Mayer Holdings Ltd v. Xu Lidi and Another

HCA 17/2022

[2022] HKCFI 275

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 17 OF 2022

________________________

BETWEEN

________________________

Before:  Mr Recorder Jason Pow SC in Chambers

Date of Hearing:  17 January 2022

Date of Decision:  17 January 2022

Date of Handing Down Reasons for Decision:  26 January 2022

________________________

REASONS FOR DECISION

________________________

1.At the hearing on 17 January 2022, I dismissed two ex parte applications made by the Plaintiff. I now give my reasons in writing.

2.The Plaintiff is the ultimate holding company of the Mayer Group, listed on the Main Board of the Hong Kong Stock Exchange (stock code: 1116). An organization chart of the Mayer Group is shown in Annexure 1 to this Decision.

3.By a Writ issued on 6 January 2022, the Plaintiff sues the 1^st Defendant (“Xu”)  and the 2^nd Defendant (“Wang”), both of whom are residing in the PRC.  Xu is a former director and chairman of the Plaintiff.  Wang is a suspended director of the Plaintiff.  The Plaintiff thus applies ex parte for leave to issue a concurrent Writ to be served outside this jurisdiction pursuant to Order 11 rule 1(1)(d)(i)  and/or rule 1(1)(d)(iii)  of the RHC.

4.According to the Indorsement of Claim, the Plaintiff’s claim is based on an oral agreement (the “Accountability Agreement”)  which was subsequently recorded in written letters of undertaking addressed to the Plaintiff and signed by each of Xu and Wang on 4 August 2017.  There was another letter of undertaking signed by Wang on 15 August 2017.  These letters of undertaking are collectively referred to as “Letters of Undertaking”.

5.The Indorsement of Claim further pleaded that pursuant to the Accountability Agreement and/or Letters of Undertaking, the Plaintiff’s board of directors demanded in writing on 31 December 2021 that Xu and Wang arrange for the company seals of 5 of the Plaintiff’s indirect PRC subsidiaries to be delivered up to the Plaintiff’s Hong Kong head office immediately and in any event not later than 4 January 2022 (the “Demand Letter”).  Xu and Wang failed to comply with the Demand Letter and were thus in breach. The Plaintiff thus seeks specific performance of the Accountability Agreement and/or Letters of Undertaking. In the prayer, the Plaintiff claims for an order that Xu and Wang do deliver various specified seals of 5 indirect subsidiaries of the Plaintiff, namely (1) GZ Mayer; (2)  GZ Meiheng; (3)  SZ Meiheng; (4)  SZ Fulland; and (5) SZ Heijing (“the Seals”).

6.There are two ex parte applications before me. The first is an application for leave to serve the Writ outside jurisdiction. The second is an application for interim injunctive reliefs against Xu and Wang:-

(1)  a mandatory order that Xu and Wang do deliver the Seals to the Plaintiff within 14 days; or alternatively

(2)  a prohibitory injunction restraining Xu and Wang from using or applying the Seals.

7.The Plaintiff gave notice to Xu and Wang about its ex parte applications and thus Xu and Wang are represented today by Lam SC and Ms Tiffany Chan.  The Plaintiff is represented by Mr Christopher Chain and Ms Jasmine Cheung.

8.The Plaintiff has created quite a novel situation. Normally, an application for leave to serve a writ outside jurisdiction is made purely ex parte. I have personally not come across such an application ex parte on notice. In ordinary situation, the Court will just assess, solely on the basis of materials adduced by the plaintiff, whether the requirements of Order 11 have been met with.  If so, leave would be granted.  A foreign defendant will only appear after acknowledging service of the writ, whether for defending the claim generally or for the limited purpose of challenging this Court’s jurisdiction and to set aside the service of the writ pursuant to Order 12 rule 8.  In the latter event, the Court will hear arguments on jurisdiction pursuant to an inter partes summons issued under Order 12 rule 8.  In the present case however, since the Plaintiff has rolled up its Order 11 application with the Order 29 application ex parte on notice, Mr Lam SC has filed a Skeleton Submissions for Xu and Wang touching upon both subjects.

9.It was stated in the Skeleton Submissions of Xu and Wang[1] that they “will leave it to the Plaintiff to justify the application for leave to serve outside jurisdiction. If (and only if)  the Court is prepared to grant leave to the Plaintiff to serve these proceedings on Xu and Wang in the PRC on an ex parte basis (which it should not), Xu and Wang are prepared to file an acknowledgement of service in Hong Kong through their solicitors, for the sole purpose of setting aside such leave under Order 12 rule 8 and without any submission to the jurisdiction of this Court”.

10.In the circumstances, to maintain the integrity of the Plaintiff’s application for leave under Order 11 as an ex parte application, strictly speaking, this Court should not hear submissions from Lam SC.  Yet, this Court cannot ignore the points made by Lam SC in the Skeleton Submissions of Xu and Wang which are relevant to the Court’s consideration of whether leave should be granted.  The present situation is in my view akin to that of a plaintiff who has gained knowledge (through e.g. correspondence)  of a defendant’s intended arguments against the grant of leave. Since the plaintiff is making an ex parte application for leave, it bears a duty of full and frank disclosure.  He is thus obliged to alert the Court as to those intended arguments of the defendant.  The Court will thus have to take those intended arguments into consideration in its exercise of discretion.  Accordingly, whilst approaching the Plaintiff’s application for leave on ex parte basis, this Court will have to take into consideration the arguments raised in the Skeleton Submissions of Xu and Wang in its overall analysis and exercise of discretion. Mr Chain fairly accepted that this is the proper course to take.

