Fine Furs Ltd and Another v. Louis Levine

HCA000972/1976

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 972 OF 1976

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Coram: Mr. Commissioner O'Connor in Chambers.

Date of Judgment: 1st June, 1976.

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JUDGMENT

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1. The Plaintiff companies are incorporated in Hong Kong. Fifty percent of the shares of the first plaintiff are owned by the second plaintiff and the other fifty percent are held by Jaffna Investments of whom the defendant is a director and beneficial owner. The defendant controls Allan Merchandise Corp incorporated in New York and owns fifty percent interest in L & F Leder GmbH of Frankfurt. A number of business transactions in connection with the fur trade took place between the various companies, the defendant, Jerusalem Furs Ltd. of Israel and a Mr. Herskovici of Jerusalem. An agreement was drawn up between the Plaintiffs on one hand, and the other companies and Mr. Herskovici and the Defendant on the other hand, to reflect the respective financial obligations of the parties to each other and to resolve differences of opinion as regards the statements of account between them. By a term of the agreement the Defendant guaranteed the obligations of L & F Leder GmbH and Allan Merchandise Corporation.

2. On the 18th May 1976 the Plaintiffs issued a writ against the defendant alleging certain sums totalling about HK$135,000. - as being due from him under the agreement. On the same day, the 18th May on plaintiffs' application a warrant of arrest was issued under Order 44A to bring up the Defendant for him to show cause why he should not give security for his appearance to answer any judgment that might be given against him in the action. The defendant who is a United States citizen but ordinarily resident in Germany was at that time on a visit to Hong Kong to discuss the business affairs of the first plaintiff. On 19th May 1976 the writ was served on the Defendant and he was arrested and brought before McMullin J. who released him upon his surrendering his passport to the court. The matter of sccurity was adjourned to be dealt with after my decision on an application by Defendant to stay the action. This is my decision on that matter.

3. The agreement on foot of which the Plaintiffs sue the Defendant was signed on 22nd January 1976 in Hong Kong. Negiocations leading up to it had taken place in West Germany and subsequently in Hong Kong. The agreement was actually drafted by the solicitors for the plaintiffs in Hong Kong. Clause 5.4 and 5.5 of the agreement read as follows:

4. The defendant applies under the inherent jurisdiction of the court for a stay of the action on the ground that clause 5.5. of the agreement confers exclusive jurisdiction, in respect of matters arising out of the agreement, on the courts of the Federal Republic of Germany. The plaintiff opposes the stay and says that the clause is not an exclusive foreign jurisdiction clause but simply a foreign jurisdiction clause, in other words that it merely confers jurisdiction on the Federal Republic but not exclusive jurisdiction. It is undisputed that the clause fixes the proper law of the agreement as being the law of the Federal Republic. It is agreed that the Federal courts would accept jurisdiction.

5. Whether a foreign jurisdiction clause provides for the exclusive jurisdiction of a foreign court or merely that jurisdiction may be exercised there is a question to be decided by the proper law of the contract Evans Marshall & Co. Ltd v. Bertola S.A. 1973 1 WLR 347 at 361C the case of Y.T.C. Universal v. Trans Europa Compania de Aviacon S.A. there referred to has since been reported at 1973 1 Lloyds Reports 480. The Plaintiffs and the Defendant have each provided the opinions of German lawyers as to whether clause 5.5 is an exclusive jurisdiction clause or not. The opinions differ and the difference of opinion is not a matter that I can decide on affidavit. It is on the party who alleges that foreign law is different from the common law, to prove it. Where there is a failure to positively prove foreign law the courts have indulged in various presumptions to resolve the matter, such as that the common law prevails in foreign jurisdiction; that the foreign law is the same as the common law or that certain fundamental principles of law exist in all civilised countries. Sometimes without making any presumption at all the court simply applies the common law in the absence of proof of the foreign law. Whatever course is adopted the failure to prove the foreign law has not generally been considered fatal. In the instant case I take judicial notice of the fact that the Federal Republic is not a common law but a civil law country. I can't presume that the common law prevails there but I can and in all the circumstances I consider that I ought to act on the basis that the law there is the same as the common law or at least I consider that in the absence of satisfactory proof of the foreign law I should apply the common law. See remark of Lord Atkin to counsel in The Athenee 1922 11 Lloyds Reports 6. Accordingly I consider the meaning of clause 5.5. under common law principles. Of course 'venue' means in the context of legal disputes, the place of trial. It is not always easy to give reasons why words appear to have a particular meaning, as the reason is often simply the effect they have on ones mind. As Lord Simon said in News of the World Ltd. v. Friend 1973 1 WLR 248 at 260h.

In my view clause 5.5. read as a whole means that the proper law of the contract was to be the law of the Federal Republic and it was to be applied by the Court exercising jurisdiction in Frankfurt/Main. That is what that clause drawn up by Plaintiffs lawyers in Hong Kong means and it is to be taken that that is what the parties intended. I hold that the parties stipulated for exclusive jurisdiction in the German court.

