CTBC BANK CO LTD v. INDUSTRIAL AND COMMERCIAL BANK OF CHINA LTD

HCCL 3/2024

[2025] HKCFI 4966

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 3 OF 2024

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D E C I S I O N

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1.  The applicable principles for a stay of execution pending appeal[1] are as set out in Star Play v Bess Fashion [2007] 5 HKC 84 (as Ma J then was):

1.1  whilst the Court embarks on a balancing exercise, the starting point is that a successful party is not to be deprived of the fruits of his success;

1.2  the burden is on the appellant to show good reasons to justify a stay.  The mere existence of an arguable appeal is the minimum requirement, but it is not sufficient in itself;

1.3  if the appellant has a strong appeal, this would usually in itself enable a stay to be granted;

1.4  if the appellant has merely an arguable appeal, he would need to go on to show good reasons, such as that the appeal would be rendered nugatory without a stay.  In that regard, whatever the nature of the order or judgment appealed from, the court will still require evidence as to why an appeal will be rendered nugatory without a stay, if that is the contention;

1.5  whether a stay would prejudice the respondent must also be borne in mind.

2.  As Mr Yu for the Plaintiff points out, the authorities cited by Mr Tang for the Defendant were not concerned with an application for a stay pending appeal, with one exception.  The exception is LM v SCCM, unreported, CACV 62/2013, 7^th May 2013.  I agree with Mr Yu that the decision was consistent with the principles in Star Play.  Leave had been given to appeal, so that the arguability requirement was satisfied.  The Court of Appeal went on to consider the facts that (1)  the appeal was just two weeks away, so that it was sensible to defer the trial in the underlying proceedings (an application by a mother against her ex-husband for sole custody of their children), to save the time and costs of preparing for it, (2)  further and more seriously, to allow the trial to go ahead, at a time when the outcome of the appeal might still be unknown (the trial had been fixed to take place just two weeks after the appeal), might result in orders being made which would be difficult or impossible to undo, involving the welfare of the children, and which might be in conflict with orders already made in the Singapore matrimonial proceedings.  Without a stay pending appeal, the father might have suffered irremediable prejudice.

3.  I do not agree that an application for stay pending appeal can be treated as merely a case management application.  I consider the Defendant’s application by reference to the principles in Star Play.

4.  In the present case, the Defendant must have an arguable appeal, since the Court of Appeal has granted leave to appeal.  The Defendant suggests, but does not actually seek to argue, that it has strong grounds.  Instead, it says that:

4.1  the Court of Appeal’s judgment in the appeal may dispose of the underlying proceedings since it goes to jurisdiction;

4.2  accordingly, it would be a waste of time and costs to proceed with the underlying proceedings;

4.3  the Court of Appeal’s direction for the appeal to be fixed for an early date suggests support for the Defendant’s argument that it would be undesirable for the underlying action to proceed when the issue of jurisdiction has not yet been determined;

4.4  there is a risk of decisions being made which conflict with those made in the mainland proceedings.

5.  As regards the risk of conflicting decisions, I agree with the Plaintiff that this will not happen if the trial does not take place before the appeal is determined.  As a matter of practicality, this is extremely unlikely to happen, as Mr Tang accepts, given that the appeal is to be heard at an early date, whilst the trial is unlikely to take place before 2027, according to the parties.  In any event, as Mr Yu suggests, at the upcoming CMC, the Defendant can seek a direction that the trial be fixed for a period after the hearing of the appeal.

6.  As regards the fact that the appeal relates to jurisdiction and may dispose of the underlying proceedings, the Defendant suggests that it would be sensible to deal with a logically prior set of proceedings first.  As Mr Yu pointed out, the authorities relied on by the Defendant for this submission were not (save for LM)  concerned with a stay pending appeal.

7.  As regards the submission that it would be a waste of time and costs to proceed with the underlying proceedings, Mr Yu points out the following, with which I agree:

7.1  any such prejudice would be purely monetary and can be compensated for by an order of costs, and the Plaintiff is good for the money, being a licensed bank with active operations in Hong Kong.  In relation to the Defendant’s reliance on Re Chime Corporation Ltd, unreported, HCMP 4146/2021, 11th March 2005, where Kwan J (as she then was)  stayed eight sets of proceedings pending the outcome of an appeal in related proceedings, Mr Yu points out that the costs to be saved in that case were of an extraordinary scale, having regard to the discovery and investigations then contemplated.  The present case is quite different;

7.2  the costs which might be wasted are insignificant compared to the size of the Plaintiff’s claim;

7.3  the bulk of the costs have already been spent.  Witness statements are due to be exchanged tomorrow; the Plaintiff’s statements are ready and the Defendant has indicated that it does not require any extension of time.  The only significant remaining step is the preparation of a single joint expert’s report on PRC law, and the parties could re-engage the single joint expert already instructed in the course of the forum dispute, who produced a report for that purpose at modest costs.

8.  Mr Tang submits that there is no rush to proceed with the present case. However, this cannot be a good reason to seek a stay.

9.  Mr Yu submits that if the proceedings were to be stayed, the Plaintiff would suffer prejudice more than that which the Defendant would suffer from any delay.  It is claiming for reimbursement under a letter of credit in the amount of 63m RMB together with interest.  Staying the proceedings would likely lead to further delay of the trial dates, as the Plaintiff would not be able to set it down until after the appeal has been determined.  This could increase the risk that the Plaintiff would have difficulty in getting its intended witnesses to attend trial to give evidence, as there is turnover of junior staff, and as one of the crucial witnesses is reaching retirement age.  Mr Tang criticises the Plaintiff for not condescending to particulars of the witnesses involved, but I accept the Plaintiff’s explanation that this was the best it could do in the limited time it had to file evidence before today’s hearing; it would be able to produce further evidence if the matter was adjourned but it is the Defendant which sought to proceed on the basis that today’s hearing would be a substantive rather than directions hearing.

