Industrial and Commercial Bank of China (Asia) Ltd v. Wisdom Top International Ltd

HCA 278/2019

[2020] HKCFI 322

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 278 OF 2019

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BETWEEN

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D E C I S I O N

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A. Introduction

1.This is an appeal by the plaintiff (“ICBC”) against the Registrar’s refusal to issue a certified copy of a judgment and a certificate issued by the High Court for the purposes of enforcement in the Mainland.

2.The facts are straightforward and I gratefully adopt the summary of Mr Pao SC, leading Mr Tang.

3.On 1 April 2019, ICBC bank obtained default judgment for the sum of HK$379,770,335.72 and interest against the defendant (“Wisdom Top”) under a facility agreement dated 24 June 2013 (as amended and restated on 29 April 2015 and 13 May 2016 respectively) (“Facility Agreement”).

4.ICBC made an ex parte application to the Registrar pursuant to s.21 of the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap 597) (“Ordinance”) and Order 71B, r.2 of the Rules of the High Court for a certified copy of the judgment and a certificate issued by the High Court for the purposes of enforcement in the Mainland.

5.Under s.21(1)(a) of the Ordinance, the relevant judgment must be one from “the Court of Final Appeal or the High Court which is a chosen court”. 

6.A “chosen court” is defined in s.2 of the Ordinance to mean “the court or any of the courts specified in a choice of Mainland court agreement or choice of Hong Kong court agreement, as the case may be, as the court to determine a dispute to which the agreement applies”.

7.A “choice of Hong Kong court agreement” is defined in s.3(1) of the Ordinance as follows:

“In this Ordinance, subject to subsections (3) and (4), choice of Hong Kong court agreement means an agreement concluded by the parties to a specified contract and specifying the courts in Hong Kong or any of them as the court to determine a dispute which has arisen or may arise in connection with the specified contract to the exclusion of courts of other jurisdictions”. (underline added)

8.In order for the application to be granted, the underlying contract should contain a “choice of Hong Kong court agreement” pursuant to s.3(1) of the Ordinance.

9.Cl.34.1 (“the Jurisdiction Clause”) provides that:

“34.1. Jurisdiction of Hong Kong courts

(a) Subject to paragraph (c) below, the courts of Hong Kong have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a “Dispute”).

(b) The Parties agree that the courts of Hong Kong are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

(c)   This Clause 34.1 is for the benefit of the Lender only.  As a result, the Lender shall not be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction.  To the extent allowed by law, the Lender may take concurrent proceedings in any number of jurisdictions.”

10.After an oral hearing, the Registrar dismissed the application. In the Registrar’s view, a “choice of Hong Kong court agreement” meant an exclusive jurisdiction clause in favour of Hong Kong with respect to both parties to the agreement. Since ICBC had the option to commence proceedings overseas rather than in Hong Kong by virtue of cl.34.1(c), he considered that cl.34.1 was not a “choice of Hong Kong court agreement”.  Accordingly, the Jurisdiction Clause did not satisfy s.3(1) of the Ordinance.

11.This is the hearing of ICBC’s appeal.  An appeal from the Registrar is dealt with by way of a rehearing of the application: Hong Kong Civil Procedure 2020, Vol 1, §58/1/2.  As such, this Court is neither bound nor fettered by the reasons given by the Registrar.

12.The sole issue is whether or not the Jurisdiction Clause is an exclusive jurisdiction clause that falls within s.3(1) of the Ordinance. 

B. The plain meaning of cl.34.1

13.Mr Pao SC agrees that cl.34.1 should be understood as at the time the Facility Agreement was entered into and not at the time ICBC issues the writ.  In my view, the meaning of the clause can be tested by 2 hypothetical examples. 

(1) If Wisdom Top fails to repay the loan, ICBC has a choice of suing it in Hong Kong under cl.34.1(a) and (b); or in Singapore where witnesses and Wisdom Top’s assets are.  Hence, for the same cause of action, there are 2 possible forums for litigation.

(2) Wisdom Top seeks to set aside the Facility Agreement for misrepresentation.  It is obliged to commence proceedings in Hong Kong.  ICBC, however, can sue Wisdom Top for default in repayment in Singapore because the assets are there.  There will be parallel proceedings. 

14.These hypothetical examples show that the requirement in s.3(1) of a chosen court determining a dispute “to the exclusion of courts of other jurisdictions” plainly cannot be met.  A Hong Kong judgment is not enforceable in the Mainland.  A Singapore judgment has to rely on its own arrangement with the PRC to be enforceable.  The Registrar was plainly right in his conclusion. This appeal must be dismissed.

