Lo Ka Lee Kelly t/a Leader Packing (H.K.) Co. v. Spiriant Asia Pacific Ltd

DCCJ 6481/2020

[2021] HKDC 787

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6481 OF 2020

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BETWEEN

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Coram: His Honour Judge H. Au-Yeung (Paper Disposal)

Date of Defendant’s Submissions: 21 May 2021

Date of Plaintiff’s Submissions: 28 May 2021

Date of Defendant’s Submissions in reply: 2 June 2021

Date of Decision: 2 July 2021

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DECISION

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THE APPLICATION

1.By a summons filed on 14 January 2021 (“Summons”), the defendant applies for, among other things:

(1) A declaration that this Court has no jurisdiction or should not exercise any jurisdiction over the defendant in respect of the subject matter of the claim or the relief or remedy sought in the action, and that the action be dismissed;

(2) Further or alternatively, an order that these proceedings be stayed in favour of the courts in Frankfurt am Main, Germany.

BACKGROUND

2.It appears that the following facts are not in dispute:

(1) The plaintiff is a sole proprietor of a company in Hong Kong carrying on packaging business.

(2) The defendant is a limited company incorporated in Hong Kong carrying on the business of sourcing in-flight equipment including cutlery.

(3) By a written contract dated 27 April 2018 (“the 2018 Contract”), the plaintiff agreed to provide and the defendant agreed to accept cutlery packing services with, among other things, the following terms:

(i) The duration of the contract was for 2 years from 1 June 2018 to 31 May 2020;

(ii) The defendant shall place a minimum order of 15.6 million packs of cutlery during the whole contract term;

(iii) The governing law shall be German law;

(iv) The courts in Frankfurt am Main shall have exclusive jurisdiction in any disputes arising from or in connection with the contractual relationship between the parties.

(4) Pursuant to the 2018 Contract, the defendant had arranged for raw materials (for example, plastic forks, plastic knives and napkins) to be delivered to the factory premises which the plaintiff rented in Tsuen Wan (“Unit 2209”). 

(5) The defendant from time to time placed orders with the plaintiff and informed the plaintiff about the number of cutlery packs which was needed.  The plaintiff would then pack the aforesaid raw materials accordingly and deliver the completed cutlery packs to the defendant at the Hong Kong International Airport as requested.

3.It is the plaintiff’s case that the defendant had only placed a total order of around 12.82 million packs of cutlery during the term of the 2018 Contract.  Hence, there is a shortage of order of around 2.78 million packs of cutlery. 

4.The plaintiff also alleged that while the defendant had failed to place further orders for cutlery packs since around February 2020, the latter continued to arrange for delivery of raw materials to the plaintiff.  As a result, raw materials caused to be delivered by the defendant piled up at Unit 2209.  In order to have enough space to store the said unused raw materials, the plaintiff had rented a bigger unit upon the expiry of the tenancy agreement in respect of Unit 2209 on around 30 May 2020. It was said that the plaintiff brought this issue up with Mr Cherkie Wong of the defendant in around May 2020, and whereupon it was agreed that the defendant would pay the plaintiff $38,000 per month as handling fees of those raw materials (“the alleged Oral Agreement”). 

5.On the basis of the aforesaid, the plaintiff claims herein:

(i) $973,075.60 as the total amount of the price receivable for the outstanding order of around 2.78 million packs of cutlery (“the Minimum Order Claim”); and

(ii) $912,000.00 as the total amount of handling fees (“the Handling Fees Claim”).

6.For the sake of clarity, I will discuss the above claims separately.

THE MINIMUM ORDER CLAIM

7.The Minimum Order Claim was made pursuant to the 2018 Contract.  Article 17.2 thereof provides that:

“The courts at Frankfurt am Main shall have exclusive jurisdiction in any disputes, including the special procedure based on documents (trial by record) and bills of exchange, arising from or in connection with the contractual relationship, its emergence, legal effect or termination.”

8.It is undisputed between the parties that the Minimum Order Claim falls within the scope of the said Article 17.2 which, according to German law (which is the proper law of the substantive contract), is an exclusive jurisdiction clause. 

9.However, it was the submission of Ms Lau for the plaintiff that the defendant’s application for dismissal/stay should nonetheless be refused because there are strong reasons for the claim to be tried in Hong Kong.

The legal principles

10.On the applicable legal principles, I will start with what the Privy Council held in The K. H. Enterprise (Cargo Owners) v The Pioneer Container (vessel owners) [1994] 2 HKLR 134 in which Lord Goff held that:

“It is common ground between the parties that, in a case such as the present, the applicable principles are those set out in the judgment of Brandon, LJ. in Aratra Potato Co. Ltd. v. Egyptian Navigation Co. (The El Amria) [1981] 2 Lloyd's Rep 119. According to those principles, the court has a discretion whether to grant a stay of proceedings brought in breach of an agreement to refer disputes to a foreign court; but the discretion should be exercised by granting a stay, unless strong cause for not doing so is shown.” (at page 150)

11.In El Amria [1981] 2 Lloyd's Rep 119, Brandon LJ summarised the principles as follows:

“(1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign Court, and the defendants apply for a stay, the English Court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not.

(2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown.

(3) The burden of proving such strong cause is on the plaintiffs.

(4) In exercising its discretion the Court should take into account all the circumstances of the particular case.

(5) In particular, but without prejudice to (4), the following matters, where they arise, may properly be regarded:

(a) In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign Courts.

(b) Whether the law of the foreign Court applies and if so, whether it differs from English law in any material respects.