10.  I therefore do not accept that the Defendant has shown that there are good reasons for a stay pending appeal.  On the contrary, it seems to me that such a stay might prejudice the Plaintiff in a manner not compensable by the payment of costs.

11.  I therefore dismiss the Defendant’s summons.

Mr Jason Yu, instructed by Eric Chow & Co, for the Plaintiff

Mr Alexander Tang, instructed by Eversheds Sutherland, for the Defendant

HCCL 3/2024

[2024] HKCFI 3525

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 3 OF 2024

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BETWEEN

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DECISION

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1.  This is ICBC’s[1] application for leave to appeal against the Decision of this court dated 21 October 2024 ([2024] HKCFI 2820) (“Decision”) by which its application for a stay of proceedings on the ground of FNC was dismissed.

2.  For applicable principles, they were summarised in another Decision of this court on an application for leave to appeal which was dated 27 November 2024 ([2024] HKCFI 3454, [2]-[3]).

3.  There are 4 proposed grounds of appeal. They challenge the view taken by the court on the issues of Foreign Illegality (Ground 1 (with 5 sub-grounds)), lis alibi pendens (Grounds 2 (with 3 sub-grounds)), proper place for trial (Ground 3). By Ground 4, ICBC seeks to adduce new evidence at the proposed appeal.

The Decision

4.  With respect, it appears to me from the Grounds and the Submissions of ICBC that the Decision had not been properly understood. To begin with, there was no dispute that CTBC’s action in Hong Kong was brought against ICBC as of right[2]. Second, there was no suggestion that justice could not be obtained in Hong Kong or in Guiyang. The issue for the court was to look for the jurisdiction where the action may be tried more suitably for the interests of the parties and the ends of justice[3].

5.  Third, notwithstanding the volume of evidence (including expert evidence) and the extensive and complicated submissions, the court took the approach that in resolving the interlocutory application it should focus on the real issues and deal with the application expeditiously[4]. There is no challenge to the approach adopted.

6.  Fourth, in deciding the appropriate forum, the court took the view that it was important to bear in mind what this action was about. The court considered that CTBC’s claim, based in part on the UCP, was not complicated and the type of action familiar to the Hong Kong court[5]. The court then considered the issues raised by each of ICBC’s defences[6]. Again, there is no suggestion that the approach was wrong.

7.  Fifth, before dealing with Foreign Illegality, the court turned to lis alibi penden, which was ICBC’s main argument[7]. Plainly, the two were closely related. The court took the view that the main argument had to be assessed in light of what this action was about[8].

Grounds of appeal

8.  In respect of Ground 1, it is important to bear in mind what ICBC’s defence on Foreign Illegality was, namely, payment under the L/C by it would be contrary to the Interim Stop Order[9]. It was incumbent on the court to evaluate this defence and take a provisional view on whether there would indeed be a Foreign Illegality issue, and consequently ICBC would suffer real prejudice if this action was tried in Hong Kong[10].

9.  The court accepted that, whether or not the Fraud Proceedings would be tried on the next day, they were at an advanced stage[11]. If the Interim Stop Order was not continued because, eg, the fraud alleged by New Era was rejected by the Guiyang Court, there would be no Foreign Illegality issue.

10.  There was a conundrum if the Interim Stop Order was not lifted, and it was an area not considered by counsel prior to the hearing[12]. It befell the court to deal with the scenario with the input of counsel provided at the invitation of the court. There was no dispute that on the PRC law evidence, the Interim Stop Order would be lifted if either ICBC or CTBC was acting bona fide in the L/C transaction. In this regard, Ground 1(e) tries to advance a new argument based on a pronouncement of the Supreme People’s Court – 关于当前人民法院审理信用证纠纷案件应当注意问题的通知 (Art. 3). These provisions were not relied upon. Nor was there expert evidence on its effect. The point is sufficiently dealt with in para 18 of the Skeleton Submissions of Mr Sussex SC, who appeared with Ms Ha, for CTBC and with which I agree. I find no merits in this sub-ground.

11.  On the basis of the PRC law evidence before the court, ICBC would have been found to have acted in bad faith if the Interim Stop Order was not lifted. It was quite unclear to the court how ICBC would be in a position to advance the Foreign Illegality defence when the illegality was, at least in part, based on its own wrong. There was no answer provided by ICBC[13].

12.  The court took the view that the issues were complex, impossible to resolve at an interlocutory application and it was not required to do so. Nevertheless, there was no “clear cut case” of a Foreign Illegality defence or prejudice suffered by ICBC. The court was not satisfied that a good arguable case was made out[14].

13.  There can be no question that the burden to make out a good arguable case on Foreign Illegality was on ICBC. Properly understood, the court did not impose a different threshold on ICBC (Ground 1(a)). The “clear cut case” was a reference to the absence of a clear cut case on Foreign Illegality given the unresolved and complex issues.

14.  Under Ground 1(b), ICBC suggests that the court was wrong to have any regard to ex turpi causa because it was not relevant to foreign illegality. The authorities cited by Mr Sussex suggest that the law is more nuanced. I remain of the view that it would be surprising if ICBC could rely on Foreign Illegality which arose, at least in part, by reason of its own lack of bona fide.

15.  Mr Sussex submitted that CTBC’s claim is based on a separate contract with ICBC governed by the UCP, and it is far from clear whether the findings made in the Fraud Proceedings will have any bearing on CTBC’s claim. Whilst the court was referred to the case of Deutsche Bank v CIMB[15], this line of argument was not the focus of CTBC’s submissions at the stay application.

