HONG KONG COURT INTERPRETS PRC-LAW GOVERNED JURISDICTION CLAUSES

In天津市裕豐隆資產管理有限公司 v Ho Kin Wa and Another, HCA 2405/2014 (unrep., 8 March 2019), the Hong Kong Court of First Instance exercised its discretion to stay the Plaintiff's claim against the 1^st Defendant (D1). In arriving at its conclusion, the Court considered (i) whether D1 had waived the right to dispute the jurisdiction of the Hong Kong courts; (ii) the proper construction of the jurisdiction clauses concerned in the present case; and (iii) whether there was strong cause for not granting a stay. This blog post focuses on the second issue.

Background

The case arose from the Plaintiff's claim against D1 and his wife, the 2^nd Defendant (D2), for the amount of outstanding service fees due under a guarantee agreement.

Pursuant to the guarantee agreement entered into between Shenzhen Great Wall International Investment Guarantee Holdings Co., Ltd* (深圳长城国际盛投资担保控股有限公司) (Guarantor) and Shenzhen Bank Longhua Sub-branch, D1 executed an indemnity drafted in Chinese (Indemnity Agreement) to indemnify the Guarantor of its liabilities under the guarantee, with D2 also signing on the Indemnity Agreement as a co-indemnifier. By a supplemental agreement to the Indemnity Agreement (Supplemental Indemnity Agreement), the due date of the performance of the Indemnity Agreement was extended to 28 December 2011. Both the Indemnity Agreement and the Supplemental Indemnity Agreement contained a choice of jurisdiction clause (collectively, Jurisdiction Clauses).

The Indemnity Agreement stated that:

"第七条 争议解决和法律适用

1.  双方就本协议的解释和履行发生的任何争议，应通过友好协商方式解决。未能通过友好协商方式解决的争议，甲乙双方… 应提交甲方所在地的有管辖权的人民法院诉讼解决。" (Emphasis added).

The Supplemental Indemnity Agreement stated that:

"四、争议解决和法律适用

1.  双方就本补充协议的解释和履行发生的任何争议，应通过友好协商方式解决。未能通过友好协商方式解决的争议，甲乙双方应提交甲方所在地的管辖权的人民法院诉讼解决。" (Emphasis added).

By an assignment of loan, the Guarantor transferred, among other things, all its rights and interests in the Indemnity Agreement and the Supplemental Indemnity Agreement to the Plaintiff with notice of assignment being given to D1 and D2. The Plaintiff claimed against D1 and D2 for the amount of the Guarantor's liabilities under the guarantee which they failed to pay, and entered a default judgment against D1. D1 later applied to set aside the default judgment and to dismiss or stay the Plaintiff's claim in favour of the Shenzhen Intermediate People's Court pursuant to Order 12, rule 8 of the Rules of the High Court (Cap. 4A).

Findings

The Court found in favour of D1 and ordered to stay the Plaintiff's claim against D1. In reaching its conclusion, the Court held that the Jurisdiction Clauses were exclusive in nature.

There was an express choice of law clause contained in each of the Indemnity Agreement and Supplemental Indemnity Agreement, which stipulated the Law of the People's Republic of China (PRC) as the applicable governing law. The Court took the view that the Jurisdiction Clauses should be construed in accordance with the PRC Law. In deciding whether the Jurisdiction Clauses were exclusive in nature, the Court considered Mainland legal expert opinions adduced by both parties. The judge held that he was bound to consider the opinions with his own legal skill and experience, in particular when the Jurisdiction Clauses were in Chinese, a language with which he was familiar.

To determine whether the Jurisdiction Clauses were exclusive, the Court held that the relevant question was whether, on its true construction, the clause obliged the parties to resort to the relevant jurisdiction, irrespective of whether the word "exclusive" was used. The Court applied the same approach as laid down by the Court of Appeal in Rich Village Limited v Grand Pride Holdings Limited & Another, CACV 224/2012 (unrep., 22 January 2013).

In Rich Village Limited, while Cheung CJHC (as he then was) noted that it was easy to use words such as "應" ("should"), "須" ("shall" or "must") or the like to specify an obligation under a clause, he went on to consider how the word "應" was used in the contract concerned in that case. He observed that the word "應" was used regularly under various clauses in the contract to express mandatory obligations and that none of the words such as "應", "須" or the like appeared in the jurisdiction clause in the contract. Therefore, together with other factual circumstances, he concluded that the jurisdiction clause in that case was not exclusive.

In the present case, the Court observed that in the Indemnity Agreement, the word "应" ("應") contained in the Jurisdiction Clauses, was used in other clauses to express mandatory obligations. Coupled with the Mainland legal expert opinions and his legal skill and experience, the judge concluded that the use of the Chinese word "应" was critical and decisive, and therefore, the Jurisdiction Clauses were held to be exclusive in nature.

Comments

This case is an interesting example of the Hong Kong Court applying common law principles of interpretation to interpret a particular provision in a contract drafted in Chinese and governed by PRC law. The Court relied on the parties' evidence of foreign law as appropriate and in particular on the terms used and against the entire factual matrix to determine its proper meaning. Whilst in such a case evidence of the applicable foreign law will be relevant, every word, sentence and punctuation (as well as a combination of them in other clauses in the contract) can be critical to the interpretation of a contract. This is the case regardless of whether the contract is drafted in English or Chinese.