Melvin Waxman and Another v. Li Fei Yu and Another
Read the full judgment text of CACV 157/2014 on BabelCite. This Court of Appeal judgment was delivered on 20 April 2016 before Yuen JA, Barma JA.
Civil procedure – forum non conveniens – stay of proceedings – appeal – appellate restraint in discretionary matters – Sino-Foreign joint venture – oral Shareholders' Agreement – whether Hong Kong is the natural or appropriate forum – three-stage test from The Adhiguna Meranti – characterization of dispute as property or contract – Article 266 of the PRC Civil Procedure Law – proper law of the Shareholders' Agreement – whether parties' inferred intention and closest connection favour PRC law or Hong Kong law – enforceability of judgments in the PRC. The plaintiffs, two US citizens, sued the 1st defendant (a PRC citizen) and the 2nd defendant (a Hong Kong company) in Hong Kong for breach of an alleged oral Shareholders' Agreement dated 5 August 2002 concerning the adjustment of shareholdings in the WDI group of companies. The 2nd defendant sought a stay of the Hong Kong action in favour of the Xiamen court on forum non conveniens grounds. The judge at first instance dismissed the stay application, holding that the answer to Stage I of the Adhiguna Meranti test was "no" because Hong Kong was the appropriate forum. Held, dismissing the appeal: (1) A decision on forum non conveniens is a matter for the trial judge's discretion, and an appellate court should be slow to interfere (Spiliada Maritime Corp v Cansulex Ltd; Lubbe v Cape PLC). (2) The 2nd defendant's argument that the dispute should be characterized as a property dispute rather than a contractual one was an after-thought never raised before the judge and introduced only 16 months after the Decision, and would not be entertained on appeal. (3) Article 266 of the PRC Civil Procedure Law, which gives PRC courts exclusive jurisdiction over disputes arising from the performance of Chinese-foreign equity joint venture contracts, was not engaged because the dispute was between individual shareholders at a level above the joint venture company, and not between the contracting parties to the joint venture (WDI Plumbing and Solut) over performance of the joint venture contract. (4) The proper law of the Shareholders' Agreement was not conclusively determined by the judge, and in any event, given that the Agreement covered companies in the PRC, the US and Hong Kong, it was at least arguable that no single jurisdiction's law was intended to govern the entire arrangement. (5) The plaintiffs had a right to sue a Hong Kong company in Hong Kong, and the weight given by the trial judge to factors such as Article 266 and enforceability of judgments was a matter for his discretion. (6) The court declined to consider the 2nd defendant's Stage II arguments because Stage I was answered in the negative. Appeal dismissed with costs to the plaintiffs, with certificate for two counsel.
Legal issues: Characterization of the dispute as property rather than contract · Application of Article 266 of the PRC Civil Procedure Law · Proper law of the Shareholders' Agreement · Stage I forum non conveniens analysis - whether Hong Kong is not the natural or appropriate forum
Outcome: Appeal dismissed; the 2nd defendant's application for a stay of proceedings on the ground of forum non conveniens was refused
Cited by 8 cases · Cites 1 case
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CACV 157 / 2014 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 157 OF 2014 (ON APPEAL FROM HCA NO. 1972 OF 2012) ____________________ BETWEEN
______________________ Before: Hon Yuen and Barma JJA in Court Date of Hearing: 10 December 2014 Date of Judgment: 20 April 2016 ___________________ J U D G M E N T ___________________ Hon Yuen JA: 1.This is an appeal from a Decision of To, J given on 19 July 2013 (“the Decision”) in which he dismissed an application by the 2nd defendant, a Hong Kong company, to stay an action commenced in Hong Kong on the ground of forum non conveniens. The 2nd defendant contended that the proceedings should be stayed in favour of the Xiamen court in the PRC. Background 2.It is common ground that the following four persons had been in a business relationship for some time:
3.1. Prior to the events which are the subject-matter of this case, these four individuals had been involved in a number of companies in what has been called “the WDI group”, including:
3.2. The latter four companies were incorporated in the PRC. The Shareholders’ Agreement 4.It is the plaintiffs’ case that on 5 August 2002, there was an oral agreement (“the Shareholders’ Agreement”) made between MW (also on behalf of LW), FL and BY. 4.1. First, it was agreed that the proportions of their capital investments in the companies in the WDI group would be adjusted. This adjustment would take place after FL (through Solut) added investment capital in the sum of US$1.5m. Upon such adjustment on 31 December 2002, the four shareholders’ respective holdings would be as follows:
4.2. Second, it was agreed that WDI Plumbing would set up a new PRC company WDI Technology Ltd (“WDI Technology”) by way of a joint venture with Solut. Solut was the corporate vehicle through which FL would add investment capital in the said sum of US$1.5m to the WDI group leading to the adjustment. In other words, it was understood that Solut’s investment in the joint venture was related to the adjustment. 4.3. Third, it was agreed that the assets and business of WDI Plumbing and that of the new JV company WDI Technology would be combined and included in the adjusted shareholding structure starting 1 January 2003. The “legal company documents” was just for obtaining favourable land prices and preferential tax policies if any. 4.4. Fourth, the four individuals agreed to provide loans for the purchase of land for the joint venture, such loans to follow the current proportion of shareholdings. 5.It is the plaintiffs’ case that the Shareholders’ Agreement was evidenced by:
6.It is common ground that in the meantime, by a contract dated 22 August 2002 between WDI Plumbing as the PRC party and Solut as the foreign party, WDI Technology was established as a Sino-Foreign joint venture. Proceedings 7.The plaintiffs claim however that FL and Solut have failed or refused to implement the adjustment of holdings in certain companies in the WDI group. FL has failed or refused to transfer shares held by him in Da Chun, and Solut has failed or refused to transfer shares held by it in WDI Technology. 8.In October 2012, the writ in HCA1972/2012 was issued by MW and LW against FL and Solut. It was not served on FL but it is common ground that it was properly served on Solut, a Hong Kong company. 9.On 7 December 2012 Solut issued the summons to stay the action on the ground of forum non conveniens. The matter was heard before To, J. The judge’s Decision 10.On 19 July 2013 the learned judge handed down a 37-page Decision. After narrating the parties’ respective cases, he set out the applicable legal principles and considered the following 3 stages in accordance with the approach set out by Hunter JA in The Adhiguna Meranti [1987] HKLR 904: Stage I 11.1. Has the applicant (Solut) shown that Hong Kong is not the natural or appropriate forum for the trial, and also that there is another available forum (Xiamen) which is clearly or distinctly more appropriate than Hong Kong? 11.2. Under this Stage, the judge examined each of the following factors:
Stage II 12.If the answer to Stage I is “yes”, can the plaintiffs prove that a trial in Xiamen will deprive them of any legitimate personal or juridical advantage? Stage III 13.If the answer to Stage II is “yes”, can Solut show that on balance, the Xiamen court is more suitable for the interests of all the parties and the ends of justice? 14.1. For reasons set out methodically in the Decision (paras. 50-56), the judge held that the answer to Stage I was “no”. Accordingly, Stages II and III were not engaged. 14.2. However, the judge expressed his opinion that, had the answer to Stage I been “yes”, the answer to Stage II would have been “yes” for reasons set out in paras. 58-60. 14.3. Moreover he took the view that the disadvantages suffered by the plaintiffs in Stage II would have been so fatal that the answer to Stage III would have been obviously “no” (para. 60). 14.4. Accordingly, the judge dismissed the application for stay. Appeal 15.The grounds of appeal can be summarized as follows. 15.1. In relation to Stage I,
15.2. In relation to Stage II,
Discussion 16.Before considering the specific grounds, the following principles should be noted. 17.1. First, a decision whether or not to stay an action on the ground of forum non conveniens is a matter for the exercise of a judge’s discretion, and as with all cases involving discretion, an appellate court should be slow to interfere even if the appellate judges themselves might have arrived at a different decision had they dealt with the proceedings at first instance. As Lord Templeman put it in Spiliada Maritime Corp v Cansulex Ltd [1987] 1 AC 460, “an appeal should be rare and the appellate court should be slow to interfere” (p.465). 17.2. In Lubbe and others v Cape PLC [2000] 1 WLR 1545, a case where two different divisions of the English court of appeal had arrived at different conclusions as to whether or not to order a stay of English proceedings on the ground that South Africa was the more appropriate forum, Lord Bingham observed, in the context of an application for stay of proceedings on the ground of forum non conveniens, (at p.1556):
18.Second, the plaintiffs have sued Solut as of right in the Hong Kong court. This is a matter to which the court must pay proper regard. The judge emphasized this at paras. 17, 22, 33 and 56 of the Decision. 19.Third, the court should consider the issues set out in the pleadings. In the present case, the primary dispute is whether the Shareholders’ Agreement was made. This is essentially a factual dispute. 20.Fourth, as Solut is a Hong Kong company, it would be susceptible to methods of execution provided by the rules of the Hong Kong court should an order be made against it. 21.1. Before proceeding to the points advanced before this court, I shall deal with one point first. Solut has submitted that the judge should have characterized the dispute as being one of property, rather than of contract. If it had been characterized as a property dispute, so the argument goes, the lex situs would apply and since the dispute was over shares in a PRC Company, the PRC law would apply. 21.2. I do not think it would be right for this court to deal with this submission when it had never been Solut’s case before the judge that the dispute was one of property and not contract. Indeed it was not even in the grounds of appeal until the Notice of Appeal was amended 16 months after the Decision was handed down, so it is clearly an after-thought which was never part of Solut’s case below. 22.1. Coming then to the other grounds, Solut’s leading counsel Miss Eu SC placed much emphasis on Article 266 of the Civil Procedure Law which provides:
22.2. Miss Eu submitted that the present case was a dispute “arising from the performance of” a contract for a Chinese-foreign equity joint venture viz. WDI Technology. I agree with the judge (para. 36) that there is no evidence of any dispute between the contracting parties in the joint venture (viz WDI Plumbing and Solut) arising from either party’s performance of the contract. It is not as if, for instance, Solut has failed or refused to provide the funds it has promised to invest in WDI Technology, in breach of clause 9 of the Joint Venture Agreement. 22.3. Rather, the dispute is between individual shareholders who have, or lay claim to, shares in the companies one level up the corporate structure from the joint venture company. 22.4. Miss Eu submitted that the Shareholders’ Agreement and the Joint Venture Agreement are part and parcel of the parties’ overall agreement for their joint venture in WDI Technology, and that an inference should readily be drawn that both agreements were intended to be governed by the same law, ie PRC law. 22.5. With respect, it would appear that in the alleged Shareholders Agreement, the four individuals agreed to an overall adjustment of holdings, which was to include and subsume the joint venture to be established between the companies held by one or all of them. That appears from the second and third points recorded in paras. 4.2 and 4.3 above. The “legal company documents”, (presumably meaning the agreement setting up the joint venture) was explicitly just for obtaining favourable land prices and preferential tax treatment. 22.6. Further, it is important to note that the alleged agreement for the overall adjustment of holdings covered not only the joint venture company (WDI Technology) but also other companies, some of which were in the PRC and some of which were not, and it would be at least arguable that the parties could not have intended PRC law to apply to the agreed transfer of shares in companies incorporated in the US and Hong Kong. 22.7. Accordingly I am not persuaded that Article 266 is so clearly engaged. 23.In light of the above, it is not necessary to discuss the support which the judge drew from the Supreme People’s Court’s Judicial Interpretation cited by the plaintiffs’ expert in PRC law (para. 37). 24.Further, in respect of Miss Eu’s submission that at least the Xiamen court is the more appropriate forum to decide a dispute regarding Article 266, this is only one of the factors in favour of the Xiamen court. The weight given to one factor amongst many is a matter for the judge. 25.1. This is also the case in respect of Solut’s argument based on the enforceability of a Hong Kong judgment in the PRC. The weight of this factor is again a matter for the judge, not an appellate court. 25.2. In this connection it should be noted that the present situation is not that the plaintiffs have started proceedings in the PRC and Solut has applied, in the PRC court, to stay those proceedings in favour of Hong Kong. In such a situation, the plaintiffs might seek to argue, at Stage II of a similar exercise, that staying in favour of Hong Kong may deprive them of a legitimate advantage in ease of enforcement. But that is not the case here. The plaintiffs have chosen to sue a Hong Kong company in Hong Kong. The plaintiffs’ right to do so cannot be gainsaid. Insofar as Solut is seeking to suggest that if an order is made against it, it will not comply with it and a Hong Kong court cannot compel it to transfer shares in a PRC company, it must be noted that as a Hong Kong company, Solut would be liable to such enforcement measures as the plaintiffs may seek to deploy against it if it refuses to comply with a judgment against it, including but not limited to winding up for failing to pay a judgment debt after damages are assessed. 25.3. In any event, the judge was well aware of Solut’s argument on enforceability, and the weight he gave that factor is a matter for him. 26.1. The same point applies to Solut’s submission that the judge placed too much weight on the parties’ inferred intention that the Shareholders’ Agreement should be governed by a law under which it would effective, rather than a law with which (on Solut’s contention) the matter had the closest connection. 26.2. First, as was set out by Lord Collins in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569, the first stage of the court’s enquiry must be what was the intention of the parties. Absent an express intention, often the tests of inferred intention and close connection merge into each other (para. 53). 26.3. Then the question is whether PRC law is the law with which the agreement has the closest connection. In my view, it must be remembered that the Shareholders Agreement covered companies in the PRC, the US and Hong Kong. Therefore when one is considering the inferred intention of the parties or the jurisdiction with which the Shareholders Agreement has the closest connection, one should not confuse that with the place of performance of part of that agreement (the PRC). First Laser was quite different. The agreement in that case only covered PRC-incorporated companies. 27.1. Finally there is Solut’s argument that the judge was wrong to make an irresistable inference that Hong Kong law was the governing law and to make the inference conclusive. 27.2. I do not see anything in the Decision which indicates that the judge had arrived at such a conclusion. In fact in his decision on costs, the judge expressly referred to the provisional nature of the matter (para. 25). Order 28.In conclusion, I am not persuaded that the judge was so plainly wrong in his finding on Stage I that his Decision must be disturbed on appeal. Accordingly it is not necessary to proceed to Stage II. I would dismiss the appeal with costs, with certificate for two counsel.
Hon Barma JA: 29.I agree.
Ms Linda Chan, SC and Mr Hugh Kam, instructed by Oldham, Li & Nie, for the Plaintiffs Ms Audrey Eu, SC and Mr Patrick Siu, instructed by Henry Wai & Co, for the 2nd Defendant
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