Noble Power Investments Ltd and Another v. Nissei Stomach Tokyo Co Ltd

CACV 398/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 398 OF 2007

(ON APPEAL FROM HCA NO. 285 OF 2007)

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Before : Hon Ma CJHC, Tang VP & Stone J in Court

Date of Hearing : 24 April 2008

Date of Judgment : 24 April 2008

Date of Handing Down Reasons for Judgment  :  27 June 2008

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REASONS FOR JUDGMENT

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Hon Ma CJHC :

1.The main issue raised in the present appeal is the proper approach of the courts to contractual non-exclusive jurisdiction clauses within the context of challenges to jurisdiction.  In the present case, the challenge came in the form of an application by the Defendant to set aside the leave that had been granted to the Plaintiffs to serve the Writ of Summons in the present action out of the jurisdiction under RHC O.11.

2.At the conclusion of submissions in this appeal on 24 April 2008, we allowed the Plaintiffs’ appeal with costs here and below, indicating that the Reasons for Judgment would be handed down in due course.

3.Before dealing with the issues, it is convenient first to set out the nature of the claim and defence in the action, and also the proceedings leading up to this appeal.

Claim and defence

4.As the learned Recorder below noted, the Plaintiffs are companies registered, respectively, in the British Virgin Islands and Japan.  The Defendant is a Japanese company.  None of the parties carries on business in Hong Kong nor is any of them registered under Part XI of the Companies Ordinance, Cap.32.

5.The Plaintiffs’ case is that the parties made a written agreement on 5 June 2006 (headed “Co-Operation Agreement”), to co-operate in the carrying out of a plasterboard waste recycling business in Japan.  The intention was to make use of a unique system that had been invented in Denmark for the recycling of plasterboard waste.  Essentially, the 1st Plaintiff would purchase the recycling equipment from a Danish company and, together with the 2nd Plaintiff and the Defendant, develop and carry on the recycling business in Japan.  The Defendant was to provide factory premises for the business, apply for and keep in force all necessary licences, permits and consents, liaise with suppliers, and render logistical support, among other obligations.  The 2nd Plaintiff was to install the recycling equipment and provide staff to operate it.  The parties had other responsibilities under the Co-Operation Agreement but it is unnecessary to set them out for present purposes.

6.Of particular importance in the present context is the non-exclusive jurisdiction clause within the Agreement : -

“27.  Governing Law

27.1 This Agreement shall be construed and governed in accordance with the laws of Hong Kong and the parties hereto submit to the non-exclusive jurisdiction of the courts of Hong Kong.

27.4 Nothing contained in this Clause shall limit the right of any party to take any suit, action or proceedings arising under this Agreement against the other parties in any other court of competent jurisdiction, nor shall the taking of any suit, action or proceedings arising under this Agreement in any one or more jurisdictions preclude the taking of any suit, action or proceedings arising under this Agreement in any other jurisdiction, whether concurrently or not, to the extent permitted by the law of that jurisdiction.”

There are no clauses 27.2 and 27.3 in the Agreement.

7.Although none of the parties was based in Hong Kong and all principal obligations thereunder were to take place in Japan, the Co-Operation Agreement was in English, and all negotiations leading up to it took place in Hong Kong.  The Agreement was also signed here.  In their affidavit evidence, the Plaintiffs point to the fact that a number of the persons who conducted the negotiations leading to the conclusion of the Co-Operation Agreement are based in Hong Kong and are Hong Kong permanent residents.  The relevance of this was to demonstrate a Hong Kong connection so that it could not be suggested (nor was it in fact so suggested by the Defendant) that the choice of Hong Kong law and jurisdiction was somehow fanciful.

8.The disputes leading up to the present proceedings originate from a letter in Japanese dated 6 July 2006 from the Defendant to the 2nd Plaintiff, in which the Defendant effectively stated that it was not going to perform its obligations under the Co-Operation Agreement.  The Plaintiffs regarded this letter as a repudiation of the Agreement, and they accepted it.  The damages claimed by the Plaintiffs comprise wasted expenditure and loss of profits.

9.In view of the stage reached in the present proceedings, no defence has yet been filed.  However, on the material so far before us, it appears that the defence (or one of them) is the absence of authority on the part of the person (one Mr Kubota) who signed the Co-Operation Agreement purportedly on behalf of the Defendant so to commit the Defendant.  It is said that at no stage was Mr Kubota authorized by the Defendant’s board of directors to sign the Co-Operation Agreement.  There is before us an affirmation from a Japanese attorney going into aspects of Japanese law.

The judgment below

10.The Writ was issued on 8 February 2007.  However, as the Defendant was a Japanese company, leave to serve out of the jurisdiction was required.  This was obtained ex parte from Master Betty Kwan on 6 March 2007.  Service having then been effected, the Defendant issued a summons on 24 July 2007 applying for the setting aside of the order giving leave to serve the Writ out of the jurisdiction, and for the consequent dismissal of the action.  The application was taken out on the basis of forum non conveniens; the alternative forum was said to be the Tokyo District Court in Japan.

11.The summons was heard by Mr Recorder Jat Sew Tong, SC on 21 November 2007.  By a judgment handed down on 30 November 2007, the learned Recorder set aside the order of Master Kwan granting leave to serve the Writ out of jurisdiction.  It was from this order setting aside Master Kwan’s order that the Plaintiffs appealed.

