The "President Polk"

HCAJ000311/1991

1991 Folio No. AJ 311

IN THE SUPREME COURT OF HONG KONG

ADMIRALTY JURISDICTION

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Admiralty Action in rem against: the ship or vessel
"PRESIDENT POLK" and her sister ships as listed in
the attached schedule

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Coram: The Hon. Mr. Justice Barnett in Chambers

Date of Hearing: 1 May 1992

Date of Delivery of Judgment: 12 May 1992

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J U D G M E N T

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1. In December 1990, the Plaintiffs shipped twocontainer loads of goods to Advance Medical Designs Inc. (AMD) in the USA. The Defendants were the carriers of these goods under a straight line Bill of Lading. On about 17th January 1991, the Defendants delivered the goods to AMD without presentation to them of the original Bill of Lading. The Plaintiffs aver that the Defendants were thus in'breach of contract and claim the cost of the goods and bank charges alternatively damages.

2. The Defendants applied for the proceedings to be stayed on the ground of forum non conveniens. That application was dismissed by a Master on 21st February 1992. Against that decision, the Defendants now appeal.

3. In accordance with the principles enunciated in Spiliada .(1987) 1 AC 460 and analysed locally in The Adhiguna Meranti (1987) HKLR 904, Mr. Shieh for the Defendants accepted that the burden is on him to show that there is another available forum which is clearly or distinctly more appropriate than Hong Kong. If he is able to establish that then the burden passes to the Plaintiffs to show that they will be deprived of legitimate personal or juridical advantages. If the Plaintiffs are able to do so, the Court will have to balance the advantages of trial. in another forum against the disadvantages suffered by the Plaintiffs.

4. In seeking to discharge the burden upon him, Mr.Shieh advanced four matters or connecting factors as showing the US Courts to be more appropriate. First, he said that the proper law of the contract is the law of the USA under which it is agreed the Defendants have a complete defence to the Plaintiffs' claim. For determination of the proper law, Mr. Shieh referred me to Rule 180 in Dicey & Morris on The Conflict of Laws. By Rule 180 the proper law of a contract means the system of law by which the parties intended the contract to be governed or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection. The contract between the parties is contained in the Bill of Lading. Mr. Shieh accepted that the contract contains no express provision as to the proper law. Nor was he disposed to argue that the parties' intention could be inferred from the contract itself. But he submitted, and I accept, that any pointers contained in the contract itself as to the intention of the parties may properly be taken into consideration when considering the system of law with which the transaction had its closest and most real connection. The matters which a Court will consider are usefully summarized in Cheshire & North's Private International Law 11th Ed. at p.464:

"In its search for the system of law with which the contract is most closely connected the court must look at all the circumstances of the contract. To lay down firm rules would be to return to the rejected use of presumptions but there is little doubt that the court will take into account such factors as the place of residence or business of the parties, the place where the relationship between the parties is centred, the place where the contract is made or is to be performed, the place where a bank is obliged to perform its obligation to pay under a letter of credit, the nature, subject matter and the standard terms of the contract, the fact that the defendant is a common employer of people from different countries on the same terms of contract, the law of the flat of a ship in a charter party contract."

5. Pointing to Hong Kong, said Mr. Shieh, are the facts that the Plaintiffs are a Hong Kong Company; that the Defendants have a presence in Hong Kong; that Hong Kong was the place of shipment; and that the contract was made and the Bill of Lading issued in Hong Kong.

6. Pointing to the USA are the facts that the Defendants are incorporated there, and that their vessel is registered and insured there. Mr. Shieh also said that the USA was the principal place of performance of the contract, because the contract was for carriage to and safe delivery in the USA. The breach complained of by the Plaintiffs is a failure to deliver the goods to the proper person in the USA, the goods themselves being for use there. Next, Mr.Shieh said that the Bill of Lading provides for payment and for limits on liability and loans in US currency; further the Clause Paramount provided that the bill was governed, inter alia, by "the provisions of the US Carriage Of Goods by Sea Act 1936 (COGSA) or the Hague Rules of 1921 as amended by the Brussels Convention of 1924 in effect in the country in which a Court having jurisdiction adjudicates a dispute arising out of the transportation agreement".

7. For the Plaintiffs, Miss Sayers argued that the Bill, of Lading is of no significance. It is in a form . commonly in use internationally. The Clause Paramount, although referring to a US Statute, leaves open where any dispute is to be litigated. Miss Sayers also said that the USA cannot be characterized as the principal place of performance of the contract because only part of the performance was effected there. She pointed out that important elements of the contract were loading and safe stowing in Hong Kong, and the safe carriage of the goods over a long distance before arriving in the USA.

