Litigation in Mainland China under New Evidence Rules: Your 50 questions – Part 5

The Supreme Court of People’s Republic of China (SPC) formally promulgated the amended version of Several Provisions of the SPC on Evidence for Civil Litigation (New Evidence Rules) on 25 December 2019, which came into effect on 1 May 2020.

There are many highlights in the New Evidence Rules. To provide readers with some guidance from a practitioner’s perspective, we prepared 50 questions divided into five sections: (i) overall picture, (ii) routes for evidence production, (iii) witness testimony, (iv) judicial expert opinion and (v) electronic evidence and others. Section one was published on 1 May and can be found here. Section two was published on 8 May and can be found here.  Section three was published on 15 May and can be found here. Section four was published on 22 May and can be found here. This blog post focuses on the fifth and last section, i.e., electronic evidence and others. Continue reading

Litigation in Mainland China under New Evidence Rules: Your 50 questions – Part 4

The Supreme Court of People’s Republic of China (SPC) formally promulgated the amended version of Several Provisions of the SPC on Evidence for Civil Litigation (New Evidence Rules) on 25 December 2019, which came into effect on 1 May 2020.

There are many highlights in the New Evidence Rules. To provide readers with some guidance from a practitioner’s perspective, we have prepared 50 questions which are divided into five sections: overall picture, routes for evidence production, witness testimony, judicial expert opinion and electronic evidence and others. Section one was published on 1 May and can be found here. Section two was published on 8 May and can be found here.  Section three was published on 15 May and can be found here. This blog post focuses on the fourth section, i.e., judicial expert opinion. Continue reading

Chinese Court recognises Singaporean commercial judgment for the second time

On 2 August 2019, the Wenzhou Intermediate People’s Court of Zhejiang Province (Wenzhou Court) issued the Civil Ruling (2017) Zhe 03 Xie Wai Ren No. 7 (the Wenzhou Court Ruling) to recognise Judgement No. S139/2012 (Judgment) rendered by the Singapore High Court (Singapore Court) on 15 February 2013 (Oceanside Development Group Ltd. v. Chen Tongkao & Chen Xiudan, the Oceanside Case). This is the second time that a Chinese court has recognised a Singaporean commercial judgment on the principle of reciprocity based on Article 282 of the Chinese Civil Procedure Law. Continue reading

Litigation in Mainland China under New Evidence Rules: Your 50 questions – Part 3

The Supreme Court of People’s Republic of China (SPC) formally promulgated the amended version of Several Provisions of the SPC on Evidence for Civil Litigation (New Evidence Rules) on 25 December 2019, which came into effect on 1 May 2020.

There are many highlights in the New Evidence Rules. To provide readers with some guidance from a practitioner’s perspective, we have prepared 50 questions which are divided into five sections: overall picture, routes for evidence production, witness testimony, judicial expert opinion and electronic evidence and others. Over the course of the next few weeks, we will be publishing a series of blog posts targeting one section at a time. Section one was published on 1 May and can be found here. Section two was published on 8 May and can be found here. This blog post focuses on the third section, i.e., witness testimony. Continue reading

Litigation in Mainland China under New Evidence Rules: Your 50 questions – Part 2

The Supreme Court of People’s Republic of China (SPC) formally promulgated the amended version of Several Provisions of the SPC on Evidence for Civil Litigation (New Evidence Rules) on 25 December 2019, which came into effect on 1 May 2020.

There are many highlights in the New Evidence Rules. To provide readers with some guidance from a practitioner’s perspective, we have prepared 50 questions which are divided into five sections: overall picture, routes for evidence production, witness testimony, judicial expert opinion and electronic evidence and others. Over the course of the next few weeks, we will be publishing a series of blog posts targeting one section at a time. Section one was published on 1 May and can be found here. This blog post focuses on the second section, i.e., routes for evidence production.