12.The learned Recorder concluded that the Plaintiffs (as the parties who had invoked the jurisdiction of the Hong Kong courts) had failed to demonstrate that Hong Kong was clearly and distinctly the appropriate forum.  He took the view that the non-exclusive jurisdiction clause in the Co-Operation Agreement (Clause 27.1) was merely a factor to be weighed in the scales going to the appropriateness of forum, and that it was not to be regarded as a powerful factor in the circumstances of the case.  The learned Recorder drew a distinction between non-exclusive jurisdiction clauses and exclusive jurisdiction clauses, and maintained in the present case that clause 27.1 could not be said to “crown” Hong Kong as the primary forum for the resolution of disputes under the Co-Operation Agreement.

13.This being the law in his analysis, the learned Recorder then found on the facts that Japan undoubtedly was the more appropriate forum; certainly, it had not been demonstrated that Hong Kong was clearly and distinctly so.  Indeed, such was the view on the facts taken by the learned Recorder that he was of the view that even if the non-exclusive jurisdiction clause could be regarded as a “strong prima facie factor” in favour of Hong Kong jurisdiction, the Plaintiffs would still have failed on the facts.  He was particularly impressed with the following facts : -

(1)    The negotiations leading up to the conclusion of the Co-Operation Agreement were conducted in Japanese.

(2)    The existing practice and law in Japan regarding authority to sign contracts would be better resolved by the Japanese courts, although this was not regarded as a particularly weighty factor.

(3)    The evidence of any damages suffered by the Plaintiffs would largely emanate from Japan since the place of performance under the Co-Operation Agreement was Japan.  Japanese courts would therefore be better placed than the Hong Kong courts to evaluate such evidence.

The issues in the appeal

14.The Plaintiffs have challenged the learned Recorder’s conclusions both on the law and the facts.  Their primary position was that the learned Recorder had wrongly analyzed the effect of the non-exclusive jurisdiction clause in the circumstances of the present case.  The following matters therefore fell for determination in this appeal : -

(1)    The effect in law of non-exclusive jurisdiction clauses.

(2)    Application of the principles to the facts.

15.Before dealing with these issues, I should briefly go into the relevance of issues of jurisdiction and forum in the context of the present case, for, as stated earlier, these issues arise in the court’s consideration of whether service out of the jurisdiction should be permitted under RHC O.11.

The relevance of jurisdiction and forum in the context of O.11 applications

16.Where a defendant is not a resident in Hong Kong, leave is required from the court to serve process out of the jurisdiction.  RHC O.11 is the principal provision going to this question.  Whether or not leave is to be given by the court is a matter of discretion.  There are, however, two matters which I wish to highlight.

17.First, in an action begun by writ, it must of course be shown that one of the sub-heads of O.11, r.1(1) is engaged.  In the present case, O.11, r.1(1)(d)(i), (iii) and (iv) are engaged : -

“1. Principal cases in which service of writ out of jurisdiction is permissible (O.11, r.1)

(1) Provided that the writ is not a writ to which paragraph (2) of this rule applies, service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ -

….

(d)    the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract, being (in either case) a contract which -

(i)   was made within the jurisdiction; or

…..

(iii) is by its terms, or by implication, governed by Hong Kong law; or

(iv)    contains a term to the effect that the Court of First Instance shall have jurisdiction to hear and determine any action in respect of the contract;”

18.Often (and the present case provides such an example), there will be a dispute over whether a claim does in fact come within one of the sub-heads of O.11, r.1(1).  In such a situation, the court must be satisfied there is a good arguable case that the claim does fall within one of the requisite sub-heads : see Hong Kong Civil Procedure 2008 Vol.1 at paragraph 11/1/8.  This test is applicable when there are disputes of fact or issues of mixed law and fact.  Where the dispute is a succinct one of law, this ought to be resolved by the court even at the O.11 stage : see E F Hutton & Co (London) Ltd v Mofarrij [1989] 1 WLR 488 at 495.  I stress the word ‘succinct’ as it may be inappropriate to go into complex questions of law at the O.11 stage.

19.In the present case, a dispute arises as to whether a valid agreement was in existence (see paragraph 9 above).  If the Co-Operation Agreement was not validly made, the Plaintiffs’ claim will not fall within O.11, r.1(1).  However, clearly in my view, the Plaintiffs have a good arguable case that the Agreement was valid and no argument to the contrary was raised by the Defendant.

20.Secondly, it must also be shown that the case is a proper one for the exercise of discretion by the court.  This requirement is mandated by O.11, r.4(2) : -

“(2)   No such leave shall be granted unless it shall be made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction under this Order.”

21.Questions of jurisdiction and forum (that is, the appropriate forum to hear the dispute) are relevant in the exercise of the court’s discretion in this regard and, in most cases, this is perhaps the most important factor to be considered by the court when deciding whether or not to grant leave to serve out of the jurisdiction.

22.In this context, the following points should be emphasized :-

(1)    Where a plaintiff institutes proceedings in Hong Kong as of right, the defendant may challenge the jurisdiction of the Hong Kong courts to hear the claim in the sense that it may be argued that there is an alternative forum which ought, in preference to Hong Kong, to deal with the claim.  This usually arises where the defendant relies on the existence of a foreign jurisdiction clause or on the principle of forum non conveniens.  Such a challenge is based on the inherent jurisdiction of the court to stay an action in Hong Kong where the interests of justice so dictate.  When the Rules of the High Court are revised consequent on the Civil Justice Reform in Hong Kong, such applications will be made under O.12, r.8.  The burden is on the applying party (the Defendant) to demonstrate that a stay should be granted.

