On 23 August 2024, the Court of First Instance of the High Court (“Court“) in ING Bank N.V. v Industrial and Commercial Bank of China Limited [2024] HKCFI 2220 dismissed the defendant’s application for proceedings to be stayed in favour of Xi’an Intermediate People’s Court (“Xi’an Court“) on the ground of forum non conveniens (“FNC“).

The judgment contained a helpful summary of the principles governing FNC challenges and in particular where foreign law is said to apply to the matters in dispute.

Background

The plaintiff, a well-known international bank and one of Europe’s largest, was the vendor’s banker in a series of international sale of goods transactions with a total value of around US$171 million.  The defendant is one of the largest banks in the world.

The payment terms for the transactions were DP (documents against payment) at sight.  Pursuant to this arrangement, the documents of title and other commercial documents were delivered by the plaintiff (as the remitting bank) to the High-Tech Industries Sub-Branch of the defendant (“HTI-SB“) (as the collecting bank) for collection of the purchase price from the purchaser.  The International Chamber of Commerce (“ICC“) Uniform Rules for Collections 522 (“URC“) were incorporated into the contract between the plaintiff and the defendant.

The plaintiff claimed that the defendant acted contrary to the collection instructions given to its branch HTI-SB and released the documents to the purchaser without collecting the purchase price.  The defendant denied that it was required to act in accordance with the vendor’s direct instructions and relied on course of dealings and applied for proceedings to be stayed in favour of Xi’an Court.

Principles on FNC

The Court applied the test of FNC summarised in SPH v SA [2014] 17 HKCFAR 364 at [51] as follows:-

(a) The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action, ie, in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

(b) In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum which has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

(c) If the applicant is able to establish both of these two points, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

(d) If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.

The Court’s Analysis

Appropriate Forum

As a first step, the Court looked for the forum which has the most real and substantial connection with this action taking into account the following factors:

1. The transactions in dispute were initiated from Hong Kong by the plaintiff and concluded between the plaintiff and a branch of the defendant based in Xi’an;
2. The defendant was (and is) listed on the Stock Exchange of Hong Kong and does business in Hong Kong;
3. The URC were central to the terms agreed by the parties and the URC were (and are) well-recognised and applied in Hong Kong;
4. The relationship between the vendor and the plaintiff was governed by Hong Kong law;
5. The payments to be collected by the defendant were to be made to the plaintiff in Hong Kong, which is a key step in international transactions;
6. The plaintiff in Hong Kong would have to be informed if no payment was received; and
7. The documents would be returned to Hong Kong if their presentation was not accepted.

Governing Law

The defendant asserted that Chinese law governed the relationship between the plaintiff and defendant and so the issue of governing law was also a key issue in the application.  Nonetheless, the Court agreed with the plaintiff that (a) the Court would not make a final decision on proper law, which may be revisited at trial; (b) the Court would consider the proper law to assess the appropriate forum; and (c) if there is a good arguable case that Hong Kong law is the proper law, then it should follow that Hong Kong court is the appropriate forum.

In determining whether Hong Kong has the closest and most real connection with this action, the Court considered the following factors:

• The factors identified above;
• The contracts constituted by the collection instructions were made in Hong Kong;
• Hong Kong is a well-recognised international financial centre with a sound legal system;
• Hong Kong applies the common law system which is widely used by businessmen to resolve their differences. Hong Kong laws are generally in step with international commercial practice; and
• Hong Kong courts are familiar with the exercise of applying Mainland laws.

After evaluating the above factors, the Court believed that there is a good arguable case that Hong Kong law is the proper law because Hong Kong has the closest and most real connection with this action.

Accordingly, although the Court accepted that the Xi’an Court is perfectly capable of dealing with international transactions of the present type, the Court concluded that Hong Kong is the appropriate forum which has the most real and substantial connection with this action and it was not satisfied that Xi’an Court is clearly or distinctly more appropriate forum to hear this action.

Takeaways

This case provides helpful guidance on the jurisdictional disputes and conflict of law issues where the parties have not incorporated a jurisdiction or governing law clause in their contracts as is common in documentary credit and collection arrangements between trade finance banks.

Jurisdiction disputes of this nature can often be avoided by incorporation of suitably drafted jurisdiction or arbitration and governing law clauses in transaction documents.

Please see full judgment here.