts have well defined practice and procedures for handling bilingual cases such as this.  Judges competent in both languages are available to hear this case.  Even if the trial is to take place before a mono-bilingual judge, the volume of Chinese documents to be translated into English is less and the cost of interpretation in the taking of evidence from the Venezuelan witnesses will also be saved.  If the trial is to take place in Beijing, all English documents will have to be translated and the evidence of the Venezuelan witnesses will have to be interpreted.  The cost of translation and interpretation will be tremendous.  Furthermore, there is no suggestion that there is in place in the Beijing forum a comparable system for trying bilingual cases similar to ours.  Viewed in the round, on the language issue, the Beijing forum cannot be said to be clearly or distinctly more appropriate than the Hong Kong forum.

Documentary evidence

81.  The Plaintiff asserts that the relevant records and documents are kept by the Plaintiff in Hong Kong, which makes Hong Kong a convenient forum.  In terms of the Plaintiff’s performance of the agency agreement, probably this is correct.  But in terms of the market price of Orimulsion oil, handling cost etc, the relevant records are kept by the Defendant in Beijing.  In any event, this is not a factor of much significance.

Conclusion on Stage I

82.  In summary, there are factors which point in favour of the Beijing forum and factors which point in favour of the Hong Kong forum.  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.

83.  Mr Chan SC submits that the Oral Agreement is an international agreement entered into in Hong Kong between a Beijing party and a Hong Kong or BVI party for performance in Venezuela.  Mr Wong SC submits that the agency agreement is a domestic agreement entered into in Beijing.  Putting that difference aside, the agency agreement between the parties, to use a wider term, is indeed international in nature entered into between two parties domiciled in different jurisdictions for services to be rendered in a third jurisdiction.  I assume in favour of the Defendant that there is a strong likelihood that the applicable law of that agency agreement is PRC law and many pertinent legal issues will have to be resolved in accordance with PRC law.  But on the other hand, this is a bilingual case which is English orientated, involving English speaking witnesses and Chinese speaking witnesses and predominantly, at least so far as I have seen, English documents.

84.  The Plaintiff’s Venezuelan witnesses are unwilling to testify in the Beijing forum but it is very inconvenient and expensive for the Defendant’s witnesses to come to testify in Hong Kong.  The question is one of impossibility to the Plaintiff and expenses and inconvenience to the Defendant.  The language issue is one of serious concern to the Plaintiff, apart from the cost of interpretation and translation involved.  Then, there is the indisputable fact that the Hong Kong courts are best placed to deal with bilingual trials of this nature in terms of experience, resource and supporting services.  On the other hand, there is a strong likelihood that the pertinent legal issues will have to be resolved in accordance with PRC law, but those legal issues are not complicated.  Viewed in the round, the Beijing forum cannot be said to be a clearly or distinctly the more appropriate forum than the Hong Kong forum.

85.  In view of my conclusion in Stage I, it is unnecessary for me to consider Stage II and Stage III.  It will only be a futile exercise to assume on the contrary that the PRC forum is more appropriate and then to balance the advantages and disadvantages, as the answer must turn out to be the same.  I shall, nevertheless, make a few observations very briefly.

stage II : will a trial in the Beijing forum deprive the plaintiff of any legitimate personal or juridical advantages

86.  Mr Chan SC submits that the Plaintiff would suffer two major disadvantages if the trial is to take place in the Beijing forum.  Firstly, according to the Plaintiff’s PRC lawyers, an additional defence of limitation will be available to the Defendant and there is at least a risk that the Plaintiff’s claim or at least a substantial part of it has been time-barred under PRC law.  Secondly, the Plaintiff will be deprived of the evidence of its Venezuelan witnesses.  There are some minor disadvantages as well.

Whether the Plaintiff’s claim is time-barred in the PRC

87.  In respect of the time-bar point, under article 135 of the Civil Code of the PRC, the time limit for bringing civil action or lawsuit for the protection of civil rights before the PRC courts is two years.  Articles 135, 137 and 140 of the Civil Code of the PRC provide as follows:

“Article 135     No civil action shall be brought to the People’s court after the expiration of 2 years from the date on which the cause of action accrued, unless the laws provide otherwise.