(2)    Where, however, a plaintiff institutes proceedings in Hong Kong not as of right (and the present case is one since leave to serve out of the jurisdiction was required), the approach of the court to questions of forum is quite different.  Although this point will often only be raised by a defendant who seeks to set aside any order granting leave to serve out, the burden will not be on the defendant to demonstrate that there is an alternative forum which ought to entertain the action.  Rather, the legal burden is all along on the plaintiff to show, in seeking to persuade the court to grant an order to serve out, that Hong Kong is clearly the appropriate forum for the trial of the action.  As Lord Goff of Chieveley put it in a well-known passage in Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460 at 481E : -

“The effect is, not merely that the burden of proof rests on the plaintiff to persuade the court that England is the appropriate forum for the trial of the action, but that he has to show that this is clearly so.  In other words, the burden is, quite simply, the obverse of that applicable where a stay is sought of proceedings started in this country as of right.”

(3)    The reason for this difference in approach is that, unlike the situation wherein the plaintiff sues the defendant in Hong Kong as of right, in an O.11 situation (where the plaintiff requires leave), the defendant is by definition a foreigner who “owes no allegiance” to Hong Kong (in that he is not automatically subject to the court’s jurisdiction here).  The court must accordingly in this latter situation be careful not to subject that defendant to what may be an “exorbitant” jurisdiction (for example, the inconvenience or annoyance of litigating in Hong Kong rather than in his own country) : - see Spiliada at 481B-D.

23.Translated into the context of our case, it was therefore incumbent on the court, when deciding whether or not to grant leave to serve out, to consider the aspect of forum.  It was for the Plaintiffs to show that Hong Kong clearly was the appropriate forum.  It is to this fundamental question that I must now turn.  The Plaintiffs say that clearly Hong Kong is the appropriate forum by reason of the non-exclusive jurisdiction clause; the Defendant contends otherwise.  Central to the resolution of this issue is the treatment of the non-exclusive clause within the Co-Operation Agreement.

The effect in law of non-exclusive jurisdiction clauses

24.The starting point, of course, is to arrive at the true construction of the relevant clause.  Although non-exclusive jurisdiction clauses may come in different forms, generally the following characteristics will be present : -

(1)    The clause will identify a specific forum (usually the courts of a given place) to which the parties to a contract would be obliged to submit for the resolution of a dispute between them.  It is important to emphasize that the element of submission to a jurisdiction in the event a party is sued in the named forum is a key component.

(2)    The named forum will not, however, be an exclusive one to hear the dispute in that it will be clear that the parties may also be at liberty institute proceedings in other jurisdictions (which may be unidentified).

25.To be contrasted with non-exclusive jurisdiction clauses are those clauses where a named forum is stated or construed to be exclusive.  Such clauses are known as exclusive jurisdiction clauses.

26.The true construction of the relevant non-exclusive jurisdiction clause in the Co-Operation Agreement will in due course fall to be considered but for present purposes, it suffices to observe that clause 27 of the Agreement contains both the characteristics identified in paragraph 24.

27.In analysing the effect of a non-exclusive jurisdiction clause, one should start from the basic premise that the courts will hold parties to their contractual bargain : see The Chaparral [1968] 2 Lloyd’s  Rep 158, at 163(2).  This is, however, not absolute because when dealing with questions of jurisdiction and forum, as a matter of public policy, it is for the courts ultimately to determine where the interests of justice lie, and the courts may, in exceptional circumstances, ignore the contractual bargain between the parties.  I stress, however, that it is only in exceptional cases that a court should not give effect to contractual terms.

28.In the case of non-exclusive jurisdiction clauses, it is important to recognize that the parties have agreed to submit to a named jurisdiction.  In the present case, the word “submit” actually appears in clause 27.1.  The effect of an obligation to submit to a named jurisdiction was summarized by Moore-Bick J in Mercury Communications Ltd and another v Communication Telesystems International [1999] 2 All ER (Comm) 33, at 40g-j : -

“ Although a non-exclusive English jurisdiction clause leaves the parties free to bring proceedings elsewhere without thereby committing any breach of contract, it has generally been regarded as a powerful factor in favour of allowing proceedings brought in this country to continue.  There are, it seems to me, two reasons why that should be so.  In the first place, as Mr Berry submitted, a clause of that kind involves a contract by each party to submit to the jurisdiction of the English courts if the other chooses to bring proceedings in this country.  Although neither party binds itself to bring any action here, each of them does agree to submit to the jurisdiction if an action is brought against it.  Secondly, as part and parcel of agreeing to submit to the jurisdiction each party must be taken to have recognised that this country would be an appropriate forum for the trial of the action.”  (emphasis added)

29.I see no difference in principle between an exclusive jurisdiction clause and a non-exclusive jurisdiction clause to the extent that in both situations, the parties have agreed, if they are sued in the named forum, to submit to it.  An obligation to submit to the named forum (if this is the effect of the agreement between the parties) is the same in both types of clause : quite simply, one has agreed to submit.  As Judge Nicholas Chambers, QC observed in J P Morgan Securities Asia Private Ltd v Malaysian Newsprint Industries SDN BHD [2001] 2 Lloyd’s Rep 41, at 45 (paragraph 43) on the main differences between the two types of clauses : -

“43.    For present purposes I see no difference between an exclusive and a non-exclusive jurisdiction clause.  The difference between the two in principle is that, in the former case both parties are contractually bound to the chosen forum whereas in the latter case it is only the defendant who is so bound.”

