Ho Siu Pui and Others v. Yue Sheng Finance Ltd. and Another

CACV000361/2002

CACV 361/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 361 OF 2002

(ON APPEAL FROM HCA NO. 3060/2001)

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Coram: Hon Woo and Cheung JJA in Court

Date of Hearing: 22 January 2003

Date of Judgment: 30 January 2003

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J U D G M E N T

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Hon Woo JA:

Introduction

1.This is an appeal by the 1st defendant against the Order of Kwan J made on 27 August 2002 whereby the 1st defendant's application by way of an appeal from the Order of Master Cannon dated 20 December 2001 was dismissed. Master Cannon's said Order dismissed the 1st defendant's summons dated 19 December 2001 and ordered the 1st defendant to pay the costs in the sum of $800 to the plaintiffs.

2.The part of the 1st defendant's summons dated 19 December 2001 which was dismissed by Master Cannon and by Kwan J and which is the subject matter of this appeal is as follows:

"(2) this Action (insofar as it concerns the 1st Defendant) be stayed on the ground that the Hong Kong Court is not the appropriate forum and that the Court in Mainland China is the most appropriate and natural forum;

(3) as an alternative to paragraph (2) above, the Statement of Claim (insofar as it concerns the 1st Defendant) be struck out and this Action (insofar as it concerns the 1st Defendant) be dismissed on the ground that they are frivolous, vexatious or otherwise abuse of the Court process."

3.The 1st defendant's summons also included an application for security for costs to be incurred by the 1st defendant up to and including the hearing of the summons of 19 December 2001, which application was expressly made without prejudice to the applications stated in paras (2) and (3) of the summons referred to above. That application was granted by the Master.

4.The basis of the 1st defendant's application to stay these Hong Kong proceedings against it is based, as alluded to in the said para (2), on the fact that there have been proceedings in the Mainland. These Mainland proceedings were brought by the 1st defendant against the 2nd and 3rd plaintiffs in these proceedings as guarantors of loans made by the 1st defendant to the 1st plaintiff. It is to be noted that the 1st plaintiff is not a party to those Mainland proceedings.

5.In the Mainland proceedings, the 1st defendant ("Yue Sheng") sued the 2nd plaintiff ("Yi Hua") and the 3rd plaintiff ("Mr Chen") as guarantors of two loans made by Yue Sheng to the 1st plaintiff ("Mr Ho") under two loan agreements, dated respectively 29 November 1995 ("the 1st loan agreement") and 10 May 1996 ("the 2nd loan agreement"), each for HK$20 million. In respect of the 1st loan agreement, Yi Hua provided a guarantee to Yue Sheng dated 29 November 1995 and Mr Chen likewise provided a guarantee to Yue Sheng also dated 29 November 1995 for the repayment of the loan. On 8 May 1996, Yi Hua executed another guarantee in favour of Yue Sheng in respect of a further loan of HK$20 million to be advanced by Yue Sheng to Mr Ho. On the same day, Mr Chen executed a similar guarantee in favour of Yue Sheng in respect of the same liability. Those two guarantees were executed in respect of the 2nd loan agreement.

6.On 22 March 2001, Yue Sheng brought the Mainland action against Yi Hua and Mr Chen in the Intermediary People's Court in Zhongshan suing under the guarantees they had given in respect of Mr Ho's liabilities to Yue Sheng under the 1st and 2nd loan agreements. On 23 April 2001, Yue Sheng applied to the Court in Zhongshan and obtained an Order against Yi Hua and Mr Chen restraining them from disposing of their assets to the extent of HK$59,501,369.72, being the amount of Yue Sheng's claim against them in the Mainland action, which represented the two loans totalling HK$40 million, plus interest.

7.On 9 April 2001, Yi Hua and Mr Chen brought an application in the Zhongshan Court to dispute its jurisdiction to try the claim on the ground that the claim should be adjudicated in Hong Kong. The application was dismissed by the Intermediary People's Court on 23 April 2001. Yi Hua and Mr Chen appealed against that decision to the Higher People's Court of Guangdong on 1 June 2001. Their appeal was dismissed by the Higher People's Court on 31 August 2001. In essence, it was held that in accordance with a provision of the Guarantee Law of the People's Republic of China as interpreted by the Supreme People's Court, where a creditor seeks to enforce his right against a guarantor, the action would come within the jurisdiction of the court where the guarantor resides.