16.  As to whether CTBC would be bound by a judgment in the Fraud Proceedings (res judicata) (Grounds 1(c) and 1(d)), Mr Sussex was correct to have pointed out that at the stay hearing ICBC’s position was that res judicata was not relevant. In any case, I fail to see why the court was not entitled to take a provisional view on the point based on the materials before it. Further, if CTBC would be bound by the Fraud Proceedings which result was against it, then this action should fail. Apart from costs, there could be no prejudice to ICBC.

17.  In respect of lis alibi pendens (Ground 2), it was evaluated by the court in light of (a) what this action was about[16] and (b) ICBC’s submissions[17]. The central plank of ICBC’s case was that an inconsistent finding by Hong Kong court might result in it having to honour its payment obligation to CTBC in breach of the Stop Order, which would be a real prejudice to it. Hence, the foregoing analysis on the scenario of the Guiyang Court upholding the Stop Order applies here equally. Unless there was a good arguable case on Foreign Illegality, lis alibi pendens would not assist ICBC[18].

18.  The reference in the Decision to the “Achilles heel” of the lis alibi pendens submission[19] (Ground 2(a)) reflected the law that the court would consider whether the parallel proceedings would have a continuing effect upon the dispute between the parties (China Construction Bank, [6.12] was cited)[20]. The undisputed PRC law evidence was that CTBC was not entitled to make any claim in the Fraud Proceedings[21]. Therefore, no relief would be available to CTBC in those proceedings. It followed that the Fraud Proceedings would not put an end to the dispute between ICBC and CTBC, unless the Stop Order was lifted and the former would honour its payment obligation voluntarily.

19.  As regards the issue of temporary stay (Ground 2 (b)), it is wholly unmeritorious. No temporary stay was offered at the hearing and ICBC’s counsel alluded to the difficulty of agreeing the terms of a temporary stay due to various contingencies[22].

20.  Ground 2(c) has been sufficiently covered by the above.

21.  Ground 3 is largely a re-argument of the submissions previously before this court. It is difficult to see why ICBC is entitled to re-argue its case on appeal.

22.  As regards the new evidence (Ground 4), first, I agree with Mr Sussex that there must be an end to the filing of evidence in an interlocutory application.

23.  Second, I am unable to agree with the proposition that the court was proceeding on the basis of “working assumptions”. The court had to adjudicate the interlocutory application on the basis of the evidence before it, some of which was unclear.

24.  Third, 2 points are sought to be made with the new evidence: (a) whether the trial before the Guiyang Court would proceed on the day after the hearing; and (b) the scope of the arguments before the Guiyang Court.

25.  As to (a), the fact is that the evidence before the court was “far from certain” whether the trial would proceed but, importantly, it was accepted by the court that the Fraud Proceedings were at an advanced stage[23]. The fact that it was subsequently known that the trial did proceed would not have made any material impact to the Decision.

26.  In respect of (b), it is right for Mr Sussex to have pointed out that there was an attempt at the 11^th hour by ICBC to adduce further evidence at the hearing on the scope of the arguments before the Guiyang Court. The application was withdrawn with a concession by CTBC to remove the last sentence of para 89.2 of its skeleton submissions[24] (“Since CTBC will not be participating in the Fraud Proceedings, it is unclear whether anyone will argue [CTBC’s Good Faith Issue or the Negotiation Issue] at trial”).

27.  In the premises, the “new evidence” on (b) was either available or could have been obtained by ICBC with reasonable diligence (condition (1) of Ladd v Marshall).

28.  Further, the fact that arguments were made on CTBC’s Good Faith Issue and the Negotiation Issue at the trial of the Fraud Proceedings does not necessarily falsify the view of the court. Based on the evidence before it, the court took the view that there was a real possibility that the Guiyang Court would not determine those issues[25]. The answer can only be found in the judgment on the Fraud Proceedings, which is not yet available.

29.  For these reasons, I am unable to agree that there is any reasonably arguable ground of appeal or there is a reasonable prospect that the new evidence will satisfy the Ladd v Marshall test.

Extension of time

30.  As for ICBC’s application for extension of time to file Defence, I agree with Mr Sussex that ICBC was sued as of right and there is no question of it being under the jurisdiction of this court, notwithstanding its argument that the court should not exercise its jurisdiction in this action: see O. 12, r. 8(2) of the RHC.

31.  It has not escaped this court that ICBC’s stay application was taken out on the last day for the filing of its Defence pursuant to an unless order[26]. Delay in this action can only be at the expense of CTBC.

32.  Apart from the lack of a reasonably arguable appeal, I am unable to agree with Mr Tang, who appeared with Mr Law for ICBC, that the filing of a Defence would necessarily constitute submission to the jurisdiction of the court or otherwise prejudice its intended appeal: see Hong Kong Civil Procedure 2025, vol 1, [12/8/2], para 3.

Disposition

33.  I see no valid reason for further delay in the progress of this action. I grant an unless order for the filing of Defence by ICBC by 4 pm on 18 December 2024, failing which it should be debarred from doing so.

34.  ICBC’s Summons filed on 4 November 2024 is dismissed with costs to CTBC, to be taxed if not agreed with a certificate for 2 counsel.

35.  I am grateful to counsel for their assistance.

Mr Charles Sussex SC and Ms Terri Ha, instructed by Eric Chow & Co, for the Plaintiff

Mr Alexander Tang and Mr Paul Law, instructed by Eversheds Sutherland, for the Defendant

HCCL 3/2024

[2024] HKCFI 2820

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 3 OF 2024

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DECISION

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1.  This is the Defendant’s (“ICBC”) Summons filed on 5 April 2024 (“Summons”) to stay this action in favour of the Mainland Court, namely, the Intermediate People’s Court of Guiyang (“Guiyang Court”).

