Chen Hongqing v. The Persons Whose Names Are Set Out in the Second Column of the Schedule Hereto

HCA 2648/2017

[2018] HKCFI 1170

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2648 OF 2017

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D E C I S I O N

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Introduction

1.This is the substantive hearing of the application of the plaintiff(the “Plaintiff”) by summons dated 20 December 2017, seeking an anti-suit injunction until final determination of this action or further order restraining eleven of the defendants herein from continuing the legal proceedings commenced by them as plaintiffs in the Shandong Province Jinan City Central District People’s Court (the “Jinan Proceedings”); and/or commencing any proceedings in any other courts in the People’s Republic of China (the “PRC”)on the same or similar subject matters (the “Anti-suit Injunction Application”).

2.In this action, the Plaintiff seeks to vindicate and safeguard his interest and/or entitlements in shares in China Shanshui Investment Company Limited (中國山水投資有限公司) (“CSI”), a Hong Kong company, which shares were until 31 January 2018 held under interim receivership pursuant to the order of G Lam J pending judgment in High Court Action 1661/2014.  On that day, G Lam J ordered those shares to be transferred to the plaintiffs in that action or their nominees [1].

3.The eleven defendants sought to be restrained are ten of the eleven employee representatives referred to in paragraph 9 below (ie ten of the 11 representatives) and one employee by the name of Feng Cunwei referred to in paragraph 23 below (“Feng”) who purportedly replaced the other remaining representative.

4.The Anti-suit Injunction Application is supported by three affirmations of the Plaintiff.  In opposition, two draft affirmations made by Zhao Hongbo (“Zhao”) were filed on behalf of eight of the defendants only, two of them including Zhao are plaintiffs in the Jinan Proceedings and among the 11 representatives.

The background

5.The full background of this case is rather complicated.  It has been usefully summarized in paragraphs 6 to 38 of G Lam J’s judgment [2]. For the purpose of this application it suffices to note the following factual background. In October 2000, following the national policy of de‑nationalisation of state-owned enterprises, employees of a state-owned cement company were given opportunity to invest in the enterprise under an employee stock ownership scheme.  After successive local and overseas restructuring, the participating employees became shareholders in CSI which is the largest shareholder of China Shanshui Cement Group Limited (中國山水水泥集團有限公司) (“CSCG”), a company listed on the Main Board of the Hong Kong Stock Exchange (stock code 0691).  CSCG is the holding company of a number of subsidiaries of similar name, such as 山東山水水泥集團有限公司 (“Shandong Shanshui”), 濰坊山水水泥集團有限公司 (“Weifang Shanshui”) and 臨朐山水水泥集團有限公司 (“Linyi Shanshui”).

6.The participating employees held 52.37% of the issued shares in CSI.  Those shares were held by Zhang Caikui (“Zhang”) a senior member of the management of the former state-owned enterprise on trust for them (the “Trust Shares”).  In addition, Zhang also holds 13.18% of the shares in CSI for himself.  The other senior members of the management, including Mi Jianting (“Mi”) together hold 18.26% (together the “Minority Shareholders”).  CSI is holding 25.09% of the issued shares in CSCG.  Thus, Zhang is in control of CSI and, through it, CSCG. 

7.Meanwhile, a Mainland group headed by Tianrui (International) Holding Co Ltd (“Tianrui”) had by April 2015 acquired 28.16% of the issued share capital of CSCG and became its single largest shareholder.

8.In and around 2014, a dispute arose between Zhang and a number of employees over the nature of the Trust Shares held by Zhang.  The dispute culminated into a large number of participating employees commencing action against Zhang in HCA 1661/2014 (the “Trust Action”).  The employees were led by a 維權委員會 (Rights Protection Committee) (the “Committee”).  Some of the employees were represented by Messrs K&L Gates (“KLG”) and the remaining employees were represented by Messrs Stephenson Harwood (“SH”).  On 24 March 2015, the employees applied for receivership over the Trust Shares.  On 20 May 2015, G Lam J allowed the application and appointed receivers over the Trust Shares. 

9.In the meantime, with the appointment of the receivers, Zhang started to lose control over CSI and CSCG.  He used all sorts of tactics including monetary compensation and threats to coerce the employees to withdraw the Trust Action.  On the other hand, Tianrui became interested in purchasing the Trust Shares so as to gain control over CSCG.  According to Zhao, the chairman and chief executive officer of Tianrui went to Jinan to meet certain members of the Committee and the Minority Shareholders to discuss about sale and purchase of the employees’ interest in the Trust Shares.  It is common ground that in June 2015, the Plaintiff or Tianrui reached the following agreements with the employees and Minority Shareholders:

(1) Eleven representatives (the “11 representatives”) chosen from among the employees would enter into sale and purchase agreements (“SPAs”) with the relevant employees to purchase their interest in the Trust Shares and, in the event that the employees are successful in vindicating their interest in the Trust Action against Zhang, the 11 representatives would procure the transfer of the Trust Shares purchased from the relevant employees to the purchaser.

