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Asymmetric jurisdiction clause held by Hong Kong Court of First Instance not compatible with a choice of Hong Kong court agreement

News / / Hong Kong

The Court of First Instance recently handed down a significant judgment relating to asymmetric jurisdiction clause ("AJC") in Industrial and Commercial Bank of China (Asia) Limited v Wisdom Top International Limited [2020] HKCFI 322 (the "Case"). It will impact Hong Kong creditor who seeks to enforce a Hong Kong judgment against a defaulting debtor in the Mainland to ensure that the jurisdiction clause is drafted carefully in the future.

Background

The plaintiff bank obtained a default judgment in relation to a facility agreement against the defendant on 1 April 2019, and seek an ex parte application to the Court of First Instance for a certified copy of the judgment and a certificate issued by the High Court for the purpose of enforcement in the Mainland.

Under section 21(1)(a) of the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597 of the Laws of Hong Kong) (the "Ordinance"), the relevant judgment must be one from "the High Court which is a chosen court".  A "chosen court" is defined in section 2 of the Ordinance to mean the court specified in a "choice of Hong Kong court agreement", which is further defined in section 3 of the Ordinance to mean "an agreement concluded by the parties to a specified contract and specifying the courts in Hong Kong or any of them as the court to determine a dispute which has arisen or may arise in connection with the specified contract to the exclusion of courts of other jurisdictions" (emphasis underlined).  This was to give effect to the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the HKSAR Pursuant to Choice of Court Agreements between Parties Concerned signed in 2006 (the "2006 Arrangement").

The relevant jurisdiction clause in the facility agreement states as follows:

"(a) Subject to paragraph (c) below, the courts of Hong Kong have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a "Dispute").

(b) The Parties agree that the courts of Hong Kong are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

(c) This Clause … is for the benefit of the Lender only. As a result, the Lender shall not be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Lender may take concurrent proceedings in any number of jurisdictions."

Paragraph (c) allowed the plaintiff to take proceedings in courts outside Hong Kong and was considered as an AJC.  In the commercial world, an AJC is desirable from a creditor's perspective because it ensures that a creditor can always litigate in a debtor's home court whilst preserving its right to bring proceedings where the debtor's assets may be located at the time a dispute arises.  This increases the prospect of a creditor successfully recovering a debt.  By minimizing the risk that a debtor's obligations will be unenforceable, a creditor is more willing to provide finance at a lower cost, therefore passing on this benefit to the debtor.

The issue before the court was whether an AJC could be interpreted as a choice of Hong Kong court agreement.

The Court of First Instance decision 

The court did not agree that an AJC was a choice of Hong Kong court agreement.

The court has gone through a comprehensive analysis in reaching this conclusion, taking into account the nature of the jurisdiction clause, the statutory scheme under the Ordinance, the Hague Convention on Choice of Court Agreement, and various English authorities.  The court finally adopted the purposive approach and decided that the purpose of the requirement of a choice of court agreement is to minimize the risk of parallel proceedings.  While the failure to use the word "exclusive" was not fatal, the relevant clause was inconsistent with the purpose of the Ordinance.  Where the plaintiff bank is free to choose the jurisdiction, it goes against the spirit of the 2006 Arrangement when there is no certainty as to jurisdiction.  The court further disapproved the plaintiff's submission and held that the fact of an AJC being widely used in international financial documents was not the test under the Ordinance.

Comments

The Case provides clear authority on the Hong Kong court's reluctance in interpreting the AJC as satisfying the test of choice of Hong Kong court agreement for the purpose of enforcement in the Mainland.  Going forward, in considering the choice of jurisdiction clause, a creditor should assess whether the majority of a debtor's assets is located in the Mainland before advancing a debt.  If this is the case, we would recommend the creditor against an AJC because it is likely that any judgment obtained in Hong Kong will need to be enforced in the Mainland.

Alternatively, the parties could consider arbitration instead of court jurisdiction.  Arbitral awards obtained in the Mainland or Hong Kong are mutually enforceable through the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and Hong Kong.

It is worth mentioning that the requirement of the choice of Hong Kong court agreement is removed in the new Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the HKSAR which was signed in 2019 (the "2019 Arrangement").  However, the 2019 Arrangement has yet to come into effect and, until then, the Case will remain to be the legal authority in this area.

Janice Lee

Janice Lee Partner

Tonny Lee

Tonny Lee Senior Associate

Vincent Zhang

Vincent Zhang Registered Foreign Lawyer (PRC)

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