Gallium Electronics Ltd v. Bridisco (Hong Kong) Ltd

DCCJ 6485/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6485 OF 2005

_____________________________________

BETWEEN

____________________________________

Coram : Deputy District Judge Anthony Chow in Chambers (open to public)

Date of Hearing : 25^th July 2006

Date of Handing down Decision : 3^rd August 2006

--------------------------

DECISION

--------------------------

1.This is an application by the defendant, pursuant to O.12 r.8 of the Rules of District Court, for an order staying this proceedings in favour of the Courts of England and Wales on the ground of forum non conveniens and/or lis alibi pendens; and to extend the time for service of the defence to 14 days after the determination of this Summons, if required.

Background:

2.The defendant is a subsidiary of Bridisco Limited, a company incorporated and resident in the United Kingdom (the "Parent Company"). The Parent Company carries on business as a supplier, importer and distributor of electrical products. The defendant company is a company incorporated in Hong Kong, by the Parent Company to liaise and coordinate with suppliers in the Asia-Pacific region.

3.The Parent Company and the plaintiff entered into various Tooling Agreements, Manufacturing Agreements and Purchase Conditions (the "Agreements"), whereby the plaintiff manufactured and supplied goods to the Parent Company.

4.It is not disputed that the Agreements were expressly governed by English Law and the parties agreed to submit to the non exclusive jurisdiction of the Court of England and Wales.

5.On or about the second half of 2004, the Parent Company received a shipment of 9883 electrical tea makers (the "First Order") from the plaintiff. The Parent Company alleged that these tea makers were defective and returned them to the plaintiff in Hong Kong for reworking. The Parent Company had paid some US$200,000.00 for the First Order.

6.The Parent Company placed a second order (the "Second Order") of 5000 electrical tea makers with the plaintiff company. The delivery of the Second Order was late and the original Letter of Credit opened by the Parent Company expired.

7.Mr. Mark Anthony Graham of the defendant and Mr. Sunny Fung of the plaintiff met in Hong Kong to discuss payment terms for the Second Order and the redelivery of the tea makers in the First Order. After exchange of emails, the defendant agreed payment should be made by way of a cheque post dated for 180 days from the time the Second Order was shipped. Mr. Graham alleged that payment of the cheque was also conditional upon reworking and shipment of the tea makers under the First Order to the Parent Company.

8.The plaintiff did not rework the tea makers, the defendant stopped payment on the cheque and on 28/12/2005, the plaintiff brought this action against the defendant for the dishonoured cheque in the sum of HK$789,275.76 (the "Hong Kong Action").

9.On or about 19/1/2006, the Parent Company filed suit against the Plaintiff, in the English Court, for damages due to breach of the Agreements in the sum of GBP952,489.00. (the "English Action").

10.The defendant filed this application to stay the Hong Kong Action in favour of the English Action.

11.The grounds of this application are succinctly stated in paragraph 3 of Ms. Sara Tong's, Counsel for the defendant, skeleton submissions:

(1)	The subject-matter, the parties, and the place of performance of the contracts underlying this dispute have an overwhelming strong nexus with England, and no significant connection with Hong Kong.
(2)	The English High Court is in a significantly better position than a Hong Kong Court to adjudicate on this dispute since it turns on inter alia, the interpretation and application of various contracts entered into in England, governed by English Law, and pursuant to which the parties have agreed to submit to the non-exclusive jurisdiction of England.
(3)	This dispute in an action already commenced by the parent company of (the defendant) in the English High Court in respect of which (the plaintiff) does not challenge jurisdiction.
(4)	Witness on material issues of facts in this case have an overwhelmingly strong connection with England, and most if not all material documentary evidence involved in this case is located in England.
(5)	No juridical disadvantage would be suffered by the (plaintiff) in the event that these proceedings were stayed in favour of the English High Court.

12.In other words: forum non conveniens and lis alibi pendens.

Forum Non Conveniens

The Law:

13.The law in respect to forum non conveniens is well settled and clearly encapsulated in Mr. Justice Nazareth's (as he then was) judgment in Lanka Muditha [1991]1 HKLR 741 (at p. 744), as follows:

(I)	Is it shown that Hong Kong is not only not the natural and appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong…
(II)	If the answer to (I) is yes, will a trial at this other forum deprive the plaintiff of any "legitimate personal or juridical advantage"? The evidential burden here lies upon the plaintiff.
(III)	If the answer to (II) is yes, a court has to balance the advantage of (I) against the disadvantages of (II) … Deprivation of one or more personal or juridical advantages will not necessarily be fatal to the applicant provided that the court is satisfied that notwithstanding such loss "substantial justice will be done in the available appropriate forum"… Proof of this.. rest upon the applicant for the stay."