8.The writ in this action in Hong Kong was issued by the three plaintiffs against Yue Sheng and the 2nd defendant ("GBI") on 9 July 2001 with an endorsement of claim. A statement of claim in the Chinese language was also filed. Pursuant to the Order of Kwan J, an English version of statement of claim has now been filed. The plaintiffs' claim is for various declarations that the plaintiffs are not liable to Yue Sheng and GBI for the sum of HK$40 million. The basis of the claim is as follows. All the three plaintiffs were acting as agents of Yue Sheng and GBI in their acquisition ("the acquisition") of 53.5% interest in a Dynasty Group which consists of Dynasty Ceramic Sanitary Ware Company Limited ("Dynasty Ceramic"), a Sino-foreign joint venture company formed in Zhongshan in 1988 manufacturing ceramic sanitary wares, Dynasty Sanitary & Decorative Materials Company Limited ("Dynasty Materials"), which handled most of the sales operation of Dynasty Ceramic, and Dynasty Industries (Hong Kong) Limited ("Dynasty HK"), which handled a part of the sales of Dynasty Ceramic products in Hong Kong. The signing of the two loan agreements and the four guarantees were for the purpose of the acquisition, and that the amounts paid under the two loan agreements in the total sum of HK$40 million were used by the plaintiffs as agent for Yue Sheng and GBI in the acquisition. In the premises, the plaintiffs are not liable to Yue Sheng for the sum of HK$40 million. The plaintiffs further claim orders that Yue Sheng and GBI do indemnify and reimburse them in respect of all losses and disbursements incurred by them in acting as agents for the principals in the acquisition, with damages to be assessed.

9.Both Master Cannon and Kwan J refused Yue Sheng's application to stay the Hong Kong proceedings against Yue Sheng. Now Yue Sheng appeals.

Kwan J's decision

10.In her judgment handed down on 27 August 2002, Kwan J set out the reasons for her refusal of Yue Sheng's application, which can be summarised as follows:

(a) The enforceability or validity of the four guarantees, which featured significantly in the Mainland action, is not an issue in the Hong Kong proceedings, as Yue Sheng has decided not to counterclaim against Yi Hua and Mr Chen pursuant the guarantees in the Hong Kong action.

(b) The factors relied on by the Yue Sheng are not sufficiently weighty to establish that the Zhongshan court is distinctly more appropriate than the Hong Kong court in trying the issue in dispute in Hong Kong proceedings.

(c) The present case is not truly a case of lis alibi pendens as there is no identity of party or identity of subject matter in the two sets of proceedings. Having weighed the various factors, the Judge was of the view that the factors militating against the stay outweighed the factors favouring a stay.

(d) While accepting that the declarations sought in the statement of claim are negative declarations, the Judge was not persuaded that no useful purpose would be served in bringing the Hong Kong proceedings. The plaintiffs have claimed damages against Yue Sheng and GBI, alternatively an indemnity, in respect of their losses incurred in acting as agents for these principals in the acquisition, which provides some justification in bringing these proceedings in Hong Kong.

11.The Judge concluded that she was not satisfied that Yue Sheng has established that the Court in Zhongshan is clearly or distinctly a more appropriate forum for the trial of the issues in the Hong Kong proceedings.

Issues of the appeal

12.Mr Yuen, for Yue Sheng, has raised a number of issues. He relies heavily on the effect of clause 16 of the loan agreements which, according to him, binds the plaintiffs to the choice of forum by Yue Sheng. He also relies on clause 7 of the guarantees, as demonstrating that the parties to the guarantees intended those instruments to be governed by the law of the People's Republic of China ("PRC"). The key issue between the parties before us, however, remains whether the Hong Kong action should be stayed on the ground of forum non conveniens. Although in its summons of 19 December 2001, Yue Sheng seeks to strike out the plaintiffs' statement of claim and this action, no ground other than these three issues raised by Mr Yuen has been proffered in support of a striking out.

Discretion of the Judge

13.I pause here to deal with the question of the Judge's discretion in refusing Yue Sheng's application to stay these proceedings.

14.One must not forget that this Court is asked to interfere with the Judge's exercise of discretion. The ambit of such interference is very much restricted, such as where it is shown that the judge exercised his discretion under a mistake of law, or that he took into account irrelevant matters or his conclusion was "outside the generous ambit within which a reasonable disagreement is possible". See para 59/1/49 of 2002 High Court Civil Procedure, Vol 1.

15.Mr Chow, for the plaintiffs, refers us to several authorities where the above well-established principle has been applied in cases involving forum non conveniens. In Greenwood Ltd v Pearl River Container Transportation & Anr, CACV 27/1994 (25 May 1994, unreported) Nazareth JA at p 2 of the judgment said:

"It is well established that as a court of appeal this Court will ... not interfere with such exercise of discretion except in very limited circumstances. These may conveniently and appositely be taken from the judgment of Lord Brandon in the Abidin Daver [1984] 1 AC 398 at p. 420A-C, a case not dissimilar to this. They are:

(i) where the judge had misdirected himself with regard to the principles in accordance with which his discretion had to be exercised;

(ii) whether the judge, in exercising his discretion, had taken into account matters which he ought not to have done or failed to take into account matters which he ought to have done; or

(iii) where his decision is plainly wrong."

