DUNAVANT ASIA LTD v. COTTON & JUTE CORP. OF THE 7TH AGRICULTURAL DIVISION OF PRODUCTION & CONSTRUCTION CORPS OF XINJIANG CHINA

HCCL 47/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.47 OF 2004

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JUDGMENT ON COSTS

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The application

1. By summons dated 8 February 2005 the plaintiff herein applies for an order for variation of the costs order nisi made by this court in its judgment dated 28 January 2005.

2. In this judgment, issued consequent upon the defendant’s summons dated 17 September 2004, as amended on 3 December 2004, this court had ordered that there be an interim stay of the proceedings herein pending clarification in terms of further applications mounted by the plaintiff in Chinese proceedings in Urumqi between the same parties to the present action.

3. That judgment had noted (at paragraph 37) that the defendant’s application for an interim stay had succeeded in face of determined resistance by the plaintiff, and in the circumstances an order nisi was made that costs should follow the event.

4. It is this order nisi that now is sought to be varied, the summons so to vary applying for an order that the costs of and occasioned by the defendant’s application be reserved.

The argument

5. On behalf of the plaintiff, Mr Lamplough submitted that the costs order nisi as then made did not accurately reflect the way in which the defendant’s application had been brought before the court.

6. Mr Lamplough took the opportunity to review the procedural history of this application.

7. He observed that on the basis of the defendant’s summons dated 17 September 2004, the relief sought was that the Writ and Statement of Claim be struck out as frivolous, vexatious and/or an abuse of process, and that the plaintiff’s claim in this action be dismissed.

8. It was also on this basis, he said, that the plaintiff had requested, and the court had given leave to the parties to serve, expert evidence of PRC law upon the issue of the final and conclusive nature, or otherwise, of the Urumqi judgment; such evidence had been exchanged on 3 December 2004.

9. The hearing of the application as then presaged by the defendant’s summons had been fixed for 14 December 2004.  However, on 1 December the defendant had taken out an application seeking leave to amend the original summons to seek, in the alternative, an order that “this application be stayed on the principles of forum non conveniens and lis alibi pendens”; this amendment was allowed by consent.

10. In this connection Mr Lamplough correctly observed that the strike out application no longer had been pursued by the defendant, and that it was only in counsel’s skeleton argument at the hearing of the amended application that any mention had been made of an interim stay pending the outcome of the mainland proceedings.  As this skeleton argument had recognised, he said, it was only after resolution of the litigation as it currently existed in China that a decision could be made upon either of the defendant’s applications appearing on the face of the amended summons, that is, either a strike out or the grant of a permanent stay.

11. In the circumstances, Mr Lamlough submitted, the situation is that no order in fact was made upon the specific applications which had been sought by the defendant, even on the basis of the amended summons, and thus it followed that not only should the defendant not have the costs of those applications, but that the plaintiff should have the costs of the application to strike out, or, in the alternative, that such costs should be reserved to the hearing at which an order actually is made upon the defendant’s applications.

12. For the defendant, Ms Lin took issue with this approach.

13. The basic thrust of her submission, as I followed it, was that this was a case in which costs should follow the event; for her part she perceived little difference, in terms of the expenditure of costs and time, between argument on a strike out and that on a stay of proceedings.

14. Accordingly, Ms Lin maintained that the costs of this application should, in effect, be subsumed within whichever head of relief ultimately had found favour with the court, although she did accept that, as a matter of fact, the issue of an interim stay had not been canvassed prior to the argument of counsel during the hearing of the defendant’s application.  She further appeared to concede, albeit belatedly, that if the court were to be against her in terms of her primary submission, then the existing order nisi could be varied to accord recognition to the abandonment of the strike out application.

Decision

15. Mr Lamplough’s catchy approach of ‘played three, won two, lost one’ possessed a certain forensic allure, but at the end of the day I am unpersuaded, in terms of a variation to the costs order, that I should go as far as he submitted should be the case.

16. Although initially I had been attracted by the approach of an order as to costs which made specific reference to the particular issues of the applications for a strike out, for a permanent stay and for an interim stay — after the hearing of this application I have been informed that negotiations took place between the parties on this basis — on reflection I have decided that, at this stage, an order wherein costs to-date thus are crystallised may possibly prove unfair to one or other of the parties.

