Hong Kong – Lack Of A Credible Defence Per Se Is Far From Being A “strong Cause” For The Court To Override An Exclusive Jurisdiction Agreement.

31 October, 2018

 

Contracting parties may, by contract, agree that any dispute that may arise between them will be resolved by the courts in a particular named jurisdiction. This may be done by way of an exclusive jurisdiction clause.

 

Where there is an exclusive jurisdiction clause, the Hong Kong court retains a discretion, but should exercise that discretion in favour of granting a stay of proceedings commenced by the plaintiff in favour of the named jurisdiction, unless “strong cause” for not doing so is shown. The burden of proving such strong cause is on the plaintiff.

 

It is to be contrasted with the situation where no such exclusive jurisdiction clause has been agreed upon by the parties. In such situation, 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 (known as the “forum non conveniens”). In such applications for a stay, the parties will produce evidence in support of what they contend to be the appropriate jurisdiction and the court will perform a balancing exercise between various factors to arrive at a view on the appropriate forum for resolving the dispute.

 

It becomes immediately apparent that the considerations of the court and the burden of proof on the party applying for a stay of proceedings are entirely different in situations where there is an exclusive jurisdiction clause and where there is none. In the former situation, the Hong Kong courts have consistently adopted an approach in favour of upholding contractual bargains between parties, namely in the line of cases including Euromark Ltd v Smash Enterprises Pty Ltd[2013] EWHC 1627 (QB) and Hyundai Engineering & Construction Co., Ltd v UBAF (Hong Kong) Ltd(unreported) HCA 175/2012, 25 September 2013. Hong Kong’s Court of First Instance, in the recent case of Deltatre S.P.A. v Hong Kong Sports Industrial Development Ltd & Anor, HCA 1303/2017,again followed the approach and endorsed the policy reason addressed by the court in Hyundai Engineering that predictability, consistency and stability in the resolution of international commercial disputes are critical to international commerce. Parties’ own agreements on how and where they resolve disputes must not be disturbed too readily, if at all. 

 

In Deltatre, the dispute arose out of the live streaming of football matches from the UEFA European Championship finals held in France in 2016. The main question before the Court was whether Hong Kong courts should refuse to stay a claim brought in breach of an exclusive jurisdiction clause simply because the defendant (D) had shown no credible defence. This was the joint hearing of D’s application for a stay of proceedings based on an exclusive jurisdiction clause in favour of the Italian courts in Torino, and the plaintiff’s (P) subsequent cross-application for summary judgment or alternatively interim payment. P took the position that the lack of a credible defence per se constitutes a sufficiently strong cause to override the parties’ own exclusive jurisdiction agreement (see, e.g., Standard Chartered Bank v Pakistan National Shipping Corporation & Ors [1995] 2 Lloyd’s Rep 365). D submitted that the Court ought to take the hardline approach and strive to uphold the parties’ bargain on jurisdiction, irrespective of substantive merits per se (see, e.g.,Euromark and Hyundai Engineering).

 

The Court held that the Euromark line of authorities is more consistent with the relevant leading authorities and the strong policy of respecting the parties’ own jurisdiction agreement.  It should be preferred over the Standard Chartered Bank line of authorities in the present case.

 

As to what constitutes a “strong cause”, after considering the authorities, the Court agreed with the submissions of D’s counsel that “strong cause” encompasses either something unforeseeable at the time of contract, or something so exceptional that goes to the interests of justice. Absent issues on the interests of justice, the lack of credible defence per se is far from being a “strong cause” for the Court to take the drastic step to override an exclusive jurisdiction agreement.

 

Given P’s failure to show any “strong cause” to persuade the court to override the exclusive jurisdiction clause, D’s stay application succeeded.  It followed that P’s application for summary judgment or interim payment must be dismissed. Costs of both applications were ordered against P on an indemnity basis.

 

A lesson to be learnt is that contracting parties should be cautious in deciding on whether or not the agreement should include an exclusive jurisdiction clause, and if so, what jurisdiction it should be since once the agreement provides for such, it is expected that the parties will be held to their agreement. One cannot put it more succinctly than Rix LJ in the judgment of Ace Insurance SA-NV v Zurich Insurance Co & Another (at p.820a), who said “…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”. Given the weight of the consequence of this issue, it may be worth seeking legal advice on the same when you prepare your next agreement.