(2) The consideration for the Trust Shares would be paid as follows:

(i) the purchaser would advance an amount equivalent to 70% of the total consideration of the Trust Shares to be purchased under the SPAs by way of a loan to the 11 representatives (the “Loan”), and the Loan would be recorded in written loan agreements to be entered into between the purchaser and the 11 representatives respectively (the “Loan Agreements”);

(ii) the balance of 30% of the consideration for the Trust Shares would be paid by the purchaser to the employees at a later date upon completion of the acquisition;

(iii) the 11 representatives would provide security for the Loan by signing share pledge agreements (the “Share Pledge Agreements”); and

(iv) the Minority Shareholders would also provide security by signing share pledge and guarantee agreements to guarantee the Loans advanced to the 11 representatives (the “Share Pledge and Guarantee Agreements”).

10.On 17 August 2015, pursuant to the above agreements, the Plaintiff entered into 11 Loan Agreements with the 11 representatives; and under which the 11 representatives agreed to mortgage, charge and/or pledge all their respective shares in CSI to the Plaintiff as security for the Loan advanced under the Loan Agreements.  The Plaintiff also entered into a Share Pledge and Guarantee Agreements with each of the Minority Shareholders, pursuant to which the Minority Shareholders agreed to mortgage, charge and/or pledge their shares in CSI to the Plaintiff as security for the Loan.  Zhao asserted on behalf of the eight defendants that the Share Pledge Agreements and Loan Agreements were all signed in blank and the name of the Plaintiff was added in afterwards.  I assume the Plaintiff is a nominee of Tianrui. 

11.In around August to September 2015, the Plaintiff advanced to the 11 representatives the Loan in the total amount of RMB 737,500,000 representing 70% of the consideration for the Trust Shares ultimately acquired from 2,091 of the employees.  During the same period, pursuant to the above agreements, the 11 representatives as nominees entered into SPAs with the 2,091 employees respectively for the purposes of purchasing their respective interests in their Trust Shares. 

12.In or around March 2017, the Plaintiff made advanced payment of the said 30% balance to the said 2,091 employees for the sale and purchase of their Trust Shares.  At least 1,014 of the said 2,091 employees signed written confirmations (the “Confirmations”) acknowledging, inter alia, that the Plaintiff was the purchaser of their respective interests in the Trust Shares, and that they must use their best endeavours to recover the same from Zhang and then transfer their respective Trust Shares and/or beneficial interest therein to the Plaintiff upon judgment being pronounced in their favour in the Trust Action, and to execute and/or sign all relevant documents pursuant to the Plaintiff’s instructions. 

13.In or around March 2017, the Plaintiff further entered into similar agreements with each of 172 other employees of CSI or its group, under which they agreed to sell their respective interests in a total of 57,334 Trust Shares, and to transfer such interests to the Plaintiff upon judgment being pronounced in their favour in the Trust Action.  Pursuant to such agreements, the Plaintiff duly paid the said 172 employees who duly received the entirety of the consideration for the said interests in their Trust Shares.

14.These 2,091 and 172 employees were named as plaintiffs in the Trust Action and as defendants in the present action.  As mentioned earlier, on 31 January 2018, G Lam J found in favour of the employees and ordered the Trust Shares held by Zhang to be transferred to them or their nominees.

The Jinan City Government takeover and the Jinan Proceedings

15.After the Plaintiff’s or Tianrui funding the acquisition of the Trust Shares so as to fight against Zhang, Mi was appointed as the deputy general manager of Shandong Shanshui in about December 2015. 

16.Tianrui or the Plaintiff, whom the employees thought was their white knight, turned black and joined forces with the receivers to form a joint Tianrui/receiver board in CSCG in December 2015 to seize control over CSCG.  Since then repeated unsuccessful attempts were made by the Tianrui/receiver board to dilute the Trust Shares through issuing new shares in CSCG.  As the employees had difficulties in subscribing for shares in CSCG, the new issue would have the effect of diluting the Trust Shares.  Those attempts were subsequently abandoned.  Then in June 2016, the Tianrui/receiver board made a further attempt to dilute the Trust Shares by making a 1:4 open offer to subscribe for shares in CSCG at 92.1% discount.  This time, the employees successfully obtained an injunction from G Lam J to restrain the Tianrui/receivers board from proceeding with the open offer.  As a result of these attempts, the employees who were initially represented by KLG in the Trust Action lost confidence in KLG and switched to representation by SH (the “SH Employees”).  As at the date of hearing, SH represent 1,882 employees including the 10 representatives involved in the Anti-suit Injunction Application.  Those who remain represented by KLG are referred to as the “KLG Employees”.