15.Mr Pao SC, however, invites the court to come to a different conclusion after considering the nature of the jurisdiction clause, the legislative scheme under the Ordinance, the corresponding provision under the Hague Convention on Choice of Court Agreement (“the Hague Convention”), the UK authorities and apply the purposive construction to the Ordinance.

C. Nature of the jurisdiction clause

16.The present case is the first Order 71B application before the Registrar which concerns what is commonly known as an asymmetric jurisdiction clause (“AJC”).  An AJC is common in financial documents.  Its nature has been summarized in the case of Commerzbank Aktiengesellschaft v Liquimar Tankers Management Inc [2017] 1 WLR 3497 §§40-41:

“40 ... As we have seen, such clauses contain different provision as to jurisdiction depending on whether proceedings are initiated by X on the one hand or by Y on the other. In an asymmetric jurisdiction clause Y is limited to jurisdiction A but X may proceed in that jurisdiction or in other courts which have competent jurisdiction: Mauritius Commercial Bank Ltd v Hestia Holdings Ltd [2013] 2 All ER (Comm) 899, para 37, per Popplewell J. X can sue anywhere under such a clause but only if and to the extent that a court other than in A has jurisdiction. Moreover if Y sues in A, X is not able to challenge the court’s jurisdiction since it has agreed to it. In this situation X may not be able to sue elsewhere: Lornamead Acquisitions Ltd v Kaupthing Bank HF [2013] 1 BCLC 73, para 112.

41 Asymmetric jurisdiction agreements are a long-established and practical feature of international financial documentation …”

17.In essence, an AJC ensures that a creditor can always litigate in a debtor’s home court whilst preserving its right to bring proceedings where the debtor’s assets may be located at the time a dispute arises.  This increases the prospect of a creditor successfully recovering a debt owed to it, which in turn contributes to the readiness of the creditor to provide finance and reduces the costs of borrowing, by minimizing the risk that a debtor’s obligations will be unenforceable: Etihad Airways PJSC v Prof. Dr. Lucas Flöther [2019] EWHC 3107 (Comm) §162, Jacobs J.  

18.In the present case, under cl.34.1, if Wisdom Top would like to sue ICBC, it must sue in Hong Kong, on which exclusive jurisdiction is conferred.  ICBC cannot challenge jurisdiction since by reason of cl.34.1(a) it has submitted to the jurisdiction of Hong Kong.

19.On the other hand, if ICBC would like to sue Wisdom Top, it may bring claims not just in Hong Kong but also overseas in a court of competent jurisdiction. See Commerzbank §40; Mauritius Commercial Bank Ltd v Hestia Holdings Ltd [2013] 2 Lloyd’s Rep 121 §§37, 40, Popplewell J.

20.Of course, if ICBC does so, it will still be subject to cl.34.1(b) which conclusively determines that the Hong Kong court is the most appropriate and convenient forum. ICBC will have to justify why the claim should be brought overseas rather than in Hong Kong.  There may be justification if, eg the assets of Wisdom Top are overseas.

D. Statutory scheme under the Ordinance

21.The Ordinance gave effect to the 2006 Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and the HKSAR (“2006 Arrangement”).

22.In construing the Ordinance, and to identify its purpose and the factual context in which it was enacted, reference may be made to extrinsic materials such as the explanatory memorandum to the bill and statements by the responsible official in relation to the bill in the Legislative Council: Export-Import Bank of China v Taifeng Textile Group Co Ltd & Anor [2018] HKCFI 1840 §54(6) (L Wong J).

23.According to the Report of the Bills Committee (“Report”), the purposes of the Arrangement were to create a summary mechanism for reciprocal enforcement of judgments of the Mainland and Hong Kong courts, without having to commence a new action for debt recovery at each other’s court:

“5. Given the huge volume of activities, particularly commercial ones, between the Mainland and the HKSAR, it is in the interest of the Hong Kong and the international business communities that are doing business with the Mainland to have an arrangement on reciprocal enforcement of judgments, so that an option is available for the judgment creditors to seek summary enforcement of court judgments of one jurisdiction in the other jurisdiction within the specified scope of the arrangement, without going through the time-consuming and costly litigation proceedings.