(c) With what country either party is connected, and how closely.

(d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages.

(e) Whether the plaintiffs would be prejudiced by having to sue in the foreign Court because they would: (i) be deprived of security for their claim; (ii) be unable to enforce any judgment obtained; (iii) be faced with a time-bar not applicable in England; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial.”

12.Ma CJHC (as his Lordship then was) stated in Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd [2008] 5 HKLRD 631:

“Thus analyzed, in the situation referred to in para.33(1) [in which A sues B in Hong Kong, and Hong Kong is named as a non-exclusive jurisdiction to which the parties have agreed to submit in the event of their being sued], the effect of a non-exclusive jurisdiction clause in terms of a challenge to the appropriateness of a forum, is in practice the same as an exclusive jurisdiction clause. Where an exclusive jurisdiction clause exists, a party who seeks a stay brought in breach of that agreement to refer disputes to a named forum, will have to show strong cause: see The Pioneer Container [1994] 2 AC 324 at p.347E–G; Donohue v Armco Inc & Others [2002] 1 All ER 749 at pp.759e–760c (paras.24–25).

This approach is to be contrasted with the approach of the courts in applications for stay based on forum non conveniens. Where an application is made to stay proceedings on this basis, the test is to enquire whether there exists another available forum which is clearly or distinctly more appropriate than the forum in which the proceedings are sought to be stayed and in which the case may be tried more suitably for the interests of all the parties and for the ends of justice: see Spiliada Maritime Corp v Cansulex Ltd at p.476C–D; Owners of Cargo Lately Laden on Board Ship or Vessel Adhiguna Meranti v Owners of Ships or Vessels Adhiguna Harapan & Others [1987] HKLR 904 at pp.907F–908B. In practice, in such applications for a stay, the parties will produce evidence in support of what they contend to be the appropriate jurisdiction.” (at paragraphs 37 – 38)

13.In the same case, Stone J quoted the legal principles summarised by Dame Elizabeth Gloster J in Antec International Ltd v Biosafety [2006] EWHC 47 (Comm) as follows:

“(i) The fact that the parties have freely negotiated a contract providing for the non-exclusive jurisdiction of the English courts and English law, creates a strong prima facie case that the English jurisdiction is the correct one. In such circumstances, it is appropriate to approach the matter as though the Claimant had founded jurisdiction here as of right, even though the clause is non-exclusive; see eg per Hobhouse J in S&W Berisford plc v New Hampshire Insurance Co [1990] 1 Lloyd’s Rep 454, at 463; per Waller J in British Aerospace Plc v Dee Howard Co [1993] 1 Lloyd’s Rep 368; per Moore-Bick J in Mercury Communications Ltd v Communication Telesystems International [1999] 2 All ER 33 at p 41.

(ii) Although, in the exercise of its discretion, the court is entitled to have regard to all the circumstances of the case, the general rule is that the parties will be held to their contractual choice of English jurisdiction unless there are overwhelming, or at least very strong, reasons for departing from this rule: see eg British Aerospace Plc v Dee Howard Co; Mercury Communications v Communication Telesystems International at p 41; per Aikens J in Marubeni Hong Kong & South China Ltd v Mongolian Government [2002] 2 AER (Comm) 873 at 891(b)-(f); per Lawrence Collins J in Bas Capital Funding Corp & Others v Medfinco Ltd & Others [2004] 1 Lloyd’s Rep 652, at paras.192-195; per Gross J in Import Export Metro Ltd v Compania Sud America de Vapores SA [2003] 1 Lloyd’s Rep 405.

(iii) Such overwhelming or very strong reasons do not include factors of convenience that were foreseeable at the time that the contract was entered into (save in exceptional circumstances involving the interests of justice); and it is not appropriate to embark upon a standard Spiliada balancing exercise. The defendant has to point to some factor which it could not have foreseen at the time the contract was concluded. Even if there is an unforeseeable factor or a party can point to some other reason which, in the interests of justice, points to another forum, this does not automatically lead to the conclusion that the court should exercise its jurisdiction to release a party from its contractual bargain; see cases cited supra and The El Amria [1981] 2 Lloyd’s Rep 119; Breams Trustees Ltd v Upstream Downstream Simulation Services [2004] EWHC 211 (Ch) per Patten J at paras 27-28.”

14.Although the issue in the case of Antec International Ltd v Biosafety (supra) was whether the proceedings in England should be set aside or stayed despite the fact that England was the chosen forum by the parties on the ground, inter alia, that there was another appropriate forum for the action, the aforesaid principles, with necessary changes, should still be applicable herein.

15.The relevant paragraphs in Donohue v Armco Inc & Others referred to by Ma CJHC in Noble Power Investments Ltd (supra) were quoted in full by Ng J in paragraph 14 of his Lordship’s Judgment in Li Lian International Limited & Others v Herport Hong Kong Limited & Another [2019] HKCFI 826:

“In Donohue v Armco Inc [2001] UKHL 64 at [24] and [25], Lord Bingham set out the principles in these terms:

“[24] If contracting parties agree to give a particular court exclusive jurisdiction to rule on claims between those parties, and a claim falling within the scope of the agreement is made in proceedings in a forum other than that which the parties have agreed, the English court will ordinarily exercise its discretion (whether by granting a stay of proceedings in England, or by restraining the prosecution of proceedings in the non-contractual forum abroad, or by such other procedural order as is appropriate in the circumstances) to secure compliance with the contractual bargain, unless the party suing in the non-contractual forum (the burden being on him) can show strong reasons for suing in that forum. I use the word ‘ordinarily’ to recognise that where an exercise of discretion is called for there can be no absolute or inflexible rule governing that exercise, and also that a party may lose his claim to equitable relief by dilatoriness or other unconscionable conduct. But the general rule is clear: where parties have bound themselves by an exclusive jurisdiction clause effect should ordinarily be given to that obligation in the absence of strong reasons for departing from it. Whether a party can show strong reasons, sufficient to displace the other party’s prima facie entitlement to enforce the contractual bargain, will depend on all the facts and circumstances of the particular case. In the course of his judgment in The Eleftheria [1970] P 94, 99-100, Brandon J helpfully listed some of the matters which might properly be regarded by the court when exercising its discretion, and his judgment has been repeatedly cited and applied. Brandon J did not intend his list to be comprehensive, but mentioned a number of matters, including the law governing the contract, which may in some cases be material…

[25] Where the dispute is between two contracting parties, A and B, and A sues B in a non-contractual forum, and A’s claims fall within the scope of the exclusive jurisdiction clause in their contract, and the interests of other parties are not involved, effect will in all probability be given to the clause. (emphasis added)”

16.In Joseph Ghossoub v Team Y&R Holdings Hong Kong Limited & Others [2016] 3 HKLRD 778, Deputy High Court Judge Le Pichon adopted the following test where there is an exclusive jurisdiction clause in a contract:

“I accept that where there is a jurisdiction clause in a contract, the starting point is that the parties should be held to their bargain but the rule is not absolute, as it is for the courts to ultimately determine where the interests of justice lie. They may in exceptional cases ignore the contractual bargain but strong reasons must be demonstrated if the court is to free the parties from their contractual bargain. It is not a matter of weighing up the connecting factors as though the court were faced with a stay application based on forum non conveniens: Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd [2008] 5 HKLRD 631 at [27], [29], [36] and [40].” (at paragraph 105)

17.On appeal, her Ladyship’s approach was endorsed by the Court of Appeal (CACV 6/2017 & HCMP 3136/2016, unreported, 21 July 2017).  In her Judgment, Kwan JA had the following to say:

“43. The judge did not make any error in law about the legal test. She accepted ‘where there is a jurisdiction clause in a contract, the starting point is that the parties should be held to their bargain but the rule is not absolute, as it is for the courts to ultimately determine where the interests of justice lie. They may in exceptional cases ignore the contractual bargain but strong reasons must be demonstrated if the court is to free the parties from their contractual bargain.’ The judge concluded that strong reasons do exist in this instance […]

44. The contention that the judge did not apply the correct legal principles must be rejected.”

Standard term contract

18.Before I proceed further, it is necessary to give my ruling as to Ms Lau’s argument that since Article 17.2 of the 2018 Contract was part of a standard form contract adopted by the defendant as opposed to a clause which was freely negotiated and agreed on between the parties, “Hong Kong Courts need not treat the plaintiff’s action with the same degree of hostility”, and “cases involving a freely negotiated jurisdiction agreement may be of little assistance to the present case”[1].  She pointed to Dame Elizabeth Gloster J’s summary of the legal principles as quoted by Stone J in Noble Power Investments Ltd (supra) and submitted that those principles should only be applicable to exclusive jurisdiction clauses contained in freely negotiated contracts but not in standard form contracts.

19.In support of her argument, Ms Lau cited, among other things, the case of The Bergen (No 2) [1997] 2 Lloyd’s Rep 710 and a footnote of Volume 1, Dicey, Morris & Collins on the Conflicts of Laws, 15^th edition (2018).  In the case of The Bergen (No 2) (supra), Clarke J. held that:

“I recognize that there is a spectrum of cases from the case where the parties have negotiated the jurisdiction clause at one end to the case of a one-off standard term contract at the other and that the Court is perhaps less likely to find the necessary strong cause established in the former case than in the latter. In the instant case the clause is somewhere in between. It is part of a standard, albeit well known, form of bill of lading, but one which has been used by the particular parties on a number of occasions before. In all the circumstances I regard this first point as of comparatively little weight.” (at page 715)

20.It can be seen that Clark J did not lay down any principle on the matter as such and that his opinion expressed was obiter. It is probably because of this that the learned authors of Dicey, Morris & Collins on the Conflicts of Laws also referred to the decision of Clark J in an uncertain way: it was stated in footnote 489 therein that:

“Whether the agreement is standard form, or has been individually negotiated, may be relevant to the weight to be accorded to it” (emphasis added)

21.On my part, I am doubtful as to whether such a distinction should be made as Ms Lau has not been able to refer to any local authority in which any such distinction has ever been drawn. 

22.On the other hand, it has been held by Mr Justice Teare in Impala Warehousing and Logistics (Shanghai) Co. Ltd. v Wanxiang Resources (Singapore) Pte Ltd.  [2015] EWHC 25 (Comm) that the fact that the exclusive jurisdiction clause had not been the subject of specific negotiations (even though it had been validly incorporated in the contract between the parties) does not amount to a strong reason not to enforce the clause.[2]

23.Even if it is necessary to distinguish between a scenario in which the exclusive jurisdiction clause is found in a standard form contract as opposed to in a freely negotiated contract, in my view, the court still has to take into account the factual circumstances so as to decide on the precise weight which should be attached to the clause.  I do not agree that the court should automatically reduce the weight to be attached for the sole reason that the clause is found in a standard form contract.