  Article 137   The time of limitation period shall begin to run from the time the infringement of rights is known or should have been know.  If more than 2 years have elapsed since the rights have been infringed, the People’s court shall not accord any protection.  In special circumstances, People’s court can extend the limitation period.

Article 140     Limitation period shall be interrupted by litigation, the making of request or agreement to perform by the party concerned.  The limitation period shall begin to run from the time of interruption.”

The Orimulsion oil were delivered between December 2004 and December 2005 with the majority having been delivered by October 2005.  It is also clear that by April 2005, the Defendant had unequivocally indicated that it would not perform its part of the agency agreement.  The Plaintiff’s cause of action would have accrued if not by April 2005, at the latest within a reasonable time after completion of delivery of all Orimulsion oil under the 2004 Contract, say early 2006.  The Plaintiff’s claim against the Defendant would have been time-barred by early 2008.  No action has ever been commenced in the PRC courts by the Plaintiff. 

88.  The Defendant’s PRC lawyers’ opinion is that the limitation period has been interrupted pursuant to article 140 of the  of the PRC by the institution of the present action and not until this action has been concluded will time start to run again.  The Plaintiff’s PRC lawyers disagree with such opinion.  In their opinion, the litigation referred to in article 140 of the Civil Code of the PRC refers to litigation in the PRC and the present litigation which is outside the PRC shall not be treated as a litigation for the purpose of article 140 of the Civil Code of the PRC.  No authority has been cited by either side, but the point is clearly arguable. 

89.  In the alternative, the Defendant’s PRC lawyers argue that under the same article, the limitation period may be interrupted by a request to perform or an agreement to perform made by the parties concerned which includes the aggrieved party as well as the party in default.  They also quoted article 173 of the Supreme Court Opinion on the Civil Code in support of their interpretation of the words “parties concerned” in article 140 of the Civil Code of the PRC.  Article 173 of the Supreme Court Opinion on the Civil Code provides:

“Article 173     If, after the time limit is interrupted by virtue of a claim for right raised by a party having the right or by virtue of an agreement made by the obligor to fulfil the obligations, the party having the right raises the claim for right again within the period of the new time limit, or the obligor agrees again to fulfil the obligations, the new time limit can be regarded as being interrupted again.”

90.  Article 173 supports the interpretation that a request for performance may be made by the party having the right which has been infringed, i.e. the aggrieved party.  The Defendant’s PRC lawyers further opine that the limitation period could be extended up to twenty years pursuant to article 137 of the Civil Code of the PRC by such a request to perform made by the aggrieved party.  Then they argue that the ongoing litigation in Hong Kong, the exchange of documents and presentation of claim are requests to perform.  Hence, the Plaintiff’s Re-Amended Concurrent Writ of Summons, at least, can be treated as a request for performance which has the effect of interrupting the limitation period so that time started to run afresh from the service of the Statement of Claim on the Defendant on 23 October 2006.  Thus, the Plaintiff’s action will not be time-barred until 23 October 2008.  Of course, on that argument, each correspondence in connection with this litigation and each attendance in court is a request which virtually keeps the Plaintiff’s cause of action alive for two years after each such event.

91.  The Plaintiff’s PRC lawyers disagree with such opinion.  They adopt a common sense approach consistent with our law of limitation that to be effective to stop time from running, a request must be of the nature of an acknowledgement of the plaintiff’s right made by the party in default.  However, they have no answer to the construction based on article 173 of the Supreme Court Opinion on the Civil Code.  Under PRC law, the limitation period is very short but is capable of being extended up to twenty years by way of requests or agreements to perform.  The common sense approach of the Plaintiff’s PRC lawyers may be uncommon sense under the limitation law in the PRC.  The Re-Amended Concurrent Writ of Summons, whatever its nature and wherever it was issued, does not cease to be a demand or request for performance.  The Defendant’s contention that the period of limitation will not expired at least until 23 October 2008 is clearly arguable.  It is not necessary for me to make any finding of PRC law on this issue.  Suffice it is to say that the Plaintiff has discharged the evidential burden of showing that he would be deprived of a juridical advantage if the trial is to take place in the Beijing forum because it would be faced with an additional defence of limitation which is not available to the Defendant in the Hong Kong forum.  But in the light of the opinion of the Defendant’s PRC lawyers, the risk of deprivation of this advantage to the Plaintiff may not be a real one. 