6. However the fact that the parties agreed to their dispute being judged in a foreign court cannot deprive the Hong Kong courts of a jurisdiction they may properly have in the matter. This is based on the principle that the parties cannot by their agreement oust the jurisdiction of the courts. The courts will prima facie keep the parties to their agreement unless there are strong and convincing reasons shown why one should be permitted to act in breach of it. Accordingly courts have not been slow to grant a stay to proceedings brought in breach of an agreement that provided that any disputes be litigated abroad applying foreign law.

per Starke J. in W.C. Thomas & Sons Pty. Ltd. v. Bunge (Aust.) Pty. Ltd. 1974 V.R. 615 at 617. Parties should be able to feel confident that if they deliberately stipulate for a hearing in the jurisdiction of their choice, that this stipulation will be respected. We would have a discredible system of jurisprudence in breach of an agreement to litigate elsewhere. There can be no doubt however that for strong and convincing reasons the court exercising a judicial discretion will permit a party to litigate here in breach of an agreement. Counsel have referred me to a number of cases but it is unnecessary for me to particularise them as they are reviewed by Brandon J. in The Eleftheria 1970 Probate 94. In that case and in the later case of The Makefjell 1975 1 Lloyds Reports 520 affirmed on appeal Lloyds List Newspapers April 3 1976 Brandon J. sets out the law clearly. In the Eleftheria at page 103g he points out that it is essential that the court should give full weight to the prima facie desirability of holding the plaintiffs to their agreement and that the court should be careful not just to pay lip service to the principle involved and then fail to give effect to it because of a mere balance of convenience. In that case at page 99g to 100b he says

It is to be noted that the matters set out in that passage do no purport to be exhaustive of the matters for onsideration. Among some of the other matters for consideration would be in what language the witnesses would give their evidence, as it is preferable that the court can follow the evidence without the intervention of an interpreter, how expediously the case could be brought to trial in the different jurisdictions, and the possibility of the defendant wishing to add third parties or of furthere litigation taking place in the foreign jurisdiction between say the defendant and other parties to the agreement. The court will lean against providing the possibility of inconsistent verdicts in different forums. One assumption that must not be made is that the quality of law and justice in Hong Kong would be higher than in Germany. See the remarks of Lord Reid in The Atlantic Star 1974 A.C. 436 at 453e-g. Common law lawyers have the illusion that their system of law is universally admired as being without equal as an instrument for doing justice. It is considerable contact with lawyers applying other systems, and in particular civil law, that leads me to believe this is an illusion. What is almost universally admired is not the common law itself but some of the judges who apply it.

7. I go on to consider whether there are sufficiently strong reasons in the circumstances of this case for permitting a departure from the general rule and refusing the stay to which the defendant is prima facie entitled. In considering in what country the evidence on issues of fact is located I am in the difficulty that the affidavit of the defendant does not indicate what his defence would be to the plaintiffs claim. I view the matter with that in mind. I also keep his failure to reveal his defence in mind when considering other matters relative to this application and in particular whether he is making this application bona fide. It seems from the information before me that evidence on the issues of fact are likely to be found both in Hong Kong and in Germany and additionally in New York and Jerusalem. It is likely that the convenience and expenses of a preponderance of the witnesses would be more satisfactorily met by a trial in Germany than one in Hong Kong. I have kept in mind the likely witnesses expenses relative to the amount of money the subject matter of the litigation.

8. The proper law of the agreement is German law. There is insufficient evidence before me to enable me to form a view as to how different that law is from the common law in respect to matters being litigated. There is no great difficulty involved in having German law proved before and applied by a Hong Kong court, nevertheless it is generally preferably that German law be interpreted and applied by a German court.

9. The plaintiffs are Hong Kong companies while the defendant is a citi en of The United States of America but residing in Germany. He is also the beneficial owner of Jaffna Investments Ltd. which owns fifty percent of first plaintiff. I have considerable doubt that he genuinally desires trial in Germany for any reason other than to avoid a Hong Kong procedure advantageous to plaintiffs. It seems the only real reason the plaintiff wants the trial in Hong Kong is because he has defendant's person as security.

10. On the information before me I can form no sound opinion as to whether the preponderance of witnesses likely to be called would give their evidence in English or whether they would give it in German. Indeed a number of them may for all I know wish to give it in Cantonese. It would seem that the plaintiffs witnesses would all, from the language point of view be better suited to proceedings conducted in a Hong Kong court and indeed the defendant himself as a United States citizen would be English speaking and indeed he swore his affidavit in English. Of course he may be equally at ease in German the language of his ordinary residence.

