China Shanshui Cement Group Ltd and Others v. Mi Jingtian and Others
Read the full judgment text of HCA 762/2017 on BabelCite. This High Court CFI judgment was delivered on 19 July 2018.
1. There are before me the following summonses:
Cited by 5 cases · Cites 10 cases
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HCA 762/2017 [2018] HKCFI 1553 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 762 OF 2017 _________
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__________________ D E C I S I O N __________________ A. THE APPLICATIONS 1.There are before me the following summonses:
2.On 11 April 2018, just two clear days prior to the hearing, Ps issued a further summons seeking leave to re-amend the Amended Statement of Claim (“Ps’ Re-Amendment Summons”). Ds objected to this summons being dealt with at the hearing. B. THE BACKGROUND 3.P1 is a company incorporated in the Cayman Islands, registered under the Companies Ordinance as a non-Hong Kong company, and listed on the Stock Exchange of Hong Kong (“SEHK”), although trading in its shares has been suspended since April 2015 as the public float of the shares fell below the 25% required by the Listing Rules. The principal business of P1 and its subsidiaries (“the Group”) is the production, distribution and supply of cement and cement-related construction products. It wholly owns P2. 4.P2 is a company incorporated in Hong Kong. It wholly owns P3. 5.P3 is a private company incorporated in mainland PRC. It holds various other operational subsidiaries on the mainland. 6.It is common ground that P1 and P2 are holding companies, and that P3 is important, as it holds the subsidiaries which own the vast majority of the Group’s fixed assets and generates about 99% of the Group’s revenues. 7.P3 has operations at the Group’s industrial plant at Shanshui Industrial Park in Jinan (“the Jinan Plant”). 8.The current dispute forms part of the ongoing struggle for control of the Group. B1. The appointment of Receivers in the Trust Action 9.One of the major shareholders of P1 is China Shanshui Investment Company Limited (“CSI”). CSI holds 25.09% of the issued shares in P1. The shares in CSI in turn were held as to 81.74% by Zhang Caikui (“Zhang Senior”), for himself and as trustee for a number of employees of P3 and its subsidiaries. In 2015, a dispute arose between Zhang Senior and some of the employees. Some 2,600 employees commenced an action in Hong Kong against Zhang Senior in HCA 1661/2014 and other related actions, seeking to have their shares transferred into their own names or the names of nominees (“the Trust Action”). 10.In May 2015, G Lam J appointed three accountants, Stephen Liu, David Yen and Sammy Koo, as receivers for the shares in CSI held by the employees (“the Receivers”) pending trial of the Trust Action. The Receivers were discharged on 31 January 2018 when G Lam J gave judgment in the Trust Action. B2. Control of P1 and P3 11.In his judgment of 17 June 2015 [1] in the Trust Action at [18], G Lam J had directed that the Receivers should not seek to alter the composition of the board of directors of P1 without further directions of the Court. G Lam J stated that the Court’s primary concern in appointing the Receivers was to protect and preserve the trust assets including their value, and not to achieve a complete change of management of the listed company P1. They were there to hold the ring, and not to act for one of the parties. 12.Subsequently, Tianrui Group Company Limited (“Tianrui”), a 28.16% shareholder in P1, proposed the removal of all but one of the directors of P1 (including Zhang Senior and his son) and to appoint seven new directors. In her judgment of 23 July 2015 in the Trust Action, Au-Yeung J declined to give directions to the Receivers to vote at P1’s EGM so as to fundamentally change the composition of P1’s board of directors. 13.On 14 October 2015, Zhang Senior made amendments to the articles of association of P3 and then registered these with the Jinan office of the Administration of Industry and Commerce. The amendment effectively made it impossible for P2, as shareholder of P3, to remove P3’s directors, which included Zhang Senior and his son. 14.On 2 December 2015, Stephen Liu of the Receivers was appointed as a director of P1. Ds say that this was upon Tianrui’s nomination. It is Ds’ case that since that time, P1’s board has been controlled by the Receivers and Tianrui in that it consists only of the Receivers and nominees appointed by Tianrui, with no nominees representing the other major shareholders of P1. 15.On 3 December 2015, P2 passed a resolution to appoint new directors to P3, replacing Zhang Senior and his associates. Nine new directors were appointed, including D1 to D5. 16.On 8 and 13 January 2016, the Court ordered Zhang Senior and his son to execute corrective amendments to the articles of association of P3. P2 subsequently tried, but failed, to register the Court’s amendments with the Jinan office of the Administration of Industry and Commerce. Eventually, on 20 April 2016, the Registrar of the High Court executed the corrective amendments. Ds say that the corrective amendments are not valid as they were not registered with the local office of the Ministry of Commerce. 17.On 1 June 2016, Stephen Liu became chairman of P1. B3. The parties’ dispute 18.It is Ds’ case that since that time, the Receivers no longer “held the ring” but instead began to actively manage P1. Ds further allege that the Receivers were acting together with Tianrui to achieve Tianrui’s plans, which were detrimental to the interests of CSI and hence the interests of P3’s employees who own shares in CSI.
19.Ds objected to the Cinda Agreement and refused to execute the pledge documents in favour of Cinda or to amend P3’s articles as required by the Cinda Agreement. 20.Ds say that P1’s board, controlled by Tianrui and the Receivers, thereupon sought to remove them from the board of P3.
21.For their part, Ps say that due to misconduct of the former boardof P1 (controlled by the Zhangs), the Group had been incurring a substantial loss since 2015 and by early 2017, the Group’s liquidity problems had worsened. In order to resolve the Group’s debt defaults and other liquidity problems:
22.Ps say that Ds were aware that even if the Group was able to fully utilise the credit facilities under the Cinda Agreement, the Group would still have an unresolved liquidity problem. 23.Ps say that it was against that background that P1 and P2 passed resolutions on 10 January 2017 (“the 1st Shareholders’ Instruction”) that:
24.On 18 January 2017, P1 and P2 further instructed P3’s board (including Ds) that all administrative expenditure had to be approved by Li Heping and Yang Yongzheng (also directors of P3) (“the 2nd Shareholders’ Instruction”). 25.Ps say that Ds defied the 1st and 2nd Shareholders’ Instructions in that, inter alia:
26.Ps then complain that at an event on 14 December 2016 hosted by P3, D1 and D4 disclosed confidential information relating to P3, which also constituted “inside” information within the meaning of section 307A of the Securities and Futures Ordinance (Cap 571). The information relatedto P3’s alleged profitability and liquidity. Present at the event were members of the press, including from the Hong Kong newspaper Wen Wei Po. The unlawful disclosures were then republished in an article in the Wen Wei Po on 15 December 2016 (“the Wen Wei Po Article”). Thereafter, the SEHK wrote to P1 making enquiries in relation to the unauthorised disclosures. 27.A further complaint by Ps is that Ds defied P1’s instruction, given in letters of 20 December 2016 to P3’s directors (“the 3rd Shareholders’ Instruction”), that D1 was not to be permitted to enter P3’s headquarters in the Jinan Plant. Ps say (inter alia) that on or about 20 December 2016, Ds instructed P3’s employees to prevent David Yen and certain personnel of P1, P2 and P3 from entering the Jinan Plant, certain of P3’s staff not to come to work, and its security officers to prevent the Group’s auditors KPMG from entering the Jinan Plant. 28.Ps also complain that on 8 April 2017, when Stephen Liu and David Yen sought to recover possession of the Jinan Plant, they were forcibly held against their will by a crowd organised by D1, and that they were unable to leave until the Jinan Police went to their assistance. 29.The next matter of which Ps complain is that Ds defied P1’s and P2’s instruction, given on 13 January 2017 (“the 4th Shareholders’ Instruction”), and that Ds should comply with the board resolutions of P1 and P2 of 9 and 12 January 2017 whereby D1 was removed from his position as director and deputy general manager of P3 (and divested of all offices, functions and responsibilities in P3 and its subsidiaries). In relation to this complaint, Ps say (inter alia) that D1 continued to purport to act as P3’s director and general manager and D2 to D5 permitted and encouraged him to so. 30.The last matter (for present purposes) of which Ps complain is that Ds have defied P1’s and P2’s instruction (“the 5th Shareholders’ Instruction”) that Ds should comply with the board resolutions of P1 and P2 of 13 March 2017 whereby D2 to D5 were removed from their positions as directors and employees of P3. It is said that Ds have refused to step down and have continued to purport to act as directors and employees of P3. 31.In summary, Ds’ response to Ps’ complaints is that:
B4. These proceedings 32.On 29 March 2017, Ps issued a writ against Ds (“the Writ”), complaining in the Statement of Claim (“SOC”) of the matters set out in section B3 above and claiming (inter alia) that Ds were liable:
33.Ps sought:
34.On 11 April 2017, having heard Ps on an ex parte basis, Wilson Chan J granted an injunction against Ds, restricting them from (inter alia) holding themselves out as directors or officers of P3, entering upon P3’s premises and removing from P3’s premises funds, chattels and other items; and a Mareva injunction against D1 and D3 to D5 (collectively “the Injunction Order”). The Injunction Order was varied by order of 21 April 2017 and continued by order of 31 May 2017. 35.On 19 April 2017, by the 2nd Affirmation of Yen Ching Wai David (“Yen II”), Ps applied for leave to issue and serve a concurrent Writ [3] out of the jurisdiction. Yen II was subsequently supplemented by the 4th affidavit of Yen Ching Wai David of 6 June 2017 (“Yen IV”). Leave was granted by Master M Wong on 19 June 2017. Service was subsequently effected on D2 on 1 September 2017. Ps applied for leave for substituted service in respect of D1, D3, D4 and D5; this was granted by Master S Lo on 22 November 2017; and substituted service was subsequently effected. 36.On 29 December 2017, Ps amended their SOC (“ASOC”). C. PS’ 1ST STRIKE OUT SUMMONS 37.Ps only pursue [4] paragraph 2 of Ps’ 1st Strike Out Summons, which seeks to strike out certain paragraphs in D2’s 2nd affirmation dated 10 May 2017 (“Chen II”). 38.Mr Barlow SC (appearing with Mr David Chen for Ps) was content to simply rely on the matters in his skeleton in support of this summons. C1. Chen II paragraphs 14 and 18 39.Ps seek to strike out Chen II paragraphs 14 and 18 on the grounds of irrelevance, saying that they concern earlier fund-raising exercises of P1. 40.Paragraphs 26 to 33 of the SOC plead the liquidity problems of the Group and efforts to resolve this, including the Cinda Agreement and a proposal to restore the public float for P1’s shares in September 2016. These matters are addressed in Chen II paragraphs 14 and 18. 41.It is Ps’ case that it was in the light of these matters that the 1st and 2nd Shareholders’ Instructions were given, and it is their complaint that Ds defied these instructions: see 1st Affidavit of Yen Ching Wai David dated 11 April 2017 (“Yen I”) at paragraphs 18 to 24. This complaint forms part of the basis for seeking a continuation of the Injunction Order. 42.It therefore cannot be said that Chen II paragraphs 14 and 18 are irrelevant to the dispute between the parties. C2. Chen II paragraphs 19, 22, 24 43.Ps seek to strike out Chen II paragraphs 19, 22 and 24 on the grounds that they contain scandalous and offensive allegations against the Receivers, claiming that they sought to strip out P3’s assets, and inadmissible statements of opinion. 44.Ps rely on Chan Woon Fui v Chan Wing Suen & ors, unreported, HCCW 350/2004, 11 July 2005, a decision of Barma J (as he then was). The relevant principles are set out at [4]:
45.The paragraphs complained of set out Ds’ complaints of the Receivers’ and Tianrui’s conduct in removing Ds as directors of P3 and appointment of others to P3’s board. They rely on this conduct in support of their allegation that the Receivers (and Tianrui) were seeking to (inter alia) strip out P3’s assets. These are matters which are prima facie relevant to the question of whether Ds have committed the misconduct complained of in the SOC and whether Ps have shown a good arguable case or serious issue to be tried. They are not gratuitous comments: cf. comments struck out in Chan Woon Fui at [18]. 46.Furthermore, Chen II paragraphs 14 to 18 set out the basis for Ds’ complaints about the Receivers’ and Tianrui’s conduct—including Ds’ concerns about the Cinda Agreement and the effect which placements proposed by P1 would have had on the shareholding in P1. C3. Chen II paragraphs 26 (first sentence), 27, 37 47.Ps seek to strike out Chen II paragraphs 26 (first sentence), 27 and 37 on the grounds that they contain inadmissible statements of opinion. Those paragraphs contain Ds’ complaints that there was no good reason to remove D1 from his position in P3, and that the Receivers are intent on making false allegations to the public. However, these paragraphs effectively set out Ds’ inferences of fact based on the matters set out in paragraph 25 (that the holding of the event on 14 December 2016 was in fact authorised by P3 and the information given thereat was correct) and 36 (that P1 issued a misleading public announcement on 27 April 2017 regarding the events of 8 April 2017 at the Jinan Plant, as demonstrated by video clips of the event). C4. Conclusion on Ps’ 1st Strike Out Summons 48.I therefore do not accept that Ps have made out a basis for striking out the parts of Chen II complained of. D. PS’ 2ND STRIKE OUT SUMMONS 49.Ps’ 2nd Strike Out Summons seeks to strike out certain paragraphs in D2’s 4th affirmation dated 9 January 2018 (“Chen IV”). Again, Mr Barlow SC was content to simply rely on the matters in his skeleton in support of this summons. D1. Chen IV paragraphs 5(6) to 5(9) 50.Ps seek to strike out Chen IV paragraphs 5(6) to 5(9) on the grounds that they contain inadmissible statements of argumentative opinion. 51.The contents of these paragraphs, similarly to Chen II paragraphs 19, 22 and 24, contain complaints regarding the Receivers’ and Tianrui’s conduct, in support of Ds’ allegation that the Receivers (and Tianrui) were seeking to (inter alia) strip out P3’s assets and that the removal of Ds was therefore unlawful. They are relevant to the issues between the parties. The factual basis relied on is set out in Chen IV paragraphs 5(6) to 5(9), culminating in the (alleged) inference of fact set out in paragraph 5(9) that Ds were removed for an ulterior motive, and are therefore unlawful. D2. Chen IV paragraphs 6(1), 6(3) to 6(7) 52.Ps seek to strike out Chen IV paragraphs 6(1) and 6(3) to 6(7) on the grounds that D2 brazenly purports to speak on behalf of P3 in these paragraphs, in contravention of the Injunction Order which restrains him from holding himself out as a director of Ps. 53.In those paragraphs, D2 summarises Ds’ answers to the allegations made by Ps in these proceedings. For example, in response to the complaint of disclosure of confidential information at the event of 14 December 2016, D2 says that the event had received prior approval by P3. 54.In setting out Ds’ answers to the allegations, D2 is not purporting to speak on behalf of P3, but simply setting out Ds’ version of the facts. D3. Chen IV paragraphs 6(7), 12, 13 55.Ps seek to strike these paragraphs out on the grounds that they advance argumentative opinions that Ps did not have the power to remove Ds from P3. 56.As noted above, the parties dispute which set of articles of association govern P3. Ds say that Zhang Senior’s son remained the legal representative of P3 (citing PRC legal advice in support). They further saythat P1 and P2 did not have power to terminate Ds’ contracts of employment with P3. 57.The paragraphs complained of by Ps are simply a summary of Ds’ case on this issue, referring to a number of facts relied on in support (such as the status of proceedings on the mainland PRC, PRC legal advice, Ps’ acts and Ds’ acts). Ps have also complained that Ds’ case is illogical, but the correctness of Ds’ argument does not arise for my determination. D4. Conclusion on Ps’ 2nd Strike Out Summons 58.I therefore do not accept that Ps have made out a basis for striking out the parts of Chen IV complained of. E. DS’ SUMMONSES 59.Whilst Ds’ Summonses were taken out after Ps’ Summons, it would be more appropriate to first consider Ds’ application to set aside the leave granted to Ps to issue and serve a concurrent writ of summons on Ds, before going on to consider Ps’ application to continue the Injunction Order, since such leave is necessary for the continuation of the Injunction Order. E1. The principles regarding leave to serve a writ out of the jurisdiction, and setting aside such leave 60.The parties are in agreement as to the principles which apply when a plaintiff seeks leave to serve a writ out of the jurisdiction under Order 11, rule 1 of the Rules of the High Court. The plaintiff must demonstrate that:
See Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454 at [29], per Cheung JA. 61.However, Ps say that on an application to set aside leave, the burden is on Ds to show that Ps’ case does not satisfy the O.11 requirements. Ds disagree, saying that the burden remains on Ps, citing Tremendous Success Holdings Ltd & others v Sinosoft Technology Group Ltd & others, unreported, HCA 2345, 1613 and 2423/2013, 11 July 2016, at [16] to [17], per Deputy High Court Judge Anita Yip SC. 62.I agree with Ds that the burden remains on Ps: Tremendous Success Holdings Ltd at [16] to [17]. Leave to serve a writ out of the jurisdiction is, in the first instance, granted on an ex parte basis. A defendant who applies to set aside leave under Order 12, rule 8(1) is not treated as having submitted to the jurisdiction. At the hearing of such an application, the grant of leave is reconsidered afresh: Hong Kong Civil Procedure 2018, note 11/1/2. 63.On the question of whether there is a serious issue to be tried regarding the merits of the plaintiff’s case:
See Tremendous Success Holdings Ltd at [15(1)], [16(1)], [17]. 64.On the question of whether there is a good arguable case that the claim falls within one of the “gateways”:
See Tremendous Success Holdings Ltd at [15(3)], [16(3)], [17]. 65.I also note that a plaintiff must in general show a good arguable case that each of his claims falls within one or more gateways; it is not permissible to litigate any cause of action which does not fall within the gateway. Where one claim falls within Order 11 but not another, the Court can grant leave as to part only; where leave has been given ex parte to serve out of the jurisdiction a writ that contains claims lying outside Order 11, rule 1(1), the court can to that extent set aside the leave in part. See 張才奎所託管中國山水投資有限公司股份相關員工 (the Trust Action), 13 May 2015, supra, at [67] per Godfrey Lam J. 66.On the question of forum:
67.Mr Barlow SC also submitted that the application to set aside leave to serve out is to be decided “on all the materials currently before this Court”—including applications for amendment to pleadings—citing Seaconsar Far East Ltd v Bank Markazi [1994] 1 AC 438 at 452C–D. However, what Lord Goff said there was that:
68.What Lord Goff was addressing was the strength of the merits of the case which the plaintiff has to establish under Order 11 (see 449D), and he held that the plaintiff had to show that, on the evidence, there was a serious question to be tried. I do not agree that Lord Goff was suggesting that on this (or any other) question, the Court should have regard to intended amendments to pleadings. Indeed, in Seaconsar, the defendant did not dispute the “gateways” relied on and the only issue was whether the plaintiff had established a sufficiently strong case on the merits of its claim. In other words, the House of Lords was not addressing the issue of whether it should take into account claims not already included in the writ. 69.I would also note that an application for leave to issue a writ for service out of the jurisdiction ought to be made with great care and looked at strictly. If a plaintiff relies on a particular pleaded legal basis fora gateway, he cannot thereafter justify his application under that gateway on another legal basis. See Kayden Ltd v Securities and Futures Commission (2010) 13 HKCFAR 696 at [35] to [39].[6] 70.In the present case, the amendments in the ASOC were not made until after leave to serve out was granted. However, Mr Simon Westbrook SC, appearing with Ms Cherry Xu for Ds, was content to proceedon the basis of the ASOC, drawing the line only at the RASOC. As will be seen below, Mr Barlow sought to rely on the RASOC to invoke gateway (c). E2. Gateway (b) 71.Order 11, rule 1(1)(b) provides that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ, an injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of a failure to do or the doing of that thing). 