24.As far as the present case is concerned, it is noted that:

(1) There was no evidence from either of the parties that the exclusive jurisdiction clause was not open for negotiation despite the fact that it was included as one of the standard terms. 

(2) To the contrary, it was provided in the 2018 Contract that:

“Basis for the contractual agreement are exclusively the attached General Procurement Conditions of LSG Lufthansa Service Holding AG and its Group companies. In case the Parties entered into an individual agreement the terms and conditions of such individual agreement shall prevail.”

(3) As pointed out by Ms Lee, the plaintiff had never complained that the exclusive jurisdiction clause was included as a result of grossly uneven bargaining power.

25.I therefore reject the plaintiff’s argument in this regard.

The El Amria pointers

26.Relying on the matters referred to in El Amria (supra), Ms Lau argued that since the plaintiff and all the defendant’s witnesses are residents in Hong Kong, it would be more convenient and cost-effective if the case is tried in Hong Kong than in Frankfurt.

27.I do not accept this argument, as it must have been foreseeable at the time when the 2018 Contract was entered into that, if there were any disputes, the plaintiff would be required to sue in Frankfurt, and the inconvenience and higher costs must have been expected.  Such matters cannot amount to “strong cause”.

28.Ms Lau further relied on the fact that both parties are closely connected to Hong Kong.  She has drawn this court’s attention to a large number of factors, including but not limited to the followings: both parties are Hong Kong entities, the plaintiff is a Hong Kong permanent resident residing here, the defendant is a Hong Kong company having its central place of business in Hong Kong, two of its three directors are residents in Hong Kong and the place of performance of the 2018 Contract was in Hong Kong.

29.As Ms Lau rightly recognised, Ma CJHC (as he then was) had observed in Noble Power Investments Ltd (supra) that:

“39. The search for connecting factors (for example, the location of relevant witnesses, the residence of the parties, etc) or the lack of connecting factors was exactly the approach adopted by the learned Recorder in the present case. It is fair to say that he regarded the correct approach as being one of weighing up the various factors to arrive at a view on the appropriate forum. In other words, he approached this case on the basis of forum non conveniens. The existence of the non-exclusive jurisdiction clause was regarded merely as one of the factors to be weighed in the scales.

40. With respect, this was not the correct approach when there existed a non-exclusive jurisdiction clause, and proceedings were instituted in the very forum to which the parties had agreed to submit. In such a situation, as earlier emphasized, strong reasons have to be demonstrated as to why that agreement should not be enforced. It is not a matter simply of weighing up the connecting factors as though the court were faced with a stay application based on forum non conveniens. The cases make good this point : see for example British Aerospace at 376(1)-(2); Marubeni at paragraph 64; BAS at paragraph 185. Generally, the existence or non-existence of connecting factors will be quite irrelevant, certainly much less powerful, unless it can somehow be shown that these may constitute strong reasons as to why the non-exclusive jurisdiction clause should not be enforced. As the authorities make clear, one is really talking about factors that were not in the reasonable contemplation of the parties at the time the agreement was made. As Rix LJ observed in Ace Insurance at 820a:

‘If a party agrees to submit to the jurisdiction of the courts of a state, it does not easily lie in its mouth to complain that it is inconvenient to conduct its litigation there (ie to assert that the agreed forum is a forum non conveniens).’ ”

30.The above principles are clearly applicable herein. 

31.The only matter which parties could not reasonably contemplate at the time when the 2018 Contract was entered into is the current pandemic situation, which has made it more inconvenient for witnesses to travel to Germany and give evidence there.  However, I do not think this factor alone is sufficient to amount to “strong cause” because:

(1) While it is currently more inconvenient for witnesses to travel from Hong Kong to Germany, it is speculative to suggest that the situation would be the same at the time this case is ready for trial in Germany.

(2) The plaintiff, who has the burden to establish “strong cause”, has not put forward any evidence to prove that it is procedurally impossible for witnesses to give evidence remotely in Hong Kong.

32.Ms Lau’s argument is therefore rejected.

33.Ms Lau then submitted that the defendant has no genuine desire for a trial to be conducted in Frankfurt as it has failed to identify any defence to the Minimum Order Claim to date.

34.In support of her argument, Ms Lau first of all referred to what Professor Adrian Briggs stated in the latter part of paragraph 6.76 and paragraph 6.77 of his work Agreements on Jurisdiction and Choice of Law (2008).  She quoted the following in paragraphs 47 and 48 of her written submissions:

“An applicant for specific relief who is incontrovertibly in breach of the obligations of the substantive contract, even though this is taken to be legally separate from the dispute resolution agreement, and so to be related to, though not part of, the subject matter of the dispute, would certainly be denied equitable relief in respect of that contract…It would be rational to argue that, by analogy with the equitable maxim as it applies to injunctions, a stay should not be granted if the party seeking it is in plain and indefensible breach of the substantive contract.

An answer will need to address the question as one to which the principles of the law of contract, and of the enforcement of contracts by equitable decree, provide the solution.  This is entirely as it should be, as rights which are created and recognised as contractual should be recognised and enforced as contractual rights.  Any untidiness in the search for an answer in a particular case simply reflects that the law of contract does not always make it easy to decide whether one or another of convincing but contradictory answers is to be adopted.  Strong as the temptation is to propose that the jurisdiction agreement should be enforced strictly, the inequity of doing so at the behest of a party who is, so far as the court can see, in breach and bereft of any shred of defence, is unavoidable.”