14.The plaintiff did not argue a stay would deprive the plaintiff of any "legitimate personal or juridical advantage", both Ms. Tong and Mr. Sit agree that I only have to consider the first test.

15.As to what is a "natural and appropriate" forum, in The Abidin Daver (H.L.(E.))[1984] 1 A.C. 398, Lord Keith stated:

"

(A)

distinction was to be drawn between a case where England is the natural forum for the plaintiff to bring his action and a case where it is not. By ‘the natural forum' I mean that which the action had the most real and substantial connection. Natural and appropriate forum therefore meant the place that the action had the most ‘real and substantial connection'."

Application:

16.In paragraph 20 of her skeleton submissions, Ms. Tong argued that the main issue in this case is in essence whether plaintiff should be entitled to payment for the Second Order and this in turn involves the resolution of 2 sub-issues:

(1)	Whether it was agreed that payment for the Second order is conditional upon the rework and redelivery of the defective tea-makers to the Parent Company, and if so, whether such condition had been satisfied.
(2)	Whether the amount due to plaintiff in respect of the Second Order may be set-off against the sums owed by plaintiff to the Parent Company pursuant to Clause 15(2) of the Purchase Conditions.

17.With respect, I do not agree these are the issues at all. The claim is for a dishonoured cheque, which in law is a separate contract, independent from the underlying transactions. {Nova (Jersey) Knit Limited v Kammgorn Spinnerei [1977] 1 WLR 713.}

18.In Ms. Tong's reply to Mr. Sit's submissions, she seemed to suggest otherwise, but after clarification, Ms. Tong was in agreement with what I thought was a well-settled proposition not only in English and Hong Kong law, but also of all common law jurisdictions that I know.

19.Let's look back and remind ourselves what this claim is about: The payee, a company registered and doing business in Hong Kong, is suing upon a dishonoured cheque, drawn by the defendant, a company registered and doing business in Hong Kong, upon a bank also registered and doing business in Hong Kong. All of which shows "real and substantial" connection with only one jurisdiction-Hong Kong.

20.It may be true that the underlying contracts of the dishououred cheque may have substantial connection with England and should be tried there, but that is a separate matter from the dishonoured cheque claim. In the words of Lord Russell in Nova (Jersey) Knit Limited (supra) at p.732:

"This is a deep rooted concept of English commercial law. A vendor and purchaser who agree upon payment by acceptance of bills of exchange do so not simply upon the basis that credit is given to the purchaser so that the vendor must in due course sue for the price under the contract of sales. The bill is itself a contract separate from the contract of sale. Its purpose is not merely to serve as a negotiable instrument, it is also to avoid postponement of the purchaser's liability to the vendor himself, a postponement grounded upon some allegation of failure in some respect by the vendor under the underlying contract, unless it be total or quantified partial failure of consideration."(Emphasis added)>

21.Ms. Tong also argued that clause 15(2) of the Standard Conditions of Purchase between the Parent Company and the plaintiff allowed the Parent Company to set off any debt owed by the plaintiff. Clause 15(2) reads as follow:

"Bridisco shall be entitled to set off against the price for the Goods and Services any sums owed by the Supplier to Bridisco including but without limitation any sums owed by the Supplier to Bridisco under these conditions."

22.If the plaintiff sues the Parent Company for the purchase price under the Second Order, clause 15(2) is clearly relevant; however, in a claim against the defendant, which is not a party to the Agreements, for a dishonoured cheque, a contract separate from the Agreements, clause 15(2) is of no relevancy.

23.As to the arguments about the choice of law and jurisdictional clauses, clause 19 of the Standard Conditions of Purchase reads:

"These Conditions shall be subject to and construed in accordance with English law, and the parries hereby submit to the non-exclusive jurisdiction of the English Courts."

24.Clause 19 is expressly limited to the construction of and disputes in respect of the Standard Conditions of Purchase. This clause does not apply to a cheque, an independent contract, issued by a third party albeit in payment of a purchase under the Standard Conditions of Purchase.

25.Ms. Tong also argued: First, the cheque was delivered in escrow or subject to two conditions: the immediate delivery of the tea makers under the Second Contract and the delivery of the tea makers under the First Order within 180 days. Second, the defendant issued the cheque as accommodation party.

26.It is clearly open for the defendant to make these arguments in its defence, but the negotiations for the payment took place in Hong Kong, between Mr. Graham and Mr. Fung, both Hong Kong residents. All correspondences and documents in relation to the negotiations are available in Hong Kong. Hong Kong is still the "natural and appropriate" forum for this action.