92.  Next, the Defendant’s PRC lawyers suggest that the Plaintiff could stop the limitation period from running by issuing proceedings in the PRC and then withdraw the action or apply for a stay of proceedings pending the outcome of the action in Hong Kong.  This, they opine, has the effect of a “protective writ”, though there is no such concept of “protective writ” in the PRC.  I think this suggestion is impracticable and unteenable.  It is the common opinion of the parties’ PRC lawyers that after proceedings have been commenced, the court will impose a tight time-table with a view to bringing the proceedings to conclusion as quickly as possible.  The contention of the Defendant’s PRC lawyers means that the Plaintiff would have to pretend to the court that it was genuinely intending to pursue the claim in compliance with such a tight time-table and then tell the court of its totally contrary intention throughout by applying for withdrawal or stay of proceedings.  The Defendant’s PRC lawyers suggest that a stay may be granted under article 136(5) of the Civil Procedure Law of the PRC.  This article provides as follows:

“Article 136  In any of the following circumstances, the litigation proceedings should be stayed:

 (5)    the litigation proceedings are dependent on the result of another case on trial which has as yet not been decided;”

 That contention is clearly misconceived.  Article 136(5) permits a stay if the litigation proceedings to be stayed are dependent on the result of another case on trial which has as yet not been decided.  If the Plaintiff starts proceedings in the PRC courts, those proceedings could not be dependent on the result of the proceedings in Hong Kong.  Article 136(5) is clearly inapplicable.  It is difficult to see how the PRC courts would accede to such a request for withdrawal or stay of proceedings.

Deprivation of evidence from the Venezuelan witnesses

93.  I have dealt with this issue fully under Stage I.  In view of the attitude of those witnesses, there is a real risk that the Plaintiff will be seriously prejudiced by being deprived of the evidence from those witnesses if the trial is to take place in the Beijing forum.  This precisely demonstrates the futility of this exercise if the Defendant’s application cannot survive Stage I.

Deprivation of the right to cross-examine He Lianzhong

94.  I have analysed the position of He Lianzhong in paragraphs 43 to 45 above.  This issue has been rendered academic as He Lianzhong has been convicted and is now serving a sentence of imprisonment for twelve years.  If the trial is to take place in the Beijing forum, it is likely that He Lianzhong will be able to give a statement before a judge and the parties may put questions to him during the statement taking process.  The Plaintiff will not be deprived of any advantage which it otherwise will if the trial is to take place in Hong Kong.

Inferior discovery procedure

95.  The discovery process in the PRC is very much different from that in Hong Kong.  In the PRC, there is no concept of voluntary discovery of documents which are relevant to the controversy in dispute.  It is evident from the Defendant’s PRC lawyers that the attitude of PRC lawyers towards discovery is to disclose only documents favourable to their own clients’ case.  Not unless a party has knowledge of the existence of a document in the possession of the other party can he seek discovery.  This is very much different from Hong Kong, where under the Peruvian test, discovery would include documents not immediately relevant to the issues but would reasonably lead to a chain of enquiry to documents which are relevant to an issue.  In Hong Kong, discovery is not limited to documents in the possession of the party as in the PRC, but also include documents within the power and control of the party.  Further, although the Beijing courts have a procedure for investigation and collection of evidence or documents by the court, that is very different in nature from specific discovery in Hong Kong.  Under the PRC discovery procedures, the process for such investigation and collection of evidence is largely in the hands of the judge and beyond the control of the parties.  Very importantly, such process of investigation and collection of evidence will only be allowed by the Beijing court if the documents requested for will, as perceived by the judge, significantly affect the outcome of the litigation.  That is a more stringent test than that under the test of relevance in specific discovery in Hong Kong.