The parties’ contentions

2.  ICBC contends that this is a clear case for a stay for forum non conveniens (“FNC”) for the following reasons :

(1)  All the relevant parties to the underlying dispute of this action are before the Guiyang Court but not the Hong Kong Court. It is overwhelmingly desirable for the case to be tried in the Guiyang Court. Only then can multiplicity of proceedings and inconsistent judgments be avoided, which is a real risk that can result in serious prejudice, especially to ICBC;

(2)  The Guiyang proceedings are far ahead of the Hong Kong proceedings, with trial scheduled to take place the day after the hearing of the Summons. This Action is thus clearly superfluous and a waste of time, money and this Court’s resources;

(3)  Even on forum analysis based on other connecting factors, the Guiyang Court is clearly and distinctly the more appropriate forum. With the Mainland-centric nature of the transaction between the parties, matters of governing law and location of witnesses all point in favour of the Guiyang Court being the proper forum.

3.  On the other hand, the Plaintiff (“CTBC”) submitted that this Action involves a simple claim by CTBC on a negotiated letter of credit. After CTBC brought this Action, ICBC sued CTBC in one set of Guiyang proceedings and joined it to another set involving parties with whom CTBC as negotiating bank is in no way concerned. ICBC should not be allowed to rely on its forum shopping gamesmanship to prevent CTBC from obtaining justice in the Hong Kong Court, which has a clear connection with the dispute.

Background

4.  Unless indicated otherwise, the background facts are not in dispute. CTBC is a Taiwan incorporated bank. ICBC is a well-known international bank incorporated in the Mainland and listed in Hong Kong. Both banks are registered as non-Hong Kong companies and licensed under the Banking Ordinance, Cap 155.

5.  VLSA Enterprise Ltd (“VLSA”) was incorporated in Seychelles. At all material times, it was a customer of CTBC with bank accounts at CTBC’s Hong Kong branch (for obvious reason, various events in this case involving CTBC were events to which its Hong Kong branch was involved). VLSA’s sole director and majority shareholder, Mr Huang Guoxiang (“Huang”) resided in Hong Kong. VLSA provided a Hong Kong address and Hong Kong mobile phone number to CTBC.

6.  On 25 May 2023, CTBC received a SWIFT message from ICBC’s Guizhou branch, notifying it of an irrevocable Letter of Credit no. LC632YBC300020 (“L/C”). The L/C was issued on the application of Guizhou New Era Union Import and Export Co Ltd (“New Era”) in favour of VLSA. The underlying transaction was the sale by VLSA to New Era of green petroleum coke from South America to the Mainland. New Era’s bank was ICBC.

7.  On 29 May 2023, a representative of VLSA attended CTBC’s Kowloon office to submit an “Application and Agreement for Negotiation of Export Bills under L/C” (“Negotiation Application”) together with the complying documents (“Complying Documents”). In addition, VLSA issued bills of exchange (“Bills of Exchange”) for CNY 63,204,011.73 (“Sum”), requiring ICBC to pay CTBC 90 days after sight of the Bills of Exchange. The Negotiation Application instructed CTBC to “discount the bills”.

8.  On 30 May 2023, CTBC forwarded the Complying Documents to ICBC Guizhou (the identification of the Guizhou branch here is simply to highlight the place of presentation of documents). On 2 June 2023, VLSA submitted a revised Commercial Invoice, which was forwarded by CTBC to ICBC.

9.  On 6 June 2023, CTBC received a SWIFT message from ICBC which confirmed that the documents were accepted under the L/C and the due date for payment was 30 August 2023 (“Confirmation”). The following discrepancies were identified in that message: “+1NV: SHOWING PRICE TERM RIZHAO PORT DIFFER FROM B/L QINZHOU”.

10.  On 7 June 2023, CTBC credited VLSA’s Hong Kong bank account with CNY 62,493,679.95, comprising the Sum after deducting commissions, charges and discount interest. CTBC says that this was done in reliance of the Confirmation.

Legal proceedings

Mainland Interim Stop Order

11.  On 25 August 2023, ICBC sent a SWIFT message to CTBC stating that it had received “an injunction from [Guiyang Court]”.

12.  The evidence is that on 10 August 2023 New Era applied for an interim stop order in the Guiyang Court against (i) VLSA and (ii) ICBC’s Guizhou branch (“Stop Order Proceedings”) claiming that it had yet to receive the goods under the L/C in the expected time and alleged fraud against VLSA. In particular :

(1)  VLSA and China Ocean Shipping Agency Qinzhou (“COSA”)[1] gave conflicting information. VLSA told New Era that the ship was on the way, but COSA said the ship had not commenced its voyage.

(2)  As per the L/C’s requirement, the Bills of Lading (“B/L”), part of the Complying Documents, claimed that the goods were ‘CLEAN ON BOARD’, and “SHIPPED at Port of Loading in apparent good order and condition on board the Vessel …”. However, New Era’s investigations showed that the ship’s speed was too fast and its water line was too shallow for the amount of coke being shipped, thus suggesting that the coke had not in fact been loaded and the representations made in the B/L were untruthful.

(3)  New Era further claimed that ICBC had confirmed acceptance under the L/C despite clear discrepancies. It had thus facilitated the fraud and did not act in good faith.

(4)  Although CTBC was not a party to the proceedings, New Era’s allegation against ICBC also touched upon CTBC in that it was alleged that CTBC had also failed its duty to properly examine the Complying Documents.

13.  On 24 August 2023, the Guiyang Court granted an interim stop order against ICBC and VLSA (“Interim Stop Order”), restraining ICBC from paying the Sum under the L/C. The Interim Stop Order was a pre-litigation preservation measure.

14.  On 23 October 2023, the Guizhou High Court rejected the application of VLSA and ICBC to review the Interim Stop Order. It should be noted that ICBC’s stance was that it accepted the Complying Documents in good faith and on New Era’s instructions to waive discrepancies.