17. I have come to this view because the present action is subject to an interim stay only, this relief being put into place pending resolution of outstanding applications by the plaintiff to the Urumqi Higher People’s Court and the Urumqi Higher Procuratorate.  Once these matters have been concluded the plaintiff’s situation in the proceedings in China will be clarified and, in consequence, the plaintiff may wish to proceed further in Hong Kong and to apply to lift the interim stay now in place, or alternatively, the defendant may wish to apply to restore its application for a permanent stay/strike out of these Hong Kong proceedings.

18. I recognize that it is only at the stage of final resolution of these applications that the court can deal with costs — in particular in terms of the costs of evidential preparation — with any degree of certainty.

19. Accordingly, upon reflection I have been persuaded, contrary to my initial view expressed at the hearing, that the appropriate course is to reserve all costs incurred to-date.  Arguments as to costs which are valid will not cease to be so if thus deferred; moreover, had I dealt with costs at this juncture I should not have made an order permitting immediate taxation.  By reserving at this stage the court will have the advantage of hindsight when it comes to address the costs involved in the interlocutory applications as mounted by the defendant, and which, as matters presently stand, remain unresolved.

20. Accordingly, the plaintiff has succeeded in its application to vary the existing costs order nisi.  Such variation is reflected in terms of the order set out hereunder.

Order

21. The costs to-date of the defendant’s application by summons dated 17 September 2004 (as amended by consent on 3 December 2004), and the costs of the plaintiff’s application by summons dated 8 February 2005 to vary the costs order nisi made on 28 January 2005, are reserved to this court to be decided upon resolution of the defendant’s substantive application, by its summons dated 17 September 2004 (as thereafter amended), to strike out/stay the proceedings herein.

Mr George Lamplough of Messrs Holman, Fenwick & Willan, for the plaintiff

Ms Lin Wai Yi of Messrs Deca Lin, for the defendant

HCCL 47/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.47 OF 2004

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J U D G M E N T

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The application

1. By summons dated 17 September 2004, as amended by consent on 3 December 2004, the defendant seeks an order that the plaintiff’s Writ and Statement of Claim be struck out on the ground that it is frivolous and vexatious and/or an abuse of process, alternatively that the action herein be stayed on the ground of forum non conveniens and lis alibipendens.

2. Notwithstanding the provision for a strike out, argument in this application has focused solely upon the application for a stay, or at the least an interim stay of these proceedings, and accordingly this judgment reflects that approach.

3. The facts of this case are somewhat out of the ordinary; accordingly brief reference to the background is necessary.

The history

4. In the present action, the plaintiff seeks damages for alleged breaches by the defendant, a Chinese legal entity, of two contracts dated 29 March 2000 and 15 May 2000 which provide for the sale and purchase of cotton.  These contracts are governed by PRC law.

5. At the outset the plaintiff did not seek to bring this claim in Hong Kong.  The plaintiff first sought redress before the Tianjin Intermediate Court, which ruled that the jurisdiction should be that of the Urumqi Intermediate Court.

6. The plaintiff then transferred its case to the Urumqi Intermediate Court, which assumed jurisdiction and conducted a trial on the merits.

7. It is common ground that the plaintiff’s claim has been the subject of a judgment by the Urumqi Court.  The Urumqi judgment, dated 18 September 2003, dismissed the plaintiff’s claim.

8. The plaintiff had the right to appeal to the Urumqi High Court of Xinqiang, but did not follow that course.

9. Instead, on 13 September 2004 the plaintiff petitioned the Urumqi High Court of Xinqiang for a retrial, and further applied to the Urumqi Higher Protectorate to protest the Urumqi judgment on 13 October 2004, an application which also could result in an order for a retrial.

10. As at the date of this stay application and, I assume, as at the date of the judgment herein, given that in the intervening period this court has not been informed of any further developments, the applications for a retrial in China have not been the subject of decision.

11. The plaintiff issued its Writ and Statement of Claim in Hong Kong on 18 August 2004.

12. The present action in Hong Kong is based upon the same claim as already has been adjudicated in Urumqi and as is now sought, by virtue of the further applications to the Urumqi High Court and the Urumqi Higher Procuratorate, to be the subject of a retrial in China.