35.To understand Professor Adrian Briggs properly, it is necessary to read paragraphs 6.73 to 6.75 and also the earlier part of paragraph 6.76 which Ms Lau did not refer to in her written submissions.  They are as follows:

“6.73 Difficulty arises when the perception of the claimant is the defendant has no defence to the claim, but is seeking the stay of proceedings in order to stall, or to wear down the claimant so that he abandons the claim. The Arbitration Act 1975 allowed a court to refrain from ordering a stay in favour of arbitration where there was no defence to the claim: a stay would be ordered ‘unless [the court is] satisfied that there is not in fact any dispute between the parties with regard to the matter agreed to be referred’. This provision was not reproduced in the 1996 Act, and the Court of Appeal has confirmed that the change in the law was deliberate. But in relation to jurisdiction agreements, courts have not followed a clear line when dealing with the contention that a stay should not be granted by way of enforcing a jurisdiction agreement when the defendant had no defence to the claim. Much of the same issue arises when the claimant applies for summary judgment and seeks to have his application heard before the court considers the application for a stay.

6.74 One solution might be to try to construe the dispute resolution agreement as applicable to substantial disputes, or real disputes, or genuine disputes, but not to refusals to meet unanswerable demands, but this cannot be an easy conclusion to reach. After all, this was the submission made in Halki Shipping Corp v Sopex Oils Ltd in the context of arbitration, and the majority of Court of Appeal considered that a ‘dispute’ existed wherever the defendant refused to accede to the demand of the claimant, whether or not there existed any substantial ground for the refusal. Though Halki Shipping is a decision on s 9 of the Arbitration Act 1996 and the question whether it made a significant change to the law previously contained in the 1975 Act (it did), it makes it hard to find a solution in the construction of the jurisdiction clause.

6.75 So what should be done? It is tempting to say that the dispute resolution agreement should be upheld. The parties may have chosen, and perhaps should be taken to have chosen, the forum for dispute resolution […] It may be that they chose it for all manner of reasons; but that they chose it is a fact, not a conclusion, and the reason is none of our business. If the English approach to jurisdiction agreements may be criticised as being too ready to override them, that criticism will not be answered by a rule that where there is no defence to the claim, the defendant loses his right to enforce the dispute resolution agreement, or loses the benefit of a discretion which would have been exercised in his favour but for the perception that he had no real defence to the claim. If the agreement for dispute resolution is, as it seems it must be, independent of the substantive contract with which it is associated, and is unaffected by the invalidity of the contract, it should equally follow that it is unaffected by the enforceability of the substantive contract, or by the invalidity of the defence which will be raised to answer the claim. It may also be argued that if the policy which underpins the enforcement of jurisdiction agreements is to encourage parties to make their own arrangements in advance, to allow them to avoid litigating about where to litigate, the greater the opportunity to advance arguments which undermine these agreements, the greater the incentive for parties to seek to undermine these agreements. The current trend of authority is to seek to prevent arguments derived from the substantive contract which challenge or impede the contract for dispute resolution; this is just another such one.

6.76 The argument to the contrary is that the interests of justice do allow a stay of proceedings to be overcome if the arguments in favour of overcoming it are sufficiently strong, and if there really is nothing to say in answer to the claim, it is a waste of time and money to stay the proceedings and to leave the parties to start, all over again, before the foreign court: this benefits no-one. This perception appears to have led some courts to allow applications for summary judgment to be heard at the same time as (which means, in effect, before) an application for a stay of proceedings. It is difficult to find a principled answer to the problems which arise here. Parties who seek to enforce contractual rights do not normally have to show that they have a legitimate interest in doing so. But an injunction is an equitable remedy. As he who seeks equity must do equity, and must come to equity with clean hands, it is well established that a party who has already broken his obligations will not be heard to ask for the equitable discretion of the court to be exercised in his favour. An applicant for specific relief who is incontrovertibly in breach of the obligations of the substantive contract […]” (the paragraph continued – see the quotation referred to in the preceding paragraph)

36.It can thus be seen that Professor Briggs was only setting out the arguments on both sides, without really giving any definite answer to the problem. 

37.On my part, I am of the view that even if the claimant can prove that the defendant has no defence, this cannot be amount to “overwhelming or very strong reasons”, for it must have been foreseeable at the time when the contract was entered into that any claim to be made pursuant to the contract might well be indefensible.  Furthermore, it does not lie in the mouth of the claimant to suggest that it is a waste of time and money to stay the proceedings in the non-agreed forum, for this is totally self-induced in that such a waste has been caused by the claimant who has deliberately breached the exclusive jurisdiction clause, which, in a way, is also a breach of the contract itself.  In such circumstances, it would be ironic to say that the proceedings (which was commenced in breach of parties’ agreement) should not be stayed for the interests of justice.

38.Ms Lau then submitted that “where a defendant fails to identify any defence to a prima facie sustainable action brought in breach of an exclusive jurisdiction clause, this fact is independently sufficient to meet the strong case test”[3].

39.Ms Lau recognised that it has been held by a Master in Deltatre SPA v Hong Kong Sports Industrial Development Limited [2018] 4 HKLRD 478 that the lack of a credible defence per se does not constitute strong cause to disapply the jurisdiction clause.  Ms Lau did not seek to argue that this case was wrongly decided, understandably so because a similar conclusion has been reached recently by the Singapore Court of Appeal in Vinmar Overseas (Singapore) Pte Ltd v PTT International Trading Pte Ltd [2018] 2 SLR 1271, where it was held that “in determining whether to grant a stay in an [exclusive jurisdiction clause] Application, the merits of the defence are irrelevant”[4].  However, she tried to distinguish Deltatre SPA by saying that in the present case the position is different because the defendant herein has not identified any positive defence at all, whereas the defendant in Deltatre SPA did identify a line of defence in its evidence.   