Section 2: Routes for Evidence Production

  1. Can I apply for the court to investigate and collect evidence for me?
  2. Can the court investigate and collect evidence ex officio?
  3. What are the procedures for the court to investigate and collect evidence?
  4. Can I request my counterparty or a third party to disclose evidence under his/her control?
  5. What are the conditions to apply for an Order for Disclosure?
  6. What are the legal consequences if my counterparty refuses to obey an Order for Disclosure?
  7. Can I apply for evidence preservation to court?
  8. What are the requirements for application for evidence preservation?
  9. What measures may the court take to preserve evidence?
  10. What are the legal consequences if I make a wrongful application for evidence preservation?

 

  1. Can I apply for the court to investigate and collect evidence for me?

Yes, if in circumstances where the parties and their attorneys are unable to produce evidence for objective reasons. These include circumstances where (i) the evidence is kept by relevant State authorities, and the parties and their attorneys have no right to inspect or have access to it; (ii) the evidence involves State secrets, business secrets or personal privacy; or (iii) any other evidence for which the parties and their attorneys could not produce for objective reasons.

Note that such an application shall be filed during the litigation proceeding and not prior to commencement of litigation.

  1. Can the court investigate and collect evidence ex officio?

If the court deems it necessary, the court may investigate and collect evidence ex officio. However, the court’s discretionary power is limited to prescribed circumstances, which include where (i) the evidence may harm State interests and/or public interest; (ii) evidence relating to identity relationship; (iii) evidence in disputes involving environmental pollution, infringement on vast consumers’ rights and damage to ecological environment and resource protection; (iv) there is a possibility that the parties maliciously conspire to harm the legitimate interests of others; or (v) evidence related to procedural matters like the joining of a third party, suspension, termination or abstention.

  1. What are the procedures for the court to investigate and collect evidence?

The court may direct at least two staff members (judge or court clerk) to jointly carry out the investigation and collection. The court shall make an investigation record detailing (i) the sources of the evidence collected, (ii) the process of investigation, and (iii) the investigators involved. The person and/or entity under investigation and the recorder shall then sign on the investigation record.

In respect of investigating and collecting evidence for conducting judicial appraisal, the New Evidence Rules specifically requires the court to further comply with technical requirements to ensure that the evidence would not be contaminated.

  1. Can I request my counterparty or a third party to disclose evidence under his/her control?

Yes. The regime of Order for Disclosing Evidence under Control of Counter Party (Order for Disclosure) is for the first time detailed with operational rules in the New Evidence Rules.

Though the Order for Disclosure is established for documentary evidence, it is worthy to note that Article 99 of the New Evidence Rules provides that these shall also apply to audio-visual materials and electronic data.

However, the Order for Disclosure only applies to parties in the proceeding and not any third party. That is because the New Evidence Rules are subject to and may be limited by the provisions in the CPL.

  1. What are the conditions to apply for an Order for Disclosure?

The applicant shall describe the name or contents of evidence, elaborate the importance of the facts to be proved, the basis of its belief of the Counter Party’s direct or indirect control and also reasons for requiring the disclosure of such evidence. The applicant shall submit a written application before the expiry of the time limit for evidence production as set by the court.

Note that the scope of evidence which an evidence controller shall disclose is limited. Such evidence includes (i) evidence which has been cited by the evidence controller; (ii) evidence prepared for the interests of the other party (applicant); (iii) evidence to which the other party (applicant) has a legal right to obtain; (iv) account books and original vouchers for book-keeping; or (v) other circumstances where the court finds such evidence shall be disclosed.

It is particularly noted that for evidence within the prescribed scope above which involve State secrets, commercial secrets, personal privacy of parties, or under circumstances where the law stipulates, the evidence controller may also be required to disclose the same but admissibility test shall not be conducted openly.

  1. What are the legal consequences if my counterparty refuses to obey an Order for Disclosure?

If the evidence controller refuses to disclose evidence as ordered without justified reasons, the court may deem the fact to be proved as true. If the evidence controller for the purpose of obstructing the applicant from using or relying on evidence, destroys that evidence or causes that evidence to become unusable, the court may penalise the evidence controller with either a fine or detention or both, and most importantly the court may deem the fact to be proved as true. This is to deal with the difficulty in practice where a party would rather be penalised than give out key evidence.