16.In Harain Lai Navalani & Anr v Tokai Bank Ltd [1994] 3 HKC 203, Pennington JA said at 208B:

"We were satisfied that no case has been made out for reversing the decision of the judge that the application for a stay of proceedings in favour of Japan be refused. There are undoubtedly, factors which favour the Japanese jurisdiction which were fully argued before the judge. It was a matter of discretion and there is no suggestion that he has not applied the correct principles, as set out in Spiliada, which he cited. On all the evidence here, he was also not plainly wrong to come to the decision he did and we consider he was, on the contrary, correct in holding that Hong Kong is the most convenient forum in the interests of the parties and for the ends of justice."

17.In Nan Tung Bank Ltd, Zhu Hai v Wangfoong Transportation Ltd [1999] 2 HKC 606, at 614C-615C, Liu JA had the following to say:

"Granted that the judge could have dwelt upon 'illegality' and 'lawful holder' more fully, he was very much alive to the Guangzhou litigation. He reviewed 'the considerable amount of evidence and documentary material before' him, together with the submissions of counsel. It cannot be fairly said that the judge had overlooked these material considerations. ...

The fact remains that the plaintiff chose to litigate in Hong Kong against a Hong Kong resident company. ...

The burden rests on the defendant to show that the Mainland court is not only another natural or appropriate forum for the trial of issues relating to the bills of lading, but it is a 'clearly or distinctly' more appropriate forum. The Spiliada case (supra) at 477E-F, per Lord Goff. It is not suggested that the judge failed to appreciate this fundamental principle. Absent any real objection to concurrent proceedings, there is nothing to show that the Mainland court is clearly and distinctly more appropriate.

Finally, in refusing a stay, a judge exercises a discretion. The defendant has not been able to demonstrate that the judge failed to take into consideration the material factors or had regard to irrelevant matters, or that the judge misdirected himself, or that in all the circumstances the judge's ruling is plainly wrong. See The Abidin Daver (supra) at 420B-C, per Lord Brandon. The refusal to grant a stay in this case is pre-eminently a matter for the judge and the Court of Appeal should be slow to intervene."

Clause 16 of the loan agreements

18.Clause 16 of each of the loan agreements is in the same terms and provides as follows:

"本合約的訂立、解釋及爭議的解決均適用於香港或中華人民共和國法律，均受兩地法律保障。在爭議發生時，甲方[ie, Yue Sheng]有權選擇經香港法律或中華人民共和國法律途徑解決。"

19.The Judge's translation, which I consider to be mainly correct, is repeated below with the additions that I make in parentheses:

"The laws of Hong Kong or the laws of the People's Republic of China are applicable to the formation of this agreement, its interpretation and the resolution of dispute [on it]; these matters are protected by the laws of both places. In the event of a dispute, Party A [i.e. Yue Sheng] has the right to choose to resolve the dispute via legal channel under the laws of Hong Kong or the laws of the People's Republic of China."

20.Mr Yuen does not argue that clause 16 is an exclusive jurisdiction clause and I think that he is correct in refraining from doing so, because of the references to both Hong Kong law and PRC law twice in the alternative in the provision. When dealing with a clause (clause 5 in that case) that was couched in stronger terms than clause 16 in Yu Lap Man v Good First Investment Ltd [1998] 1 HKC 726, affirmed on appeal [1999] 1 HKC 622, Cheung J (as he then was) said at 732I-733F:

"...the fact that PRC law was chosen does not mean that the jurisdiction clause must be exclusive in nature ...

... Clear words could easily have been adopted if such an obligation is intended. The clause is either declaratory or permissive: it is a contractual acknowledgement by two foreign parties of the jurisdiction of the courts in PRC and a contractual agreement to the invocation of that jurisdiction."

21.On appeal, Mayo JA also said at 627F:

"It would have been a simple matter for the parties to state that legal proceedings could only be commenced in the PRC."

22.Mr Yuen argues that clause 16 is a choice of law clause, but this is contrary to the Judge's opinion. I am of the view that the Judge is correct in that the second sentence in the clause specifically refers to the "legal channel" under one or the other law, which to me clearly means resort to the court of either of the places. There is nothing exclusive about the jurisdiction of the court of either place.