72.The pleaded case and evidence are as follows. In the ASOC, P3 claims an injunction to restrain Ds from (a) holding themselves out as being directors, officers or employees of P3, (b) entering upon premises belonging to P3 including the Jinan Plant, (c) removing from P3’s premises funds and items belonging to P3, and (d) soliciting or enticing P3’s officers and employees to assist them in undertaking the foregoing. Yen II paragraph 7(1) relied on that part of the injunction restraining Ds from holding out as directors, officers or employees of P3 as falling within gateway (b). Yen IV paragraph 8 relied on an affirmation of D2 in the Trust Action and an affirmation of D1 in HCA 1103/2017 (D1’s action for defamation against Stephen Liu and P1) (“the Defamation Action”) to say that there has been such holding out in Hong Kong. E2.1 Relevant principles regarding gateway (b) 73.It was common ground that even where proceedings may technically fall within gateway (b), the discretion to grant leave will not be exercised unless the plaintiff shows that (1) the injunction is a genuine part of the substantive relief sought and has not been claimed merely to bring the case within the rule, and (2) there is reasonable prospect of an injunction being granted: Hong Kong Civil Procedure 2018, note 11/1/15. E2.2 The parties’ submissions 74.Mr Westbrook submitted that the main part of the injunction (that is, (b), (c) and (d) above) sought related to actions which could only be done on the mainland PRC. They therefore fell outside Order 11, rule 1(1)(b) as this gateway does not apply where the order sought requires a thing to be done abroad: Kayden, supra, at [30] to [31]. 75.As regards the injunction to restrain Ds from holding themselves out as directors, officers or employees of P3, Mr Westbrook submitted that there was no pleading of Ds ever having done so in Hong Kong, or any evidence that Ds sought to do so.
76.Ds argued that P3 had therefore failed to establish a good arguable case that its claim for an injunction came within gateway (b). 77.Mr Barlow submitted that there could be no doubt that Ds had been removed from all offices within P3, given the resolutions of P1 and P2’s boards on 9 and 12 January 2017 to remove D1 from his positions within P3, and the resolution of P2’s board on 13 March 2017 to remove the other Ds as directors and dismiss them as employees. There could not be any dispute over which set of articles of association of P3 were the correct ones, given (inter alia) Au-Yeung J’s decision in HCA 2880/2015 of 15 January 2016 ordering the Zhangs to execute corrective amendments to the articles and the Court’s execution of the amendments on the Zhangs’ behalf upon their failure to do so. Accordingly, given the strength of its case, P3 had at least reasonable prospects of obtaining a permanent injunction. 78.Mr Barlow did not dispute the principle in Kayden. He submitted, however, that the injunction sought was not limited to restrainingconduct on the mainland PRC, but also conduct in Hong Kong. Furthermore, the Group has office premises in Hong Kong, and the Group’s employees are allowed to enter into Group premises. 79.Mr Barlow further submitted that the injunction sought by P3 was critical as Ds continued (despite the Injunction Order) to falsely hold themselves out as being P3’s officers. He relied on:
E2.3 Discussion 80.Ds say that there is no good arguable case that gateway (b) applies. 81.In relation to the part of the injunction sought to restrain Ds from entering onto premises “belonging to [P3]”,[8] or removing items from such premises, P3 has not put forward evidence showing that any premises in Hong Kong belong to it. Insofar as there are premises owned by some other entity in the Group, P3 has not explained the basis of its standing to sue to restrain Ds from entering onto those premises (or removing items from such premises). I therefore agree with Mr Westbrook that this part of the injunction sought relates to actions which could only be done on the mainland PRC. Whilst Mr Barlow argued that the injunction sought did not purport to regulate only acts on the mainland, it cannot be said that there is a reasonable prospect that the Court will grant an injunction at P3’s behest to prohibit entry onto premises in Hong Kong which do not belong to P3, or to prohibit removal of items from such premises. In this regard, it is noteworthy that in Yen II at paragraph 7(1), no reliance was placed on these parts of the injunction in seeking leave to serve out. 82.In relation to the part of the injunction sought to restrain Ds from holding themselves out as directors, officers or employees of P3, these are of course actions which can be done both on the mainland PRC and in Hong Kong. The question is therefore whether there is a reasonable prospect that the Court will grant an injunction to restrain such holding out in Hong Kong. In this regard, Mr Barlow submitted that there was such a prospect given Ds’ continued holding out despite the grant of the initial Injunction Order in April 2017. 83.However:
84.In any event, even if D1’s self-description in his affirmation in the Defamation Action amounted to a “holding out”, I agree with Mr Westbrook that there would not be any real purpose in restraining such acts. The Court, to which such affirmations are addressed, would be aware of the contentions over D1’s status; there is no risk that the Court would be misled in this regard. The Court is not a third party which will potentially enter into a transaction with P3 (cf. P3’s argument on Ps’ Summons for continuation of the Injunction Order that damages would not be an adequate remedy because (for example) unknowing third parties may enter into contracts with Ds believing that they represent P3). Similarly, for D2’s self-description in his affirmation in the Trust Action, D2 was setting out evidence relating to issues in the Trust Action; he was not seeking to persuade the Court that he held any particular office within P3. 85.At trial, even if P3 establishes that Ds were removed from their positions, it would still need to go on to establish that there is a sufficient risk that Ds will hold themselves out in Hong Kong as P3’s directors, officers or employees, so as to render it just in all the circumstances that a permanent injunction should be granted to prevent Ds from so holding out. I am not satisfied that P3 has established on the current evidence that there is a reasonable prospect of obtaining the injunction sought. 86.In relation to the last part of the injunction prayed for in the ASOC, which seeks to restrain Ds from soliciting the assistance of P3’s officers and employees, this is ancillary to the earlier three parts of the injunction sought. The prospects of obtaining an injunction stand or fall with the prospects of obtaining the earlier parts of the injunction. 87.Thus irrespective of the relative merits of the parties’ argument as to whether or not Ds have been removed from their positions within P3, I am not satisfied that P3 has demonstrated reasonable prospects of an injunction being granted. E2.4 Conclusion on Gateway (b) 88.I therefore conclude that in respect of its claim for an injunction, P3 has failed to demonstrate a good arguable case on gateway (b). E3. Gateway (f) 89.Order 11, rule 1(1)(f) provides that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ, the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction. 90.The pleaded case and evidence are as follows. In paragraph 50 of the ASOC, P1 and P2 claim damages for loss suffered through Ds’ conspiracy to injure P1 and P2 by unlawful means. Yen II paragraph 7(2) explained that P1 and P2 rely on two matters for the purpose of gateway (f): (1) Ds’ actions led to publication of the Wen Wei Po Article and the disclosure of confidential information in Hong Kong, which in turn prompted the SEHK to make enquiries with P1; (2) Ds’ actions undermined P1’s and P2’s shareholder’s rights as the direct and indirect sole owners of P3. Yen IV paragraphs 10 to 11 said that Ds’ conspiracy jeopardised P1’s listing status, and undermined P1 and P2’s ability to raise funds. E3.1 Relevant principles regarding gateway (f) 91.The following principles were not in contention. 92.To bring himself within gateway (f), a plaintiff must establish either that damage was sustained in Hong Kong, or that the damage resulted from acts committed in Hong Kong. 93.In considering whether damage was sustained in Hong Kong, it is sufficient if some significant damage was sustained here: Dynasty Line Ltd, supra, at [33], per Cheung JA. 94.If a plaintiff relies on acts committed within the jurisdiction in order to bring himself within gateway (f), he must show that those acts were committed by the alleged tortfeasor: ABCI v Banque Franco-Tunisienne and others [2003] 2 Ll Rep 146 at [35]. E3.2 The parties’ submissions 95.Mr Westbrook submitted that:[9]
96.Mr Barlow submitted that:
E3.3 Discussion E3.3.1 Damage within the jurisdiction (a) Wen Wei Po Article 97.The episode relating to the Wen Wei Po Article can be shortly dealt with. P1 and P2 have not put forward any evidence that the Wen Wei Po Article caused them any damage in Hong Kong. (b) Potential delisting of P1 98.P1 and P2 rely more on damage arising from the potential delisting of P1. The letter from the SEHK of 26 April 2017 referred to the SEHK’s concern as to “whether the Company [P1] is able to meet the Rule 13.24 requirement, which requires the Company to have a sufficient level of operations or assets of sufficient value to warrant its continued listing.” However, it then went on to refer to concerns as to how P1 would be able to present a set of financial statements which provided a true and fair view of its affairs, in the light of the “Illegal Occupation, Unauthorised Payment and Internal Control Breaches” which left it unclear whether P3 was still under P1’s control. This was presumably a reference to at least some of the matters complained of by Ps in these proceedings (such as the non-observance of the 3rd Shareholders’ Instruction relating to the Jinan Plant). 99.P1’s announcement of 27 October 2017 stated that the “Illegal Occupation” had prevented P1’s board from obtaining access to the accounting books and records of P3 and ensuring that they were properly maintained for the financial year of 2016. This was one of the matters to which the SEHK had had regard in deciding to issue its letter of 23 October 2017 to P1, notifying it of the SEHK’s intention to commence delisting procedures. 100.It therefore appears that the threat of delisting of P1 was not solely due to the insufficient public float of P1. 101.It is not disputed that a company’s listing status is a valuable asset: Re China Solar Energy Holdings Ltd (No 2) [2018] 2 HKLRD 338 at [37] to [39]. 