  1. Can I apply for evidence preservation to court?

Yes. There are two different types of evidence preservation at law – evidence preservation by court and by a notary public. A notary public’s function is to witness the process of a party’s own attempt to collect or preserve evidence to increase the credibility of the evidence collected. A court may preserve evidence which is in the possession of the applicant’s counterparty or third parties.

  1. What are the requirements for application for evidence preservation?

The applicant may apply for evidence preservation prior to the commencement of litigation or during litigation. The CPL provides grounds for such application where evidence may be destroyed or become difficult to obtain. For evidence preservation at the pre-action stage, urgency should be further proved.

Do note that during litigation the party shall file the application before the expiry of the time limit for evidence production. The court may request for security from the applicant should preservation cause any loss to the evidence holder.

  1. What measures may the court take to preserve evidence?

The court is authorised to preserve evidence through a range of measures. It can seal, seize, photograph, audio or video record, photocopy or inspect the object, or take witness statements, per the application and other specific circumstances as may be considered as necessary by the court. If there are several measures which could fulfil the purpose of evidence preservation, the court shall select a measure which has the least impact on the interests of the evidence holder.

  1. What are the legal consequences if I make a wrongful application for evidence preservation?

The New Evidence Rules added a new Article 28 to clarify its position on compensation for wrongful preservation. If an applicant is deliberately or grossly negligent in making the application for which the evidence holder suffers property damage, the applicant shall compensate the evidence holder.

Stay tuned for next week’s blog post which will focus on the third section, witness testimony.

If you have any questions or would like to discuss any aspect of this post, please contact:

Cathy Liu
Cathy Liu
Partner, Kewei, Shanghai
+86 21 2322 2158
Helen Tang
Helen Tang
Partner, HSF Shanghai
+86 21 2322 2160
Jean Zhu
Jean Zhu
Counsel, Kewei, Beijing
+86 10 6535 5041
Stella Hu
Stella Hu
Senior Consultant, HSF Beijing
+86 10 6535 5017

Litigation in Mainland China under New Evidence Rules: Your 50 questions

The Supreme Court of People’s Republic of China (SPC) formally promulgated the amended version of Several Provisions of the SPC on Evidence for Civil Litigation (New Evidence Rules) on 25 December 2019, which comes into effect today, 1 May 2020. The New Evidence Rules together with Chapter VI of the Civil Procedure Law of the People’s Republic of China (amended in 2017) (CPL) and Chapter IV of the Interpretations of the SPC on Application of the CPL (issued in 2015) (2015 Judicial Interpretation) have now covered most evidential rules which constitute a major part of litigation practice.

The New Evidence Rules with 100 articles maintain the structure of the old Evidence Rules covering six aspects including “parties’ statements”, “court’s investigation, collection and preservation of evidence”, “time limit for producing evidence and evidence exchange”, “examination and cross-examination”, “evidence verification” and “miscellaneous”. However, the New Evidence Rules also reflects the development of litigation practice in past years and addresses the resolution of disputes arising out of the use of modern technology.

There are many highlights in the New Evidence Rules. To provide readers with some guidance from a practitioner’s perspective, we have prepared 50 questions which are divided into five sections: overall picture, routes for evidence production, witness testimony, judicial expert opinion and electronic evidence and others.

Over the course of the next few weeks, we will be publishing a series of blog posts targeting one section at a time.  This blog post focuses on the first section, i.e., the overall picture.

Section I Overall Picture

  1. What forms of evidence would a Chinese court accept?
  2. Are there any formality requirements for evidence produced outside Mainland China?
  3. What are the routes available for me to produce evidence?
  4. How is the burden of proof allocated between parties?
  5. What standards am I to satisfy when bearing the burden of proof?
  6. Are there any facts that I am relieved of proving?
  7. When shall I submit evidence to court?
  8. When will parties present evidence and determine its admissibility before court?
  9. What is the process of assessing evidence?
  10. How does a Chinese court give weight to each evidence?