This Action

15.  On 13 September 2023 and 6 October 2023, CTBC solicitors issued demand letters to ICBC when the latter failed to meet its payment obligation to CTBC. In the later letter, CTBC threatened to commence action in Hong Kong against ICBC.

16.  On 22 November 2023, CTBC commenced the present Action by which it sues ICBC for the Sum under the L/C and Bills of Exchange. The writ was served on ICBC as of right in Hong Kong.

17.  On 19 December 2023, CTBC served its Statement of Claim pleading that it had negotiated a complying presentation under the L/C so that ICBC is required to pay under Art. 7(c) of Uniform Customs and Practice for Documentary Credits Publication No 600 (“UCP”), which was applicable to the L/C. Art 7(c) stated :

“An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. An issuing bank’s undertaking to reimburse a nominated bank is independent of the issuing bank’s undertaking to the beneficiary.”

[emphasis added]

18.  After various time extensions to file its Defence, the Summons was filed on 5 April 2024 by ICBC on the deadline for its Defence under an unless order.

19.  ICBC’s defences to this Action, which can be gleamed from the evidence, are :

(1)  CTBC did not in fact negotiate the L/C (“Negotiation Issue”);

(2)  Payment would be contrary to the Interim Stop Order (“Foreign Illegality Issue”);

(3)  If CTBC did negotiate the L/C, ICBC is not bound to pay because (i) VLSA had conducted an L/C fraud (“L/C Fraud Issue”); and (ii) CTBC did not negotiate the L/C in good faith (“CTBC’s Good Faith Issue”).

20.  It was indicated in CTBC’s evidence that it will contend that ICBC is estopped from denying there was a complying presentation (“Estoppel Issue”).

Mainland Fraud Proceedings

21.  On 20 September 2023, New Era commenced proceedings in the Guiyang Court against: (a) VLSA as a defendant; and (b) ICBC’s Guizhou branch as a third party (“Fraud Proceedings”). These were substantive proceedings which New Era had to initiate upon obtaining the Interim Stop Order.

22.  In the Fraud Proceedings, New Era relies on its allegations in the Stop Order Proceedings to seek: (a) a declaration that VLSA’s attempt to seek payment under the L/C is fraudulent; (b) a final stop order against ICBC to cease payment under the L/C; and (c) damages and costs against VLSA.

23.  It appears that VLSA’s defences to the Fraud Proceedings are as follows :

(1)  There was a tripartite transaction between Optten International Ltd (“Optten”) as seller, New Era as buyer and VLSA as intermediary trade service platform. Optten and its representative, Mr Yu Bohan (“Yu”) agreed transaction terms with New Era before asking VLSA to sign the documents. VLSA had paid the price for the goods to Optten;

(2)  The B/L is genuine. “Bon Voyage” loaded over 61,066 MT of petroleum coke on 14 May 2023 at a Venezuelan port but only departed on 2 October 2023. The vessel changed its name to “Neptune 1” before it berthed on 20 December 2023 in Nansha and unloaded the goods. As no one accepted delivery, the cargo was left at the port;

(3)  New Era is aware of these matters. It had filed a claim on 9 January 2024 in the Guangzhou Maritime Court relying on the B/L against the shipowner, claiming rights to the goods.

24.  On 16 November 2023, ICBC made an application to join CTBC/HK and COSA as third parties to the Fraud Proceedings. A similar application was made by ICBC on 7 December 2023 to join CTBC to the Fraud Proceedings. ICBC’s evidence is that it made the joinder application against CTBC out of abundance of caution as it did not know how exactly CTBC was internally organised and whether CTBC and CTBC/HK were one legal entity. It appears from both applications that ICBC is not making any independent claim against CTBC.

25.  In December 2023, VLSA made an application to join Optten and Yu as third parties to the Fraud Proceedings.

26.  On 28 December 2023, CTBC was made aware of ICBC’s attempt to have it joined to the Fraud Proceedings by a phone call from the Guiyang Court. According to the Mainland law evidence of the SJE[2], this did not constitute valid service of the third party proceedings. On 28 May 2024, CTBC was served legal documents of the Fraud Proceedings by the Hong Kong Judiciary.

27.  According to the SJE, subject to the submissions of VLSA, ICBC, CTBC or COSA which he had not seen, the Guiyang Court will hear the following issues in the Fraud Proceedings :

(1)  L/C Fraud Issue: whether the actions of VLSA (and/or COSA, Optten and Yu) constituted a letter of credit fraud under Art. 8 of the Provisions of the Supreme People’s Court on Certain Issues Concerning the Trial of Letter of Credit Dispute Cases (2020) (“L/C Provisions”);

(2)  Negotiation Issue: whether CTBC had negotiated the documents;

(3)  Good Faith Issues: whether (a) ICBC’s acceptance of the Bills of Exchange was made in bad faith; and/or (b) CTBC’s act of discounting the Bills of Exchange under the L/C was done in bad faith; and/or (c) there is a bona fide third party under one of the exceptions under Art. 10 of the L/C Provisions.

Mainland Acceptance Proceedings

28.  On 26 December 2023, ICBC commenced further proceedings in the Guiyang Court against: (a) VLSA and CTBC as defendants; and (b) COSA and New Era as third parties, seeking to set aside the Confirmation and payment obligation under the L/C (“Acceptance Proceedings”). In these proceedings, ICBC relies on the L/C fraud alleged by New Era and further argues that CTBC and VLSA had maliciously conspired to defraud it and New Era. This appears to be a chance of stance on the part of ICBC because no allegation of fraud was made against CTBC by ICBC in the Fraud Proceedings.