30.This treatment of the obligation to submit to a given forum, and the similarity in this requirement between exclusive and non-exclusive jurisdiction clauses, finds support in numerous other English cases, among them British Aerospace Plc v Dee Howard Co [1993] 1 Lloyd’s Rep 368 and Import Export Metro Ltd and another v Compania Sud Americana De Vapores SA [2003] 1 All ER (Comm) 703 (a decision of Gross J which I have found particularly useful).

31.In considering the effect of a non-exclusive jurisdiction clause, it is critical to recognize that there are differences in approach depending upon where proceedings have been instituted.  Where proceedings are instituted in the named forum (to which the parties have agreed to submit), the party who seeks a stay or otherwise to contest the jurisdiction or appropriateness of that forum, has a very heavy burden to discharge, since that party has by definition agreed contractually to submit to the jurisdiction.  In other words, he is seeking to avoid a forum to which he has, by contract, agreed to submit.  The extent of this burden is discussed below.

32.Where, however, proceedings are instituted in a forum other than the identified one, an altogether different approach may be required.  Here, much depends on the precise wording of the clause in the question.  If the other forum is one to which the parties have also agreed to submit in the event of their being sued, it may be that there is little difference between the two situations.  Where, however (as is more common) the other forum is merely one in which proceedings can be instituted without any obligation on the party sued actually to submit to that forum, the approach is different.  The party who then seeks to contest the jurisdiction or appropriateness of that forum is in a better position so to do (compared with the situation articulated in the previous paragraph) simply because he would not be seeking to avoid a forum to which he has contractually agreed to submit.

33.Some simple illustrations to summarize the foregoing propositions might assist : -

(1)    A sues B in Hong Kong.  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 burden on B, if he contests the appropriateness of the Hong Kong courts, is a heavy one.

(2)    A sues B in Hong Kong.  Hong Kong is on this occasion not named as a jurisdiction but the courts of, say, Japan are named as the non-exclusive jurisdiction.  However, on a true construction of the relevant clause, the parties have nevertheless agreed to submit to the jurisdiction of the courts of any other forum (which would include Hong Kong) in the event of their being sued there.  Again, in view of the agreement actually to submit, the burden on B is also a heavy one.

(3)    A sues B in Hong Kong.  Again, Hong Kong is not named as the non-exclusive jurisdiction but the courts of Japan are.  However, this time the parties have not agreed to submit to any jurisdiction other than the Japanese courts.  In other words, while the parties have agreed to submit to Japanese jurisdiction in the event that they are sued there, and while they have also agreed that they are at liberty to institute proceedings in a jurisdiction other than Japan, no positive obligation exists for a party to submit to any jurisdiction other than Japan.  Here, the burden on B is less heavy.

34.The most common types of non-exclusive jurisdiction clauses will fall within the situations referred to in either paragraph 33(1) or paragraph 33(3) above.  As will become apparent later, clause 27 of the Co-Operation Agreement falls within the situation identified in paragraph 33(1).

35.The authorities, particularly those from England, draw the distinctions to which I have alluded.  It is clear in my view that where, as in the present case, proceedings are commenced in Hong Kong and the courts here are named as a non-exclusive jurisdiction to which the parties are contractually bound to submit in the event they are sued here (in other words, the paragraph 33(1) situation), strong reasons must be shown by the party sued if he wishes to challenge the appropriateness of Hong Kong jurisdiction.

36.The extent of the burden can be put in several ways but the following provides a ready guide : strong or overwhelming reasons or exceptional circumstances must be shown, such as the existence of factors not contemplated by the parties at the time the relevant agreement was made.  It perhaps matters not exactly which term is preferred, but the main point to bear in mind is that strong reasons must be demonstrated to the court before it allows the parties to be freed from their contractual bargain.  Among the cases I have found of great assistance in the factual situation dealt with here are the following : The Standard Steamship Owners’ Protection and Indemnity Association (Bermuda) Ltd v Gann and Another [1992] 2 Lloyd’s Rep 528, at 533(1)-(2); British Aerospace at 375(2); Mercury Communications at 40g-41f; J P Morgan at paragraphs 43-49; Ace Insurance SA-NV v Zurich Insurance Company and another [2001] 1 All ER (Comm) 802 at paragraph 62; Marubeni Hong Kong and South China Ltd v Mongolian Government [2002] 2 All ER (Comm) 873 at paragraphs 63-65; Import Export Metro at paragraphs 13-18; BAS Capital Funding Corporation & Ors v Medfinco Ltd & Ors [2004] 1 Lloyd’s Rep 652 at paragraphs 186-195.

37.Thus analyzed, in the situation referred to in paragraph 33(1), 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 347E-G; Donohue v Armco Inc and others [2002] 1 All ER 749 at 759e-760c (paragraphs 24-25).