Lis Alibi Pendens

The Law:

27.The existence of parallel litigation in another jurisdiction is a factor to be considered when deciding whether to grant a stay of proceedings. The relevant consideration is summarized in Abidin Daver [1984] AC 398. Lord Diplock stated (at page 411):

"Where a suit about a particular subject matter between a plaintiff and a defendant is already pending in a foreign court which is a natural and appropriate forum for the resolution of the dispute between them, and the defendant in the foreign suit seeks to institute as plaintiff an action in England about the same matter to which the person who is plaintiff in the foreign suit is made defendant, then the additional inconvenience and expense which must result from allowing two sets of legal proceedings to be pursued concurrently in two different countries where the same facts will be in issue and the testimony of the same witnesses required can only be justified if the would-be plaintiff can establish objectively by cogent evidence that there is some personal or judicial advantage that would be available to him only in the English action that is of such importance that it would cause injustice to him to deprive him of it.  Quit apart from the additional inconvenience and expense, if the two action are allowed to proceed concurrently in the two jurisdictions the courts of the two countries may reach conflicting decisions, … Comity demands that such a situation should not be permitted to occur as between courts of two civilised and friendly states. It is a recipe for confusion and injustice." (Emphasis added)

Application:

28.The specific evil that Lord Diplock singled out was the problem of two different courts reaching conflicting decisions when faced with the same facts and issues. It is therefore important to look at the issues in the Hong Kong Action and the English Action and see if they are the same.

29.As there is no dispute on the fact that the defendant issued a cheque to the plaintiff and that cheque has been dishonoured, the issues with the Hong Kong Action are simply those that dealt with defences to a dihonoured cheque. There was no allegation of fraud, so the only defence left is total or quantified partial failure of consideration.

30.It is of course open for the defendant to argue delivery was escrow or subject to conditions or the defendant was merely an accommodation party. But all of these concern only whether there were conditions attached to the payment for goods under the Second Order.

31.The English Action on the other hand does not concern with the Second Order at all. Although in paragraphs 27 and 28 of the Particulars of Claim in the English Action, the Second Order and the relevant cheque were mentioned, these were mentioned as part of background facts only.

32.The English Action only deals with: return of the tooling, or as an alternative costs of replacing the same, development costs of the replacement tooling, costs of storage and additional inspection certificate, loss of profit on the defective tea makers, an amount due to late shipment and loss of profit due to the plaintiff's refusal to accept new orders. The prayer in the English Action stated the following:

"	AND THE CLAIMANT PRAYS THAT THE COURT GRANT AN ORDER
	1.	That the First and Second Defendants do with immediate effect deliver to the Claimant all and any tools in its possession custody or control whether at its premises or elsewhere in accordance with the tooling agreements in respect of the tea-makers and under its duty as trustee of the tools in respect of all other tooling.
	2.	Alternatively to 1 above the defendants do pay a sum to compensate the Claimants for all costs and expenses associated with replacing the tools wrongly held.
	And further the Claimant claims and prays that the court grant an order that the Defendants do pay the following sums:
	3.	The sum of GBP262,751 being the sum of :
		3.1	GBP46,749 which represents the costs of development and tooling to replace the tea-maker tools held by the First Defendant with an alternative supplier at a unit cost of United States Dollars of 26.8 per unit;
		3.2	GBP18,002 which represents the costs of storage and additional inspection certificate; and
		3.3	GBP198,000 being the loss of profit on the defective tea-makers.
	4.	the sum of GBP566,923 being the sum due to the Claimant under the Purchase Condition for late delivery of products to the Claimant from October 2003 to the date of issue of these proceedings.
	5.	The sum of GBP122,815 being the loss of profit suffered by Bridisco as a result of failure of the First Defendant to accept orders under the terms of the Manufacturing Agreements.
	6.	Interest thereon pursuant to Section 35A of the Supreme Court Act 1981 from the date hereof until Judgment or sooner payment at the rate of 8% per annum.
	7.	Costs.
	8.	Other remedies as the court thinks fit."

33.The plaintiff's defence to the English Action only mentioned the cheque in paragraph 14, where the dishonour of the cheque was confirmed.

34.Nothing in the prayer touches or concerns the terms of payment of the Second Order, the dishonoured cheque or the various proposed defences to the Hong Kong Action. Based on the pleadings in the English Action and the Statement of Claim in the Hong Kong Action, the same facts are not in issue andI cannot see any possibility that the Hong Kong and English courts "may reach conflicting decisions".

Order:

Mr. Dennis W. Sit instructed by M/s Christine M. Koo & Ip for the Plaintiff.

Ms. Sara Tong instructed by M/s Stevenson, Wong & Co. for the Defendant.