29.  The SJE opined that the substantive issues in the Acceptance Proceedings included the L/C Fraud Issue, Negotiation Issue, CTBC’s Good Faith Issue, as well as CTBC’s counterclaim “if any”. He further opined that it is the Fraud Proceedings, not the Acceptance Proceedings, which are necessary to determine the Stop Order and ICBC’s payment obligations. If the same evidence is relied upon, the Acceptance Proceedings are “unnecessary, or at least [a] waste of time”.

30.  CTBC was made aware of the Acceptance Proceedings on 7 March 2024 again by way of a phone call from the Guiyang Court. On 10 July 2024, CTBC was served legal documents of the Acceptance Proceedings through the Hong Kong Judiciary.

31.  On 8 August 2024, CTBC submitted a jurisdiction challenge in the Acceptance Proceedings.

Proper approach by the Court

32.  This is the second stay application based on FNC which has come before this Court recently. In both applications, the evidence is substantial (involving expert evidence) and the submissions embrace every conceivable point and detailed. In this case, the Court has been able to exercise its case management power and directed the instruction of SJE. The upshot is the avoidance of diametrically opposing expert evidence which is almost impossible to resolve without cross-examination.

33.  A timely reminder is called for that this is an interlocutory application where the Court will not be making any final adjudication. The determination turns on balancing the relevant factors to ascertain where the dispute between the parties should most suitably be tried in the interest of justice. Time and again, the Court had said that application of the present type should be dealt with expeditiously. The Court should not be overloaded with evidence and submissions, and the arguments should take hours, not days: see the dicta of Lord Neuberger in VTB Capital v Nutriek International Corp [2013] 2 AC 337 at [81]-[91].

34.  Guided by the dicta, this Court shall focus on the real issues and deal with this application expeditiously.

Applicable principles

35.  The applicable principles on FNC were set out recently in ING Bank NV v Industrial and Commercial Bank of China Ltd[2024] HKCFI 2220 at [33]-[39]. I do not believe that they are controversial. To answer the single question whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action, ie, where the action may be tried more suitably for the interests of all the parties and the end of justice, the Court adopts a three-stage test :

(1)  First, the defendant has to establish that (i) Hong Kong is not the natural forum or appropriate forum; and (ii) there is another available forum that is clearly or distinctly more appropriate (“Stage 1”);

(2)  If the defendant establishes both (i) and (ii), the burden shifts to the plaintiff to establish that he will be deprived of a legitimate personal or juridical advantage (“Stage 2”). If he can establish that, the Court will balance the advantages of the other forum with the disadvantages the plaintiff may suffer. The question is whether substantial justice will be done in the alternative forum (“Stage 3”);

(3)  Stage 1 is considered from the point of view of the trial;

36.  The defendant’s burden to show a “clearly and distinctly more appropriate forum” implies that the burden is not lightly discharged, but the task for the Court is ultimately one of a holistic evaluation.

37.  Where a particular fact is relied on as a ground for a stay or to resist a stay, the burden is that of a “good arguable case”.

Is the Guiyang Court clearly or distinctly more appropriate than Hong Kong Court for the trial of CTBC’s claim against ICBC ?

38.  In this case, it is important to bear in mind that CTBC’s claim is premised upon ICBC’s undertaking and Art 7(c) of the UCP. It is fair to say that the claim is not complicated. One which is not unfamiliar to Hong Kong Court, bearing in mind that Hong Kong is an international financial centre where countless international trade are carried out everyday.

39.  I first consider the governing law of the L/C. I accept the submission of Mr Tang, who appeared with Mr Law for ICBC, that there are clear authorities in support of the proposition that the governing law is PRC law.

40.  The governing law of a letter of credit would be the law of the place of performance, ie, the place of presentation of documents: Cooperatieve Centrale Raiffeisen-Boerenleenbank BA v Bank of China [2004] 3 HKLRD 477, [104]. It should be noted that the facts of this case were similar to those of the present. The principle was approved later by the Court of Appeal in China Construction Bank (Asia) Corp Ltd v Shanghai Pudong Development Bank Co Ltd, CACV 14/2016, 3 February 2017, [6.11].

41.  However, in the commercial sphere, it is unlikely that there is significant difference between Hong Kong law and PRC law. Indeed, the report of the SJE did not reveal any major variation in the laws of the two systems. Further, it is well-recognised that Hong Kong Court is equipped to deal with PRC legal issues. Indeed, the parties did not suggest that this application turns on the applicable law of the L/C. The relevance of the applicable law is on the Foreign Illegality Issue.

42.  In respect of the alleged fraud claim against CTBC (L/C Fraud Issue and CTBC’s Good Faith Issue (see para 19 above)), it is uncontroversial that, if established, the fraud claim will constitute a valid defence to CTBC’s action. IBCB’s fraud claim is parasitic upon the allegations of New Era. However, on the evidence before the court, it is difficult to escape the conclusion that the fraud claim is sketchy.

43.  Surprisingly, ICBC had made no effort to verify if VLSA’s claim that the goods had actually been shipped, lying at port and over which New Era is asserting entitlement (see para 23(2) and (3) above). If established, those facts would go a long way to contradicting the fraud claim. ICBC could have made enquiry with New Era and/or with the port authority about the claim. In any case, the fraud claim turns on issues of facts. Hong Kong Court is well-experienced in resolving the same.

44.  As regards the Negotiation Issue, Mr Tang did not challenge the fact that CTBC had discounted the Bills of Exchange but submitted that the action did not constitute negotiation because the originals of the Bills are still held by ICBC. It thus appears that the issue is one of law. Again, Hong Kong Court will have no difficulty dealing with the same.

45.  On the Estoppel Issue, it is not clear whether it has any application when the L/C is governed by PRC Law, which may not embrace such a concept.