102.The possibility of the delisting, the need to take steps to counter this possibility, and the expenses incurred in doing so, all constitute damage to P1 in Hong Kong. 103.Bearing in mind that on the issue of whether a good arguable case has been shown that the claim falls within gateway (f), it is sufficient for P1 to show a strong case for argument, and that I do not need to reach even a tentative conclusion that P1 is right, I would hold that P1 has shown a good arguable case that it has suffered damage within the jurisdiction and that gateway (f) applies for P1’s claim in conspiracy to injure by unlawful means. 104.The same cannot be said for P2, however. P2 has not shown why the possibility of P1’s delisting would also amount to damage to P2. (c) Diminished ability to raise funds 105.As for the complaint that P1 had suffered a diminished ability to raise funds, this allegation was not pleaded in the ASOC. Ps propose to add the complaint to the ASOC by paragraph 40A of the proposed re-amendments. 106.In any event, no real evidence has been put forward in support of this alleged damage. Mr Barlow referred to the 3rd affidavit of Yen Ching Wai David dated 19 May 2017 (“Yen III”) at paragraphs 47 and 52, but the first simply asserts that Ds’ conduct was causing ongoing financial distress to the Group, and the second refers to the reluctance of P1’s shareholders ACC and CNBM to provide finance in various ways. Mr Barlow also referred to Yen IV at paragraph 11, but again this simply contains an assertion that Ds’ conduct undermined P1’s and P2’s ability to raise funds, without particulars. He finally referred to the 7th Affidavit of Yen Ching Wai David dated 8 February 2018 [11] (“Yen VII”) paragraph 17, which asserted that Ds’ acts had poisoned P1’s prospects of raising capital, again without particulars. 107.Mr Barlow also referred to P1’s two proposals for placement of new shares. However, it does not appear that the reason why they did not proceed had anything to do with the misconduct of Ds complained of. According to Chen II at paragraph 14(5), the first attempt at the placement was abandoned by the Receivers after a decision of G Lam J on 16 February 2017 directed them to adjourn P1’s EGM to ascertain the wishes of P3’s employees (who, it is said, objected to the placement), or to vote against the placement if such wishes could not be ascertained. It is also said that the second attempt at the placement was on practically identical terms to the first, save that the long stop date was fixed for a later date. Yen III at paragraph 52, responding to these points, simply said that the proposed placement “met with resistance by ACC and CNBM”. 108.I would therefore not accept that P1’s and P2’s complaint about a diminished ability to raise funds would be sufficient to amount to a good arguable case that they have suffered damage within the jurisdiction for the purpose of gateway (f). E3.3.2 Damage resulting from acts of tortfeasors within jurisdiction 109.The Wen Wei Po Article, whilst published in Hong Kong, was not published by Ds. Indeed, none of the matters complained of in the ASOC in paragraphs 33 to 48 were acts committed by Ds in Hong Kong. Yen IV invited the Court to infer that Ds intended the Hong Kong press to report the confidential information divulged at the event of 14 December 2016, given that Ds invited members of the Hong Kong press to attend. However, it is not suggested that the Wen Wei Po reporter was an agent of Ds such that the report can be said to be an act of Ds. Nor is it said that Ds’ act of inviting the Hong Kong press was an act which took place in Hong Kong. 110.P1 and P2 therefore cannot point to any acts within the jurisdiction which enable them to bring themselves within gateway (f). E3.3.3 Reflective loss 111.Insofar as P1 and P2’s alleged loss consists of an undermining of their rights as shareholders (as complained of in Yen II paragraph 7(2)(b)), this is at best loss which is reflective of loss suffered by P3, which is not recoverable: Landune International Ltd v Cheung Chung Leung [2006] 1 HKLRD 39 at [19]. Whether or not P1 and P2 have an independent cause of action against Ds is not determinative (and in any event it has not been suggested that P3 could not join the claim for conspiracy to injure by unlawful means). The question is whether P1 and P2’s loss would be madegood if P3 recovered from D: see Landune at [29], [30]. Any undermining of P1 and P2’s rights as shareholders would presumably be reflected in a diminution in value of P3’s shares, which would be made good if P3 obtained redress against Ds. I would therefore accept Ds’ submission that P1 and P2 have demonstrated no serious issue to be tried in respect of this aspect of the claim. 112.However, in relation to the potential delisting of P1 arising in part as a result of Ds’ actions, this is a loss which P1 would suffer independently of P3, and for which P3 cannot claim against Ds. Ds do not suggest that this loss would also constitute reflective loss; rather, they say that the alleged loss is not established on the evidence, a matter which I have addressed above. E3.4 Conclusion on Gateway (f) 113.I therefore conclude that P1, but not P2, has demonstrated a serious issue to be tried and a good arguable case on gateway (f) in respect of its claim against Ds for conspiracy to use unlawful means to injure it. E4. Gateway (p) 114.Order 11, rule 1(1)(p) provides that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ, the claim is brought for money had and received or for an account or other relief against the defendant as constructive trustee, and the defendant’s alleged liability arises out of acts committed, whether by him or otherwise, within the jurisdiction. 115.In paragraphs 36(4) and 36(5) of the ASOC, there is a plea that in January 2017, Ds caused P3 to pay RMB 10 million to Jinan Lixin in repayment of a loan (the genuineness of which is challenged) and that in May 2017, Ds caused P3 to pay to Jinan Lixin a further RMB 16.62 million. It is said that both payments were for collateral purposes unrelated to P3’s businesses or other interests. In paragraph 49 of the ASOC, P3 claimed that Ds are liable to account to it as a constructive trustee for the funds which they have misapplied, and should pay equitable damages or make restitution. It was further pleaded in paragraph 49A that Ds caused Jinan Lixin to pay RMB12.7 million to Stephenson Harwood in Hong Kong from February to June 2017 in payment of legal fees. 116.In Yen II, it was said that gateway (p) applied as Ds had breached their fiduciary duties by disclosing confidential information of P3 and causing its publication. In Yen IV, the claim to applicability of gateway (p) was instead put on the basis that Ds were liable to account to Ps, in particular P3, as constructive trustees. The pleaded claim for liability to account as constructive trustee is confined to P3 and I will limit my consideration to P3 (as indeed Mr Barlow’s skeleton did). 117.At the hearing, Mr Barlow clarified that for the purpose of gateway (p), he only relied on the claim that a substantial amount of P3’s funds had been misapplied by Ds, and that such funds had been paid to Messrs Stephenson Harwood in Hong Kong. E4.1 Relevant principles regarding gateway (p) 118.It is not disputed that in order for gateway (p) to apply, the alleged liability must arise out of substantial and efficacious acts committed within the jurisdiction: Dynasty Line, supra, at [37] per Cheung JA. E4.2 The parties’ submissions 119.Mr Westbrook submitted that P3 had failed to show a good arguable case that gateway (p) applied:
120.Mr Barlow submitted that payment of the misappropriated funds had been made to Stephenson Harwood in Hong Kong, which was thereby constituted a constructive trustee, and that this was the case irrespective of whether the re-amendments to the ASOC were allowed so as to add Stephenson Harwood as a defendant in the proceedings. E4.3 Discussion 121.Both leading counsel referred to material [12] relating to payments made by P3 to Jinan Lixin and by Jinan Lixin to Stephenson Harwood. Given that Ds do not suggest that there is no serious issue to be tried on thisclaim, it is not necessary for me to say much about this material save to note that it is not disputed that some payments were made by P3 to Jinan Lixin and by Jinan Lixin to Stephenson Harwood (not necessarily in the amounts alleged in the ASOC), and that Ds say that they were legitimate payments. 122.Mr Barlow also alleged that Stephenson Harwood was aware that they were being paid with funds which had originated from P3 and that they were not entitled to receive such funds. Mr Westbrook relied on Carl Zeiss Stiftung v Herbert Smith & Co & anor (No 2) [1969] 2 Ch 276 for the proposition that a solicitor was not to be imputed with knowledge of a trust merely because a claim had been made against his client.[13] Again, this is not a dispute which I can or should resolve at this stage. 123.For present purposes, I will assume in P3’s favour that Stephenson Harwood knew that they were being paid with funds misappliedin breach of trust.[14] But whilst this might make Stephenson Harwood liable to P3 as a constructive trustee, this is a separate claim to the one brought by P3 against Ds, alleging them to be constructive trustees. (Indeed, this separate claim forms the basis for Ps’ application to re-amend the ASOC to add Stephenson Harwood as a defendant.) P3’s claim against Ds as constructive trustees is based on Ds having caused P3 to make payments to Jinan Lixin for collateral purposes unrelated to P3’s businesses or other interests. It is not suggested that Ds did so in Hong Kong. Accordingly, Ds’ liability does not arise out of “acts committed” in Hong Kong as required under Order 11, rule 1(1)(p). 124.Mr Barlow accepted that for payments made to Stephenson Harwood, the constructive trustee in question was Stephenson Harwood, notDs. However, he argued that there was no reason why I should not consider the matter on the basis that leave to re-amend the ASOC had been given and Stephenson Harwood added as a defendant, retrospectively validating the leave to serve the Writ out of the jurisdiction. For the reasons I set out below, I do not consider it appropriate to proceed on this basis. In any event, even if Stephenson Harwood were added as a defendant and retrospective leave to serve the Writ out of the jurisdiction were given, this would not change the fact that P3’s claim against Ds as constructive trustee does not arise out of acts committed in Hong Kong. E4.4 Conclusion on Gateway (p) 125.I therefore conclude that P3 has not shown a good arguable case on gateway (p) in respect of its claim against Ds as constructive trustees. E5. Gateway (c) 126.Order 11, rule 1(1)(c) provides that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ, the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto. 127.Ps applied to re-amend the ASOC just two clear days before the hearing, seeking to add Jinan Lixin as D6 and Stephenson Harwood as D7. P3 claimed that Jinan Lixin and Stephenson Harwood were liable to account to it as constructive trustees for funds of P3 which were transferred to them. 128.The way in which gateway (c) was sought to be invoked was as follows. Mr Barlow submitted that the Court was likely to allow the re-amendments to the ASOC. Once leave had been granted and Stephenson Harwood had been served in Hong Kong, then Ps would be entitled to invoke an additional gateway—gateway (c)—to justify service of the Writ out of the jurisdiction on D1 to D5. Since there could be service out on D1 to D5 via this gateway, the Court should retrospectively validate the existing service on Ds via this gateway. E5.1 The parties’ submissions 129.In support of his approach, Mr Barlow cited Abela & ors v Baadarani & anor [2013] 1 WLR 2043, Kuwait Oil Tanker Co SAK & anor v Al Bader & ors [1997] 1 WLR 1410, Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd & ors [2007] 4 HKC 372 at [17] to [19] and Brink’s Mat Ltd v Elcombe & ors [1988] 1 WLR 1350 at 1357E–G. He submitted that these showed that:
130.Mr Barlow further submitted that no prejudice would be caused to Ds if gateway (c) were to be considered now. 131.Mr Westbrook submitted that:
E5.2 Discussion 132.As I have earlier noted, an application for leave to issue a writ for service out of the jurisdiction ought to be made with great care and looked at strictly. The Court of Final Appeal held in Kayden that if a plaintiff relies on a particular pleaded legal basis for a gateway, he cannot thereafter justify his application under that gateway on another legal basis. Similarly, if a plaintiff invokes one particular gateway at the ex parte stage, the Court should scrutinise carefully a subsequent claim to justify the grant of leave through another gateway. 133.It is true that in Kuwait Oil Tanker, the English Court of Appeal held that an error made in obtaining leave to serve a defendant out of the jurisdiction could be cured by the retrospective validation of service which had been effected on him. What happened in that case was that a writ was issued against three proposed defendants. Only the first defendant residedin the jurisdiction. On 21 July 1994, the plaintiffs were granted leave under the English Rules of the Supreme Court Order 11, rule 1(1)(c) [15] to serve the third defendant outside the jurisdiction but at the time, none of the other defendants had been served yet; it was only later that day that the first defendant was served in England. Some days later, the third defendant was served in Australia pursuant to the leave purportedly granted under gateway (c). The third defendant applied to set aside the leave on the grounds that the requirements of Order 11, rule 1(1)(c) had not been met, as no other defendant had been served at the time when leave was granted. The plaintiffs then applied for retroactive leave under RSC Order 2, rule 1 and Order 11, rule 1(1)(c) to serve the third defendant outside the jurisdiction, the leave to take effect on 22 July 1994,[16] with service of the writ to be dispensed with. 134.The judge at first instance held that the original grant of leave to serve out under gateway (c) had not been valid, but granted the order sought by the plaintiffs. 135.Staughton LJ, with whom the other members of the Court agreed, held that the Court could retrospectively validate leave purported to be granted under Order 11, rule 1 when the requirements for granting leave had not been satisfied, but that this required great care and caution, and should only be done for good cause or good reason. See 1417H, 1419G. In that case, the first instance judge had taken the view that there were special circumstances which justified the validation (see 1419H to 1420A): (a) the bona fide, minor and excusable nature of the plaintiffs’ mistake,[17] (b) the absence of prejudice to the third defendant, (c) the fact that the mistake could easily have been cured (at least prior to the validity of the writ expiring), (d) the fact that the plaintiffs had earlier given notice of their intention to cure the mistake under Order 2, (e) the fact that the plaintiffs’ failure to issue any concurrent writ of summons was only minor inadvertence at a time of negotiations between the parties, (f) the fact that it was admitted that, subject to jurisdiction, the case was a proper one for service out of the jurisdiction, (g) the fact that it was desirable that the action should be heard against all three defendants in the same jurisdiction. In the circumstances, no fault could be found with the judge’s exercise of discretion. 136.It seems to me that Kuwait Oil Tanker addresses the circumstances in which an irregularity in obtaining leave to serve a writ out of the jurisdiction may be cured. It does not suggest that a plaintiff can retrospectively justify the grant of leave to serve a defendant out of the jurisdiction on a legal basis different to the one originally relied on. 137.Mr Barlow has not suggested, and I do not consider, that what Ps are arguing for amounts to an application to cure an irregularity. What the plaintiffs in Kuwait Oil Tanker sought to do was to obtain leave, retrospectively, for service of a writ in identical form to that which had already been served on the third defendant pursuant to leave which, as it transpired, had wrongly been granted by mistake, and where it was accepted that had the leave been sought and granted a few hours later, it could and would have been properly granted. The plaintiffs in that case had all along relied on gateway (c), and were not seeking to use it to retrospectively justify leave granted on some other basis. What Ps are seeking to do in the present case is to ask the Court to grant leave to re-amend the ASOC in substantial terms, treat Stephenson Harwood as having been served with the RASOC, and then retrospectively validate the leave granted to Ps to serve D1 to D5 out of the jurisdiction under the new gateway (c), even though the conditions under gateway (c) as at the date of the hearing before me had not yet been fulfilled.[18] 138.In any event, even if what Ps seek to do could be described as an “irregularity”, the reasons put forward would not constitute good reasons for curing it. Avoiding a separate application to consider the merits of service out under gateway (c) does not justify treating the application as having been properly made when it has not. It cannot be said that Ds would suffer no prejudice: they have not had the opportunity of filing evidence to oppose service under gateway (c); Mr Westbrook also submitted that the action against Stephenson Harwood was liable to be struck out and if it was indeed struck out, then Ds would have suffered prejudice in having been served on the basis that Stephenson Harwood was a party to the proceedings. As to the desirability of trying all defendants in the same jurisdiction, this cannot justify the shortcut approach which Ps seek to take. 139.The other cases cited by Mr Barlow do not support his argument of retrospective validation via a new gateway. 140.The issue in Abela was not whether a plaintiff, having relied on one gateway to obtain ex parte leave to serve a defendant out of the jurisdiction, was entitled to rely on a different gateway at the inter partes stage. The issue was whether the claimants, who had been granted permission to serve a defendant out of the jurisdiction, had validly effected such service. See [1] to [2]. The claimants had attempted a number of different ways to effect service, unsuccessfully. They therefore sought an order under CPR rule 6.15(2) that the steps already taken to bring the claim form to the notice of the defendant constituted good service. The Supreme Court held that (in the circumstances of that case) such an order could be made retrospectively to validate the claimants’ actions as constituting good service on the defendant. Abela is therefore not authority for the proposition that a plaintiff can rely on a different gateway at the inter partes stage to retrospectively justify leave to serve a defendant out of the jurisdiction, granted earlier under a different gateway. 141.Lord Sumption’s observation at [53] “The decision is generally a pragmatic one in the interests of the efficient conduct of litigation in an appropriate forum” does not provide such authority either. He was simply observing that the jurisdiction to serve a defendant out of the jurisdiction should perhaps no longer be described as “exorbitant”, and that when deciding whether to grant permission for such service, the Court would seek to make a pragmatic decision in the interests of the efficient conduct of litigation in an appropriate forum. In the present case, the course proposed by Ps is not so much one of pragmatism but one of bypassing the rules of court. 142.Mr Barlow relied on Pacific Electric Wire & Cable Co Ltd at [17] to [19], where Rogers VP observed that where an order for service out was discharged for material non-disclosure of facts, the plaintiff might nevertheless renew his application in the light of the facts subsequently disclosed. In that case, the plaintiff was not seeking retrospective validation of leave earlier granted, or the grant of leave pursuant to a different gateway. In my view, the decision is not authority which supports Mr Barlow’s proposed course of retrospectively validating the grant of leave to serve out on a legal basis different to that originally relied on. 143.Finally, Mr Barlow relied on Ralph Gibson LJ’s observation in Brink’s Mat Ltd at 1357E–G that the court has a discretion, notwithstanding material non-disclosure which justifies or requires the immediate discharge of an ex parte injunction, to continue the order nevertheless, or to make a new order on terms. In that case, Ralph Gibson LJ had no doubt that even if the innocently non-disclosed material had been before the judge hearing the ex parte application, he would have granted the order on the same terms that he did (in other words, the non-disclosure was in fact immaterial); accordingly, he allowed the plaintiff’s appeal against discharge of the injunction. In my view, whilst it may be that the Court has the jurisdiction to continue the ex parte order granting leave to serve out, on a new basis, it would not be a right exercise of discretion to do so, in the light of the matters at paragraphs 137 and 138 above. E5.3 Conclusion on gateway (c) 144.Thus, notwithstanding that I will be granting leave to re-amend the ASOC as explained below, I do not accept that Ps are entitled to rely on gateway (c) to retrospectively validate leave granted to serve the Writ out of the jurisdiction on Ds (to the extent that such leave is set aside). E6. Is Hong Kong clearly or distinctly the appropriate forum? 145.As earlier noted, Ps also have to establish that Hong Kong is clearly or distinctly the appropriate forum for the trial of the action. In considering this issue, it is necessary to have regard to what issues arise for determination at trial. The main issues would appear to be as follows.