96.  Discovery is of particular importance for assessing damages and testing the defence of diplomatic intervention this case.  The Plaintiff has no knowledge if the Defendant has disposed of any of the Orimulsion oil and on what terms and had to rely on the good faith of the Defendant in disclosing its records.  Faced with the attitude and practice of PRC lawyers in general and the inferior discovery procedure in the PRC, there is a real risk that the Plaintiff will suffer a juridical disadvantage if the trial is to take place in the Beijing forum. 

Court fees and legal costs and other factors

97.  According to the Plaintiff’s PRC lawyers, the Plaintiff has to pay court fees representing some 0.5% of the amount of claim, which will be in the tune of some US$155,000.  In addition, substantial cost will have to be incurred in interpretation and translation of the large volume of English documents.  Cost is usually not a factor which weighs heavily in a case of this nature, unless it is of such a prohibitive amount as to drive the Plaintiff out of court.  There is no evidence that such cost is unaffordable to the Plaintiff. 

98.  The Plaintiff’s PRC lawyers opine that even if successful before the Beijing court, the Plaintiff will usually be unable to recover its own legal costs.  This is reciprocal and could be a benefit if the Plaintiff fails.  This cannot be said to be an advantage which the Plaintiff will be deprived of.

99.  The Plaintiff also raises the problem of admissibility of copy documents, including copy faxes and e-mails.  There are a large number of such documents involved.  This is a procedural hurdle to the Plaintiff and may have a bearing on the exercise of my discretion.

100.  The Plaintiff also repeats its concern about the use by PRC judges of their untested knowledge of the English language in trying and deciding the case.  This is a legitimate concern.

Conclusion on Stage II

101.  I am satisfied that the Plaintiff will be deprived of some legitimate personal or juridical advantages.  It may not have a strong case of deprivation on the time-bar issue, but the risk of being deprived of the benefit of the evidence of its Venezuelan witnesses is a real one which I cannot discount.  The other disadvantages are of minor significance.

Stage III : Balance of advantages

102.  In Stage III, the Defendant bears the ultimate burden of persuasion.  It has to show on balance that the Beijing forum is more suitable ‘for the interests of all the parties and the ends of justice’.  If the trial should proceed in the Beijing forum, the Plaintiff will be deprived of two major juridical advantages.  Firstly, the Plaintiff may be met with an additional defence of limitation, which is not available to the Defendant in the Hong Kong forum.  I have indicated that the Plaintiff’s claim of deprivation under this head may not be a strong one.  But, for the purposes of the present proceedings, I am not concerned with strength or weakness of the parties’ case nor should I make any finding of fact or of PRC law.  Suffice it is to say that there is a risk of deprivation of a juridical advantage.  Secondly, the Plaintiff will run the risk of deprivation of the Venezuelan witnesses.  That risk is of critical importance.  The Defendant has raised the defence that the 2004 Contract was procured by its own effort with the help of diplomatic intervention.  Prima facie, evidence from the Ministry of Foreign Affairs will be unassailable.  The Plaintiff therefore has to prove performance on its part.  The Venezuelan witnesses as senior officers of the other contracting party to the 2004 Contract are in the best position to give evidence to support the Plaintiff’s case that the 2004 Contract was procured as a result of the effort of the Plaintiff or to contest the evidence of the Ministry of Foreign Affairs.  Without those witnesses, the Plaintiff’s case would be substantially undermined.  The loss of the other advantages to the Plaintiff is not of critical importance.  The balance clearly lies in favour of the Plaintiff.

conclusion

103.  In conclusion, I am not satisfied that the Defendant has discharged the burden of showing that the Beijing forum is clearly or distinctly more appropriate than the Hong Kong forum.  The Defendant’s application for stay the action in favour of the Beijing forum is therefore dismissed.  In the circumstances, I grant leave to the Defendant to file and serve on the Plaintiff its defence and counterclaim, if any, within 21 days from the date of this order.

104.  In view of the nature of the issues in dispute, this is a case in which it is appropriate that the Plaintiff should be awarded its costs of this application only if it is successful in the action.  I therefore make a costs order nisi that the costs of the Defendant’s application be to the Plaintiff’s costs in the cause with certificate for two counsel.