 

  1. What forms of evidence would a Chinese court accept?

The CPL sets out eight types of evidence, namely parties’ statements, documentary evidence, physical evidence, audio-visual materials, electronic data/evidence, witness testimony, judicial expert opinion and inspection record.

  1. Are there any formality requirements for evidence produced outside Mainland China?

The New Evidence Rules have relaxed formality requirements that were mandatory in the past. For evidence produced abroad, if it is documentary evidence by officials or authorities, such evidence shall be notarised by a local notary public or shall comply with the certification requirements in bilateral treaties if applicable. However, if it is evidence related to identity, such evidence shall be notarised by a local notary public and legalised by the Chinese embassy in that country, or shall comply with the certification requirements in bilateral treaties if applicable. If it is evidence to prove contractual relationship or other facts between parties, there are no longer strict formality requirements and the veracity of such evidence could be examined the same way as evidence produced within mainland China through examination and cross-examination.

The position on formality requirements for evidence produced in Hong Kong, Macau and Taiwan remains the same whereby such evidence is to be attested before an attestation officer (Hong Kong and Macau) or notarised before a local notary public (Taiwan).

  1. What are the routes available for me to produce evidence?

In general, a party may collect and produce evidence on its own. The court may provide support upon application on certain conditions, which include ordering the other party to disclose evidence under that party’s control; exercising its power to investigate and collect evidence, or ordering for evidence preservation. Moreover, the court may also investigate and collect evidence ex officio in prescribed circumstances.

  1. How is the burden of proof allocated between parties?

A party shall submit evidence to prove facts that it relies on to establish claims and rebuts the counterparty’s counterclaims or defence. By default, a party who contends the existence of a legal relationship shall have the onus to prove. If the other party contends any variation, termination or hinderance, it shall prove basic facts of that contention. However, some special laws may reverse the default allocation of burden of proof. For example, in a tortious case for environmental pollution, the polluter shall assume the burden to prove that it should not be liable for the victim’s damages, its liability could be mitigated, or there is no causal link between its conduct and the victim’s damages.

The New Evidence Rules deleted the old rules about granting a court with the power to allocate the burden of proof between parties based on principles of fairness and good faith in consideration of parties’ capability to produce evidence. This provides certainty in the allocation of burden of proof.

  1. What standards am I to satisfy when bearing the burden of proof?

The general rule is that the party bearing the burden of proof has to prove the existence of facts on a balance of probabilities (more likely than not). The New Evidence Rules added new rules to enhance and lower this general standard in exceptional scenarios. For facts regarding fraud, coercion and malicious collusion or oral wills and gifts, the party has to prove beyond a reasonable doubt that such facts exist. For facts supporting procedural applications like preservations (interim measures) and recusal, the court may deem such facts exist if the party proves them as more probable than not.

  1. Are there any facts that I am relieved of proving?

Natural or universal rules stand without proof.

Parties do not need to prove facts that are widely known to all, induced by law, induced by a known fact based on daily-life experience and ascertained in a binding arbitral award, unless sufficiently rebutted by evidence to the contrary. Further, parties are relieved from proving basic facts ascertained in a binding court judgment and notarised by a notary public, unless the same has been sufficiently overturned by contrary evidence. It is interesting to note that the old rules give facts ascertained in a binding arbitral award the same probative value as ascertained in a binding judgment yet the New Evidence Rules lowers the value of facts ascertained in a binding arbitral award.

  1. When shall I submit evidence to court?

The claimant and the defendant shall submit evidential materials to meet the necessary conditions for filing either a claim or counterclaim. At the pre-hearing stage, the court may set a time period for producing evidence, which shall not be less than 15 days for the first instance and 10 days for the second instance. Alternatively, the parties themselves may agree on a time period to produce evidence which may be subject to the court’s approval. Parties are allowed to apply for a time extension for evidence production if there exists objective obstacle. However, whether to grant such extension is at the court’s discretion. The court may also give further time to submit rebuttal evidence if it deems necessary.