40.With greatest respect, Ms Lau’s argument is totally unmeritorious.  In my view, there cannot be any real difference between putting forward an incredible defence and not putting forward any defence at all.

Conclusion

41.As the plaintiff has failed to establish any strong cause, the Minimum Order Claim must be stayed.

THE HANDLING FEES CLAIM

42.The Handling Fees Claim is made on the basis of the alleged Oral Agreement between the parties reached in around May 2020. 

43.In the plaintiff’s Statement of Claim, it was pleaded that:

“Negotiation of extending the service contract

7. In or about April 2020, the Plaintiff received an oral confirmation from Mr. Cherkie Wong (“Mr. Wong”), the Manager of the Defendant, for extending the cutlery service agreement until May 2022. On 21 April 2020, the Plaintiff received a draft Addendum for the extension of the cutlery service agreement from Mr. Yiuman Yiu, the Operation and Service Officer of the Defendant.

8. There were still 70 pallets of materials of the Defendant kept at the Plaintiff’s warehouse upon the end of the service contract.

9. In reliance of the said oral confirmation in paragraph 7 above, the Plaintiff rented a warehouse for storing the said 70 pallets of materials. The expenditure for storing the 70 pallets of materials is HK$38,000.00 per month. In or about May 2020, Mr. Wong made an oral agreement to the Plaintiff that the Defendant agreed to pay HK$38,000.00 per month as the handling fees of the materials.

10. However, the Plaintiff has not received any further reply from the Defendant in relation to the extension of the contract.”

44.Ms Lee submitted that as the plaintiff has pleaded reliance on the oral confirmation of the Draft Addendum to extend the 2018 Contract for another 2 years, the court should make reference to the terms of the Draft Addendum in deciding whether Article 17.2 of the 2018 Contract should cover the Handling Fees Claim as well.  I am unable to accept this submission, because it is undisputed that the Draft Addendum was at the end of the day not entered into by the parties.  According to the evidence of Egon Linde, the Managing Director of the defendant:

“[…] the Draft Addendum has not been signed and executed. The Defendant’s case is as a matter of fact, there was no final and concluded and/or legally binding Extended Agreement as alleged or at all. All oral or email discussions and negotiations between the parties in respect of the alleged Extended Agreement were specifically understood as ‘subject to contract’ when the same is properly signed and executed.”[5]

45.I would therefore consider Ms Lee’s fall-back argument that the scope of Article 17.2 of the 2018 Contract would cover the Handling Fees Claim even if such a claim is premised on the alleged Oral Agreement reached in around May 2020 rather than on the basis of the Draft Addendum.

46.It may be recalled that the exclusive jurisdiction clause in the 2018 Contract covers any disputes arising from or in connection with the contractual relationship, its emergence, legal effect or termination.

47.Ms Lau submitted that, when interpreting the exclusive jurisdiction clause, the principles of construction summarised by Bryan J in Terre Neuve Sarl & Others v Yewdale Limited & Others [2020] EWHC 772 (Comm) are applicable.  While Ms Lau has drawn my attention particularly to principles 2, 3 and 6(c) thereof only, I will set out all 6 principles below for the sake of completeness:

“(1) The principle is based on the construction of the relevant jurisdiction clause (which I will refer to as being contained in ‘Contract A’): it is not based on an implication or implied incorporation of the jurisdiction clause from Contract A into a related contract (henceforth known as ‘Contract B’).

(2) As a matter of contractual construction, the wording of the clause in Contract A must be fairly capable of applying to disputes in Contract B. For example, a clause which stated that ‘any dispute under this contract shall be referred to arbitration’ may not apply to disputes arising out of a (related) Contract B.

(3) It is not legally or commercially odd or improbable that an agreement should have no jurisdiction clause. Equally an agreement may have no jurisdiction clause and not be covered by a jurisdiction clause in a different agreement. This was confirmed in Am Trust Europe Ltd v Trust Risk Group at [46] (albeit in reference to competing jurisdiction agreements):

‘There is no presumption that a jurisdiction (or arbitration) agreement in contract A, even if expressed in wide language, was intended to capture disputes under contract B; the question is entirely one of construction’.

However, the absence of any competing jurisdiction clauses in any agreements within a particular set of agreements concluded by the parties for the same purpose, at the same time, and with the same subject matter, can be a relevant consideration (Etihad at [102(v)]).

(4) This principle normally applies where the parties to Contract A and Contract B are the same. This arises from the fact that the Extended Fiona Trust Principle ultimately involves an exercise in contractual construction. One would normally expect the parties to Contract A to intend that their dispute resolution mechanism be binding upon the parties to Contract A rather than also applying to persons who were not party to that contract at all. Where the principle is applied to a situation in which the parties to Contract A and Contract B are different, then it is possible that the court may conclude that it was the Contract A parties’ intention that third parties should be able to rely on Contract A (for example in a Himalaya clause situation), or the court might conclude that only the common parties between Contract A and Contract B are bound by the jurisdiction clause in Contract A. However, the latter is an inherently unattractive prospect, as it involves the fragmentation of disputes pursuant to the same agreement (Contract B) – possibly even disputes concerning the very same obligations. This is the very menace which it was assumed in Fiona Trust rational businessmen want to avoid (of course agreements which appear to have been deliberately and professionally drafted are to be given effect, even where this may result in a degree of fragmentation in the resolution of disputes: see Dicey, 15th Edition at 12-110). The effect of Fiona Trust is that fragmentation of disputes under one agreement is unlikely to be what the parties intended. However, it is perfectly possible that there may be fragmentation of the resolution of disputes across several agreements (although whether this was the parties’ intentions is to be considered when construing the contracts).