17.The situation became chaotic since 2017.  In January and March 2017, Mi and his associates were respectively removed from the board of Shandong Shanshui, pursuant to the resolutions of CSCG’s board under the management of, inter alios, the receivers.  However, Mi and his associates refused to step down and remained in de facto control of Shandong Shanshui and its subsidiaries, and unlawfully interfered with the receivers’ attempts to repossess the premises of Shandong Shanshui and its subsidiaries.

18.Further, in March 2017, some of the Minority Shareholders, including Mi, entered into sale and purchase agreements with Asia Cement Corportion (“ACC”), a Taiwanese company, to sell their shares (which had been pledged to the Plaintiff) to ACC. This led to the Plaintiff’s successful application for receivership over those pledged shares in HCMP 962/2017.

19.Against the background involving these long-time disputes over the ownership of the Minority Shareholder’s shares in CSI and the Trust Shares, the Jinan City Government has determined to step in to sort out the mess with a view to suppressing differences and restoring order and harmony.  The scheme was to acquire the employees’ interests in the Trust Shares through a state-owned enterprise in Jinan called 産業發展投資集團有限公司 (“Jinan SOE”) to the exclusion of all other parties including the Plaintiff.  Mi welcomed the scheme.  It is not difficult to understand why. Previously, when Zhang was in control of CSI and CSCG, Mi joined hands with the employees and brought in Tianrui or the Plaintiff to finance the Trust Action in order to resist Zhang.  With the appointment of receiver in respect of the Trust Shares, he was appointed deputy general manager of Shandong Shanshui in about December 2015.  But in January and March 2017, Mi and his associates were respectively removed from the board of Shandong Shanshui.  Seemingly, he would retain his position under the takeover.

20.On 16 August 2017, Jinan SOE deposited a sum of RMB 828,100,000 into the Jinan Quancheng Notary Public Office of Shandong as “funds for specific item”.  Ten of the 11 representatives (except Liu Dequan (“Liu”), through SH, relied on this deposit as repayment of the Loan on their part, and argued that this had the effect of extinguishing all of the Plaintiffs rights and interests in the Trust Shares.  Mr Maurellet SC, counsel for the SH Defendants, argues the Plaintiff unreasonably refused to accept the repayment and to discharge the receivership over the Minority Shareholders’ CSI shares.  The Plaintiff’s stance is that the 11 representatives were never principals in entering into the SPAs; but were purchasing agents and not borrowers as stated in the Loan Agreements and Share Pledge Agreements (the “purchasing agent issue”).

21.On 7 September 2017, Mi issued a notice to all the employees in Shandong Shanshui (the “Notice”).  The Notice announced that since around June 2017, the Jinan City Government had decided to step in and acquire all the employees’ interests in the Trust Shares through Jinan SOE in order to tackle the mess, and that the “senior management” of Shandong Shanshui under Mi’s leadership welcomed it as the “best outcome”.  It further stated that as a next step, everyone should put in joint efforts to assist and facilitate Jinan SOE to complete all necessary legal procedures as soon as possible, and that the employees were urged to sign documents and cooperate in going through the procedures via proper legal channel.  The Notice also urged the management to pay high attention to make sure that the signing mission could be completed within time.  Arrangements were made for employees to sign the documentations in the factory premises and for transportation of the employees to the factory premises to sign the documents.  The employees who signed the documentations would be given a box of mooncake and a carton of oil.

22.The Plaintiff was alerted of the takeover.  As time went by, more and more KLG Employees switched to representation by SH. The SH Employees hotly disputed and denied the existence of the Share Pledge Agreements and the Loan Agreements.  The development and the takeover action by the Jinan City Government caused the Plaintiff grave concern.  By summons dated 25 September 2017 issued in the Trust Action, the Plaintiff applied to intervene therein with a view to protecting his interest in the Trust Shares.  However, that application was dismissed on 10 November 2017.  On 17 November 2017, the Plaintiff issued the Writ in this action and obtained leave for service out of jurisdiction by way of substituted service on KLG and SH on 29 November 2017.  

23.Then, in early December 2017, shortly after obtaining the order for substituted service, ten of the 11 representatives, excluding Liu, (the “10 representatives”) together with Feng, purportedly as Liu’s replacement, commenced action the Jinan Proceedings seeking relief that the Confirmations in respect of the sale and purchase of the employees’ interests in the Trust Shares are or shall be declared to be invalid or void.  The ground of their application is that they were not acting as the Plaintiff’s nominees in the SPAs but were true principal buyers of the Trust Shares from the employees in their own rights.  A total of 1,028 employees who are also defendants to the present action were named as defendants to the Jinan Proceedings.  On 20 December 2017, the Plaintiff took out the Anti-suit Injunction Application.

Legal principles applicable to anti-suit injunctions

24.Counsel have no dispute that the legal principles applicable to anti-suit injunction are as follows.

25.First, the starting point is whether the Hong Kong court is the forum conveniens: Gee, Commercial Injunctions[3]. The approach in determining whether Hong Kong is a forum non conveniens is helpfully summarised by the Court of Appeal in The Adhiguna Meranti [4].  It involves a three stage enquiry as follows:

(1) Is it shown that Hong Kong is not only not the natural or appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong.  The emphasis is upon “appropriate” rather than “convenient” because this is not simply a matter of practical convenience.  The purpose is to identify the forum “with which the action has the most real and substantial connection”.