Note if a party submits evidence beyond the time limit, the court may require that party to provide reasons for the delay. If that party fails to do so or the court considers those reasons unjustified, the court may refuse to accept evidence, or accept evidence but reprimand that party or impose fines on that party or both.

  1. When will parties present evidence and determine its admissibility before court?

Normally, the court may convene a pre-hearing meeting called “evidence exchange meeting” for parties to present evidence and submit examination opinion on the veracity, legality and relevance of evidence. For complicated cases with significant amounts of evidence, there may be two or three “evidence exchange meetings” before the hearing. By contrast, for straightforward cases with limited evidence, parties may test the admissibility of that evidence directly during the hearing.

  1. What is the process of assessing evidence?

The typical process would be for one party, usually the claimant, to present its evidence and test the veracity, legality and relevance of the evidence of the opposing party. If there was evidence investigated and collected by the court, the assessment of such evidence would follow after the completion of the same for the parties’ evidence. The court may first need to explain the process of investigation and collection and status of these evidence to parties.

  1. How does a Chinese court give weight to each evidence?

The court assesses all the evidence and the evidential chain comprehensively, and examines the relevance of each piece of evidence. As for each individual piece of evidence, the court considers various factors in giving evidential weight like veracity, relevance, source, form and whether there exists any conflicting interest between the evidential holder or provider or witness and any of the parties involved.

Stay tuned for next week’s blog post which will focus on the second section, the routes for evidence production.

If you have any questions or would like to discuss any aspect of this post, please contact:

Cathy Liu
Cathy Liu
Partner, Kewei, Shanghai
+86 21 2322 2158
Helen Tang
Helen Tang
Partner, HSF Shanghai
+86 21 2322 2160
Jean Zhu
Jean Zhu
Counsel, Kewei, Beijing
+86 10 6535 5041
Stella Hu
Stella Hu
Senior Consultant, HSF Beijing
+86 10 6535 5017

Hong Kong court holds asymmetric jurisdiction clause not an exclusive choice of court agreement for the purpose of enforcement in the Mainland

In Industrial and Commercial Bank of China (Asia) Limited v Wisdom Top International Limited [2020] HKCFI 322, the Hong Kong Court of First Instance considered whether an asymmetric jurisdiction clause (AJC) would be regarded as an exclusive jurisdiction clause under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Ordinance). Continue reading

Hong Kong Court dismisses set aside application where party alleges arbitration agreement a sham

The Hong Kong Court of First Instance dismissed an application to set aside an arbitral award, rejecting claims that the underlying agreement was a sham and that enforcement of the award would be contrary to the public policy of Hong Kong. The Court did not accept that the Defendant had signed the relevant agreement as agent for another party, in order to conceal that party’s involvement in breach of his fiduciary duties. If it had, the Plaintiff was complicit, and could not be allowed to benefit financially from the arrangement.

The Court also refused to set aside on public policy grounds. Hong Kong courts construe the public policy ground narrowly. Moreover, a set aside application must clearly set out the grounds on which it is based, as must the supporting affidavit; the Court cannot consider any other grounds. Continue reading

Stop, collaborate and listen: first recognition and assistance granted to Mainland liquidators in Hong Kong

In a long-awaited development of cross-border insolvency cooperation between Hong Kong and Mainland China, the Hong Kong Court has granted recognition and assistance to Mainland liquidators for the first time in Joint and Several Liquidators of CEFC Shanghai International Group Ltd [2020] HKCFI 167.

Background

CEFC Shanghai International Group Ltd (“CEFC“), a company incorporated in Mainland China, was wound up on the grounds of insolvency by the Shanghai Intermediate People’s Court and liquidators were appointed.  Upon their appointment, the liquidators discovered that CEFC’s assets included a claim against its Hong Kong subsidiary, Shanghai Huaxin Group (Hong Kong) Limited (“SHG“), amounting to some HK$7.2 billion (the “SHG Receivable“), for which CEFC had filed a proof of debt in SHG’s liquidation. They also discovered that, prior to liquidation, one of CEFC’s creditors (the “Creditor“) had obtained default judgment against CEFC in Hong Kong for approximately Euro 29 million, and subsequently a garnishee order nisi in respect of the SHG Receivable. In order to prevent the Creditor from obtaining a garnishee order absolute, CEFC’s liquidators made an urgent application to the Hong Kong Court for recognition and assistance and to stay the Creditor’s garnishee proceedings.