46.  Before turning to Foreign Illegality, I should deal with ICBC’s main argument in support of this application, namely, lis alibi pendens.

47.  ICBC’s main argument is the existence of parallel proceedings before the Guiyang Court and the risk of inconsistent findings. That argument will have to be assessed in light of what this Action is about.

48.  This Court was referred by Mr Tang to the following principles :

(1)  Lis alibi pendens means the suit about a particular subject matter between the parties is already pending in a foreign court. A parallel proceeding in another jurisdiction is one of the factors to be taken into account on the issue of FNC: China Construction Bank, supra, [5.2];

(2)  The rationale behind the lis alibi pendens doctrine includes the avoidance of inconvenience and expense of two parallel proceedings, the possibility of conflicting decisions and the problem concerning estoppel arising from a decision of another court: China Construction Bank, [5.3];

(3)  For foreign proceedings to be taken into account, they must generally involve the same parties and relate to the same matter. So long as the foreign proceedings arise out of the same facts and raise the same issues it is not necessary for the two causes of action to be identical for lis alibi pendens issues to arise: Hong Kong Civil Procedure 2024, vol 1, [11/1/137];

(4)  In considering the relevance of foreign proceedings, it is important to consider the stage which the foreign proceedings have reached. If the foreign proceedings are in the course of being tried, these are clearly relevant factors to be considered in contradistinction with a case where the local proceedings are only at the initial stage of its commencement. Moreover, the Court would also consider whether the parallel proceedings would have a continuing effect upon the dispute between the parties: China Construction Bank, [6.12].

49.  In Vedanta Resources PLC v Lungowe [2020] AC 1045, at [68]-[69], Lord Briggs held :

“68. … The concept behind the phrases “the forum” and “the proper place” is that the court is looking for a single jurisdiction in which the claims against all the defendants may most suitably be tried …

69. An unspoken assumption behind that formulation of the concept of forum conveniens or proper place, may have been … that a jurisdiction in which the claim simply could not be tried against some of the multiple defendants could not qualify as the proper place, because the consequence of trial there against only some of the defendants would risk multiplicity of proceedings about the same issues, and inconsistent judgments. But the cases in which this risk has been expressly addressed tend to show that it is only one factor, albeit a very important factor indeed …”

50.  On his part, Mr Yu, who appeared with Ms Ha for CTBC, relies on Deutsche Bank v CIMB [2017] EWHC 81. The facts of that case were similar to those of the present. The nominated bank (DB) brought proceedings in England against the issuing bank (CIMB) on a reimbursement undertaking under a letter of credit. CIMB brought proceedings in Singapore against DB, the beneficiary and others, claiming amongst other things that various defendants had conspired to defraud it ([10]-[16]). CIMB sought a stay, relying on the risk of inconsistent decisions with the Singapore courts. Refusing a stay, Teare J held that ([19]) :

“… The spectre of duplicative proceedings and inconsistent decisions as between DB and CIMB therefore only came about by reason of [CIMB’s] decision to sue DB for a negative declaration after proceedings had already been commenced in England by DB against [CIMB].”

51.  At [20], the learned Judge distinguished El Amria (cited for the “potential disaster” of separate trials) on the basis that in El Amria the most important evidence from experts was to be found in England. That factor, coupled with the risk of inconsistent decisions, meant that there were strong reasons for not giving effect to an exclusive jurisdiction in favour of Egypt. Teare J held that the evidence in the case before him could be adduced in London or Singapore. The risk of inconsistent decisions … “does not point to Singapore being the more appropriate forum”.

52.  At [29], Teare J held :

“… I very much doubt, in the context of a claim by a confirming bank against an issuing bank where the “cash principle” applies (that is, that the [confirming] bank is entitled to regard the issuing bank’s obligation to indemnify as the equivalent of cash) that it is appropriate to stay the confirming bank’s action in order that its claim can be decided along with the issuing bank’s claims against other parties which are of no concern to the issuing bank.”

53.  Mr Yu submitted that, knowing that CTBC intended to commence proceedings against it (see para 15 above), ICBC had rushed to join CTBC/HK as third party in the Fraud Proceedings on 16 November 2023 (6 days before this Action was commenced) to gain an advantage. However, on the evidence before the Court, I am unable to agree that ICBC had acted in any way other than trying to protect its legitimate interests. It may be said that ICBC was dragged into the Stop Order Proceedings, which it had tried (unsuccessfully) to challenge. The Fraud Proceedings which followed was no doubt not something welcome by ICBC.

54.  Mr Tang submitted that :

(1)  An inconsistent finding by Hong Kong Court may result in ICBC having to honour its payment obligation to CTBC in breach of the Stop Order, which will be a real prejudice to ICBC.

(2)  The Fraud Proceedings, which are not under the control of ICBC, are continuing. The determination of those proceedings will be dispositive of the issues in this Action. The likely outcome of the Fraud Proceedings is that either there was no fraud or ICBC or CTBC had acted in good faith, in which case the Interim Stop Order will be lifted[3] and payment will be made by ICBC to CTBC.

(3)  All the relevant parties are before the Guiyang Court.

55.  There is certainly force in Mr Tang’s submissions. However, the Achilles heel of the lis alibi pendens submission is that CTBC is not entitled to make any claim in the Fraud Proceedings (this is evidence of the SJE), and thus the resolution of which will not provide any relief to it.

56.  In China Construction Bank, a case heavily relied upon by Mr Tang, the CA only ordered a temporary stay of the plaintiff’s action pending the outcome of an appeal in the Mainland proceedings, and the CA allowed the appeal to that limited extent ([9.2]). Like the present case, the plaintiff there was a third party to the Mainland proceedings without the right to make an independent claim ([7.1] to [7.7]).