(2) If the answer to (1) is yes, will a trial at this other forum deprive the plaintiff of any “legitimate personal or juridical advantages; and

(3) If the answer to (2) is yes, the court has to balance the advantages of (1) against the disadvantages of (2).  Deprivation of one or more personal or juridical advantages will not necessarily be fatal to the applicant provided that the court is satisfied that notwithstanding such loss “substantial justice will be done in the available appropriate forum”.

See also Pei Zheng Middle School v China Pui Ching Education Foundation Ltd [5].

26.If the above threshold question is answered in the affirmative, the applicant is required to show that the foreign proceedings are vexatious, oppressive, unconscionable, or that “the ends of justice” require the granting of the injunction: Gee, Commercial Injunctions [6]. 

27.An anti-suit injunction will only be granted against a person who is “amenable to the jurisdiction of the court” in the sense of the court having territorial jurisdiction over him either because of his presence within the jurisdiction or through service out of the jurisdiction: Gee, Commercial Injunctions [7].

28.There is a conflict of first instance authorities in Hong Kong as to whether it is necessary, at least as a general rule, for the Hong Kong applicant to have sought a dismissal or stay of the foreign proceedings (in the jurisdiction where the foreign proceedings have been commenced) on jurisdictional (or similar) grounds before seeking an anti-suit injunction in Hong Kong: Johnston, The Conflict of Laws in Hong Kong [8].

29.The plaintiff must show that the need to grant the injunction outweighs the importance of restraining influence of comity: Star Reefers Pool Inc v JFC Group Co Ltd [9].

30.Lastly, as anti-suit injunctions may be treated as interference with the foreign court, the jurisdiction has to be exercised with great caution.  The plaintiff must show a strong or convincing prima facie case of establishing the above requirements: Liaoyang Shunfeng Iron and Steel Co Ltd v Yeung Tsz Wang [10].

Forum conveniens

31.As mentioned above, the starting point for considering anti-suit injunction is forum conveniens.  The key issue is what the court considers to be the appropriate forum.  Appropriateness is not to be assessed merely by the volume of connecting factors but must be considered from the point of view of which forum can more conveniently resolve the issues, ie which forum is better-suited to try the matter: Hong Kong Civil Procedure 2018 [11].

32.The Plaintiff has obtained an order for substituted service of the writ in this action out of Hong Kong.  He has established at least a prima facie case that Hong Kong is the forum conveniens. 

33.The subject matter of the Plaintiff’s claim relates to the shares in CSI, a Hong Kong company, which in turn is the greatest majority shareholder of CSCG, a public company listed in the Hong Kong Stock Exchange.  Now that the Trust Action has been resolved in favour of the employees, the connection of this action to Hong Kong is further fortified. 

34.In addition to the Trust Action, there are currently related actions in Hong Kong involving the Trust Shares and the Minority Shareholders’ CSI shares.  Both types of shares are currently held by receivers in Hong Kong appointed by the Hong Kong court.  The injunctive relief available within Hong Kong provides better protection to the Plaintiff’s interest over the shares.

35.Insofar as governing law is concerned, since the Plaintiff is asserting contractual and/or proprietary entitlements to the CSI shares, the proper governing law must be the law of lex situs and for conflict of law purposes, shares ought to be regarded as having their situs in the company’s place of incorporation, ie Hong Kong for the present purpose: The Conflict of Laws in Hong Kong [12].  In G Lam J’s judgment in the Trust Action [13], he accepted the Plaintiff’s argument that the proper governing law was the law of lex situs of the CSI shares.  This is another factor pointing to Hong Kong being the natural and appropriate forum.

36.G Lam J went that far as to hold to the extent that the position under PRC law is relevant for conflict of laws principle, that the governing law of the Loan Agreements, Share Pledge Agreements, Share Pledge Guarantee Agreements and the SPAs is also Hong Kong law.  He held [14]:

“ 95. It is possible, in my view, to go further and challenge the 1^st defendant’s proposition that the governing law of such agreement was PRC law and that such law governs any trust over property arising from the acquisition of the property pursuant to that agreement.  Although the agreement was intended to continue the spirit of the previous relationship under the employees stock ownership scheme, it was intended and known that the domestic scheme would end.  It is not clear at all that the 1^st defendant was to perform all his obligations within the PRC, as Mr Jat submitted.  As far as the acquisition of CSI shares was concerned, it was to be done in Hong Kong (by the defendants’ names being entered in its register), presumably under advice from and handled by Hong Kong professionals such as lawyers and investment bankers, in the context of a larger overseas (ie outside the Mainland) restructuring involving 3 Hong Kong companies (CSI, CSHK and Pioneer Cement), with the effect that Shandong Shanshui would become a wholly foreign owned enterprise, and ultimately for the purpose of a listing in the Hong Kong stock market, not in the Mainland.  The act of breathing life into CSI by injecting into it the shares of CSHK should also be regarded as having taken place in Hong Kong, with both CSI and CSHK being Hong Kong companies.  The acquisition and interposition of CSI as the holding vehicle of the underlying interests seem to me to be part of a wholly ‘Hong Kong–centric’ exercise.  The fact that the acquisition of CSI as a bare shell took place in April 2005 and the employees stock ownership scheme did not end until September 2005 when CSI came to life is in my opinion not significant.  As shown (albeit retroactively) by the letter of confirmation dated April 2008 (see paragraph 27 above), the parties’ intention was to have an ‘overseas’ (ie outside the Mainland) trust relationship.  This suggests that the proprietary consequence arising from the mandate was intended to be governed by an overseas system of law, rather than some association under PRC law.  Contrary to these pointers, the 1^st defendant’s contention seems to me to accord disproportionate weight to the domicile and residence of the parties, and to place insufficient weight on nature and location of the subject matter of such agreement, ie shares in a Hong Kong company which was in turn intended to hold a substantial proportion of the equity of the company listed in Hong Kong: see First Laser (CFA) at §§55 – 56.  Accordingly, if necessary, I would prefer the view that it was the objective intention under the agreement to acquire CSI shares that the relationship between the parties vis-à-vis the shares was to be governed by Hong Kong law.[In addition, the employees’ as well as the Minority Shareholders’ CSI shares are currently held by the receivers in Hong Kong appointed by the Hong Kong court.]” 

On this issue, the Plaintiff’s 2^nd Supplemental PRC Legal Opinion is that the applicable law ought to be Hong Kong law due to the fact that the relevant CSI shares are situated in Hong Kong and that CSI is a Hong Kong Company.  The above considerations point to the Hong Kong courts as the natural and appropriate forum for trial of this action. 

37.Mr Maurellet SC argues that it is tolerably clear that the Plaintiff’s claim in this action is to establish the purchasing agent issue, which is precisely the same issue raised by the Plaintiff in two litigations commenced by him in the PRC.  He argues that it is clear from the Plaintiff’s voluntary choice to commence those litigations in the PRC that the Plaintiff did not consider the Hong Kong court as the forum conveniens.  Hence, he argues that it simply begs belief that the Plaintiff, in an abrupt volte face, now alleges that Hong Kong to be the proper forum.  First, in late 2016, the Plaintiff commenced action in Ruzhou City People’s Court against Liu, one of the 11 representatives, who disputed that he purchased the Trust Shares as the Plaintiff’s nominee pursuant to the Loan Agreements and Share Pledge Agreements (the “Ruzhou Proceedings”).  On 11 September 2017, the court handed down judgment in favour of the Plaintiff.  The court identified the primary issue as “to confirm the relationship of appointed agency by contract between [the Plaintiff] and [Liu] with [the Plaintiff] as the principal and [Liu] as the agent.”  Second, on 21 September 2017, the Plaintiff started arbitration proceedings against the remaining ten representatives before China International Economic and Trade Arbitration Commission (“CIETAC”), seeking a decision confirming that the Loan Agreements entered into between the Plaintiff and the relevant representatives on 17 August 2015 were agreements whereby the Plaintiff entrusted them to purchase the Trust Shares (the “CIETAC Arbitration”).  In the arbitration notice, the Plaintiff alleged that due to ten representatives’ refusal to cooperate, “he was unable to exercise his right attached to the [Trust Shares] as principal and owner of actual beneficial interests of shares”.  The purchasing agent issue was at the heart of these two proceedings.

38.Even though the Plaintiff commenced the Ruzhou Proceedings and the CIETAC Arbitrations in the PRC, those proceedings clearly involve different parties or not all the parties in the present action, and concern much narrower issues.  Further, the CIETAC arbitrations were dictated by the arbitration clause under the respective Loan Agreements.  In the circumstances, I do not think the Plaintiff’s conduct should be treated as indication that Hong Kong is not the forum conveniens.

39.The defendants also rely on clause 3(vi) in the Confirmation as a jurisdiction clause to support their argument that the Hong Kong courts are not the appropriate forum.  The original Chinese text of that clause provides to the effect that any dispute arising from the Confirmation or sale and SPAs shall be resolved by the Peoples’ Court in the place of the registered household (戶籍) of the buyer, ie the Plaintiff; and the court shall have absolute (絕對) jurisdiction over the dispute as to the formation, construction and performance of the agreement.  It must first be noted that this is not an exclusive jurisdiction clause.  It only gives the court absolute jurisdiction and not exclusive jurisdiction as against the whole world.  The word “absolute” refers to the extent or scope of the jurisdiction rather than its exclusivity. It must be a party’s freedom to commence proceedings in any jurisdiction of his choice so long as the law permits.  For a party to give up that freedom and agree to submit to the exclusive jurisdiction of one particular jurisdiction must require unequivocal language.  For that purpose, the use of the word “absolute” is ambiguous and not sufficient.  I therefore consider that clause as a non-exclusive jurisdiction clause.