(5) The Extended Fiona Trust Principle normally applies where Contract A and Contract B are interdependent (Point (5a)), or have been concluded at the same time as part of a single package or transaction (Point (5b)), or (if concluded at different times) dealt with the same subject-matter (Point (5c)).

(6) A jurisdiction agreement in Contract A will generally apply to Contract B where that contract was entered into at the same or a similar time as Contract A. In this regard:

(a) In Etihad at [104], the judge noted that jurisdiction agreements in Contract A generally did not apply to a different agreement (Contract B) which had been concluded prior to the jurisdiction agreement coming into existence:

‘Whilst it is not impossible for a jurisdiction agreement to have, on its true construction, such retrospective effect, a party seeking to rely upon a subsequently agreed jurisdiction agreement, in a separate contract, is likely to face an uphill struggle: see e.g. Satyam. One reason is that the earlier contract had an existence of its own, and hence an applicable law, prior to the conclusion of the subsequent agreements. If there was no jurisdiction agreement at the time it was concluded, then it may be difficult to conclude that it is to be found in a subsequent agreement, particularly if (as in Choil) the disputes arising under the later agreement are likely to have a very different character to disputes arising under the earlier agreement.’

(b) Further, if Contract B was concluded prior to Contract A and the Contract A parties intended for the jurisdiction clause to deal with disputes under Contract B, one would normally expect Contract A to deal expressly with jurisdiction under Contract B. Quite apart from anything else the parties already know about Contract B's existence.

(c) If Contract A was concluded prior to Contract B, and a jurisdiction clause in Contract A was intended to cover Contract B, one might expect Contract B to cross-refer back to Contract A (albeit that ultimately what one is construing for present purposes is Contract A and on normal principles of contractual construction it stands to be construed at the date on which it was entered into). It is also to be borne in mind that it may be more difficult to conclude that parties to a particular jurisdiction agreement intended for that agreement to apply to disputes arising out of contracts that have not been concluded yet, particularly if such future contracts are not being discussed as part of the same package of agreements, or if the future contracts are in fact separated by a significant period of time from the conclusion of the jurisdiction agreement.”

48.As a matter of construction, is the exclusive jurisdiction clause as per Article 17.2 of the 2018 Contract wide enough to cover the alleged Oral Agreement?

49.In my view, to answer this question, the court has to:

(i) bear in mind that the wordings of the said Article 17.2 were very wide;

(ii) take into account the factual matrix of the present case, and consider whether the alleged Oral Agreement was “in connection with the contractual relationship” of the parties.

50.I have no hesitation in reaching the conclusion that Article 17.2 of the 2018 Contract covers the alleged Oral Agreement, as the latter is undoubtedly in connection with the 2018 Contract.  This is because the unused 70 pallets of raw materials which were stored by the plaintiff (and in respect of which handling fees were allegedly payable) were delivered pursuant to the 2018 Contract. 

51.When arguing that the alleged Oral Agreement is not caught by the said Article 17.2, Ms Lau had made various submissions.

52.Firstly, she submitted that:

“[…] By use of the definite article ‘the’, the drafter of Article 17.2 must have had in mind a specific contractual relationship which the provision was intended to catch. In the context, that contractual relationship could only be the one constituted by the [2018 Contract]. Accordingly, a reasonable person would not have understood Article 17.2 to govern disputes arising from a different contract (far less a contract concerning an entirely different subject matter), of which the Oral Agreement Claim is one.”[6]

53.I agree that Article 17.2 must have been intended to cover a specific contractual relationship between the parties, and that relationship is the one constituted by the 2018 Contract, under which the defendant was to supply, and the plaintiff was to receive, raw materials for packing purpose.  However, in my view, that does not mean that the exclusive jurisdiction clause would only cover a claim which is made pursuant to the 2018 Contract.  If there is any dispute which is in connection with the contractual relationship formed between the parties by reason of the 2018 Contract, such a dispute would also be caught by the exclusive jurisdiction clause.  The Handling Fees Claim is an example of such a dispute, because the fees were said to be payable in respect of the storage of raw materials which were supplied and received pursuant to the said contractual relationship.  Viewed in such light, I do not agree that it matters even if the claim for handling fees is made pursuant to another contract, nor could it be said that the alleged Oral Agreement is concerning “an entirely different subject matter”.  In fact, if it was intended that the effect of the clause should only be restricted to claims that are made pursuant to the 2018 Contract, wordings such as “any dispute under this contract” would have been used in the exclusive jurisdiction clause. The wordings adopted in Article 17.2 are apparently meant to cover a wider scope.

54.Secondly, Ms Lau submitted that:

“This analysis applies with even greater force in the light of the facts that: (1) the Oral Agreement was not discussed as part of the same package of agreements as the [2008 Contract] (the circumstances necessitating the entry into the Oral Agreement only arose towards the expiry of the Term); and (2) the Oral Agreement came into being about 23 months after the agreement of Article 17.2, which, given the Term itself was only 2 years, is clearly a significant period of time. In these premises, it is wholly unrealistic to suppose that a reasonable person would have envisaged, at the time of the [2008 Contract], Article 17.2 to catch disputes arising from the Oral Agreement (being both unknown and unanticipated at the time).”

