04 HSBC v.

Sherman
GR No. 72494 (1989)
Medialdea, J

TOPIC:
Is this a PRIL case?

SUMMARY:
The private respondents are Directors of a company called EBSS. EBSS borrowed money from HSBC. To secure the
loan, private respondents executed a guaranty in favor of HSBC. The guaranty contract contains a clause which states
that (1) the contract shall be construed, determined, and enforced in accordance with the laws of the Republic of
Singapore and (2) the Courts of Singapore shall have jurisdiction over all disputes arising under the guarantee. When
EBSS and the guarantors are unable to pay, HSBC sued the respondent guarantors for collection of sum of money
before the RTC of Quezon City. The respondents filed a motion to dismiss on the ground of lack of jurisdiction. The
RTC denied the motion but the IAC reversed on appeal. The IAC ruled that the RTC has no jurisdiction based on the
following facts: (a) The loan was obtained by Eastern Book Service PTE, Ltd., a company incorporated in Singapore, (b)
The loan was granted by the Singapore Branch of HSBC, (c) The Joint and Several Guarantee was also concluded in
Singapore, and (d) The loan was in Singaporean dollars and the repayment thereof also in the same currency. The SC
reversed the IAC and reinstated the ruling of the RTC that the latter has jurisdiction.

DOCTRINES:
One basic principle underlies all rules of jurisdiction in International Law: a State does not have jurisdiction in the
absence of some reasonable basis for exercising it, whether the proceedings are in rem, quasi in rem or in personam.
To be reasonable, the jurisdiction must be based on some minimum contacts that will not offend traditional
notions of fair play and substantial justice.

Indeed, as pointed-out by HSBC the outset, the instant case presents a very odd situation. In the ordinary habits of
life, anyone would be disinclined to litigate before a foreign tribunal, with more reason as a defendant. However, in
this case, private respondents are Philippine residents (a fact which was not disputed by them) who would rather face
a complaint against them before a foreign court and in the process incur considerable expenses, not to mention
inconvenience, than to have a Philippine court try and resolve the case. Private respondents’ stance is hardly
comprehensible, unless their ultimate intent is to evade, or at least delay, the payment of a just obligation.

Petitioner Hongkong and Shanghai Banking Corporation (HSBC)

FACTS:
1. Sometime in 1981, Eastern Book Supply Service PTE, Ltd. (EBSS), a company incorporated in Singapore applied
with, and was granted by, the Singapore branch of petitioner HSBC an overdraft facility in the maximum amount
of Singapore dollars 200,000.00 (which amount was subsequently increased to Singapore dollars 375,000.00) with
interest at 3% over petitioner BANK’s prime rate, payable monthly, on amounts due under said overdraft facility.

2. As a security for the repayment, both private respondents and a certain Robin de Clive Lowe, all of whom were
directors of the EBSS executed a Joint and Several Guarantee in favor of HSBC. The Joint and Several Guarantee
provides:

This guarantee and all rights, obligations and liabilities arising hereunder shall be construed and determined
under and may be enforced in accordance with the laws of the Republic of Singapore. We hereby agree that
the Courts of Singapore shall have jurisdiction over all disputes arising under this guarantee.
3. RTC-Quezon City. EBSS failed to pay its obligation. Thus, HSBC demanded payment of the obligation from private
respondents, conformably with the provisions of the Joint and Several Guarantee. Inasmuch as the private
respondents still failed to pay, HSBC filed A complaint for collection of a sum of money against the private
respondents before the RTC-Quezon City.

The private respondents filed a motion to dismiss which was denied by the trial court.
a. On the assertion that the trial court has no jurisdiction over the subject matter of the complaint. There is
nothing in the Guarantee which says that the courts of Singapore shall have jurisdiction to the exclusion
of the courts of other countries or nations. Also, it has long been established in law and jurisprudence
that jurisdiction of courts is fixed by law; it cannot be conferred by the will, submission or consent of the
parties.
b. On the assertion that defendant Robert Sherman is not a citizen nor a resident of the Philippines, hence,
the trial court has no jurisdiction over his person. Jurisdiction over the persons of defendants is acquired
by service of summons and copy of the complaint on them. There has been a valid service of summons
on both defendants and in fact the same is admitted.