23.Mr Yuen in the alternative accepts the submission of Mr Chow in the court below that clause 16 is a choice of forum clause, but he stresses that the choice is expressly given to Yue Sheng and not Mr Ho. Either way, Mr Yuen submits that the plaintiffs are bound by this clause to allow Yue Sheng to choose the forum and Yue Sheng has done so by instituting the Zhongshan action. He refers us to Gulf Bank KSC v Mitsubishi Heavy Industries Ltd [1994] 1 Lloyd's Rep 323 at 329, Turner v Grovit [2002] 1 WLR 107 at 118C-D and 119C-D and Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 WLR 588 at 594 in support and submits that clause 16, agreed between the parties, must be respected by the court.

24.I have little doubt that what was agreed between the parties regarding jurisdiction and law should be respected by the courts, but I do not think that those authorities assist Yue Sheng's case. First, those cases dealt with the construction of the particular clauses in the contracts in the context of their own facts. Not much help can be derived in aid of the construction of clause 16 in the present case. Clause 16, on its face, clearly provides that "these matters (including disputes on the loan agreements) are protected by the laws of both places." It would be idle to suggest that Hong Kong law and the jurisdiction of the Hong Kong courts can be excluded from the other party to the agreements at the whim of Yue Sheng. Secondly, Mr Ho is not a party to the Zhongshan action and Yue Sheng's choice of the Mainland court, allegedly in accordance with and allowed by clause 16, has nothing to do with him. As Yue Sheng has chosen not to sue him, its right to choose the forum pursuant to clause 16 has not yet arisen. In such circumstances, there is nothing wrong for Mr Ho to choose the Hong Kong High Court as the forum for resolving the disputes that have arisen out of the loan agreements, to seek the protection of Hong Kong law.

25.Regarding Yi Hua and Mr Chen, Mr Yuen argues that they are equally bound by clause 16 because:

(a) not only were Yi Hua's 1st guarantee and Mr Chen's 1st guarantee attached to the 1st loan agreement as annexes 3 and 4 respectively by virtue of clause 13(1) and (2) of the 1st loan agreement, the preambles of these guarantees stated that they were inseparable parts of the 1st loan agreement;

(b) Yi Hua's 2nd guarantee and Mr Chen's 2nd guarantee were likewise attached to the 2nd loan agreement as annexes 3 and 4 respectively; and

(c) in the circumstances, although the 2nd guarantees did not expressly say so, they clearly formed part of the 2nd loan agreement.

26.Mr Chow draws our attention to the fact that the 2nd guarantees do not have a preamble to the same effect as the preambles of the 1st guarantees referred in (a) above. He also submits that even if all the guarantees were stated to be "inseparable parts" of the loan agreements, the reverse is not true as clause 13 of the 1st loan agreement does not make a "vice versa" provision. So, at the end of the day, the same situation still obtains, namely, that the loan agreements were only between Yue Sheng and Mr Ho, and Yi Hua and Mr Chen were not parties to the loan agreements, nor bound by clause 16 of the loan agreements.

Clause 7 of the four guarantees

27.Mr Yuen also contends that clause 7 of the guarantees clearly provides that the parties intended the guarantees to be governed by PRC law, thereby rendering the PRC court the appropriate forum. Mr Chow submits that clause 7 do not have the effect as argued by Mr Yuen. The relevant part of clause 7 provides:

"本人承諾....將本擔保書按中國法律規定到有關機關登記/備案。"

"I undertake to cause this guarantee to be registered/filed with the relevant authorities in accordance with the laws of China." (my translation)

28.Mr Chow points out that Clause 7 is clearly concerned with the procedural matters of registration and filing with the Mainland authorities, and in no way points to any agreement or intention on the part of Yi Hua and Mr Chen that PRC law and no other law should be applied in dealing with disputes arising from the guarantees. In Yu Lap Man, Mayo JA observed at 625G:

"It is by no means certain that they [the parties] would have addressed their minds to this particular problem [submission to PRC law]. However even if they had done so it may well be the case that they would not wish cl 5 to exclude the possibility of litigation in some other jurisdiction."

29.I agree. I do not think that the provisions of the loan agreements were able to impose one of its terms on the guarantors. There was no incorporation by way of reference of any provision of the loan agreements into the guarantees. I also view clause 7 of the guarantees as far from being sufficient to bear the effect of an exclusive jurisdiction or exclusive law clause binding on Yi Hua and Mr Chen.

