Asymmetric jurisdiction clauses provide that one party must sue in the courts of a specified jurisdiction, while allowing the other party to take proceedings in any jurisdiction. These are commonly seen in financing documents in favour of lenders and bond trustees, which need to retain flexibility given their global investor base and that they may need to defend or be enjoined in legal proceedings outside of the borrower's jurisdiction. In the recent case Industrial and Commercial Bank of China (Asia) Limited v Wisdom Top International Limited [2020] HKCFI 322, the Hong Kong Court held that an asymmetric jurisdiction clause was not an exclusive choice of court agreement for the purposes of the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597) (the Ordinance).
Background
The plaintiff bank (the Bank) obtained a default judgment against the defendant borrower under a facility agreement and subsequently made an application to the Registrar of the High Court for a certified copy of the judgment and a certificate issued by the court for the purposes of enforcing the judgment in the Mainland.
Under the Ordinance, in order for a certified copy to be issued, the relevant judgment must be one from a court specified in a "choice of Hong Kong court agreement". Section 3(1) of the Ordinance defines a "choice of Hong Kong court agreement" as an agreement specifying the courts of Hong Kong as the court to determine a dispute to the exclusion of the courts of other jurisdictions.
The jurisdiction clause in the facility agreement provides that the courts of Hong Kong have exclusive jurisdiction to settle any dispute arising in connection with the agreement but also allows the Bank to take proceedings in any other jurisdictions.
The Registrar dismissed the application on the basis that the jurisdiction clause was not a "choice of Hong Kong court agreement" as the bank had the option to commence proceedings outside of Hong Kong. The bank appealed. The issue before the court was whether or not the jurisdiction clause was an exclusive jurisdiction clause under section 3(1) of the Ordinance.
The appeal outcome
The court used hypothetical examples to show that it was permissible under the jurisdiction clause for the Bank to initiate parallel proceedings. It also analysed the nature of the clause by reference to English cases decided in the context of the Brussels I Regulation recast and the legislative intent in enacting the Ordinance.
The court adopted a purposive approach and considered the statute's context and purpose. It was noted that the intention of the 2006 Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and the Hong Kong Special Administrative Region (HKSAR) pursuant to choice of court agreements between parties concerned (the 2006 Arrangement) (to which the Ordinance gave effect) was to facilitate reciprocal enforcement of judgments of the Mainland and Hong Kong courts by summary procedure. The purpose of requiring an exclusive choice of court agreement was to "minimize the risk of parallel proceedings being instituted in the courts of both places".
It was concluded that the jurisdiction clause in the facility agreement in question was inconsistent with the purpose of section 3(1) of the Ordinance since, in the cases where the Bank is the plaintiff, the jurisdiction is largely dependent on its choice. It would go against the spirit of the 2006 Arrangement when there is no certainty as to jurisdiction in such circumstances.
Practical implications
Asymmetric jurisdiction clauses are widely used in international financing documents. For loan transactions, the Asia Pacific Loan Market Association standard form facility agreements contain a clause similar to that considered by the court. For bond deals, such clause is often included in the template documents of trustees. An asymmetric jurisdiction clause ensures that a creditor can litigate in the debtor's home court while preserving its right to bring proceedings in the jurisdiction where the debtor's assets may be located. This increases the prospect of a creditor successfully recovering the sum owed to it and reduces the risk of a debtor's obligations becoming unenforceable.
When documenting deals under Hong Kong law with a borrower, issuer or guarantor incorporated or with assets in Mainland China and where reciprocal enforcement of the Hong Kong judgment onshore may be needed in a default scenario, parties should consider not including an asymmetric jurisdiction clause. Alternatively, the parties may consider arbitration as the dispute resolution mechanism as arbitral awards obtained in Hong Kong and the Mainland are ordinarily mutually enforceable under the Arrangement concerning Mutual Enforcement of Arbitral Awards between the Mainland and HKSAR.
It should be noted that in January 2019, the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the HKSAR (2019 Arrangement) was signed. The 2019 Arrangement will, upon its commencement, supersede the 2016 Arrangement and abolish the requirement for an exclusive choice of court agreement. However, there is no timeline for the implementation of the 2019 Arrangement by local legislation in Hong Kong and, before it becomes effective, parties should therefore consider the appropriateness of using asymmetric jurisdiction clauses in light of this judgment.