E6.1 Ps’ submissions 146.Mr Barlow submitted that the Hong Kong courts are clearly or distinctly the most appropriate forum for the trial of this action:
E6.2 Ds’ submissions 147.Mr Westbrook submitted that the Hong Kong courts are not clearly or distinctly the most appropriate forum, which should instead be the courts of Shandong:
E6.3 Discussion E6.3.1 Factual matrix; documents; witnesses 148.Ps have framed the ASOC such that the conduct they complain of is said to be a “disobedience of shareholders’ instructions”, and the shareholders in question are a company listed on the SEHK and a Hong Kong company. However, this does not make Hong Kong the clearly or distinctly appropriate forum for trial of the action. The issues which the Court will have to deal with are not (for example) whether or not the resolutions were made or instructions were given. Ps’ real complaints concern Ds’ conduct in disclosing information which is said to be confidential, in procuring P3 to make payments to Jinan Lixin and bonus payments to P3’s employees; and in “hijacking” the Jinan Plant. In other words, the trial will be concerned with scrutiny of conduct on the mainland PRC, carried out by individuals who are PRC citizens living and working in the PRC, in relation to a PRC company. 149.It was said that there was also misconduct committed in Hong Kong.
150.Returning to the acts which took place on the mainland PRC of which Ps complain, the parties dispute the facts relating to these issues, so that evidence will need to be given about them at trial. The court trying the action will have to resolve factual issues such as whether information which was confidential to P3, a PRC company with operations in the mainland, was disclosed, and/or authorised to be disclosed; the basis upon which P3 caused payments to be made to Jinan Lixin; and what in fact happened at the Jinan Plant on 20 December 2016. These matters have little, if any, connection with Hong Kong, let alone “real” or “substantial” connection. 151.Mr Barlow accepts that Ds and other potential witnesses identified in Chen IV are based on the mainland PRC but says that little weight should be attached to this factor given the convenience of travel and the possibility of video-conferencing; in any event this point is negated by the fact that there are witnesses in Hong Kong. It is said in Yen VII that there will be at least six Hong Kong witnesses.
152.Li Heping, a witness based in the PRC, is separately named as a witness who “prefers” to give his evidence in Hong Kong.
153.Tian Tai Law Firm, which has given expert evidence regarding PRC legal issues, is also said to “prefer” to give evidence in Hong Kong. No actual expert witness is named. No reason is given as to why a PRC lawyer would prefer to give evidence about PRC law in a Hong Kong court. Even assuming for present purposes that the “preference” was expressed by the author of the expert opinion exhibited in Li, I do not consider that this bare assertion can constitute a basis for saying that Hong Kong is the more appropriate forum for the trial. 154.The location of witnesses is therefore not a factor in support of a trial in Hong Kong. At most, it is a neutral factor. 155.As regards documents, the fact that many of them are in Chinese, that Chinese is an official language of the Hong Kong courts and that many Hong Kong judges understand Chinese does not point to Hong Kong being the appropriate forum any more than they point to Shandong being the appropriate forum. Again, at most, this is a neutral factor. E6.3.2 Quantification of P1’s damage 156.Mr Barlow submitted that one of the principal issues arising at trial is the quantification of loss suffered by P1 as a result of (1) its inability to raise funds in the jurisdiction and (2) the potential loss of its SEHK listing status. In the event that the former point does arise at trial,[21] it is possible that this may be a matter which the Hong Kong Court would be better placed to assess, although this will depend on the nature of the loss said to have been suffered. In the event that the latter point arises at trial,[22] I agree that it would be a matter which the Hong Kong Court would be better placed to assess, although the Hong Kong Court’s advantage would in truth be limited to the situation where it is necessary to assess the loss upon actual delisting of P1; insofar as there is loss due to (for example) the incurring of expenses on resisting delisting, this is an issue of quantification which the PRC Court could equally carry out. In any event, all of these are matters which will arise, if at all, only at the stage of assessing quantum. E6.3.3 “Embracing” the jurisdiction of the Hong Kong courts 157.It is said that P3 has “embraced” the jurisdiction of the Hong Kong courts. However, the fact that a plaintiff selects a particular jurisdiction in which to commence proceedings does not make that jurisdiction the appropriate forum for the trial of the plaintiff’s claim. 158.It is also said that Ds have “embraced” the jurisdiction of the Hong Kong courts in that they have commenced other actions in Hong Kong, such as the Trust Action and the Defamation Action against Stephen Liu and P1. However, the fact that a litigant considers Hong Kong to be the appropriate forum for the commencement of certain proceedings does not necessarily mean that Hong Kong thereby becomes the appropriate forum for proceedings commenced against him. Mr Barlow did not suggest that there was any commonality of issues between these two sets of proceedings and the present such as to indicate that the fact that these actions were commenced in Hong Kong leads to the conclusion that Hong Kong is the appropriate forum for the present action. E6.3.4 Applicable law 159.Mr Westbrook submitted that PRC law would apply generally in the determination of legal issues arising in the action. Presumably, for example, the questions of what fiduciary duties Ds owed to P3, a PRC company, would be a matter of PRC law. 160.Mr Barlow did not suggest otherwise. 161.This factor would indicate that Hong Kong is not the appropriate forum for the trial of the action. E6.3.5 Shandong Proceedings 162.P3 commenced the Shandong Proceedings in the Shandong High People’s Court in April 2017 (shortly after the issue of the Writ in these proceedings).
163.The defendants in the Shandong Proceedings challenged the jurisdiction of the Shandong High People’s Court, arguing that the matter should be tried by the Changqing District People’s Court in Shandong. In June 2017, the Shandong High People’s Court ruled that the matter should bereferred to the Shandong Intermediate Court. Both parties appealed against this decision. According to Yen VII, in December 2017, the Supreme People’s Court reversed the decision, so that the Shandong Proceedings will proceed in the Shandong High People’s Court. 164.The Shandong Proceedings again indicate that Hong Kong is not the appropriate forum for the trial of the present action.