38.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 at 476C-D; The Owners of Cargo lately laden on board the Ship or Vessel “Adhiguna Meranti” v The Owners of the Ships or Vessels “Adhiguna Harapan” and Others [1987] HKLR 904, at 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.

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).”

41.How are these principles to be applied in an O.11 situation?  I have earlier set out the approach of the court when considering questions of forum in this context : see paragraphs 16 to 23 above.  In instances where a non-exclusive jurisdiction clause is in place, and proceedings are commenced in the named forum and leave to serve out of the jurisdiction is required, the following represents, in my view, the correct approach : -

(1)    The approach as set out in paragraph 22(2) above still applies : the legal burden is on the plaintiff to demonstrate that the named forum is clearly the appropriate one for the trial of the action.

(2)    However, in discharging this burden, the plaintiff can do so simply by referring to the existence of a non-exclusive jurisdiction clause in which the parties have agreed to submit to the jurisdiction of the named forum.  As earlier stated, this is, afterall, the contractual bargain.

(3)    It will then be for the defendant to demonstrate the existence of strong or powerful reasons why this bargain should not be upheld.  For the reasons already gone into, the approach of the court here is not simply of weighing up the existence (or lack) of factors connecting the case to one or more jurisdictions.

(4)    Viewed in this way, from a practical point of view, the approach is akin to a situation where a plaintiff has instituted an action as of right : see British Aerospace at 376(2); Mercury Communications at 41f.

42.Thus far, I have concentrated on the applicable principles when proceedings are commenced in the very jurisdiction which is identified in a non-exclusive jurisdiction clause (the paragraph 33(1) situation).  As I have said, different considerations may well apply in the type of situation identified in paragraph 33(3).  In this situation (wherein the parties have not agreed actually to submit to the relevant jurisdiction), the existence of a non-exclusive jurisdiction clause may well carry far less weight, and cannot be treated in the manner as where the parties have agreed to submit to a named forum.  It is precisely this vital distinction that has been lost sight of by the learned Recorder in the present case, and with respect, the same error has permeated the Defendant’s submissions in the present appeal.

43.In his judgment, the learned Recorder appeared to be of the view that the approach of the English cases was different to certain decisions in Hong Kong.  Reference was made in particular to the decisions of Stone J in T & K Electronics Ltd v Tai Ping Insurance Co Ltd [1998] 1 HKLRD 172 and Peregrine Fixed Income Ltd v JP Morgan Chase Bank [2005] 3 HKLRD 1, in which doubts were expressed as to whether a non-exclusive jurisdiction clause could be equated to an exclusive jurisdiction clause : see T & K at 177H-J; Peregrine at paragraphs 50-54.

44.In my judgment, there is no inconsistency at all.  In these two Hong Kong cases, the court was not faced with a situation such as the present in which a party was seeking to contest the appropriateness of the Hong Kong courts to hear a claim in the face of a non-exclusive jurisdiction clause that named the courts of Hong Kong as the forum to which the parties had to submit in the event of their being sued here.  Both T & K and Peregrine were cases in which proceedings were commenced in Hong Kong, but the relevant non-exclusive jurisdiction clause named other jurisdictions (respectively in those cases, the courts of England and New York).  In other words, the position in those cases was similar to the situation in paragraph 33(3) above (and not, as in the present case, the paragraph 33(1) situation).  It was therefore not surprising that Stone J dealt with the applications before him on the basis of forum non conveniens principles.  There is no doubt in my view that his approach would have been quite different had the non-exclusive jurisdiction clause in those cases named Hong Kong.  Indeed, in Peregrine, the learned judge recognized that the effect of the non-exclusive jurisdiction clause in the case was a contractual agreement to “submit” to the jurisdiction of the New York courts should an action be brought there : at 10J-11A.

45.In his submissions, Mr Robert Whitehead, SC (for the Defendant) also referred to the Court of Appeal case of Harain Lai Navalani & Anor v Tokai Bank Ltd [1994] 3 HKC 203, but once again the factual situation in that case was similar to that in T & K and Peregrine.  The same can be said of Evans Marshall & Co v Bertola SA [1973] 1 WLR 349, Royal Bank of Canada v Rabobank [2004] 1 Lloyd’s Rep 471, the Australian cases relied on by the Defendant (in fact, one case cited to us - Plantagenet Wines Pty Ltd v Lion Nathan Wine Group Australian Ltd [2006] FCA 247 – actually supports (at paragraph 59) the analysis in relation to the situation in paragraph 33(1)), and the textbook authority from Canada.

46.Finally, I wish briefly to deal with a point made by Mr Whitehead to the effect that the English cases referred to above can be distinguished on the basis of Article 17 of the Brussels Convention 1968 (to which the United Kingdom is a party, but obviously inapplicable in Hong Kong) : -

“Article 17

If the Parties, one or more of whom is domiciled in a Contracting State, have, by agreement in writing or by an oral agreement evidenced in writing, agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have exclusive jurisdiction.”

47.In response, Mr Paul Shieh, SC (for the Plaintiffs) pointed out, correctly in my view, that this was no point of distinction at all.  Quite simply, in none of these English cases was the rigid and mandatory scheme of the Convention engaged.

Application of the principles to the facts in the present case

48.One begins with construing clause 27 in the Co-Operation Agreement.  In my view, its effect is clear : -

(1)    Under clause 27.1, the Hong Kong courts are named as the non-exclusive jurisdiction to entertain any suit or proceedings arising under the Co-Operation Agreement.  The parties are required to “submit” to this jurisdiction.