40.Mr Mok SC, counsel for the Plaintiff, submits that the Confirmations only form part of the factual matrix upon which the Plaintiff brings his claims in this action.  The SPA and the Loan Agreements are the broader agreements which came into place in 2015 two years before the Confirmations, which evidenced the Share Pledge Agreements and Loan Agreements, were executed.  Of the 11 representatives, nine of them were not parties to the Confirmation.  The jurisdiction clause is not relevant insofar as their claims are concerned.

41.Of the remaining two representatives, Jin and Liu, putting the the clause at its highest, it is a non-exclusive jurisdiction clause naming a PRC court as a possible forum.  It does not have the effect of obliging the parties to submit to the jurisdiction of and litigate the dispute only in that forum to the exclusion of all other jurisdictions: Hong Kong Civil Procedure 2018 [15] and T&K Electronics Ltd v Tai Ping Insurance Co Ltd [16]. Accordingly, in respect of the case of these two representatives, the question of jurisdiction also falls to be determined in accordance with the principle in The Adhiguna Meranti.

42.Mr Mok SC further submits, quoting Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd [17] that even if the clause were an exclusive jurisdiction clause, the proceedings can still be commenced in Hong Kong if strong reasons are shown and that there are strong reasons to permit this dispute to be resolved in the Hong Kong courts.  He argues that by specifying a PRC court situated at the Plaintiff’s place of registered household, it must have been the parties’ common intention that the choice of forum shall be one of the Plaintiff’s convenience.  Whether strong reasons are shown depends on all the facts and circumstances of the particular case: Donohue v Armco [18] and Noble Power.  He submits that indeed, Master Leong was satisfied that strong reasons have been shown for this action to be commenced in Hong Kong and hence granted the order for substituted service.  In my view, there is no need to go down this path as clause 3(vi) is not an exclusive jurisdiction clause.  If it were, proof that there are grounds for anti-suit injunction would usually be sufficient proof of strong reasons.  The case in respect of the remaining two representatives would stand or fall on those grounds.

43.Eight only of the defendants in this action made reference to the location of witnesses and parties as a convenience factor. However, in these day and age, the courts would accord little weight to costs and inconvenience in travelling in deciding the question of forum conveniens. Such inconvenience could be easily overcome by video-link.  In the Trust Action, location of witness was accorded little weight [19].  I also agree with that approach.

44.Further, in the Trust Action, it is apparent that some of the witnesses have been turned back at the border and pressurized by PRC government officials not to testify. There are real risks that these witnesses would be subject to even greater and more intense pressure if the disputes were to be litigated in Jinan.  It may well be more viable for them to give evidence through video-link to the Hong Kong court than to appear in a court in the PRC.

45.Having regard to the above, Hong Kong is clearly and distinctly the appropriate forum for the trial of this action.  The defendants cannot even begin to show that the Jinan court is clearly or distinctly more appropriate.  The Plaintiff has succeeded in the first stage of the Adhiguna Meranti test.

Whether the Jinan Proceedings were vexatious, oppressive and unconscionable

46.“Vexatious” and “oppressive” have no clear-edged definition but may include “subjecting the other party to oppressive procedures in the foreign court, instituting proceedings in bad faith and instituting proceedings which are bound to fail if the defendant defends the claim and inflicting extreme inconvenience as a result of the foreign proceedings: Briggs, Private International Law in the English Courts [20].

47.There is almost irrefutable evidence suggesting that the 10 representatives were fabricating a false case in the Jinan Proceedings against the defendants and their action is bound to fail. 

48.First, Feng, who was not one of the 11 representatives, purportedly replaced Liu as representative on or around 20 December 2016.  There is no evidence how that replacement was lawfully brought about.  In any event, the allegation of one representative being replaced by another representative actually supports the Plaintiff’s case that the 11 representatives were merely and truly nominee representatives.  Feng was not a party to the Loan Agreements and Share Pledge Agreements.  If Liu was a principal according to the ten representatives’ case, how could Feng have locus standi to sue without a proper assignment of the rights vested in Liu to him? 

49.Second, Jin Tingzhi (“Jin”), one of the 11 representatives, had in fact agreed to sell his interest in the Trust Shares to the Plaintiff, had received the full consideration in or by September 2017 and personally signed the Confirmation.  His claims in the Jinan Proceedings can hardly be squared and reconciled with his act of receiving the full consideration for the Trust Shares from the Plaintiff and his signing the Confirmation.  In the face of these incontrovertible documentary evidence, how could he in just less than three months’ time and in blatant breach of these agreements, turn around and join the other nine representatives and Feng to commence the Jinan Proceedings?  His action is clearly fictitious and bound to fail.  To institute proceedings which are bound to fail is also an abuse of the legal process.