57.  Towards the end of the hearing, Mr Tang indicated his willingness to take instructions on an undertaking by ICBC to pay CTBC in the event that the Interim Stop Order is lifted. No undertaking was forthcoming by the time the hearing concluded (possibly, there was insufficient time for the decision to be made). However, Mr Tang acknowledged that an undertaking would have to be formulated with various contingencies, such as potential appeals, and he fairly accepted that it might not constitute a satisfactory answer here.

58.  Despite Mr Tang’s persuasion, I am unable to see how a temporary stay can provide real comfort for CTBC, who clearly has an independent entitlement to bring action against ICBC.

59.  As for the Acceptance Proceedings, they were started after the Action. Although CTBC is entitled to make a counterclaim in those proceedings, I fail not see why CTBC should be forced to participate in the same, especially when other parties which are of no concern to CTBC are involved. Mr Yu also made the point that the Acceptance Proceedings are at an early stage and there will be no trial unless CTBC’s jurisdictional challenge has been dealt with.

60.  A few words are called for about the progress of the Fraud Proceedings. The trial scheduled to take place the day after the hearing was only fixed for 1 day. I am inclined to agree with Mr Yu that it is far from certain whether the trial would proceed because, eg, Yu was only served with those proceedings by public notice on 1 August 2024 and there is no evidence that COSA or Optten had been served[4]. However, even if the trial did not proceed, it is true that the Fraud Proceedings are in an advanced stage. CTBC had been clear that it would not participate in the Fraud Proceedings.

61.  On Foreign Illegality, I accept that a letter of credit would not be enforced if either its performance is illegal by its governing law or it necessarily involves performance which is unlawful according to the place of performance: Cooperatieve Centrale, supra, [91], [102]-[105]. Mr Tang submitted that unless the Interim Stop Order is lifted, ICBC cannot lawfully perform its obligations under the L/C.

62.  It appears that the illegality point raises a conundrum which, with respect, counsel did not consider in advance of the hearing (they were invited by the Court to address the issue). If the Interim Stop Order is not lifted after the trial of the Fraud Proceedings, it means that (a) fraud has been established and (b) both ICBC and CTBC have failed to establish their bona fide. According to PRC law evidence, the Interim Stop Order will be lifted if either one of them succeeds in establishing its bona fide.

63.  In such scenario, it is not clear whether CTBC can maintain a claim against ICBC under the maxim ex turpi causa non oritur action (no action arises out of a disgraceful (illegal or immoral) matter). By the same token, ICBC may not be able to rely on illegality when its bona fide was tainted.

64.  Although Mr Tang suggested in his skeleton submissions ([3.2]) that the issues to be resolved in the Fraud Proceedings would constitute res judicata, I am inclined to agree with Mr Yu that, notwithstanding the SJE’s suggestion to the contrary, there is a real possibility that the Guiyang Court will not determine CTBC’s Good Faith Issue and the Negotiation Issue at the trial of the Fraud Proceedings.

65.  In the Fraud Proceedings, New Era did not allege that CTBC had notice of the fraud or was not acting bona fide. In ICBC’s applications to join CTBC/HK and CTBC, it did not raise CTBC’s Good Faith Issue or the Negotiation Issue.

66.  Further, CTBC’s right to participate in the Fraud Proceedings as a third party is quite limited. Therefore, on established principles of res judicata (see Zuckerman on Civil Procedure: Principles of Practice, 4^th edn, [26.96]), it is not at all clear that the doctrine will be triggered. In the absence of res judicata, CTBC may not be inhibited by the doctrine of ex turpi causa (assuming that it was found by the Guiyang Court to have acted in bad faith) in maintaining this Action. On the other hand, if ICBC was found by the Guiyang Court to have acted in bad faith, it has not been demonstrated that ICBC may nevertheless be able to rely on foreign illegality.

67.  It is not possible to resolve these complex issues in an interlocutory application, nor is the Court required to do so. In short, it cannot be said that there is a clear cut case where ICBC may rely upon foreign illegality or claim to suffer prejudice arising from the same. I am not prepared to hold that a good arguable case has been made out in this regard.

68.  As for witnesses, Mr Tang accepts that the location of witnesses in the Mainland (probably applies to New Era, ICBC and COSA) counts for little in light of the convenience of travel. Mr Yu made the point, which I accept, that there is no evidence that any witnesses from ICBC, New Era or COSA will not be able to attend trial in Hong Kong (in person or by video-link) but are yet compellable to attend trial in Guiyang.

69.  There is no evidence that any witness from Optten or Yu will attend any trial in Guiyang or before the Hong Kong Court.

70.  In respect of VASL’s witnesses, they had indicated an unwillingness to given evidence in the Mainland but a willingness to give evidence in Hong Kong. CTBC’s witnesses are of course in Hong Kong.

71.  Insofar as documentary evidence is concerned. There is no inhibition for it to be adduced anywhere in the world where modern technology is available.

72.  This is not an easy judgment to make. Having carefully considered and balanced all the relevant factors, I am unable to come to the view that the Guiyang Court is clearly or distinctly more appropriate than Hong Kong Court for the trial of CTBC’s claim against ICBC.

73.  For completeness, the only point on juridical disadvantage advanced by Mr Yu with any conviction is the deprivation of the opportunity to argue that Hong Kong law applies to the L/C if CTBC’s claim is litigated before the Guiyang Court. I am not persuaded that this point carries much weight in light of the authorities already referred to above.

Disposition

74.  For these reasons, the Summons is dismissed with costs to CTBC, to be taxed if not agreed with a certificate for 2 counsel.

75.  I am grateful to counsel for their assistance.

Mr Jason Yu and Ms Terri Ha, instructed by Eric Chow & Co, for the Plaintiff

Mr Alexander Tang and Mr Paul Law, instructed by Eversheds Sutherland, for the Defendant