6. Such an arrangement may also be conducive to the development of Hong Kong as a centre for dispute resolution in commercial cases and provision of legal services to the international communities. A simple and effective enforcement mechanism is believed to be a key consideration for investors to select the forum for resolving commercial disputes.” (underline added)

24.The requirement of “choice of Hong Kong court agreement” has been implemented through enactment of s.3(1) of the Ordinance:

25.Art.3 of the 2006 Arrangement also provides that:

“第三條   本安排所稱“書面管轄協議”，是指當事人為解決與特定法律關係有關的已經發生或者可能發生的爭議，自本安排生效之日起，以書面形式明確約定內地人民法院或者香港特別行政區法院具有唯一管轄權的協議。(original)

A “choice of court agreement in writing” referred to in this Arrangement means any agreement in written form made, as from the day of commencement of this Arrangement, by the parties concerned in which a people’s court of the Mainland or a court of the HKSAR is expressly designated as the court having sole jurisdiction for resolving any dispute which has arisen or may arise in respect of a particular legal relationship. (English translation)” (underline added)

26.The purpose of requiring an exclusive choice of court agreement was to minimize the risk of parallel proceedings being instituted in the courts of both places. See Report §28.

“The Administration has explained that adopting an exclusive choice of court agreement in the Arrangement would minimize the risk of parallel proceedings being instituted in the courts of both places. It is difficult, if not impossible, to agree on a common set of principles to resolve problems brought by parallel litigation, as each jurisdiction has its own laws, litigation rules and procedures on enforcement of judgments which are quite different from the other.”

27.In addition, the Administration has made reference to the Hague Convention, based on which the Ordinance was drafted.  It is a treaty promoting international trade through mutual recognition and enforcement of judgements of chosen courts. It applies to contracts with “exclusive choice of court agreements” concluded in civil or commercial matters among member states: Article 1(1).  An “exclusive choice of court agreement” is defined in Art.3(a) as:

“an agreement concluded by two or more parties that … designates, for the purpose of deciding disputes which have arisen or may arise in connection with a particular legal relationship, the courts of one Contracting State or one or more specific courts of one Contracting State to the exclusion of the jurisdiction of any other courts.” (underline added)

28.Whether a jurisdiction clause is a choice of Hong Kong or Mainland court agreement within the meaning of the Ordinance has to be decided in accordance with the governing law of the contract, which is Hong Kong law in the present case.  Export-Import Bank, §65.

E. The Hague Convention

29.Mr Pao SC has very properly, in discharge of his duty of full and frank disclosure in this ex parte application, informed this court that according to §106 of the Explanatory Report of the Hague Convention (by Professors Hartley and Dogauchi), the diplomatic session had agreed that an AJC was not an exclusive choice of court agreement within the meaning of Art.3(a).

F. The English authorities

30.Mr Pao SC seeks to persuade me to follow 3 English cases at first instance, which have consistenly held that an AJC is an exclusive jurisdiction clause even though the creditor has the option of suing in a different overseas jurisdiction.

31.In Commerzbank, Cranston J had to consider whether an AJC fell within the scope of Art.31(2) of the Brussels I Regulation recast (“BIR recast”), which provides:

“where a court of a Member State on which an agreement referred to in Article 25 confers exclusive jurisdiction is seised, any court of another Member State shall stay the proceedings until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement”. (§34) (underline added)

32.He held that, “considered as a whole”, an AJC was an agreement conferring exclusive jurisdiction.  The fact that this only applied in respect of a claim by the borrower alone did not detract from this effect: §64.

33.Cranston J was not convinced that the Explanatory Report of the Hague Convention cited above was the correct position.  He considered that there was evidence to the contrary: §39.

“An earlier report by Professors Dogauchi and Hartley, at the time of the drafting of the Hague Convention, suggested that to make it clear that asymmetric jurisdiction clauses were excluded from the definition in what is now art.3(a) “it might be desirable to add . . . the words, ‘Such an agreement must be exclusive irrespective of the party bringing the proceedings’ ”. That was not done.”

34.Cranston J, noted that there was no reference to the Hague Convention in BIR recast although the drafting of both instruments occurred in tandem.  However, Council Decision 2014/887/EU referred to ensuring coherence between the rules of the EU on the choice of court in civil and commercial matters and those of the Hague Convention.

35.He, however, identified an important divergence between the Hague Convention and BIR recast.  The latter did not contain a definition of exclusive jurisdiction clause as did the Hague Convention: §73.

36.He further suggested, obiter, that there are good arguments that the words of the definition of exclusive jurisdiction clauses in Art.3(a) of the Hague Convention cover AJCs, though it was not necessary for him to reach a concluded view.

37.Cranston J’s obiter dicta on Art.3(a) of the Hague Convention has been supported in 2 subsequent English decisions: Etihad Airways §§215-217, Jacobs J; Clearlake Shipping Pte Limited v Xiang Da Marine Pte Ltd [2019] EWHC 1536 (Comm) §§62-64, Bryan J.  His conclusion with respect to Art.31(2) of the BIR recast was also followed in Etihad Airways: §§183-184.