The Hong Kong Court granted the recognition and assistance requested by the Mainland liquidators and the garnishee proceedings were successfully stayed.

Garnishee orders in light of foreign bankruptcies and insolvencies

Notably, Mr Justice Harris rejected the application in Hong Kong of the longstanding English House of Lords case of Galbraith v Grimshaw [1910] AC 508. In Galbraith, the House of Lords decided that where a foreign bankruptcy proceeding (in that case a Scottish ‘sequestration’) occurred after an English garnishee order nisi, the judgment creditor prevailed over the Scottish trustee in bankruptcy.  In effect, the domestic insolvency proceeding ‘trumped’ the foreign insolvency proceeding. In CEFC Shanghai, Mr Justice Harris held that the analysis in Galbraith was inconsistent with contemporary cross-border insolvency law and its reasoning was inapplicable to modern common law cross-border insolvency assistance.

Applicable principles on recognition

Mr Justice Harris held that the following criteria must be satisfied before recognition and assistance is granted to insolvency proceedings that were opened in a civil law jurisdiction:

  1. the foreign insolvency proceedings are collective insolvency proceedings; and
  2. the foreign insolvency proceedings are opened in the company’s country of incorporation.

Both criteria were satisfied in this case.

Mr Justice Harris went on to explain that recognising foreign insolvency proceedings and providing assistance does not mean that the Hong Kong Companies Court will grant a foreign liquidator all the powers available to liquidators in Hong Kong under the Companies (Winding Up and Miscellaneous Provisions) Ordinance.  The common law power of assistance is limited to:

  1. enabling foreign officeholders to do something which they can do under the law by which they were appointed (and does not extend to additional powers under another country’s insolvency regime);
  2. only when it is necessary for the performance of the foreign officeholders functions; and
  3. consistency with the substantive law and public policy of the assisting court.

In circumstances where liquidators are appointed in jurisdictions with similar insolvency regimes to Hong Kong, Mr Justice Harris held that the assistance may extend to granting orders that give the foreign liquidators substantially similar powers.

Ordering recognition and assistance in conventional terms on the facts of this case, Mr Justice Harris recognised that Mainland insolvency law corresponds to Hong Kong insolvency law in terms of the liquidator’s powers and duties and imposition of stay. The Court did strike a note of caveat though in holding that for greater level of assistance to be provided to the Mainland liquidators in the future, there ought to be reciprocity and therefore future similar matters will be decided on a case by case basis.

This is a very significant case demonstrating the closer collaboration between the Mainland and Hong Kong judicial authorities in relation to insolvency matters.  It is, in fact, the first case where a Hong Kong Court has recognised and assisted Mainland liquidators. It will be very interesting to see how far the Mainland Courts will go in providing recognition/assistance to Hong Kong insolvency officeholders going forward. The further development of cross-border recognition and cooperation in this area will likely be dependent on how far the Hong Kong Court is satisfied that the Mainland, like Hong Kong, promotes a unitary approach to cross-border insolvencies.

 

Gareth Thomas
Gareth Thomas
Partner, Head of Commercial Litigation, Hong Kong
+852 2101 4025
Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629
Alexander Aitken
Alexander Aitken
Partner, Hong Kong
+852 2101 4019
Philip Lis
Philip Lis
Senior Associate, Hong Kong
+852 2101 4212
Priya Aswani
Priya Aswani
Professional Support Lawyer
+65 6868 8077

HONG KONG COURT CLARIFIES JURISDICTION TEST FOR CONTRACTS WITHOUT EXPRESS JURISDICTION AND DISPUTE RESOLUTION CLAUSES

In Hong Ziyun v Chan Kwan Ming [2019] HKCFI 2125, the Court of First Instance considered the relevant jurisdiction applicable to a host of related loan documents where only one of the documents contained an express jurisdiction clause (in favour of the court of Xiamen in Mainland China). The defendants applied for a stay of proceedings in Hong Kong in favour of Mainland China. The court granted the application and provided useful guidance on determining the relevant jurisdiction for dispute resolution where the contract is silent on the issue.