50.As Mr Maurellet SC submits, the issue in the Jinan Proceedings, the Ruzhou Proceedings, the CIETAC Arbitration and this action, is the purchasing agent issue and that the real contestants are Tianrui or the Plaintiff on the one part and the 11 representatives on the other.  In the Ruzhou Proceedings, the issue as between the Plaintiff and Liu, one of the representatives, had been resolved in favour of the Plaintiff with Liu being ordered to continue to perform the agreements.  The facts and issue in the Ruzhou Proceedings are virtually identical with the facts in the Jinan Proceedings.  The CIETAC arbitration is between the Plaintiff and the 10 representatives.  If the CIETAC Arbitration is to run its course, then the purchasing agent issues between all concerned parties would have been resolved.  The Jinan Proceedings are wholly unnecessary.  The purchasing agent issue could be left to be resolved in this Action together with the other wider issues.  In the circumstances, what purpose would be served by commencing the Jinan Proceedings?  Why should the 10 representatives indulge themselves in duplicating the proceedings in the Jinan Proceedings? 

51.The existence and undesirability of multiple proceedings is also a relevant factor and its relevance is explained by Bingham LJ (as he then was) in EI Du Pont de Nemours & Co v Agnew [21] as follows:

“ In approaching a case of this kind it is appropriate to bear in mind the general undesirability of concurrent proceedings between the same parties on the same issues in different jurisdictions. As Lord Brandon observed in The Abidin Daver [1984] AC 398 at 423G:

‘ … In this connection it is right to point out that, if concurrent actions in respect of the same subject matter proceed together in two different countries, as seems likely if a stay is refused in the present case, one or other of two undesirable consequences may follow: first, there may be two conflicting judgments of the two Courts concerned; or, secondly, there may be an ugly rush to get one action decided ahead of the other, in order to create a situation of res judicata, or issue estoppel in the latter.’

It is as Lord Diplock said (at 412D) ‘a recipe for confusion and injustice’. The general undesirability of such concurrent proceedings is, however, but one consideration to be played as part of the overall assessment.  It cannot necessarily lead to a stay or setting aside of English proceedings.  It may, on the facts, the correct to restrain pursuit of the foreign proceedings (as in Societe Nationale Industrie Aerospatiale v Lee Kui Jak [1987] AC 871) or to make no order.  The policy of the law must nonetheless be to favour the litigation of issues only once, in the most appropriate forum.”

52.Furthermore, in Turner v Grovit [22], proceedings were brought in a Brussels Convention jurisdiction with which England has mutual recognition of judgments where judgments may be enforced without further consideration of merits.  The Court of Appeal held that where a party in the courts of one state institutes proceedings against his opponent in a foreign state, directed to issues which are being or could be litigated within the proceedings in the first state, the case is to all intents and purposes the same as one where, within this jurisdiction, one party oppresses his adversary by the issue and prosecution of multiple actions.  The foreign proceedings are vexatious and oppressive. The Jinan Proceedings are pure and simple frivolous, vexatious, oppressive and abuse of process which are bound to fail.

53.As shown above, the 10 representatives and Feng had no reasonable cause to commence the Jinan Proceedings.  Those proceedings are duplicated and unnecessary.  Their action is bound to fail.  It is frivolous, vexatious, oppressive and an abuse of the legal process. 

54.Furthermore, when viewed against the chronology, the Jinan Proceedings were clearly instituted with an ulterior and improper motive.  Just as soon as an order for substituted service was issued, the 10 representatives and Feng commenced the Jinan Proceedings.  The only irresistible inference is that the Jinan Proceedings are bogus proceedings commenced by them with the intent to avoid the Confirmation by illegitimate means so as to defeat or jeopardize the Plaintiff’s claim in the action.

Coercion and inducement

55.It is apparent from the Notice that the Jinan City Government has decided to step in and acquire all the Trust Shares through Jinan SOE regardless whether they had been sold to any third party.  Mi welcomed the takeover and issued the Notice.  The Notice urged everyone to put in joint effort to assist and facilitate Jinan SOE to complete all necessary legal procedures for the takeover as soon as possible.  Arrangements were made to transport the employees to the factory to sign the documentation.  The employees who signed were given a box of mooncake and a carton of oil. 

56.It might be argued that the above arrangement only reflected the attitude of senior management in facilitating the government takeover.  But, there is compelling evidence from the employees who refused to sign of the coercion and undue influence asserted on them by senior management. Though the evidence presented by the Plaintiff is in the form of signed statements and not affirmations, the statements were all impressed with the fingerprints of the maker, an indication by Chinese standard of serious intension of the maker of the statement and its truthfulness.  The employees in Weifang Shanshui and Linyi Shanshui invariably asserted in the statements that they had sold the Trust Shares to the Plaintiff through one of the 11 representatives and received the full consideration.  Then in September 2017, they were told or required by senior management to sign documents relating to the takeover by Jinan SOE.  They had no alternative but to comply with the direction.  After signing, each of them received a box of mooncake and a carton of oil.  These assertions are consistent with the steps mentioned in the Notice.  Those who did not sign were transferred or suffered reduction in salary or subjected to other unfavourable treatment.