Forum non conveniens

30.There is no dispute between the parties as to the applicable law on forum non conveniens, which the Judge applied. Only whether the Judge had applied the law correctly is in issue. The Judge said:

"32. I turn to the law governing the exercise of the discretion to stay proceedings on the ground of forum non conveniens. In Hong Kong, the effect of the principles in Spiliada Maritime Corporation v. Cansulex Ltd. [1987] AC 460 is encapsulated in a three-stage test put forward by Hunter J.A. in the Adhiguna Meranti [1987] HKLR 904 at 907E to 908B, which is as follows:

'(I) 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 evidential burden is here upon the applicant. 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" per Lord Keith in the Abidin Daver [1984] AC 398 ... Failure by the applicant at this stage is normally fatal.

(II) If the answer to (I) is yes, will a trial at this action forum deprive the plaintiff of any "legitimate personal or juridical advantages"? The evidential burden here lies upon the plaintiff.

(III)If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II), Abidin Daver per Lord Brandon at p. 419. 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". The court must try to be objective. Proof of this, which can fairly be called the ultimate burden of persuasion, rests upon the applicant for the stay. By these means he establishes that on balance the other forum is more suitable "for the interests of all the parties and the ends of justice". This may be another way of saying that the plaintiff's choice of forum has been shown to be so inappropriate as to deserve the pejorative description of "forum shopping" and to be restrained accordingly, cp. Lord Reid in The Atlantic Star [1974] AC 436.'"

31.Mr Chow stresses that the burden is on the applicant for a stay to satisfy the court that there is another available forum which is clearly or distinctly more appropriate than the Hong Kong forum. That is shown in principle (I) referred to in the preceding paragraph, stemming from what had fallen from Lord Goff of Chieveley in Spiliada [1987] 1 AC 460 at 477E-F:

"... the burden resting on the defendant is not just to show that England is not the natural or appropriate forum for the trial, but to establish that there is another available forum which is clearly or distinctly more appropriate than the English forum."

32.The test has been invariably followed and adopted in a line of recent cases in Hong Kong, such as Greenwood Ltd v Pearl River Container Transportation & Anr [1994] 1 HKC 585 (Deputy Judge Yam, as he then was), DFS Trading Ltd & Anr v Swiss Air Transport Co Ltd & Ors [1997] 1 HKC 547 (Deputy Judge Woolley), The Kapitan Shvestsov [1997] 1 HKC 485 CA, Nan Tung Bank Ltd, Zhu Hai v Wangfoong Transportation Ltd [1999] 2 HKC 606 CA, Rambus Marketing Co LLC v Chow Kam Fai, David, HCA 10190/2000, Recorder Ma SC (as he then was) (16 May 2001, unreported) as affirmed on appeal in CACV 1055/2001 (12 March 2002, unreported), DEF Foundation Inc & Ors v Estate of Chang Yin Ching (decd) & Ors, HCA 48/2001, Chu J (18 Oct 2001, unreported), and Hwoo Hung Linda v Fu Being San & Ors, HCA 4888/2001, Deputy J Reyes SC (10 April 2002, unreported). Kwan J dismissed Yue Sheng's application on the basis that the factors to which her attention was drawn by Mr Yuen "are not sufficiently weighty to establish that the Zhongshan court is distinctly more appropriate than the Hong Kong court in trying the issues in dispute in the Hong Kong proceedings." Mr Yuen has gone through the same exercise with us in this appeal.

Issues in the two actions

33.I now turn to examine the issues of the two actions, one before the Zhongshan court and one before the High Court in Hong Kong. The Zhongshan action is a claim by Yue Sheng against Yi Hua and Mr Chen under the two sets of guarantees signed by each of them, one relating to the loan under the 1st loan agreement and the other relating to the loan under the 2nd loan agreement. Yi Hua and Mr Chen deny liability on the basis of their being agents for Yue Sheng and its associates in the acquisition of the Dynasty Group and the two sums in the two loan agreements were paid to them and used by them for the purpose of the acquisition. In the present case, the claims of all the plaintiffs, including Yi Hua and Mr Chen, are based on the same allegation of agency for the acquisition, which are exactly the same as their defence in the Zhongshan action. Since the Zhongshan action had been instituted earlier than the Hong Kong action, especially when the Hong Kong action was brought only after Yi Hua and Mr Chen had challenged, but unsuccessfully, the propriety of the Zhongshan court in entertaining that action against them, it is quite obvious that they are trying to bring the same issues between them and Yue Sheng in the Zhongshan action to be resolved before the Hong Kong court. Their having a right to bring action in Hong Kong is, subject to the arguments on the effect of clause 16 of the loan agreements and clause 7 of the guarantees that I have rejected above, undisputed. It is therefore important to compare whether the issues regarding Yi Ha and Mr Chen vis-à-vis Yue Sheng in the present action are clearly or distinctly more appropriate to be tried in the Zhongshan court.