(2)    As for clause 27.4, in relation to any other jurisdiction, any party is at liberty to commence proceedings in any court of competent jurisdiction, or even to have concurrent proceedings, providing this is permissible by the law of the relevant jurisdiction.  Nothing is said about any requirement to submit to the jurisdiction of the courts of any place other than Hong Kong.

49.Given that the non-exclusive jurisdiction clause requires that parties submit to the jurisdiction of the Hong Kong courts, and also given that the present proceedings have been commenced in Hong Kong, the principles stated in paragraphs 31, 35, 36, 37, 40 and 41 above are accordingly applicable.  In short, we are here involved with the situation referred to in paragraph 33(1) above.  In the context of an O.11 application, by reason of clause 27.1 alone, the Plaintiffs are able to demonstrate that Hong Kong clearly is an appropriate forum.

50.I have already identified those factors regarded by the learned Recorder as important in the present case : see paragraph 13 above.  In my judgment, they go nowhere near enough to constitute strong reasons or exceptional circumstances to allow the Defendant to escape the effect of clause 27.1.  Nor has it really been suggested by Mr Whitehead that strong reasons can be shown, although understandably he relied on the learned Recorder’s view that even if clause 27.1 could be taken to represent a “strong prima facie factor”, this could be overcome on the facts of the present case.

51.Accordingly, for the foregoing reasons, I am of the view that the learned Recorder was in error in his conclusions on the law.  But can it be said in any event, as Mr Whitehead contended, that his view on the facts was such that even if he had applied the correct test, the Plaintiffs would still fail?

52.The learned Recorder said, at paragraph 68 of his judgment : -

“68.    In case I am wrong on my view as the force to be given to the non-exclusive jurisdiction clause, so that it is a strong prima facie factor in favour of the Plaintiffs, I am still of the view that the factors in favour of Japan are so much stronger that the Plaintiffs have failed to demonstrate that Hong Kong is clearly and distinctly the more appropriate forum for the resolution of this dispute.”

53.Unfortunately, no specific reasons were advanced as to why the learned Recorder was of this view.  In my judgment, and quite simply, none can be shown.  Further, the reference in the passage to the Plaintiffs failing to demonstrate that Hong Kong is clearly and distinctly the more appropriate forum is only to restate the initial burden on the Plaintiffs in an O.11 application.  The real question to be asked in the present case was whether strong reasons existed to allow the Defendant to escape the contractual bargain it had made.  None did.

Conclusion

54.For the above reasons, the appeal was allowed.

Hon Tang VP :

55.I agree with the judgments of the Chief Judge and Stone J and have nothing to add.

Hon Stone J :

56.I have had the advantage of reading in draft, and respectfully agree with the detailed and analytical judgment of Ma CJHC.

57.Perhaps I may be permitted to add a few words of my own in deference to the quality of the argument advanced before us.

58.As Ma CJHC has illustrated, the salient aspect of the present case rests in the fact that the proceedings as commenced in Hong Kong reflected the nomination of Hong Kong jurisdiction within the terms of the non-exclusive jurisdiction clause contained in Clause 27.1 of the contract between the parties to this litigation.

59.Thus, upon an application under Order 12, rule 8 to set aside leave granted to serve out of the jurisdiction under Order 11, rule 1(d), the central issue which has arisen is the significance of this clause in the evaluation of whether, pursuant to the provisions of Order 11, rule 4(2), the case can be considered to be “a proper one” for the exercise of this court’s jurisdiction to grant leave.

60.It is in this context that the issue of forum conveniens raises its head – see Hong Kong Civil Procedure 2008, at Mnn 11/1/9, 11/4/8A – and the learned Recorder below, from whose Judgment this appeal lies, came to the conclusion, inter alia, that the existence of this non-exclusive jurisdiction clause in favour of Hong Kong did not outweigh “the overwhelming factors in favour of the courts of Japan” (see paragraph 67 of his Judgment).

61.In moving this appeal, Mr Shieh’s primary submission was that in such circumstances to treat the existence of this non-exclusive jurisdiction clause as but one of the various discretionary factors to be placed into a forum conveniens equation plainly was in error, and that this clause so nominating Hong Kong, albeit in ‘non exclusive’ terms, removed the necessity for the plaintiff to establish that Hong Kong clearly and obviously was appropriate for the resolution of this dispute – for the reason that, in agreeing to the clause in these terms, the parties themselves had answered this very question.