38.In Etihad Airways §§183-184, Jacobs J emphasized the need to consider each “obligation” separately with regard to AJC.  He cited Merrett, The Future Enforcement of Asymmetric Jurisdiction Agreements (2018) 67(1) ICLQ 37 , 55-56:

“In an asymmetric agreement, the borrower has promised not to sue anywhere other than the chosen jurisdiction. The question of whether the other party did or did not agree to do the same does not arise when the bank is seeking to enforce the agreement and should be irrelevant. Thus, the point is not so much that “considered as a whole” [asymmetric agreements] are agreements conferring exclusive jurisdiction, as the judge put it in Commerzbank. Rather, each obligation can be considered on its own; the clause includes a promise by the borrower not to sue in any jurisdiction and that promise is capable of being protected by Art.31(2). Each different obligation necessarily falls to be considered separately and the fact that the bank is not under a similar obligation is neither here nor there.” (words underlined are referred to below as “the obligation test”).

39.Relying on these authorities, Mr Pao SC submits that:

(1) The agreement on the part of the borrower to have the disputes settled in Hong Kong is sufficient to amount of a choice of Hong Kong court agreement under s.3(1) of the Ordinance.  Both parties have agreed under cl.34.1(b) that Hong Kong is the most appropriate and convenient forum. 

(2) Whether ICBC is under a similar obligation as Wisdom Top is irrelevant.

(3) The forcus should not be on whether cl.34.1, considered as a whole, is an agreement conferring exclusive jurisdiction but, rather, each set of obligations should be considered separately.

(4) The mere fact that cl.34.1 also contains an independent asymmetric agreement with respect to claims by the borrower does not alter the conclusion in sub-paragraph (1).

(5) It may be that the Court more frequently entertains cases under the Ordinance which involves contracts with symmetrical exclusive jurisdiction clauses, but that is not a valid reason in itself to restrict the scope of the statutory regime to such cases.

(6) There is no requirement under s.3(1) of the Ordinance that all parties to the underlying contract must be subject to an exclusive jurisdiction clause. 

40.Mr Pao SC further submits that there is no injustice or unfairness to Wisdom Top because it has expressly agreed that the Hong Kong courts have exclusive jurisdiction over disputes between the parties.  Wisdom Top did not even defend the proceedings brought there.

41.Despite the persuasiveness of Mr Pao SC, I am unable to accept his contentions for the following reasons.

42.Firstly, as noted by Cranston J in Commerzbank, the English cases were decided in the context of the BIR recast.  The English court’s comments on the Hague Convention were obiter.

43.Secondly, unlike the Hague Convention, BIR recast has no definition of exclusive choice of court agreement; specifically, the phrase “to the exclusion of other courts” was missing. 

44.Thirdly, context is very important.  The scheme under the BIR recast is very different to the Ordinance.  Article 29(1) provides:

“Without prejudice to art.31(2), where proceedings involving the same cause of action and between the same parties are brought in the courts of different member states, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established.”

45.Art.31(2) of the BIR Recast provides:

“Without prejudice to article 26, where a court of a member state on which an agreement as referred to in article 25 [which recognizes the validity of a choice of court agreement regardless of the domicile of the parties unless it is null and void as to its substantive validity] confers exclusive jurisdiction is seised, any court of another member state shall stay the proceedings until such time as the court seised on the basis of the agreement declraes that it has no jurisdiction under the agreement.”

46.Recital (22) to BIR Recast makes clear that the purpose of the Recast provisions is to enhance the effectiveness of exclusive choice of court agreements and to ensure that the designated court has priority to determine the validity of the agreements:

“However, in order to enhance the effectiveness of exclusive choice-of-court agreements and to avoid abusive litigation tactics, it is necessary to provide for an exception to the general lis pendens rule in order to deal satisfactorily with a particular situation in which concurrent proceedings may arise. This is the situation where a court not designated in an exclusive choice-of-court agreement has been seised of proceedings and the designated court is seised subsequently of proceedings involving the same cause of action and between the same parties. In such a case, the court first seised should be required to stay its proceedings as soon as the designated court has been seised and until such time as the latter court declares that it has no jurisdiction under the exclusive choice-of-court agreement. This is to ensure that, in such a situation, the designated court has priority to decide on the validity of the agreement and on the extent to which the agreement applies to the dispute pending before it. The designated court should be able to proceed irrespective of whether the non-designated court has already decided on the stay of proceedings. This exception should not cover situations where the parties have entered into conflicting exclusive choice-of-court agreements or where a court designated in an exclusive choice-of-court agreement has been seised first. In such cases, the general lis pendens rule of this Regulation should apply.” (underline added)

47.In the context of the BIR recast, there is every reason to recognize an AJC as an exclusive jurisdiction clause to determine which court has priority in seising of a matter.  The authorities give rise to certainty and quick resolution of which court should be seised of a matter.  Art.3 of the Hague Convention and s.3 of the Ordinance do not purport to deal with the issue over which court has priorty to be seised of a matter, but enforcement of a judgment already obtained.