34.Yi Hua and Mr Chen do not dispute that they signed the guarantees. The issue raised by them is that they signed the guarantees as part of the arrangements whereby Mr Ho and they were acting as agents for Yue Sheng, GBI and their associates for the purpose of the acquisition of the 53.5% in the interests of the Dynasty Group. The relevant factors (including facts and allegations) that demonstrate connection with the Hong Kong court and the Mainland court are as follows:

(a) Dynasty Ceramic and Dynasty Materials were companies incorporated under PRC law. Dynasty HK was a company incorporated under Hong Kong law.

(b) Yi Hua was a company incorporated in the Mainland and was the majority shareholder in Dynasty Ceramic. It also owned the entire interest in Dynasty Materials and was the majority shareholder of Dynasty HK.

(c) Mr Chen was the legal representative and general manager of Yi Hua. He also owned a significant interest in Dynasty Ceramic.

(d) Yue Sheng and GBI were companies incorporated in Hong Kong. Yue Sheng was a finance company and a licensed money lender. The shares of GBI have been listed in Hong Kong since December 1997. At the material time, Yue Sheng and GBI had some directors and officers in common, and they were both subsidiary companies which belonged to the same group of companies under Guangdong Investment Limited ("the Guangdong Group").

(e) Mr Ho, a Hong Kong resident, held the entire shareholding of a company incorporated in the British Virgin Islands known as Higson Holidings Limited which held all the shares in a company incorporated in Hong Kong known as Canton Concord Enterprises Limited ("Canton Concord"). Canton Concord held 49% of the shares in Dynasty HK.

(f) Yue Sheng and GDI acted as the representatives of the Guangdong Group in making arrangements for the acquisition.

(g) The arrangements for the agency were made partly in Hong Kong and partly in the Mainland.

(h) The loan agreements were in the Chinese language and were executed in Hong Kong and the four guarantees were made annexures to the loan agreements.

35.The Judge had borne in mind all these factors when she ruled against a stay of the Hong Kong action. It is not necessary for me to go through every point that has been canvassed relating to these factors and the relative significance of them. I am not persuaded that the Judge was plainly wrong or that I am entitled under the well-established principle to interfere with her exercise of discretion.

Other matters

36.As far as the 1st plaintiff, Mr Ho, is concerned, he is not a party to the Zhongshan proceedings, and it is argued by Mr Chow that he is entitled as of right to bring these proceedings in our courts. The outcome of the Zhongshan proceedings will not be binding on Mr Ho although the issues in those proceedings are closely connected to and may well be the same as those raised by Mr Ho in the Hong Kong proceedings. As the Judge pointed out, and Mr Chow adopts that for his argument, the issues and parties in the two actions are different, in that Mr Ho in the present case sues Yue Sheng as well as GBI who is not a party in the Zhongshan proceedings, and the issues between Mr Ho and GBI obviously are not raised in the Zhongshan proceedings.

37.However, Mr Yuen stresses that Mr Ho is not under any risk in the Zhongshan proceedings and indeed in any proceedings in Hong Kong, because he has not been sued by Yue Sheng, the lender of the moneys under the two loan agreements in either place. Who are to be defendants in a particular action is entirely up to the plaintiff. Where, as in this case, there are the borrower and guarantors, it is up to Yue Sheng to choose whether to sue the borrower or the guarantors or all of them. This has to viewed together with the claims in the present case, which is mainly for negative declarations that Mr Ho (and for that matter Yi Hua and Mr Chen) is not liable to repay the loans. For the time being, it is abundantly clear that Yue Sheng has no intention to sue Mr Ho as the principal debtor. At least at the moment Mr Ho faces no such risk. GBI is not a party to the loan agreements and Mr Ho is under no risk of being sued by GBI. Mr Yuen argues that this demonstrates that there is no reasonable ground for Mr Ho to take pre-emptive measures to seek the negative declarations.

38.On the other hand, Mr Chow points out that a stay of the plaintiffs' action would amount to a grave denial of justice to the plaintiffs, and to Mr Ho in particular. Mr Ho appears on the face of the loan documentation to be the borrower whereas Yi Hua and Mr Chen the guarantors. If Yue Sheng were to be successful in its Zhongshan action against Yi Hua and Mr Chen, they as guarantors would be entitled to exercise rights as sureties to claim indemnities against Mr Ho personally in Hong Kong, unless Mr Ho was able to obtain a judgment from the Hong Kong court to protect himself. Mr Ho is entitled to clear his position now, since he is entitled to the protection of the Hong Kong courts, either under the provisions of clause 16 of the loan agreements, or simply exercising his right given to him by Hong Kong law. If Mr Ho had to wait, all kinds of complications could set in, such as the limitation bar, disappearance of witnesses or evidence, and waiver, etc. Any delay caused to Mr Ho's attempt would be tantamount to denying him justice.