62.In my view, this submission is correct.  To put this issue another way, absent exceptional reasons to be advanced by the defendant/applicant, the contractual nomination of Hong Kong as the non-exclusive jurisdiction serves effectively to preclude argument that Hong Kong is not clearly a convenient forum.  As Rix LJ succinctly pointed out in Ace Insurance SA-NV v. Zurich Insurance Co. [2001] EWCA Civ 173.at para 62:

“If a party agrees to submit to the jurisdiction of the courts of a state, it does not easily lie in his mouth to complain that it is inconvenient to conduct the litigation there (ie to assert that the agreed forum is a forum non conveniens).  As Waller J pointed out in British Aerospace plc v Dee Howard Co [1993] 1 Lloyd’s Rep 368 at 376, speaking of matters of convenience in the context of a non-exclusive jurisdiction clause, it is necessary to point to some factor which could not have been foreseen in order to displace the bargain which has been agreed.  In such a case that party must show some good reason or special cause why it should not be held to its agreement to submit to the agreed jurisdiction…In the present case, however, there is no reliance…on anything unforeseen, no suggestion of any strong or special cause, no identification of some matter which lies beyond considerations of convenience and goes to a matter of justice.  On the contrary, what this court has been pressed with…are the usual and straightforward factors of an argument on convenience – the nature of the issues, the relevance of English as against Texan or New York law, the whereabouts and nationality of witnesses of fact or expertise, cost and delay, and such like…”

63.In light of this approach, with which I respectfully agree, the evidential burden therefore no longer lies upon the plaintiff, who wishes the court to exercise its ‘long arm’ jurisdiction under Order 11, to satisfy the court as to the clear appropriateness or convenience of Hong Kong as the trial forum, but, to the contrary, falls instead upon the defendant to demonstrate why Hong Kong is not so appropriate as such forum.

64.The like burden, of course, falls upon a defendant wishing to avoid the terms of an ‘exclusive jurisdiction clause’ drawn in favour of Hong Kong, and thus in context of the burden of proof the usual distinction between these two types of clause is elided and for all practical purposes falls away.

65.Hence, Mr Shieh’s argument that, in light of the circumstances of this case wherein, together with a Hong Kong choice of law clause, Hong Kong contractually has been nominated by the parties as the ‘non exclusive jurisdiction’ for the resolution of this dispute, the burden in this case lay upon the defendant, the present applicant under Order 12, rule 8, to establish the exceptional or strong reason(s) why Hong Kong was not the appropriate forum – and that on the facts of this case this burden had not been discharged.

66.In my view this submission is well-founded.

67.Although the grant of Order 11 leave is a matter of discretion – there remain, of course, significant other considerations in terms of whether there is a ‘good arguable case’ that the plaintiff’s claim falls under one of the ‘jurisdictional gateways’ specified within Order 11, rule 1(1)(a)-(p), and whether there is ‘a serious issue to be tried’ on the merits – the general and overriding rule is ‘pacta sunt servanda’, and that parties will be held to their bargain unless there are overwhelming or at the least very strong reasons why this should not be so.  It therefore it is not appropriate for the defendant to embark upon that which is termed ‘a Spiliada exercise’: such reasons must go to the interests of justice itself.

68.As to what such reasons might encompass, in Bas Capital Funding Corp & ors v. Medfinco Ltd & ors [2004] 1 Lloyd’s Rep 652, at 678, para 193, Mr Justice Lawrence Collins observed:

“It would not be useful to speculate on what exceptional circumstances would justify the court in not accepting jurisdiction where the parties had conferred non-exclusive jurisdiction on the English Court, but I accept that one feature which may be highly relevant is whether there are already proceedings in a foreign country which involve overlapping issues, especially if they have been commenced by the party which subsequently seeks to sue in England.”

69.The relevant principles in this area emerge upon a survey of a number of English authorities, whether they be decisions upon service out of the jurisdiction pursuant to Order 11 or decisions upon applications under the court’s inherent jurisdiction for a forum conveniens stay of proceedings; in this connection Mr Shieh and Mr Wong, his junior, have been good enough to dig up chapter and verse in a line of cases spanning some eighteen years, commencing with Attock Cement v. Romanian Bank [1989] 1 WLR 1147, at 1161, per Staughton J (service out) to Hit Entertainment Ltd v. Gaffney [2007] EWHC 1282, at paras 18-28, per Sir Donald Rattee (on stay).

70.In his judgment the Chief Judge has identified a number of these cases.  For my part one of the most useful authorities to which we were referred on behalf of the appellant is that of Antec International Ltd v. Biosafety [2006] EWHC 47 (Comm), in which Dame Elizabeth Gloster J delivered judgment dismissing an application by Biosafety to set aside or stay proceedings on the ground, inter alia, that the appropriate forum for the trial of Antec’s action was in Florida.

71.In the transcript of her judgment, at paragraph 7, the learned judge usefully summarized the legal principles that could be derived from the authorities to-date, with which summary I respectfully agree; if I may say so, it merits quotation in full:

“(i)  The fact that the parties have freely negotiated a contract providing for the non-exclusive jurisdiction of the English courts and Engish 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 supra; Mercury Communications supra 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 Corporation and others v Medfinco Ltd and 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.  In particular, the fact that the Defendant has, or is about, to institute proceedings in another jurisdiction, not contemplated by the non-exclusive jurisdiction clause, is not a strong or compelling reason to relieve a party from his bargain, notwithstanding the undesirability of parallel proceedings.  Otherwise a party to a non-exclusive jurisdiction clause could avoid its agreement at will by commencing proceedings in another jurisdiction; 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.”   

72.In Antec International, op cit., after setting out these legal principles her Ladyship then went on to apply such principles to the particular facts, ultimately dismissing the application.  In like vein, application of these principles to the facts of the present case necessitated allowing this appeal.