8. In my judgment, the factors are finely balanced. Given however that the contract was made in Hong Kong where the Plaintiffs are resident (if that is the correct word) and the Defendants at least have a presence, and that part of the carriage had to be carried out in Hong Kong, I find that that Hong Kong Law is the proper law of the contract.

9. There is, however, another dimension to the question of law. The Plaintiffs' claim also constitutes a claim in tort, that is, for conversion. The question of the choice of law therefore arises. Reference was made to Rule 205 and the commentary thereon in Dicey. I propose to say no more than this. I am satisfied that the tort which clearly took place in the USA satisfies the "double actionability" test. Although US Law may well provide a complete defence for the Defendants, the Defendants' conduct is clearly actionable. The general rule is that the law to be applied is that of the lex loci. I am not persuaded by Miss Sayers that the lex loci is displaced simply because there was a pre-tort-relationship between the parties arising out of the contract of carriage. It is clear, however, that the Plaintiffs' claim is principally in contract and given the undisputed state of US Law, it seems unlikely that the claim in tort will be strongly pressed. I do not, therefore, regard the fact that US Law will be relevant to the claim in tort to be a significant pointer to the US as being the appropriate forum.

10. The second connecting factor relied on by Mr. Shieh is that, because the Plaintiffs are alleged to have consented to the release of the goods, it will be necessary to call a number of witnesses from the USA on this issue. That would involve the expense and inconvenience of bringing the witnesses to Hong Kong, alternatively, the time and expense of obtaining their evidence pursuant to letters rogatory in the US, while at the same time depriving the Court of seeing these witnesses.

11. On the documentation which I have seen, I am bound to say that I can see no indication of the Plaintiffs having given any express consent. What the Plaintiffs were prepared to do was to facilitate customs clearance of the goods to ensure that quota was used within the prescribed time limits, and the release to AMD of three cartons to enable AMD to carry out a quality inspection of the contents. It is Mr. Shieh's contention that it will be necessary to conduct an examination of the effect of customs clearance and the role of customs brokers to see whether after clearance the Defendants retained custody or control of the goods. It will also be necessary to ascertain the nature of instructions given, for example, to the trucking company which carried the goods onward by persons acting on behalf or with the approval of the Plaintiffs in order to ascertain the true background against which the Defendants released the goods.

12. While the evidence placed before me is, of course, far from complete, I do not see that the effect of customs clearance is likely to be particularly controversial; nor do I see the evidence of any witnesses whose evidence may be necessary to establish what was said or what took place upon release of the goods as involving any great controversy. The importance of such evidence, as I see it, will be the interpretation to be put on or the inferences to be drawn from such evidence.

13. The third connecting factor involves quantum. It is the Defendants' assertion that because of defects in the goods, the goods were not worth the invoice value which the Plaintiffs claim. The evidence as to the quality of the goods and the attempts made to salvage or remedy the goods is all in the USA.

14. Miss Sayers argued that the only evidence as to quality so far disclosed is one report. I think that that is too simple an approach. It is not uncommon for a purchaser of goods to obtain a report as to their quality and to rely on that when negotiating with the vendor. When it comes to litigation, however, the purchaser frequently calls a number of witnesses who have had dealings with the goods.

15. I am satisfied, therefore, that this is a factor involving as it does inconvenience and expense which is of some substance.

16. Fourth, according to Mr. Shieh the Defendants will seek an indemnity from AMD. As AMD has no presence in Hong Kong it will be necessary for the Defendants to obatin leave to serve out of the jurisdiction. Even if such leave is obtained, the result in all probability would be a default judgment against AMD. It would be unlikely that the Defendants could enforce that judgment in USA, because the US Courts would not recognize Hong Kong as having had jurisdiction over AMD. The judgment would therefore be empty and it would be necessary for the Defendants to re-litigate in the USA. Such re-litigation would mean the Defendants having been involved in two sets of litigation, and running the risk of inconsistent judgments on the issues of liability as between the Plaintiffs and Defendants and on quantum..

17. The Plaintiffs' answer to this objection istwofold. First, the US Courts will enforce a default judgment of a foreign court provided six requirements are met. The only issue in this case is whether Hong Kong would have jurisdiction over AMD. Such jurisdiction can be general or special. The Plaintiffs concede that Hong Kong has no general jurisdiction but maintain it is reasonably arguable that Hong Kong has special jurisdiction which arises if a non-resident defendant performs some act or completes some transaction in Hong Kong; if the claim is one that arises out of or results from the defendant's -'activities in the forum, and if exercise of jurisdiction is reasonable. It is said that an officer of AMD came to Hong Kong three or four times to discuss and conclude the contract for the sale of goods to AMD. That, it is argued, is sufficient to find special jurisdiction, so that any default judgment obtained by the Defendants against AMD would be enforceable in the USA.