39.I also consider the position of Mr Ho if Yue Sheng were to fail in its claim against Yi Hua and Mr Chen in the Zhongshan action. Yue Sheng might, in such circumstances, commence proceedings against Mr Ho. Such proceedings would likely be taken in Hong Kong because Mr Ho's assets are apparently in Hong Kong, due to the problems that would otherwise arise in the enforcement of Mainland judgments in Hong Kong. Mr Ho would then have to litigate in Hong Kong whether he would choose to join Yi Hua and Mr Chen as parties in such proceedings. Again the same disadvantages as suggested by Mr Chow that Mr Ho would suffer would result.

40.Mr Chow also points out the fact that Yue Sheng has chosen to sue Yi Hua and Mr Chen as guarantors but not Mr Ho as the principal debtor in Zhongshan shows that the Mainland action was formulated in a deliberately limited way and a ready inference could be drawn that that action was designed to avoid having a full trial of all the issues now raised in the Hong Kong action.

41.Relating to Yi Hua and Mr Chen, Mr Chow argues that apart from the uncertainties whether the Zhongshan court would apply Hong Kong law in resolving the issues relating to the alleged agency, the Zhongshan court might or might not deal with the issues. If it did, it would be unfair not to allow Yi Hua and Mr Chen to raise these issues in Hong Kong, and after all, they have a right to sue Yue Sheng and GBI in Hong Kong as these companies are Hong Kong companies, unless Yue Sheng could satisfy this Court that the Zhongshan court is clearly or distinctly the more appropriate forum. If the Zhongshan court did not deal with those issues and only adjudged that Yi Hua and Mr Chen were liable to Yue Sheng on the basis of the guarantees, it would all the more be necessary for them to seek indemnity against Yue Sheng and GBI before the Hong Kong court. To stay the present action by Yi Hua and Mr Cheng would seriously delay their efforts to obtain a timely indemnity, and such a delay would undoubtedly lead to grave hardship to them.

42.I consider the points made by Mr Chow of considerable strength which also support the Judge's decision. Moreover, they have shown good reasons why this action should not be stayed despite the negative declarations sought.

43.As far as GBI is concerned, it is not a party in the Zhongshan action. So, similar to Mr Ho's position, any judgment in the Zhongshan action will not bind GBI. It is joined as a defendant in the present action as one of the parties who, together with Yue Sheng, represented the Guangdong Group in the appointment of Mr Ho, Yi Hua and Mr Chen as agents for the acquisition. It was not a party to the loan agreements and the guarantees and therefore the negative declarations sought against Yue Sheng have no effect against it although the factual basis for such declarations involves it. On the other hand, the indemnity sought by the plaintiffs would affect it. It may be said that GBI's presence in the present case is for its intricate involvement in the agency issue, which issue is the same as the issue raised by Yi Hua and Mr Chen as a defence in the Zhongshan proceedings. However, GBI has not sought to stay the present action against it, and I consider that it is undesirable for the present action to proceed against GBI alone in the absence of Yue Shan as an obviously necessary party.

Negative declarations

44.Mr Yuen makes the point that any claim for negative declaration must be viewed with great caution, especially when conflict of jurisdictions is involved since it may be a forum shopping exercise and the Court will generally stay proceedings for negative declaration unless there is good reason to the contrary. He refers us to a number of authorities relating to negative declarations. In particular, in Sohio Supply Co v Gatoil (USA) Inc. [1989] 1 Lloyd's Rep 588, at p 593, Staughton LJ observed:

"... the Texan action is an action for a negative declaration, commenced by the buyers when, as is quite plain, they were apprehensive that proceedings might be commenced against them in England. I would not do anything to encourage that sort of proceeding."

45.Mr Yuen also places reliance on Woolf, The Declaratory Judgment, 3rd Ed, para 4.167 at p 198:

"In Re Clay [1919] 1 Ch. 66, Eve J. said there was no jurisdiction to make an order for a negative declaration merely because a claimant apprehends that proceedings may be commenced, this view was shared by the Court of Appeal (in relation to the cross-appeal by the Bank) in Midland Bank v Laker Airways [1986] Q.B. 689. In a situation where there really is no dispute whatsoever, it is possibly appropriate to speak of there being no jurisdiction although it is still more accurate to describe the situation as one where declaratory relief has always been refused as a matter of discretion. As was noted in Messier Dowty Ltd v. Sabena [2000] 1 W.L.R. 2040, where the case is not so extreme, it is only appropriate to regard the matter as being for the discretion of the court."