Background

The plaintiff, who extended two loans to the defendants, issued proceedings in Hong Kong against five defendants. Defendants 1 and 2 (D1-2) were the borrowers and were being sued for default of two loans, and defendants 3 to 5 (D3-5) were the guarantors and were being sued for failure to pay up under the guarantee provided against the two loans. Following D1-2’s default in payment of the first loan and in payment of the interest due under the second loan, the parties entered into a Supplemental Agreement (SA) in which D1-2 acknowledged their default and agreed, among other things, to pay additional interest.

The SA included an express jurisdiction clause in favour of Mainland China which stated that disputes connected with the loan agreement should be submitted to the Xiamen Court (the Mainland Court). The defendants applied to the Hong Kong Court to stay proceedings in favour of the Mainland Court, arguing that (i) the express jurisdiction clause was exclusive (although this was not expressly provided for) and applied to all the loan documents; and (ii) the proceedings should be conducted in the Mainland Court considering the best interests and convenience of the parties and witnesses (i.e., on the ground of forum non conveniens).

Judgment

The court found that the correct jurisdiction and place for dispute resolution for all of the loan documents was the Mainland Court. In doing so, it held that the following factors were important in determining the correct forum:

  1. When there is no express jurisdiction clause, the applicable law is that which has the “closest and most real connection” with the transaction.
  2. Most of the defendants’ business was in Mainland China They also spent most of their time in Mainland China. On the evidence presented, the court was unable to place significant reliance on the permanent “residence” of any of the defendants in Hong Kong as showing any real or closest connection with Hong Kong.
  3. The location of the debt, currency, and place of performance of the loans as well as the execution of and governing law clause in the SA all had a strong connection with Mainland China.

Notably, the court advised that the approach for dealing with connected documents (which in this case were the first loan agreement, the second loan agreement, the guarantee and the SA) should be to take a practical view and deal with all disputes associated with a transaction in one jurisdiction. The court also found that the plaintiff was unable to demonstrate strong reasons (i) not to give effect to the parties’ choice of forum (namely Mainland China); and (ii) to stay the proceedings in Hong Kong.

Further, in obiter, the court noted that:

  1. the parties could only have intended to litigate exclusively through the Mainland Court because the test is (when looking at the express jurisdiction clause) to construe the meaning of the clause as it would convey to a reasonable person having all the background knowledge reasonably available to the parties at the time of the contract; and
  2. the absence of a conclusive word such as “exclusive”, “must” or “shall” is not fatal or conclusive and does not mean a jurisdiction clause cannot be construed as exclusive. The test is whether the agreement obliged a party to litigate in the chosen jurisdiction.

Taking all the above factors into consideration and the fact that the express jurisdiction clause stated it was to apply to disputes connected with the loan documentation, the court held that the clause in question was an exclusive jurisdiction clause and applied to all the loan documents.

Comment

This judgment serves as a reminder of the factors the Hong Kong court will take into account when deliberating jurisdictional issues. It also provides practical guidance on the approach the courts will take in interpreting jurisdiction clauses and in respect of stay of proceedings when faced with disputes arising from different documents (some of which may be silent on jurisdiction) which are all part of the same transaction.

 

Gareth Thomas
Gareth Thomas
Partner, Head of Commercial Litigation, Hong Kong
+852 2101 4025
Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629
Jojo Fan
Jojo Fan
Senior Consultant, Hong Kong
+852 2101 4254
Priya Aswani
Priya Aswani
Professional Support Lawyer
+65 6868 8077