18. Even if a US Court was not persuaded that Hong Kong had special jurisdiction over AMD, the Plaintiffs expert evidence is to the effect that the Defendants would not have to re-litigate the issues of their liability to. the Plaintiffs and quantum, provided that those issues were fairly litigated in Hong Kong, and that AMD had notice of the proceedings and an opportunity to assume the Defendants.' defence.

19. I find the latter proposition to be astonishing. Why a party who is not subject to the jurisdiction of the Hong Kong Courts should indirectly have to submit to that jurisdiction in proceedings between two other parties I find difficult to understand. It is a proposition which receives no support from the Defendants' expert on US Law. I have no hesitation in rejecting the proposition. Nor do I accept the argument that the US Courts might find Hong Kong to have had special jurisdiction over AMD in the circumstances of this case.

20. Miss Sayers then argued that the Defendants' proposed proceedings for an indemnity are anyway not relevant. She said that it is purely fortuitous that the Defendants have such a claim, that the claim is separate from that between the Plaintiffs and Defendants and involves different issues. She pointed out that no case can be found in which a stay has been granted because a defendant wishes to take third party proceedings. At first sight that is a substantial argument. It must not be forgotten, however, that the real dispute is between the Plaintiffs and AMD, AMD not having paid the Plaintiffs for the goods because of alleged defects in quality. The Defendants are relatively innocent third parties caught in the middle of this dispute. One way or another, AMD will have to pay one of the parties at the end of the day, and how much they will have to pay will depend upon the quality of the goods. Quality, therefore, is very much at the heart of these proceedings. In my judgment, the difficulties faced by the Defendants which arise from their need to pursue third party proceedings against AMD are pointers to the appropriate forum being the US Courts.

21. Although I have found the proper law of the contract between the parties to. be Hong Kong Law, the other three factors relied upon by Mr. Shieh I have resolved substantially in favour of the Defendants. In my view, these factors point clearly and distinctly to the US Courts being the appropriate forum. I find, therefore, that the Defendants have discharged the burden upon them.

22. I have to consider next whether the Plaintiffs will be deprived of any juridical advantage by proceeding in the US Courts. Miss Sayers submitted that I should take two matters into account. First, the question of cost. She said it is notorious that legal costs in the USA are far in excess of those in Hong Kong. That may well be so but no evidence was adduced on this point. I also observe that legal costs in Hong Kong are not exactly modest. Miss Sayers also said that it is not usual in the US Courts for a successful party to be awarded costs. This was not challenged. I do not consider this point, however, to be of any particular significance.

23. Second, Miss Sayers submitted that in the US Courts the Plaintiffs are bound to fail because of the undisputed state of US Law in relation to a straight line Bill of Lading. As a consequence, the Plaintiffs who have brought a claim as of right in Hong Kong where they have a reasonable prospect of success, would almost inevitably be deprived of any prospect of success if the proceedings are, stayed.

24. I was referred to the Banco Atlantico S.A. v. The British Bank of The Middle East [1990] AC 504. The facts of that case are somewhat complex but in brief the Court of Appeal found the law of the contract between the partibe to be that of Spain, under which the plaintiffs had a prospect of success. The appropriate forum was in the United Arab Emirates which apparently paid no heed to the conflict of laws and would apply its own law under which the plaintiffs would inevitably fail. The circumstances, therefore, are not dissimilar from those of the instant case. At p.508, Bingham L.J. said:

".... If the action is heard in London and Spanish law is applied as the proper law, all these issues are available for argument and it is not entirely clear what the outcome will be. If Banco pursue their claim in Sharjah, it would appear that there will be no room for argument since the evidence is that-

... under UAE law, the existence of the court orders is a total defence to an action for breach of contract.

Thus the effect of the stay, so long as the Sharjah orders stand, is to give Banco a choice between dropping their claim and suing in a forum where they are bound to lose........

In view of the cumulative factors just discussed, I could not for my part regard it as conducive to justice to require Banco, as a party with an arguable claim under what we would hold to be the proper law (and also, if it were relevant, our own and the law of other trading. nations) to litigate, if at all, in a jurisdiction where it would be bound on the evidence to face summary rejection of its claims. Had the discretion been mine, I would not have granted a stay."

25. In the circumstances, the balancing act which I have to carry out I do not find to be difficult. The balance must come down very firmly in favour of the Plaintiffs, so that they are not effectively shut out from pursuing what is a genuine claim.

26. The appeal is, accordingly, dismissed. I make an order nisi that the Plaintiffs have the costs of this appeal in any event.

Representation:

Miss S. Sayers of Deacons for Plaintiffs.

Mr. P. Shieh, inst'd by Johnson, Stokes & Master for Defendants.