11. There is no evidence before me as to how expediously a case would be brought to hearing in Germany though counsel for the defendant passed the remark 'we all know how efficient the Germans are.' While acknowledging the truth of that observation I do not find it of assistance in the matter under consideration. There is nothing in the defendants affidavit to indicate that any ligation arising out of the agreement is likely to take place between defendant and any party to the agreement other than the plaintiffs. Counsel for the defendant says its quite possible or even probable that there will be such litigation, but if so that should and I think would have been alleged in the affidavit.

12. From the matters I have already dealt with the plaintiffs do not derive sufficient support to prevent a stay. However the matter they place most reliance on is that which I have now to consider and which is the contention that if their action in Hong Kong is stayed they would be deprived of their security for their claim, such security being the person of the defendant, and that if they lose that security they would be unable to enforce any judgment they might recover. Mr. Wuang for the Defendant urges upon me that arrest of a defendant under Order 44A as security against a judgment that may later be given is a gross interference with the liberty of a foreign visitor to our shores and is liable to do damage to Hong Kong's image. As to that I agree with the remarks of Blair-Kerr J. in Lincoln International Ltd. v. Seymour Feldstein 1973 H.K.L.R. 299. Mr. Wuang also urges that Hong Kong is unique in the civillised world in retaining imprisonment for debt. That is simply not true. Provisions similar to our Orders 44A and 49B are a feature of the law of by far the greater part of the Indian subcontinent and of most of the countries that operate the Indian Civil Procedure Code or derivatives of it. These include many of the African states that were formerly British Colonies and also some parts of South East Asia. I should think that at least one sixth of the world's population is subject to a system of jurisprudence with such provisions. We are by no means unique. However I take it that by reference to Hong Kong being unique he is conceding that a judgment in Germany would not be enforced by imprisonment for debt. I would not expect him to have made his statement unless that were so.

13. At the moment the plaintiffs have in Hong Kong security for their claim in the form of the defendants person and if they succeed in their claim they could enforce their judgment if necessary against his person in accordance with Order 49B. If a stay is granted in this action they would in effect lose that security. The plaintiffs contention is that if they lose that security for their action in Hong Kong they would in effect be left without any realistic security any place and would be in effect unable to enforce any judgment obtained in Germany. The plaintiffs contend that defendant has not sufficient assets in Germany to satisfy a judgment and that in any event the whole history of the matter and defendant's behaviour cause one to doubt that any assets he has would be available when time for enforcement arrived. The defendant in his affidavit lists assets he says he has available in Germany. He mentions leasehold premises of L & F Leder GmbH as being of value of $40,000US and stock in hand value $300,000 U.S. He says he has asked his lawyer to telex confirmation of these valuations and there is exhibited in another affidavit a telex from his German lawyer which is to a certain extent ambiguous and indeed contradictory to what defendant says. For example the defendant says the stock in hand is that of L & F Leder GmbH in which he has a 50% interest. The lawyer on the other hand while confirming the figure says it is stock of the defendant in which no tird (sic) interest involved and is under the free administration of defendant. Yet the lawyer in his telex says that his statement is on basis of his own knowledge. I consider these are serious grounds for doubting the reliability of the evidence addused by the defendant as to the assets he has available in Germany. Mr. Jackson a director of the Plaintiff companies in an affidavit says that its a custom in the trade for stock to be held on a consignment basis.

14. The defendant in his affidavit says he has had long telephone conversations with his German lawyer who advises him that he has a good defence under German law. However the defendant does not give us an inkling of what they defence might be either here or in Germany. The telexed opinion of a German lawyer does not seem to hold out much comfort for defendant. I am left with the impression that defendant has no real defence to the claim and is opposed to the jurisdiction of the Hong Kong courts because they would be in a position to enforce a judgment against him.

15. Mr. Jackson in an affidavit sets out various matters and alleged actions of the defendant which he alleges give cause for suspicion as to the activities of defendant and cause doubts as to his integrity. It is to be noted that one of these allegations concerns the manner in which defendant disposed of furs shipped by first Plaintiff on consignment to the order of L & F Leder GmbH in Spring 1975. Mr. Jackson's allegations of misdoing by the defendant in this respect would carry more conviction were it not for the fact that he discovered the facts of the matter in September 1975 and yet he was prepared to forward a similar type consignment in Spring 1976.

16. On a consideration of all the circumstances and giving full weight to the general rule that prima facie a stay should be granted, I have come to the conclusion that the matter of the likelihood of plaintiffs losing their security and being unable to enforce a judgment if I grant a stay is so weighty that in the exercise of a judicial discretion I should not grant a stay, in the absence of satisfactory security being available to satisfy any judgment that plaintiffs might obtain in a German court. If there were such security I would grant a stay. It has been indicated that if I would consider granting a stay subject to security counsel would like to further address me. I will now hear them.

Representation:

Mr. Michael Bunting (Baker & McKenzie) for plaintiffs.

Mr. William Waung (Johnson. Stokes & Master) for defendant.