4. Intermediate Appellate Court (now Court of Appeals). Private Respondents filed a petition for prohibition with
preliminary injunction. The IAC granted the petition. In rendering the decision in favor of private respondents,
the Court of Appeals made the following observations:
a) The loan was obtained by Eastern Book Service PTE, Ltd., a company incorporated in Singapore.
b) The loan was granted by the Singapore Branch of Hongkong and Shanghai Banking Corporation.
c) The Joint and Several Guarantee was also concluded in Singapore.
d) The loan was in Singaporean dollars and the repayment thereof also in the same currency.

A closer examination of the Guarantee Agreement upon which the motion to dismiss is based, employs in clear
and unmistakable terms the word ‘shall’ which under statutory construction is mandatory.

ISSUES:
1. WON RTC-Quezon City has jurisdiction over the subject matter of the complaint despite the above stipulation?
(YES)
2. WON RTC-Quezon City is a proper venue despite the above stipulation? (YES)

RATIO:
1. While it is true that “the transaction took place in Singaporean setting” and that the Joint and Several Guarantee
contains a choice-of-forum clause, the very essence of due process dictates that the stipulation being invoked be
liberally construed.

One basic principle underlies all rules of jurisdiction in International Law: a State does not have jurisdiction in the
absence of some reasonable basis for exercising it, whether the proceedings are in rem, quasi in rem or in
personam. To be reasonable, the jurisdiction must be based on some minimum contacts that will not offend
traditional notions of fair play and substantial justice.

Indeed, as pointed-out by HSBC the outset, the instant case presents a very odd situation. In the ordinary habits
of life, anyone would be disinclined to litigate before a foreign tribunal, with more reason as a defendant.
However, in this case, private respondents are Philippine residents (a fact which was not disputed by them) who
would rather face a complaint against them before a foreign court and in the process incur considerable
expenses, not to mention inconvenience, than to have a Philippine court try and resolve the case. Private
 respondents’ stance is hardly comprehensible, unless their ultimate intent is to evade, or at least delay, the
payment of a just obligation.

The defense of private respondents that the complaint should have been filed in Singapore is based merely on
technicality. They did not even claim, much less prove, that the filing of the action here will cause them any
unnecessary trouble, damage, or expense. On the other hand, there is no showing that HSBC filed the action here
just to harass private respondents.

The parties did not thereby stipulate that only the courts of Singapore, to the exclusion of all the rest, has
jurisdiction. Neither did the clause in question operate to divest Philippine courts of jurisdiction. In International
Law, jurisdiction is often defined as the right of a State to exercise authority over persons and things within its
boundaries subject to certain exceptions.

Thus, a State does not assume jurisdiction over travelling sovereigns, ambassadors and diplomatic
representatives of other States, and foreign military units stationed in or marching through State territory with
the permission of the latter’s authorities. This authority, which finds its source in the concept of sovereignty, is
exclusive within and throughout the domain of the State. A State is competent to take hold of any judicial matter
it sees fit by making its courts and agencies assume jurisdiction over all kinds of cases brought before them.

2. As regards the issue on improper venue, HSBC avers that the objection to improper venue has been waived.
However, we agree with the ruling of the IAC that the use of the word ‘jurisdiction’ in the motion to dismiss was
merely an attempt to copy-cat the same word employed in the guarantee agreement but conveys the concept of
‘venue.’ Brushing aside all technicalities, it would appear that jurisdiction was used loosely as to be synonymous
with venue. At any rate, this issue is now of no moment because we hold that venue here was properly laid for
the same reasons discussed above.

Moreover, in a conflict problem, a court will simply refuse to entertain the case if it is not authorized by law to
exercise jurisdiction. And even if it is so authorized, it may still refuse to entertain the case by applying the
principle of forum non conveniens. However, whether a suit should be entertained or dismissed on the basis of
the principle of forum non conveniens depends largely upon the facts of the particular case and is addressed to
the sound discretion of the trial court.

Although the Joint and Several Guarantee prepared by HSBC is a contract of adhesion and that consequently, it
cannot be permitted to take a stand contrary to the stipulations of the contract, substantial bases exist for
petitioner HSBC’s choice of forum, as discussed earlier.

DISPOSITIVE:
The decision of the respondent Court is hereby REVERSED and the decision of the Regional Trial Court is REINSTATED.