73.Notwithstanding the sterling efforts of Mr Whitehead SC, for the defendant/respondent, to persuade the court that the nub of this appeal is the weight to be accorded to a non-exclusive jurisdiction clause in a case wherein, as here, a party seeks leave to serve out, and that in the exercise of its discretion the court is faced with a clause, namely Clause 27.4 of the contract, in which the parties have agreed that both Japan and Hong Kong are equally appropriate forums, and hence that the Spiliada test should be employed to determine the clearly most appropriate forum to decide this issue in the interests of the parties and for the ends of justice, I find it difficult to, and do not, accept his arguments, persuasively though they were advanced.

74.The issue in this appeal is not merely one of the weight to be accorded to the non-exclusive jurisdiction clause.  To the contrary, it is whether, in the context of a challenge to the Hong Kong jurisdiction – which has been chosen in the terms of the non-exclusive jurisdiction clause – the defendant is able to demonstrate very strong or overwhelming factors of the type laid down in the English authorities on the point.

75.As to Clause 27.4 (curiously there appears to be no Clause 27.2 and 27.3), this sub-clause is drawn in the following terms:

“Nothing contained in this Clause shall limit the right of any party to take any suit, action or proceedings arising under this Agreement against the other parties in any other court of competent jurisdiction, nor shall the taking of any suit, action or proceedings arising under this Agreement in any one or more jurisdictions preclude the taking of any suit, action or proceedings arising under this Agreement in any other jurisdiction, whether concurrently or not, to the extent permitted by the law of that jurisdiction.”

76.Although Mr Whitehead submits that by virtue of this clause the parties thus have agreed that both Japan and Hong Kong equally are appropriate forums, and therefore that the only way of distinguishing between the appropriateness of either forum is by resort to traditional Spiliada ‘connecting factors’, it seems to me that this is to put the case too high – this is not what this clause says.

77.As Mr Shieh has pointed out, the bargain as struck between these parties is that while neither of the parties to the contract are bound to sue in Hong Kong, given that this clause is non-exclusive, in a situation where in fact suit is commenced in Hong Kong, it is agreed that neither of the parties will dispute or challenge the other party’s choice of Hong Kong as the venue for resolving their dispute – in like manner as if this had been an exclusive jurisdiction clause, wherein contractually both parties would be bound to sue in Hong Kong.

78.This contention must be correct.  This conclusion is fortified by academic observation to which our attention also has been drawn; see Bell: Forum Shopping and Venue in Transnational Litigation, wherein the author comments (at para 5.55) that “…arguments to the effect that a jurisdiction agreement is non-exclusive will be of little moment in an application to stay proceedings in the nominated forum or in a challenge to the grant of leave to serve out of the jurisdiction…”, in this context citing The Chapparral [1968] 2 Lloyd’s Rep 158 at 162,164, and Gulf Bank v. Mitsubishi [1994] 1 Lloyd’s Rep 323 at 329; and further (at para 5.54) that “[a] defendant in proceedings in the nominated court is disarmed of arguments resisting the court’s jurisdiction…”

79.As Mr Shieh has emphasized, in resisting or objecting to the nominated jurisdiction a defendant is seeking relief from a contractual agreement as to forum, albeit non-exclusive, and this is echoed within the terminology adopted in the decided cases: see, for example, Waller J in British Aerospace v. Dee Howard, op cit., at 376 col 2: “displacing the bargain…”, and Moore-Bick J in Mercury Communications, op cit., at 41j: “held to that bargain…”.

80.Nor can I see any basis for any suggestion that in this area there is a ‘different approach’ at play in Hong Kong, nor, for that matter, in Australia and Canada.  The authorities cited on behalf of the defendant in Mr Whitehead’s helpful skeleton argument – in the Hong Kong context see, for example, T&K Electronics v. Tai Ping Insurance [1998] 1 HKLRD 172 and Peregrine v. JP Morgan [2005] 3 HKLRD 1 – do not involve the present factual configuration of an attempt to challenge the jurisdiction of the nominated forum, and all involve jurisdiction clauses (exclusive and non-exclusive) in favour of a nominated foreign forum wherein the attempt is to stay the claim to that forum.

81.I also cannot agree with the submission that the English cases can be placed to one side and effectively ignored by reason of the Brussels Convention, since none of the English cases cited before us based their reasoning, in terms of a defendant seeking to avoid a non-exclusive jurisdiction clause, upon provisions or wording of the European legislation.  The scheme of such legislation is that jurisdiction is distributed among national courts of Contracting States by a series of rules – some depending upon domicile, some depending upon jurisdiction agreements – the jurisdiction thus allocated being mandatory with no scope for any discretionary stay; as Mr Shieh pointed out, discretionary ‘stay factors’ are relevant only in instances in which the European regime is not engaged.

82.At the end of the day, therefore, it seemed to me that this appeal boiled down to the question of whether the learned Recorder – whom, if I may say so, has written a careful, clear and logical judgment – erred in his perception of the role and juridical implication of the non-exclusive jurisdiction clause within the contract as struck between these parties.

83.In my opinion, he did so err in evaluating the case before him in terms of ‘Spiliada factors’, and this said, there are no very strong or exceptional reasons which have been, or could be so advanced, which potentially may have had the effect of displacing the bargain between the parties.

84.Accordingly, this appeal was allowed, with costs.

Mr Paul Shieh, SC & Mr Brian Wong, instructed by Messrs Robert Lee Law  Offices for the Plaintiffs

Mr Robert Whitehead, SC & Mr Steven Kwan, instructed by Leland Chu & Co  for the Defendant