57.Then, in December 2017, after the Jinan Proceedings have been commenced, these employees were informed by senior management that they were sued by Tianrui and were required to sign certain documents. After enquiries with Tianrui, they found out that they were not sued by Tianrui but by the 11 representatives on the instruction of Shandong Shanshui.  They were named as defendants in the Jinan Proceedings.  Those who were still in employ but refused to sign will be transferred.  Those who had retired and agreed to sign will receive a bag of rice and a carton of oil. 

58.The documents which the employees were asked to sign include engagement letters appointing lawyers (授權委托書) in the PRC to represent them in the Jinan Proceedings with authority, inter alia, to admit liability or abandon their claims and authorization letters appointing representatives (訴訟代表人推選書) with similar authority.  The two representatives stated in the authorization letters were close friends of Mi.  The authorization letters show that the arrangement was a farce.

59.Regarding the trial in the Trust Action, as it turned out, several witnesses from the PRC alleged to have been subject to pressure by unnamed PRC government officials into not going to Hong Kong to give evidence or have been turned back at the PRC border, and failed to attend trial or testify. 

60.It is worth noting that the 10 representatives and many of the employee defendants in the Jinan Proceedings, who are supposed to be opponents are now being all represented by the same firm of solicitors in this action, namely, SH.  This is another farce.  It reflects that the Jinan Proceedings are bogus and a show staged with a destined result.  As Mr Mok SC put it, this all the more intensifies the concerns about the abusive, unfair and unconscionable nature and the collusion involved in the Jinan Proceedings. I agree.

61.The Jinan City Government has demonstrated its determination to acquire the Trust Shares regardless whether they had been sold to a third party.  The senior management of Shandong Shanshui under the leadership of Mi has exerted coercion on the employees to cooperate with the Jinan City Government and to give effect to its objective. In the Notice, senior management unequivocally stated that “everyone should put in joint efforts to assist and facilitate Jinan SOE to complete all necessary legal procedures as soon as possible, and that the employees were urged to sign documents and cooperate in going through the procedures via proper legal channel”.  It also made known management’s intention “to make sure that the signing mission could be completed within time”.  There were and are multiple layers of pressure exerted on the employees and interference from the Jinan City Government to complete the takeover.  The coercion exerted on the employees was and is overwhelming.  Obviously, the Jinan Proceedings were commenced as an aid to and give effect to the takeover.  The ten representatives and Feng are clearly puppets acting under senior management including Mi with the support of the Jinan City Government when commencing the Jinan Proceedings.  In A/S D/S Svendborg v Wansa [23], the respondent had boasted that he could manipulate the legal system in the foreign court.  The court regarded that as sufficient reason for restraining the respondent from continuing the proceedings in the foreign court and for refusing an order staying the English actions.  The Court of Appeal considered it not appropriate to interfere with the said order.  The present case is an a fortiori case compared to A/S D/S Svendborg.  The surrounding factual circumstances give rise to a real risk that steps have been taken to manipulate the Jinan Proceedings to the detriment of the Plaintiff and to deprive him of a fair trial.

Conclusion

62.In conclusion, I am satisfied that the Hong Kong court is the natural and appropriate forum for the trial of this action.  I am also satisfied that the Jinan Proceedings were frivolous, vexatious, unconscionable which are bound to fail if defended by the Plaintiff; that they were commenced as an aid to and give effect to the takeover by the Jinan City Government; that real and tremendous coercion and pressure had been exerted on the employees to ensure that the takeover would be complete; and that there is a real risk that steps have been taken to manipulate the Jinan Proceedings to the detriment of the Plaintiff and to deprive him of a fair trial. 

63.There is a divergence in expert opinion on PRC law on the question whether there is a requirement for the Plaintiff to first apply in the PRC court to stay the Jinan Proceedings.  On the facts of the present case, there are no effective means under the PRC law to allow the Plaintiff to stop the defendants from pursuing the Jinan Proceedings, or to challenge the PRC court’s jurisdiction to hear the Jinan Proceedings such that the case should be heard in a foreign court.  The Plaintiff has no choice but to resort to an anti-suit injunction application in Hong Kong.

64.For the above reasons, I grant the Anti-suit Injunction Application to the Plaintiff with costs and certificate for two counsel.  I thank counsel for their very detailed and helpful submissions; and apologise to the parties for the delay in delivering this decision.

Mr Johnny Mok SC, leading Ms Stephanie Wong, instructed by Stevenson Wong & Co, for the plaintiff

Mr Jose Maurellet SC, leading Mr Alexander Tang and Mr Kevin Lau, instructed by Stephenson Harwood, for the SH defendants