48.Fourthly, even applying the obligation test, one asks: whose obligation?  ICBC purports to use Wisdom Top’s obligation to use Hong Kong as the exclusive forum to satisfy the requirement under s.3(1) of the Ordinance. That simply defies logic.  The more rational approach is to see whether ICBC, being the plaintiff of an action, has to choose Hong Kong as the exclusive jurisdiction.  Here, the answer was a definite no.

G. The purposive construction

49.When construing a statute, the modern approach is to adopt a purposive approach, having regard to the statute’s context and purpose: Export-Import Bank of China §54. 

50.The purpose of the requirement of a choice of court agreement is to minimize the risk of parallel proceedings and to facilitate enforcement by a summary procedure: paragraphs 23 and 26 above.

51.The failure to use the word “exclusive” in a jurisdiction clause is not fatal under s.3(1) of the Ordinance.  Of course the Ordinance does not intend a master or a judge to merely mechanically tick boxes and not exercise professional judgment: Export-Import Bank, Lisa Wong J, at §63 (a case of the mirror situation of registration of a Mainland judgment).  It does not undermine the context or purpose of the agreement to require the court to consider whether a clause which did not expressly include the word “exclusive” was in substance an exclusive jurisdiction clause, even though this would require a construction exercise, at §§66-67.

52.Applying these principles, it is still plain that cl.34.1(c) is inconsistent with the purpose of s.3(1) of the Ordinance.  Where ICBC is to be the plaintiff, the jurisdiction is at large, depending on the choice of ICBC. It simply goes against the spirit of the 2006 Arrangement when there is no certainty as to jurisdiction in such circumstances.

53.Mr Pao SC has gone at length to analyze why Hong Kong is indisputably the most suitable forum because of the connection of Hong Kong to the parties, execution of the Facility Agreement, advance of the and the governing law of the Facility Agreement.  He submits that parallel overseas proceedings would face an anti-suit injunction for being vexatious or oppressive.  In fact, there is no incentive for ICBC to engage in overseas proceedings.  Wisdom Top suffers no prejudice in having a judgment entered against him in Hong Kong, his chosen court.

54.Finally, Mr Pao SC submits that AJCs are widely used in international financial documents. To exclude them from the ambit of the Ordinance will greatly restrict the scope of commercial agreements which may benefit from expedited enforcement under the Ordinance, and would consequently frustrate the important statutory purpose in §19 above.  He submits that the courts should be very slow to adopt such an approach.

55.With respect to Mr Pao SC, his arguments can answer Wisdom Top’s claim for stay of proceedings for foreign non-conveniens or an anti-suit injunction, but cannot satisfy the choice of court agreement requirement in s.3(1) of the Ordinance.  The fact of an AJC being widely used in international financial documents is not the test under the statutory regime.  The focus of the 2006 Arrangement was not the international nature of the underlying contract but the deliberate choice of the contracting parties to use Mainland Chinese or Hong Kong Courts to resolve a dispute, to the exclusion of other courts. The purposive approach to construction does not assist ICBC.

H. Recent developments

56.Again, Mr Pao SC has very properly informed the court that ICBC has commenced proceedings in Mainland China on 26 September 2019 against Wisdom Top to recover (i) the same sum awarded under the Hong Kong default judgment with interest; (ii) ICBC’s enforcement expenses; (iii) an order for forfeiture or sale against Wisdom Top’s properties in the Mainland, which is subject to a mortgage executed between ICBC and Wisdom Top on 24 June 2013 (seemingly the Mortgage 2013 referred to in the Facility Agreement); and (iv) costs of the Mainland proceedings.  The Mainland proceedings will be heard on 12 March 2020.

57.In my view, these developments do not affect the outcome of the present application as conduct subsequent to the making of the underlying contract would not affect the interpretation of cl.34.1.

I. Conclusion

58.I hold that cl.34.1 is an exclusive choice of court agreement if Wisdom Top is the party instituting the action but not so if ICBC bank is the plaintiff.  The Registrar’s views were correct. This appeal is dismissed.

59.I am most grateful to Mr Pao SC and Mr Tang for their thorough arguments and fair presentation of this case on ex parte basis.

Mr Jin PAO SC leading Mr Danny TANG, instructed by DLA Piper Hong Kong, for the plaintiff