46.Mr Yuen further relies on the Judge's observation that the Hong Kong action is a "riposte" to the Mainland action to contend that it was clearly commenced with a view to defeat the jurisdiction of the Mainland court.

47.As Mr Yuen has referred to The Declaratory Judgment, it is also pertinent to note para 4.156 at p 191 thereof, as follows:

"Negative declarations will be readily granted where the defendant has either already committed an unlawful act and probably intends to continue or repeat it, or where he threatens to act unlawfully. But a more cautious attitude must be expected where the claimant is not threatened with any unlawful act. In many cases a person, though claiming a right or power, cannot or does not intend to exercise it without the order of the court. He may, however, intend and threaten to bring the disputed matter to court. Such a threat, which may not be carried out for a long time, can adversely affect the claimant's interests. It may place his title in doubt, make his financial position uncertain, and impair the course of his business as much as a threatened illegal act. He may, therefore, want to obtain a declaration to the effect that the defendant has no cause of action against him. As is illustrated by Dyson v. Attorney-General [1911] 1 K.B. 410; [1912] 1 Ch. 158, there is no doubt that the courts have power to make such declarations.

48.When considering the subject of negative declarations, the Judge said:

"53. I accept the submissions of Mr Yuen that the declarations sought in the Statement of Claim are negative declarations. Where a stay of proceedings for a negative declaration is sought, the court will have to consider both the question whether there is justification for seeking that form of relief and the question whether the forum in which the claim is brought is the appropriate forum (Dicey & Morris on the Conflict of Laws, 13th ed., Vol. 1 para. 12-035).

54. It is pertinent to ask if the negative declarations sought would serve any useful purpose. In other words, were the plaintiffs acting reasonably in bringing these claims in the Hong Kong proceedings or was that clearly an attempt of forum shopping? The approach of the court towards a negative declaration is pragmatic. It is not a matter of jurisdiction but a matter of discretion. A claim of this nature would be scrutinised carefully and relief would be refused where it would serve no useful purpose. However, where a negative declaration would be helpful to ensure that the aims of justice are achieved, the courts should not be reluctant to grant relief (Camilla Cotton Oil Co. v. Granadex S.A. [1976] 2 Lloyd's Rep. 10 at 14, per Lord Wilberforce; Messier-Dowty Ltd. v. Sabena S.A. [2000] 1 WLR 2040 at 2049 to 2051, per Lord Woolf M.R.)

55. The writ issued by the plaintiffs herein at a time when two of them were challenging the jurisdiction of the Zhongshan court would seem to me to be in the nature of a riposte to the mainland action, but is there no useful purpose in bringing these proceedings in Hong Kong? I have no expert evidence in Chinese law whether any declaration made in the Hong Kong proceedings would be recognised in the mainland action, ... In the end, I am not persuaded by Mr Yuen that no useful purpose would be served in bringing the Hong Kong proceedings. I do not think it is a foregone conclusion that the court would refuse to exercise its discretion to grant negative declarations in favour of Mr Ho, just because Yue Sheng has not sued him under the two loan agreements, as the reality of the situation is that Yue Sheng has brought proceedings against the guarantors on the basis that Mr Ho is liable to it under the two loan agreements. The plaintiffs have also sought similar declarations against GBI, which has ceased to be a subsidiary of the parent company of Yue Sheng as from March 2001. Last but not least, in the event that liability is established and the declarations sought are granted, the plaintiffs have claimed damages against Yue Sheng and GBI, alternatively an indemnity, in respect of their losses incurred in acting as agents for these principals in the intended acquisition. For the above reasons, it seems to me there may be some justification in bringing these proceedings in Hong Kong and it could not be said that Hong Kong is not an appropriate forum for seeking these declarations against the defendants, which are both Hong Kong companies."

49.I agree. In my judgment, the Judge properly exercised her discretion. As intimated before, I also consider that there is substance in the points made by Mr Chow regarding the reasonableness in the plaintiffs bringing this action to seek the negative declarations and indemnity. I do not think that the fact that the main declarations sought by the plaintiffs in this action being negative in nature is weighty enough to turn the scales in favour of granting a stay.

Conclusion

50.For the above reasons, I would dismiss the appeal with costs.

Hon Cheung JA:

51.I agree.

Hon Woo JA:

52.This Court dismisses the appeal and makes an order nisi that the 1st defendant do pay the costs of this appeal to the plaintiffs.

Representation:

Mr Kenneth C K Chow and Ms Vivian M F Yeung, instructed by Messrs Fung Wong Ng & Lam, for the plaintiffs.

Mr Rimsky K K Yuen, instructed by Messrs Ng & Shum, for the 1st defendant.