The argument

13. Mr Mok, who mounted this application for a stay on behalf of the defendant, submitted that, from the perspective of cause of action estoppel, the only matters preventing the Urumqi judgment from being a final judgment were the outstanding applications to the Urumqi High Court and Higher Procuratorate.

14. The result of these applications, he said, had an important bearing on the present case.  If there was ordered to be a retrial in China, it would not be open to the defendant in these proceedings to plead cause of action estoppel by way of defence.  Conversely, if neither application in China resulted in a retrial, reliance could, and would, be placed on such defence.

15. His submission was that in such circumstances the Hong Kong court should stay the present action in Hong Kong, which was based upon precisely the like claim that had been adjudged in China, pending the outcome of the two outstanding applications in Urumqi.

16. Once these matters had been concluded, he said, the alternatives for his client were clear.  Either the Urumqi judgment could found a defence to the present claim, or, if the applications now ongoing in Urumqi were to result in an order for a retrial, which thereafter was to take place, the present action could be the subject of an application for a permanent stay on the basis of forum nonconveniens or lis alibi pendens: see, for example, Paladin Agricultural Ltd v. Excelsior Hotel (Hong Kong) Limited [2001] 2 HKC 215.

17. For the defendant, Mr Sussex SC submitted that the applications currently outstanding in China clearly pointed to the fact (as appears to be common ground) that the existing Urumqi judgment should not be regarded as final.

18. He noted that the Urumqi judgment did not even purport to decide all the issues which were extant in that case, in that the Urumqi court had not decided the question, which undoubtedly arose on the facts, as to whether the defendant had entered into a binding contractual promise to procure that the nominated export agent (Nongken) would enter into contractual sales confirmations in the terms identified in the two contracts for the sale and purchase of this cotton.

19. Thus, Mr Sussex argued, the Urumqi judgment could only be regarded as final in terms of that which it had purported to decide, and it had only purported to decide the issue of whether the defendant had the capacity to conclude a contract for the export of Chinese cotton to a foreign party, and not the question of whether there was a contractually binding promise to procure such third party to enter into contractually binding sales confirmations.

20. In addition, he submitted, the plaintiff in this case wished to argue that the two contracts the subject of this action fell to be governed by and to be construed in accordance with the laws of Hong Kong, because, on the correct analysis, Hong Kong was the jurisdiction with which these two contracts were most closely connected.

21. Further, the plaintiff wished to assert that it had not received ‘substantial justice’ in the Chinese court, and complained of bias and local protectionism; in this context Mr Sussex noted that the defendant is a trading arm of the People’s Liberation Army, and the plaintiff wished to mount the argument in this case that the Urumqi judgment was contrary to Hong Kong views of substantial justice.

22. In terms of the present application for a stay based on the basis of forum non conveniens or lis alibi pendens, he said, the court will have regard to the principles laid down in Spiliada Maritime Corporation v. Cansulex Ltd [1987] AC 460, wherein the guiding principle was that a stay will not be granted “unless the court is satisfied that there is some other tribunal, having competent jurisdiction, in which the case may be tried more suitably for the interests of all the parties and the ends of justice”.

23. In this case, he argued, there was no jurisdiction which can be considered the ‘natural forum’: the two contracts were concluded in Hong Kong and called for performance in Hong Kong, the plaintiff is in Hong Kong, and the defendant, who has voluntarily submitted to the jurisdiction, was required to present shipping documents in Hong Kong.  On the other hand, the defendant is in mainland China, and part of the contractual performance was to occur there.  And, in addition, the proceedings which had taken place in mainland China could ‘legitimately be regarded’ as a factor pointing to the mainland.

24. Thus, Mr Sussex contended, this was an example of a commercial case in which there was no forum which could be considered ‘clearly more appropriate’, and therefore a stay should be refused.  And even if the defendant could overcome the initial burden of persuasion in terms of another ostensibly more appropriate forum, the plaintiff would oppose a stay by demonstrating that there were special circumstances — in this case the inability to receive substantial justice in the competing forum — by reason of which justice required that the trial of the present proceedings now should take place in Hong Kong.

