Concurrent legal proceedings in HK and the mainland

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This article looks at the situation where a Hong Kong plaintiff has commenced proceedings in Hong Kong against a mainland Chinese defendant who subsequently applies to the Hong Kong court to stay those proceedings in favour of proceedings already commenced or intended to be commenced by the defendant in the mainland.

Where the mainland proceedings have not yet commenced, the defendant must identify the specific court in the mainland that it asserts is the appropriate forum for the dispute. It must also show that the plaintiff will be able to bring its case in the mainland, to ensure that if the plaintiff’s proceedings in Hong Kong are stayed, it does not find itself in a position where the mainland court does not allow him to bring proceedings there for jurisdictional reasons.

The Hong Kong court has to decide whether the interests of all parties, and of justice, will best be served by proceedings in Hong Kong or the mainland. To make that decision, it will consider the following factors.

Kwok_Kit_Cheung
Kwok Kit Cheung

Proceedings pending in the mainland. Where there are proceedings pending in the mainland relating to the same or similar issues as those in the Hong Kong proceedings, the Hong Kong court will take this into account when deciding whether to stay the proceedings, as there is the possibility of the courts rendering entirely conflicting decisions. Which proceedings were started first is not a decisive factor.

Accordingly, Hong Kong proceedings commenced first can still be stayed in favour of mainland proceedings and Hong Kong proceedings commenced after mainland proceedings may be allowed to proceed. However, where the mainland proceedings are at an advanced stage, this will be a strong factor in favour of staying the Hong Kong proceedings.

Philipp_Hanusch
Philipp Hanusch

Foreign governing law. The fact that the contract in dispute is stated to be governed by a law other than Hong Kong law is unlikely to be a significant factor in favour of staying the Hong Kong proceedings because Hong Kong courts often have to apply foreign laws in cross-border disputes. In respect of contracts stated to be governed by mainland law, there are cases where mainland courts were found to be naturally generally better placed than Hong Kong courts to apply mainland law, and equally cases where it has been held that applying mainland law presents no particular difficulty for Hong Kong courts. It is perhaps no longer appropriate to treat mainland Chinese law as entirely “foreign”, because Hong Kong courts may take direct judicial notice of both mainland statutes and case law.

Language. While language of documents and witnesses can be an important factor, documents in Chinese and witnesses giving evidence in Chinese are unlikely to make Hong Kong an inappropriate forum, because Chinese is one of the languages used in Hong Kong. This is even so where the trial is to be in English, as Hong Kong has excellent translation services.

Convenience of the parties and witnesses. The location of the parties, witnesses and documents required for trial is a factor taken into account by the court. However, given mainland China’s proximity to Hong Kong, the fact that documents and even witnesses are located in the mainland will these days count for very little, unless compellability is an issue.

Quality of justice. Hong Kong parties are sometimes reluctant to litigate in mainland courts because they consider the court system relatively complex, mainland courts unpredictable, or they fear corruption or regional protectionism, especially where the interests of state-owned enterprises are concerned. However, these days Hong Kong courts are unlikely to grant a stay on this ground.

Jurisdiction clauses. The court will take into account any jurisdiction clause in the relevant contract. If a contract contains a non-exclusive jurisdiction clause, allowing the parties to submit any dispute to Hong Kong while remaining free to commence proceedings elsewhere, and the Hong Kong party commences proceedings in Hong Kong, a mainland party seeking to stay the proceedings will have a heavy burden to discharge. The mainland party will have to show strong and overwhelming reasons or exceptional circumstances, such as the existence of factors not contemplated by the parties at the time the jurisdiction clause was agreed.

Where the contract contains an exclusive jurisdiction clause, providing that a particular mainland court shall have exclusive jurisdiction in the event of a dispute, the Hong Kong court will normally enforce that agreement. Although the Hong Kong court still has discretion as to whether to stay proceedings brought in breach of an agreement to refer disputes exclusively to a mainland court, the Hong Kong court should exercise that discretion by granting a stay, unless there are strong grounds for not doing so.

Personal or juridical advantage. If the Hong Kong court decides that the mainland court appears to be the more appropriate forum for resolution of the dispute, it will usually grant a stay, unless the plaintiff can show that there will be certain advantages to litigating in Hong Kong, or disadvantages to litigating in the mainland. Examples of possible juridical advantages of Hong Kong are where the defendant’s assets are in Hong Kong and the plaintiff would encounter difficulties enforcing a mainland judgment in Hong Kong, where the plaintiff seeks specific performance of a contractual obligation – as we understand that such remedy is rarely granted by mainland courts – or where the plaintiff’s claim would be time-barred in the mainland – where limitation periods are generally shorter than in Hong Kong – and the time bar was not self-inflicted.

Conclusion

There are various factors considered by the Hong Kong courts when dealing with an application for stay of proceedings by reason of forum non conveniens. From the decided cases, none of the factors on their own are decisive and the Hong Kong courts weigh the pros and cons of granting a stay by considering all factors relevant to the case to reach a fair decision.

Cheung Kwok Kit is a Hong Kong-based partner at Deacons. He can be contacted on +852 2825 9427 or by email at [email protected]deacons.com.hk
Philipp Hanusch is a Hong Kong-based associate at Deacons. He can be contacted on +852 2826 5314 or by email at [email protected]deacons.com.hk