In CTBC Bank Co., Ltd. v Industrial and Commercial Bank of China Limited [2024] HKCFI 2820, the Court of First Instance (“Court“) recently dismissed the defendant’s application for a stay of proceedings in favour of the Guiyang Intermediate People’s Court (“Guiyang Court“) on the ground of forum non conveniens (“FNC“).  Earlier this year, we reported on another case in which the Hong Kong Court dismissed a similar application (see our earlier news update here).

Background

The plaintiff (CTBC) served as the bank for the vendor in a transaction involving the sale of green petroleum coke from South America to Mainland China, with the defendant (ICBC) acting as the purchaser’s bank.  An irrevocable letter of credit (“L/C“) was issued in favour of the vendor, and the vendor presented all compliant documents, along with a bill of exchange for approximately CNY 63 million (“Sum“), to CTBC, stipulating payment from ICBC 90 days after sight of the bills of exchange.  ICBC confirmed the acceptance of the documents and set the payment date for 30 August 2023 (“Confirmation“).  Relying on this Confirmation, CTBC credited the vendor’s account with the Sum.

Subsequently and before 30 August 2023, ICBC was restrained from making the payment by an interim injunction order from the Guiyang Court, linked to allegations of fraud by the purchaser in proceedings against the vendor and ICBC’s Guizhou branch (“Mainland Fraud Proceedings“), which were commenced on 20 September 2023.  On 22 November 2023, CTBC initiated legal action against ICBC in Hong Kong for the recovery of the Sum under the L/C and the bills of exchange.

Shortly after the commencement of the Hong Kong proceedings, on 26 December 2023, ICBC initiated additional proceedings in the Guiyang Court against the vendor and CTBC as defendants, seeking to set aside the Confirmation and payment obligation under the L/C, based on the alleged L/C fraud by the purchaser (“Mainland Acceptance Proceedings“).

Principles on FNC

The applicable principles on FNC were set out recently in ING Bank NV v Industrial and Commercial Bank of China Ltd [2024] HKCFI 2220 (see our earlier news update here).  To answer the question whether there is other available forum with competent jurisdiction where the action may be tried more suitably for the interests of all the parties and the ends of justice, the Court adopts a three-stage test:-

1. First, the defendant applying for a stay has to establish that (i) Hong Kong is not the natural or appropriate forum; and (ii) there is another available forum that is clearly or distinctly more appropriate than Hong Kong (“Stage 1”). Stage 1 is considered from the point of view of the trial;
2. If the defendant establishes both (i) and (ii) above, the burden shifts to the plaintiff to establish that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong (“Stage 2”);
3. If he can establish that, the Court will have to balance the advantages of the alternative forum with the disadvantages the plaintiff may suffer. The ultimate question is whether substantial justice will be done in the alternative forum (“Stage 3”).

The Court’s Decision

Having considered and balanced all the relevant factors, the Court was not satisfied that the Guiyang Court was clearly or distinctly more appropriate than the Hong Kong Court to hear the trial of this action:-

• Although the governing law of the L/C would be PRC law as the place of performance is in the Mainland, it is unlikely in the commercial sphere that there is a significant difference between Hong Kong law and PRC law. Indeed, the single joint expert’s report did not reveal any major difference.  Further, it is well-recognised that Hong Kong Courts are equipped to deal with PRC legal issues.
• In respect of ICBC’s fraud claim, such claim turns on issues of facts and Hong Kong Court is well-experienced in resolving the same.
• As regards one of ICBC’s defences that CTBC did not in fact negotiate the L/C, Hong Kong Courts will have no difficulty dealing with such legal issue.
• ICBC’s main argument in support of the stay application was the existence of parallel proceedings before the Guiyang Court and the risk of inconsistent findings. There is a risk that ICBC has to honour its payment obligation to CTBC in breach of the injunction order, which will be a real prejudice to ICBC.  However, the Court rejected such argument on the ground that CTBC was only a third party to the Mainland Fraud Proceedings without the right to make an independent claim, and thus the resolution of which will not provide any relief to it.  The Court held that there was a real possibility that the Guiyang Court would not determine certain key issues, including whether CTBC in fact negotiated the L/C or not and whether CTBC negotiated the L/C in good faith or not.
• As for the Mainland Acceptance Proceedings brought by ICBC, they were started after this action. The Court held that while CTBC was entitled to make a counterclaim in those proceedings in the Mainland, CTBC should not be compelled to participate in the same, especially when those proceedings involved other parties not pertinent to CTBC’s interests.
• Although some of the witnesses are in the Mainland, the Court held that there was no evidence that any of the witnesses would not be able to attend trial in Hong Kong in person or by video-link. Vendor’s witnesses had indicated an unwillingness to give evidence in the Mainland but a willingness to attend trial in Hong Kong.  CTBC’s witnesses are of course in Hong Kong.

Takeaways

In recent years, there has been a notable increase in cross-border disputes between Mainland China and Hong Kong.  This rise can be attributed to the growing economic integration and the complex legal landscape that governs their interactions.  As businesses and individuals from both jurisdictions engage more frequently in trade, investment, and various commercial activities, the potential for legal conflicts has escalated.  The Hong Kong Courts, known for their impartiality and adherence to the rule of law, play a crucial role in adjudicating such disputes.  They strive to balance the interests of all parties involved, considering factors such as jurisdiction, governing law, and the most appropriate forum for the resolution of conflicts.

Having looked at two recent stay applications based on FNC, it is observed that Hong Kong Courts will not easily stay legal proceedings simply because the governing law is PRC law or that there are elements of Mainland involvement.  The Hong Kong Courts will carefully examine and thoughtfully address any jurisdictional challenges, employing a rigorous principled approach while considering the interests of all parties and upholding justice.

Please see full judgment here.