25. As to the course the plaintiff would take consequent upon resolution of the outstanding applications for retrial in China, Mr Sussex noted that if there was no order for a retrial by the Urumqi courts the position of the parties would crystallize: in this instance there would be a final and conclusive judgment on a limited number of issues, and thus the defendant would be able to plead issue estoppel only, and in addition the plaintiff would seek to plead the lack of substantial justice.  Conversely, if there were to be an order for a retrial, if possible he would advise his client to try and stay any such further Chinese proceedings in favour of this litigation in Hong Kong, and such retrial would continue in China only if his client was constrained so to continue by the Chinese courts, and if the plaintiff did not otherwise withdraw from such proceedings.

26. In any event, he concluded, this was not a case which now should be subject to a stay, whether of an interim or a permanent nature, and the matter should be permitted to be pleaded out, and thereafter to proceed to trial in normal course, given that on any basis the Chinese proceedings would not be determinative of all the issues arising in the present action.

Decision

27. The present position is far from satisfactory, and evidently is subject to a number of variables.

28. The intervening period between the hearing of this application and judgment herein possibly afforded an opportunity for clarification of the position in terms of the decision as to a retrial in the Chinese courts, but as matters have transpired this has not been forthcoming.

29. Dependent upon that which occurs in China, and further upon the plaintiff’s response thereto, in my view any order of this court at this stage should not purport to be finally dispositive of the defendant’s stay/strike out application. The question thus arises as to the appropriate course to be followed in the interim.

30. For my own part I fail to see that application of the principles in Spiliada, op cit., can have much to do with it in a situation in which the plaintiff’s claim for contractual breach has, at the plaintiff’s option, already been heard and determined in China.  As Mr Mok observed at the outset, the current situation required ‘adjustment’ of the normal Spiliada approach.

31. Be that as it may.  In light of the variables that arise consequent upon the decision of the Chinese courts as to the issue of a retrial, it seems to me that this action cannot sensibly go further until it becomes clear whether, for example, the defendant is able to allege that it has an accrued defence in terms of cause of action estoppel (I appreciate that the plaintiff will say that on any basis the defendant would have only an issue estoppel defence), and further what is the plaintiff’s reaction to any retrial order that may be made in China consequent upon its current application therefor.

32. If this be correct, and the present action cannot sensibly proceed until matters are thus clarified, the only question that then arises is whether this action should be subject to an interim stay, as suggested by Mr Mok, or whether it should be permitted to be pleaded out, as Mr Sussex submitted, or, in the further alternative, whether the present application simply should stand adjourned, with no order being made, pending the required clarification.

33. Tempting as it may be, I do not favour the latter course.  I have entertained a disputed application upon the evidence as now exists, and in my view it behoves this court to decide it.

34. In my judgment the appropriate course to adopt in this situation is to order, as I now do, an interim stay of these proceedings pending clarification of the situation in terms of the present Chinese proceedings.  Consequent upon such clarification, there is to be liberty to the plaintiff to apply to lift such interim stay, and there is to be liberty to the defendant to apply to restore its application for a permanent stay/strike out of the present Hong Kong action.

35. This approach strikes me as more appropriate than simply leaving the matter effectively in limbo, both as to the future progress of this action and absent the possibility of the existing case currently being susceptible to precise pleading.

36. I note also that this approach conforms with approach of these courts wherein Hong Kong proceedings on the same claim were stayed to await the outcome of PRC applications: see, for example, the decision of Cheung J (as he then was) in Chiyu Banking Corporation v. Chan Tin Kwun [1996] 2 HKLR 395, wherein the proceedings in that case were stayed pending a decision by the Supreme People’s Procuratorate.

37. As to costs, the defendant’s application for an interim stay of these proceedings pending the outcome of the PRC applications has been made, and has succeeded, after determined resistance by the plaintiff.  In the circumstances, it seems to me that costs should follow the event.

38. Accordingly I make an order nisi that the plaintiff do pay to the defendant the costs of this application, including the hearing on 14 December 2004, in any event, such costs to be taxed if not agreed.

Mr Charles Sussex SC, instructed by Messrs Holman, Fenwick & Willan, for the plaintiff

Mr Johnny Mok, instructed by Messrs Deca Lin & Partners, for the defendant