Ctbc Bank Co Ltd v. Industrial and Commercial Bank of China Ltd

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