165.Ps accept that the Shandong Proceedings overlap with the claims in the present proceedings. As far as P3 is concerned, the only difference relied on in Yen VII is that the Shandong Proceedings do not include P3’s cause of action arising from Ds’ dissipation of funds to Jinan Lixin and subsequently to Stephenson Harwood, and it is said that the Hong Kong Court is the more appropriate court to try this cause of action given that Stephenson Harwood is a Hong Kong entity. 166.I have already indicated above that I do not consider it appropriate to deal with Ds’ Summonses on the assumption that gateway (c) has been satisfied. In any event, even if I were wrong about that, I do not agree that the mere fact that Stephenson Harwood is a Hong Kong entity means that it would be more appropriate to try not only the claim against it but also all the other Ds (and the proposed D6 Jinan Lixin) in Hong Kong. The alleged unlawful actions leading to the making of the payments— which are the focus of the dispute between the parties—all took place on the mainland. Moreover, Ps have not suggested that Stephenson Harwood could not be added as a defendant to the Shandong Proceedings. 167.Mr Barlow submitted that there is no identity of parties between the Shandong Proceedings and the present action: P1 and P2 are not party to the Shandong Proceedings so that any decision therein would not bind them; and Liu Xianliang was not a party to the present action. He did not, however, suggest that P1 and P2 could not be made party to the Shandong Proceedings (indeed I note that P2 was named as a “third party”). In any event, if P3 was successful in the Shandong Proceedings, P1 and P2 would presumably not need to be “bound”. As to Liu Xianliang, the fact that he isan additional defendant in the Shandong Proceedings is surely an advantage of the Shandong Proceedings from Ps’ point of view, rather than a reason why Hong Kong is the appropriate forum. 168.Mr Barlow also submitted that there is no identity of relief claimed. However, it would appear that the relief sought is very similar in nature insofar as it is sought to prevent Ds further acting as P3’s directors, officers or employees, and for damages for misappropriated or misapplied funds. It has not been suggested that any other relief sought in the present action (such as misapplication of funds through payment to Jinan Lixin, in addition to misapplication through payment of bonuses) could not also be sought in the Shandong Proceedings.[23] 169.Mr Barlow further submitted that the Mareva injunction provided a legitimate juridical advantage to Ps as D1, D3 and D5 had assets in the jurisdiction. However, there is no suggestion that similar or comparable relief could not have been obtained in the PRC. In any event, injunctive relief may be granted by the Hong Kong Court in support of proceedings in a foreign jurisdiction, so that the existence of proceedings within the jurisdiction is not necessary to provide the juridical advantage of injunctive relief. E6.3.6 Other issues arising in the action 170.In the course of submissions, counsel also made reference to the following issues, related to the main issues, as arising in the present action: (1) which set of articles of association of P3 is valid, (2) whether David Yen and Stephen Liu had authority to commence proceedings on P3’s behalf, and (3) whether the contracts of employment between P3 and D1, D2, D3 and D5 have been terminated. Both Ps and Ds have filed opinions from PRC legal experts on these issues.
171.I have not placed much weight on these issues in the consideration of the question of which forum is the appropriate one given that they do not appear to be the main issues in dispute. In any event, given that they involve questions of PRC law, I consider that they would not provide any support for Hong Kong being the appropriate forum for the trial of the action. E6.3.7 Deprivation of legitimate personal or juridical advantage if action tried other than in Hong Kong 172.In the light of my conclusions above, the question of whether Ps would be deprived of a legitimate personal or juridical advantage if their claims were to be tried outside Hong Kong does not, strictly speaking, arise. 173.In any event, as explained above, I do not consider that Ps succeed in establishing that a trial of their claims in the PRC would deprive them of a legitimate juridical advantage (that is, the Mareva injunction). E6.3.8 Conclusion on appropriate forum 174.I therefore conclude that Ps fail to establish that Hong Kong is clearly or distinctly the appropriate forum to try Ps’ claims. 175.On the contrary, and insofar as it is necessary for me to decide this, the PRC courts are clearly or distinctly the appropriate forum to try the claims. The events complained of all happened in the PRC. The dispute centres around whether Ds, who are PRC citizens residing in the PRC, were validly dismissed from P3, a PRC company with operations on the mainland; and about whether Ds acted in breach of their duties as directors and employees of P3, which duties are governed by PRC law.Proceedings have already been commenced in Shandong by P3 in relation to these matters, which overlap substantially with the present action. There has been no suggestion in those proceedings by any party that Hong Kong is the more appropriate forum. 176.The only real “Hong Kong factor” that Ps can point to is that if P1 should be successful in its claims, and specifically, be found to have suffered either (1) loss due to delisting (which delisting has not as yet happened) or (2) loss due to inability to raise funds in Hong Kong, then the matter of quantification of damage might be something which the Hong Kongcourts would be better placed to assess than the PRC courts. However, this would be limited to the scenario where P1 is successful on its claims and it suffers loss arising from these specific matters. Looked at in the context of all the other factors, it does not lead to the conclusion that Hong Kong is the forum with “the most real and substantial connection with the action”. E7. Application for stay of proceedings on grounds of forum non conveniens and lis alibi pendens 177.Ds’ application for stay of the proceedings on the grounds of forum non conveniens is redundant given that Ds would bear the burden of proof on that application. 178.Ds’ application for stay of proceedings on the grounds of lis alibi pendens is also redundant, since a parallel proceeding in another jurisdiction is only one of the factors to be taken into account on the issue of forum non conveniens: China Construction Bank (Asia) Corp Ltd v Shanghai Pudong Development Bank Co Ltd, unreported, CACV 14/2016, 3 February 2017, per Cheung JA at [5.2]. E8. Conclusions regarding leave to serve out 179.In the light of my conclusions in sections E1 to E8, the leave granted to Ps to serve the Writ outside the jurisdiction should be set aside. 180.The orders for substituted service on D1, D3, D4 and D5 should also be set aside: see 張才奎所託管中國山水投資有限公司股份相關員工 (the Trust Action), 13 May 2015, supra, at [45] per Godfrey Lam J. 181.It further follows that the Injunction Order should be discharged. E9. Failure to obtain leave prior to Injunction Order; material non-disclosure 182.Ds separately argued that as Ps had neither applied for, nor obtained, leave to serve the Writ out of the jurisdiction before the grant of the Injunction Order, the latter was a nullity, or at least irregular and ought not to be cured. It was further submitted that as this point, together with Ds’ arguments as to the inapplicability of Order 11, had not been drawn to the Court’s attention at the ex parte application, the Injunction Order should be discharged on the grounds of material non-disclosure. 183.The general rule is that the jurisdiction of the Court over persons is territorial and restricted to those upon whom its process can be served within the jurisdiction, with the exceptions provided for under Order 11: The Siskina [1979] AC 210 at 254F. In Bank of China (Hong Kong) Ltd vRegal Link Investment Ltd [2009] 3 HKLRD 203 at [33], Yuen JA observed that:
184.Whilst it may be the case that failure to obtain leave is an irregularity which is capable of being cured under Order 2, rule 1, the Court will not lightly exercise its discretion to do so: see Bank of China (Hong Kong) Ltd, supra, at [37], citing Leal v Dunlop Bio-Processes International Ltd [1984] 1 WLR 874; Kuwait Oil Tanker, supra. 185.Mr Barlow pointed out that at the ex parte hearing of 11 April 2017 when Ps applied for and obtained the Injunction Order, paragraph 28 of their skeleton argument had referred to the fact that leave to serve out had not yet been obtained. (Paragraph 29 also referred to the existence of parallel proceedings in Shandong.) Furthermore, David Yen had also stated in Yen I that he had instructed Ps’ solicitors to commence the process of seeking orders for service out. 186.However, no reference was made to the significance or relevance of these matters, in particular, namely, whether Ds could in fact be made amenable to the Court’s jurisdiction in the first place, pursuant to the gateways relied on by Ps under Order 11; and even if they could, whether it was appropriate for the Court to make the Injunction Order at a time when Ds were not yet amenable to the Court’s jurisdiction. 187.Thus the Court came to determine the application for the Injunction Order without having its attention drawn to potential substantial defences which Ds could reasonably have been expected to take had they been present at the ex parte hearing.[24] 188.The non-disclosure was material. If leave to serve Ds out of the jurisdiction could not be obtained, the Court would have no jurisdiction over Ds, including jurisdiction to order an injunction against them. Even if it could be said that the failure to obtain leave to serve out was a mere irregularity which could be cured, the point was not drawn to the Court’s attention so that it could have considered whether it wished to make the Injunction Order in such circumstances. 189.Mr Barlow argued that the need for the Injunction Order was urgent and the application could not be left for the “weeks” that it takes to obtain leave to serve out. However, at best, this was a submission to be made to the Court hearing the ex parte application to enable it to decide whether such reasons justified the grant of the Injunction Order despite the aforesaid potential defences upon which Ds could reasonably rely. 190.Mr Barlow also submitted that this point had been argued at the hearing on 31 May 2017. However, as I understand it, substantive argument was to be heard by me as part of Ds’ Summonses. 191.I would therefore discharge the Injunction Order on this ground also. The issue of a regrant does not arise in the light of my conclusion above that the leave to serve the Writ outside the jurisdiction should be set aside. F. PS’ SUMMONS 192.My conclusions in section E above are also sufficient to disposeof Ps’ Summons. However, in case this matter goes further and I am wrong in my conclusions on leave to serve the Writ out of the jurisdiction, I will proceed to deal briefly with Ps’ application to continue the Injunction Order. F1. The principles applicable to the grant of an interlocutory injunction and a Mareva injunction 193.There was no dispute that on P3’s application for the continuation of the interlocutory injunction prohibiting Ds from (inter alia) holding themselves out as directors, officers and employees of P3 (“the Holding Out Injunction”), P3 would need to show:
194.There was no dispute that on Ps’ application for the continuation of the Mareva injunction against D1, D3, D4 and D5 (“the Mareva Ds”), Ps would need to show:
F2. The Holding Out Injunction 195.I approach the question of continuation of the Holding Out Injunction on the premise that, contrary to my conclusions above, P3 should have leave [25] to serve Ds under Order 11, rule 1(1)(b), so that the scope of the injunction against Ds to be considered would not be confined only to acts in Hong Kong. See Re J (a child) [2014] EMLR 7 at [54] to [55], and paragraph 74 above. That being the case, the considerations earlier raised relating to the absence of premises belonging to P3 in Hong Kong, or the absence of evidence of holding out in Hong Kong, do not arise. Ds do not suggest that P3 does not have premises on the mainland PRC or that they did not hold themselves out as representatives of P3 on the mainland PRC. 196.Ds do not suggest that there would be no serious issue to be tried,or that damages would be an adequate remedy for P3. They would resist the continuation of the Holding Out Injunction on the basis that it would be difficult to supervise, as it is almost entirely directed at restraining the conduct of PRC citizens, who live and work in the PRC, from doing various things in the PRC. 197.However, what would be sought at this stage is an interlocutory injunction, which would be for a finite period pending trial, so that supervision, if any, would not be ongoing indefinitely. It would no doubt come to P3’s attention if during this period Ds sought to hold themselves out as directors, officers and employees of P3, or if Ds sought to enter P3’s premises and remove items belonging to P3, so that practically, compliance should be capable of being monitored. 198.Thus if I had not set aside leave to serve the Writ on Ds out of the jurisdiction, I would have considered that the balance of convenience would have lain in favour of a continuation [26]of the Holding Out Injunction until trial. F3. The Mareva injunction 199.Ds say that P1 and P2 have not made out a good arguable case given that their claim is for reflective loss. However, they do not suggest that P3 has not made out a good arguable case in respect of its claim that its assets have been misapplied or misappropriated. There is no suggestion that the Mareva ought to have been granted on different terms (or not at all) if it was sought only by P3. 200.It is also suggested that Ps have demonstrated a low standard of commercial and professional morality in making false allegations in their evidence. I am not in a position to make any findings in this regard. In any event, this point does not negate Ps’ submissions as regards the risk of dissipation. Given the nature of the allegations against Ds (that they have misapplied and misappropriated P3’s funds) and the acceptance that there is at least a good arguable case in this regard, P3 would be able to meet the requirement of showing a risk of dissipation of assets. There is no challenge to the assertion that the Mareva Ds have substantial assets in Hong Kong. 201.Thus if I had not set aside leave to serve the Writ on Ds out of the jurisdiction, I would have considered it appropriate to continue [27] the Mareva injunction against the Mareva Ds until trial. G. PS’ RE-AMENDMENT SUMMONS 202.Mr Westbrook submitted that the application to re-amend the Statement of Claim was made late in the day, especially given that Ps had known long ago of payments made to Stephenson Harwood, and that the summons should be adjourned to a date when the putative parties could be heard. 203.Mr Westbrook further submitted that the intended action, at least as against Stephenson Harwood, would be doomed to fail, relying on Carl Zeiss Stiftung (supra) as referred to above. 204.However, as Mr Westbrook accepts, the putative defendants do not have a right to be heard in opposition to the intended amendments. As to whether or not Carl Zeiss Stiftung would avail Stephenson Harwood on an application to strike out, this is not something I can determine at this stage. 205.I will therefore give leave to Ps to re-amend the Statement of Claim, adding Jinan Lixin and Stephenson Harwood as defendants. H. ORDERS 206.Accordingly, I make the following orders:
207.I further make a costs order nisi that Ps do pay Ds the costs of all six summonses (as listed in paragraphs 1 and 2 above) with a certificate for two counsel. Whilst Ps were successful on Ps’ Re-Amendment Summons, the costs involved in resisting were relatively minor: the summons was issued so late in the day it was not addressed in the various affidavits before the Court, and it was not the principal focus of the parties’ submissions before me.
Mr Barrie Barlow SC and Mr David Chen, instructed by Wilkinson & Grist, for the 1st to 3rd plaintiffs Mr Simon Westbrook SC and Ms Cherry Xu, instructed by Stephenson Harwood, for the 1st to 5th defendants [1] On an application for leave to appeal against G Lam J’s decision of 20 May 2018 to appoint the Receivers. [2] The amount paid is also disputed by Ds. [3] Reference to the Writ in this decision includes reference to the concurrent Writ. [4] Paragraph 9 of the skeleton filed on behalf of Ps by Mr Barrie Barlow SC and Mr David Chen indicated that they were not pursuing paragraph 1 of Ps’ 1st Strike Out Summons. [5] At the hearing, Mr Barlow submitted that whilst he accepted this to be the test, at the same time, the Supreme Court in Abela v Baadarani [2013] 1 WLR 2043 at [53] had indicated that there could be more than one appropriate forum. However, what Lord Sumption was saying was that the use of the word “exorbitant” to characterise the Order 11 jurisdiction was outdated. The term was originally used by Lord Diplock in Amin Rasheed Shipping Corporation v Kuwait Insurance Co [1984] AC 50 to mean a jurisdiction which, under general English conflict rules, an English court would not recognise as possessed by any foreign court in the absence of some treaty providing for such recognition (see 張才奎所託管中國山水投資有限公司股份相關員工v張才奎, unreported, HCA 1661, 1766 and 2191/2014, 13 May 2015 (the Trust Action), at [54] per Godfrey Lam J). As Lord Sumption noted, a similar jurisdiction is now exercised by the courts of many other countries. It was in that context that he said that “It should no longerbe necessary to resort to the kind of muscular presumptions against service out which are implicit in adjectives like ‘exorbitant’. The decision is generally a pragmatic one in the interests of the efficient conduct of litigation in an appropriate forum.” Lord Sumption was not suggesting thatthe test for leave to serve proceedings out of the jurisdiction had been changed. Indeed, the issue in Abela was whether there had been good service, not what the test for the grant of leave was. [6] Per Ribeiro PJ, with whom the other members of the Court of Final Appeal agreed. [7] Mr Westbrook indicated that he did not pursue a separate argument in his skeleton argument that the “holding out” complained of took place after issue of the Writ. [8] Wording from SOC prayer 1. [9] Mr Westbrook indicated that he would not pursue a further point, originally taken in his skeleton, that P1 and P2’s claim had to be actionable in both Hong Kong and mainland China. [10] The pleaded allegation about the information also being “inside” information was not taken further at the hearing. [11] Which in fact postdated the order giving leave to serve the Writ out of the jurisdiction. [12] Not contained in any of the affidavits sworn in these proceedings. [13] Relying on 290D–G, 293A–F, 297D – 299G. [14] See eg JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162 at [26]. [15] Which is identical to RHC Order 11, rule 1(1)(c). [16] One day after the original grant of leave, and at a time when the first defendant would already have been served. [17] Although Staughton LJ expressed a different view as to the excusability of the mistake. [18] Apart from the fact that Jinan Lixin and Stephenson Harwood have not been made served, no affidavit under Order 11, rule 4(1) has been filed in respect of gateway (c). A supporting affirmation is not a mere formality: see Tremendous Success Holdings Ltd at [88] to [90]. [19] See eg. P1’s and P2’s resolutions of 9 and 12 January 2017, removing D1 from his positions in P3. [20] In respect of D1 to D3 and D5; D4 was not an employee of P3. [21] I have earlier referred to the lack of evidence that Ds’ acts caused the inability to raise funds through the placements. [22] At present P1 remains listed on the SEHK. [23] In Yen VII it was said that P1’s and P2’s substantive claims could only be tried in Hong Kong, but this was not pursued at the hearing. It was not suggested that P1 and P2 could not seek relief in the Shandong Proceedings. [24] Subsequently, when Master M Wong came to consider Ps’ application for leave to serve out, Ds’ Yen I relied on the fact that Wilson Chan J had granted (ex parte) a Mareva injunction to say that“it is clear that the Honourable Wilson Chan J takes the view that [Ps] have a good arguable case against [Ds] on the pleaded causes of action”. Ds’ Yen IV relied on the fact that Wilson Chan J had (at the inter partes hearing on 31 May 2017) dismissed Ds’ application to discharge the Injunction Order pending substantive hearing of the application for continuation. (Ds’ application had been grounded, inter alia, on the lack of any substantive claim by Ps over which the Hong Kong Court had jurisdiction.) In other words, whereas at the stage of applying for and continuing the Injunction Order before Wilson Chan J, Ps did not draw the Court’s attention to defences based on lack of applicable gateways, at the subsequent stage of applying for leave to serve out before Master M Wong, Ps relied on Wilson Chan J’s earlier orders in support of their submission that in fact, the requirements of the gateways had been met. [25] This being sufficient to invoke the Court’s jurisdiction over Ds, irrespective of whether Ds have actually been served pursuant to such leave: see, for example, Bank of China (Hong Kong) Ltd, supra, at [33]. See also Gee, Commercial Injunctions, 6th ed, paragraph 6-009. [26] Or, more accurately, a discharge and regrant, in the light of the non-disclosure. [27] Or, more accurately, a discharge and regrant, in the light of the non-disclosure. |
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