Last year, Deacons reported on a Hong Kong High Court case The Export-Import Bank of China v Taifeng Textile Group Company Limited & Another (HCMP 3012 & 1684/2015;  HKCFI 1840) on the enforcement of Mainland judgments in Hong Kong.
Last month, the High Court once again construed a jurisdiction clause in a way which would facilitate the enforcement of a Mainland judgment in Hong Kong in 黄书建 v 代威 (HCMP 1556/2017  HKCFI 1386), providing important guidance to parties seeking to enforce a Mainland judgment.
The Applicant registered a Mainland judgment under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597) (Ordinance) in Hong Kong. The Respondent then applied to set aside the registration on the ground that the subject agreement did not contain a “choice of Mainland court agreement” as required under the Ordinance for enforcement purposes. Section 3(2) of the Ordinance defines the “choice of Mainland court agreement”.
Clause 6 of the agreement between the parties provided:
(Translation: If there is dispute in the course of the performance of this agreement, the parties should try to resolve their dispute through mutual consultation. If it is not successful, any party can, in the Beijing Chaoyang district which is the place for the signing and the making of this agreement, institute legal proceedings.)
Both parties adduced Mainland law expert opinions. The Respondent’s expert concluded that Clause 6 was a non-exclusive jurisdiction clause. He said the Chinese words “可以” used in Clause 6 were permissive rather than mandatory in nature and operated to confer a discretion upon the parties and did not confer exclusivity to the Mainland courts.
The Applicant’s expert concluded that it was an exclusive jurisdiction clause. He said that the adverbial “可” refers to the verb “起訴”. The phrase “向本合同簽訂地北京市朝陽區有管轄權的法院” qualifies the verb (action) “起訴”. Hence, the meaning is that if the dispute cannot be resolved by negotiation, any party can sue, but they are not obliged to sue. If they sue, they sue at the specified Mainland court and not other Mainland courts, i.e. the one with jurisdiction in the Chaoyang District in Beijing.
The Court held that Clause 6, construed under Mainland law, was an exclusive jurisdiction clause for the purpose of section 3(2) and dismissed the Respondent’s setting aside application.
7 important points to bear in mind in enforcement applications
|1.||In this case, the judge made the following points which were principles taken from the judgment in Taifeng:|
|(1)||To facilitate the enforcement of a Mainland judgment in Hong Kong by way of summary process, in construing whether a clause is an exclusive jurisdiction clause within the meaning of section 3(2), the Court, in giving effect to the legislative intent, is to look at the substance, rather than the form of the relevant clause. The exclusivity requirement may be met without using the word “exclusive” or other similar words.|
|(2)||The requirement for the “choice of Mainland court agreement” is to minimize the risk of parallel proceedings being instituted in the courts of both the Mainland and Hong Kong.|
|(3)||The jurisdiction clause should be construed in accordance with the governing law of the contract.|
|(4)||The judge held that the definition of “a choice of Mainland Court agreement” in section 3(2) does not require parties to limit their choice to a specified designated court. A general choice of the courts of the Mainland would suffice.|
|2.||It is an established conflict of law principle that the Hong Kong court will regard the contract as governed by the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connection. Applying such principle and taking into account all the Mainland elements involved in the making and the performance of the Agreement, there was no serious dispute that the governing law of the Agreement was Mainland law which also applied to the construction of Clause 6.|
|3.||The Applicant’s expert evidence was preferred – Clause 6 was an exclusive jurisdiction clause for the purpose of section 3(2) of the Ordinance. There is no statutory law in the Mainland relating to the difference between exclusive and non-exclusive jurisdiction clauses. Past judicial decisions are not binding and not part of the law, save and except the guiding cases published by the People’s Supreme Court to which the lower courts should refer in cases bearing similar facts.|
|4.||One should not lose sight of the factual matrix. All parties to the Agreement were Mainland individuals and entities and their place of residence, incorporation and business were all in the Mainland. The Agreement was executed in the Mainland, with the performance of the Agreement and its breach all in the Mainland. It would be against common or any business sense to suggest that, when the parties made the agreement contained in Clause 6, they intended that the parties would be free to commence legal proceedings outside the Mainland.|
|5.||It is only when the words are not clear that the Court would look at factors beyond the actual words used. In determining foreign law which is a special kind of fact, the judge is obliged to use his legal training where it has a bearing in determining such facts, especially where the concepts are not very different from Hong Kong law, and where appropriate may form his own view as to the law in another jurisdiction. The cardinal task of the court, both in the Mainland and Hong Kong, is to ascertain the intention of the parties in construing the terms of a contract. If the intention is clear, it would be very difficult for this Court to accept that the Mainland court would not give effect to such intention. In particular, whether a certain word is mandatory or permissive, even literally, depends on the context of the case.|
|6.||Under Mainland law, the word “可” does not only have one meaning, and the Mainland court may take into account all the circumstances of the case and factors beyond the written contract in construing the terms of a contract.|
|7.||Having considered the other Mainland legal materials before this Court, in particular Article 125 of the Mainland Contract Law and the judicial decisions referred to by the experts, there should not be a great difference between Mainland law and Hong Kong law so far as the construction of contractual terms is concerned. Hence, even based on the contractual interpretation principles under Mainland law, Clause 6 was an exclusive jurisdiction clause for the purpose of section 3(2) of the Ordinance.|
The more interesting feature of this case is in the observations of the governing law on the construction of the jurisdiction clause. The Court made the following 3 observations:-
|1.||The object of the Ordinance is to provide a summary mechanism for the enforcement of Mainland judgments in Hong Kong. It is therefore highly questionable whether it is the legislative intention behind the Ordinance to introduce technical and cumbersome argument over foreign law in the registration process, which is supposed to be a cost efficient alternative to enforcement via common law. Such approach is counter-productive to the facilitation of reciprocal enforcement of Mainland judgments in Hong Kong.|
|2.||All these arguments relating to Mainland law arise out of the requirement for a “choice of Mainland court agreement” as specified in the Ordinance. As the rationale for such requirement is to minimize the risk of parallel proceedings being instituted in the courts of both the Mainland and Hong Kong, it is an attractive proposition that the Hong Kong courts, without bothering with the Mainland law, can just apply Hong Kong law in construing the relevant jurisdiction clause. After all, if a Hong Kong court concludes that it has no jurisdiction to hear a claim by reason of the jurisdiction clause, there is no more risk of parallel proceedings.|
|3.||With the new Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region (Arrangement), which will come into operation at some future date, it is hoped that all these arguments relating to the requirement of a “choice of Mainland court agreement” can be avoided in future enforcement proceedings.|
Recently there has been more enforcement of Mainland judgments in Hong Kong through the registration mechanism provided under the Ordinance. However, equally there has been an increasing number of applications seeking to resist registration. Parties then employ expert witnesses offering completely opposite expert evidence in construing the relevant jurisdiction clause in the agreement. As a result, during the registration process, parties irresistibly involve very technical legal argument over the interpretation of Mainland law which is both costly and undesirable.
Whilst it is the intention of the Arrangement to provide a bilateral legal mechanism with greater clarity and certainty for recognition and enforcement of judgments in a wider range of civil and commercial matters between the two places, we have yet to see how the government will deal with the requirement of a “choice of Mainland court agreement” to avoid issues in interpreting jurisdiction clauses.
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