55.When advancing this argument, Ms Lau was probably having in mind the latter part of principle 6(c) referred to above, which reads:

“It is also to be borne in mind that it may be more difficult to conclude that parties to a particular jurisdiction agreement intended for that agreement to apply to disputes arising out of contracts that have not been concluded yet, particularly if such future contracts are not being discussed as part of the same package of agreements, or if the future contracts are in fact separated by a significant period of time from the conclusion of the jurisdiction agreement.”[7]

56.I appreciate the force of this argument. However, while it may be “more difficult” to argue that parties intended for the jurisdiction agreement to cover future contracts, it is not impossible for such an argument to succeed.  In my view, it all depends on the wordings of the jurisdiction agreement and the factual matrix, in particular, what the “future contract” is about.  In the circumstances of the present case, I do not agree that it is “wholly unrealistic to suppose that a reasonable reason would have envisaged” that Article 17.2 could catch a later agreement, even if such an agreement was unknown and unanticipated when the 2018 Contract was made.  This is because at the time when the 2018 Contract was made, parties could not anticipate all kinds of situations.  They did not have a crystal ball.  Hence, the question boils down to whether the subsequent agreement was connected with the 2018 Contract, or a totally unrelated agreement.  In my view, a reasonable person would not shut the door as suggested by Ms Lau, but would adopt a “wait and see” approach, because he would only be able to decide whether a dispute is connected to the 2018 Contract when the details of the dispute are known and apparently such details could not be known before the dispute arises.

57.Thirdly, Ms Lau argued that:

“There is nothing legally or commercial odd or improbable for the Oral Agreement to be without a jurisdiction clause. Thus, it cannot be argued (by backward reasoning) that Article 17.2 must have been intended to cover all disputes between P and D, even those arising from a separate and distinct contract such as the Oral Agreement.”[8]

58.By holding that the alleged Oral Agreement is covered by Article 17.2, it does not mean that this court takes the view that the exclusive jurisdiction clause was intended to cover all disputes between the parties.

59.Whether the alleged Oral Agreement should be covered by Article 17.2 depends on its connection with the 2018 Contract.  If there was no such connection, it would not be covered. 

60.Fourthly, it was submitted that:

“Further, there is no commercial necessity for Article 17.2 to encompass disputes arising from a different contract. When a distinct and separate contract is being negotiated, the parties could (if they so wish) make jurisdictional provisions then and there. It is not commercially necessary for the parties to pre-emptively enter into jurisdiction agreements for the distinct and separate contract.”[9]

61.This argument can be dealt with quickly.  It is not a question of whether it was “commercially necessary for the parties to pre-emptively enter into jurisdiction agreements for the distinct and separate contract” or not.  It is a matter of fact that they had done so by adopting Article 17.2 in the 2018 Contract. 

62.Finally, Ms Lau argued that:

“Indeed, in context, it is perfectly sensible for Article 17.2 to be read as excluding disputes arising from a different contract. As is clear from D’s own contemporaneous documentation, D envisaged the terms and conditions of each procurement contract to possibly change by way of ‘individual agreements’, which shall prevail over the GPC. By these ‘individual agreements’, parties could certainly choose courts other than Frankfurt Courts as the forum of their disputes. In these premises, it made perfect sense for D to seek to confine the effect of Article 17.2 to a single contract. The rationale was to preserve flexibility over the desired forum for future contracts.”[10]

63.If the intention was to limit the effect of the exclusive jurisdiction clause to the claims to be made pursuant to the 2018 Contract, Article 17.2 thereof would have been drafted in a different way, for example, by providing that “the courts at Frankfurt am Main shall have exclusive jurisdiction in any disputes under this contract”.  However, apparently the scope covered by Article 17.2 is wider than that.  I therefore do not think such a clause should be given a meaning as restrictive as suggested by Ms Lau.

64.Since the Handling Fees Claim is subject to Article 17.2 of the 2018 Contract, the plaintiff has to establish strong cause for this claim to be tried in Hong Kong.  In this regard, it is noted that the plaintiff relies on the same arguments which have been rejected in the earlier part of this Decision.

65.That being the case, the Handling Fees Claim should also be stayed.[11]

ORDER

66.By reasons of the aforesaid, it is my ruling that the plaintiff’s claims should be litigated in Frankfurt.

67.Ms Lau argued that given the Hong Kong Courts can assert jurisdiction over the defendant by valid service, there is no basis to say that this court has no jurisdiction over the defendant in this action, and the most that the defendant could ask for is an order for stay rather than a dismissal of the whole action.  Ms Lee did not argue otherwise.

68.I therefore order that these proceedings be stayed in favour of the courts in Frankfurt am Main, Germany.

COSTS

69.Ms Lee referred to the case of Deltatre SPA v Hong Kong Sports Industrial Development Limited (supra) and Hong Kong Civil Procedures 2021, Vol.1, para.11/1/168 and invited the court to make an order for costs to be taxed on indemnity basis should the defendant succeed in its application.  Ms Lau did not make any submission in this regard.

70.I therefore make a cost order nisi that the plaintiff shall bear the defendant’s costs of the Summons (including all costs reserved, if any), with certificate for counsel, to be taxed on indemnity basis if not agreed.   The above order nisi shall become absolute in the absence of application to vary (which shall be made by letter) within 14 days hereof. 

Ms Queenie Lau , instructed by M.C.A. Lai Solicitors LLP, for the plaintiff

Ms Connie Lee, instructed by Squire Patton Boggs, for the defendant