11.Furthermore, I will first deal with the application for leave to serve the Writ outside jurisdiction because if I am not disposed to grant leave, this Court will not seize jurisdiction to grant any interim injunctive relief against Xu and Wang. Mr Chain again fairly agreed.

12.I will set out the Plaintiff’s version of facts which are taken from the 1^st Affirmation of Lee Kwok Leung (“Lee”)  dated 5 January 2022 which constitutes the only evidence filed in support of the ex parte applications[2]:-

(1)  It can be seen from Annexure 1 that the 5 PRC companies in respect of which their respective Seals are the subject matters of the prayer in the Indorsement of Claim are all “indirect subsidiaries” of the Plaintiff. For instance, the immediate shareholders of GZ Mayer are (i)  Bamian (owning)  81.4% and (ii)  other unspecified minority shareholders.  As for GZ Meiheng and SZ Meiheng, they are solely owned by GZ Mayer.  As for SZ Fulland, GZ Mayer is the sole beneficial shareholder holding 100% shares of SZ Fulland through 2 wholly owned subsidiaries.  The immediate sole shareholder of SZ Fulland is a Hong Kong company named HK Fulland.  As for SZ Heijing, GZ Mayer only has 51% beneficial ownership through SZ Fulland which is only a 51% shareholder.    

(2)  Immediately prior to February 2017, the Plaintiff had experienced publicly documented problems with the then management of GZ Mayer.

(3)  When the Plaintiff retook control of GZ Mayer in February 2017, Xu and Wang were the persons appointed by the Plaintiff to manage GZ Mayer.  Both were appointed directors of GZ Mayer at an EGM on 14 February 2017. Xu was appointed as vice-chairman and Wang was appointed as chairman and legal representative of GZ Mayer. There were other director appointed to the board of GZ Mayer.

(4)  According to Lee §17, prior to 14 February 2017, the Plaintiff’s board made clear to every person to be appointed as a director of GZ Mayer at the Plaintiff’s arrangement and nomination that, during their appointment they would be accountable to and must follow the instructions of the Plaintiff’s board. Each appointee fully accepted and agreed. Lee described it as the Accountability Agreement.

(5)  Lee than said at §18 that the Accountability was subsequently formally recorded in writing through the Letters of Undertakings signed by each appointed director.

(6)  Xu signed his Letter of Undertaking on or around 4 August 2017. Wang signed his 1^st Letter of Undertaking on or around 4 August 2017. Wang signed his 2^nd Letter of Undertaking on or around 15 August 2017.

(7)  As the persons responsible for managing GZ Mayer, Xu and Wang were entrusted with control over the Seals of the PRC Subsidiaries.  Xu and Wang are currently based in the PRC, attending GZ Mayer’s Office in Guangzhou. Yet, according to a table set out in Lee §20, the current directors of the following subsidiaries are:-

GZ Meiheng:   Mr He Peng as sole director and legal representative

SZ Meiheng:   Wang as sole director and legal representative

SZ Fulland:  Ms Wen as sole director and legal representative

SZ Heijing:  Mr Lin, Ms Wan and Mr Yi as directors, Ms Wan as

legal representative

In other words, apart for GZ Mayer, Xu is not a director or legal representative of the 4 other subsidiaries. Wang is only a director and legal representative of 1 of the 4 subsidiaries.

(8)  In November 2021, there were disagreements between the Plaintiff’s board on the one hand and Xu and Wang on the other on enhancing the corporate governance of GZ Mayer.

(9)  On or around 24^th November 2021, unbeknownst to the Plaintiff, Xu and Wang held a Purported EGM of GZ Mayer, purporting to act for GZ Mayer’s majority shareholder Bamian (wholly owned by the Plaintiff).  Through the Purported EGM, Xu and Wang ousted other directors appointed by the Plaintiff into GZ Mayer replacing them with Xu and Wang’s nominees.  It is the Plaintiff’s case that Wang never held any role or appointment from Bamian and never received authority to act on Bamian’s behalf.

(10)  From late November 2021 to early December 2021, Xu and Wang’s wrongful obstruction of management over GZ Mayer was discovered by the Plaintiff, following which the Plaintiff suspended Xu and Wang from all duties as directors of the Plaintiff on 2^nd December 2021. Xu then proceeded to resign from his directorship of the Plaintiff.

(11)  The Plaintiff then investigated into the affairs of GZ Mayer and discovered that Xu and Wang had procured GZ Mayer to enter into suspicious transactions.  At the same time, Xu and Wang withheld financial information of GZ Mayer from the Plaintiff; instructed GZ Mayer’s staff to depart from usual practice and demand early payment of receivables; required Mr Lin to take leave (Mr Lin being a director of the Plaintiff and appointed as a director of GZ Mayer). Mr Lin was removed from the board of GZ Mayer the Purported EGM.

(12)  On 31 December 2021, the Plaintiff issued the Demand Letter to Xu and Wang instructing them to deliver up the Seals to the Plaintiff’s HK Head Office before 4 January 2022. Xu and Wang refused to comply with the demand.

13.Based on the above background facts, Mr Chain submitted that the Plaintiff is taking action to put in place proper management over GZ Mayer.  However, under PRC law[3], the earliest that an EGM of GZ Mayer can be held (where the Listco will, through Bamian, invalidate the Purported EGM and undo the Wrongful Obstruction of Management)  is 10^th February 2022.  The Plaintiff was also advised that it should seek possession of the Seals so as to protect the Plaintiff’s interest under PRC law.

Applicable legal principles

14.Mr Chain referred me to Dynasty Line v. Sukamto Sia [2009] 4 HKLRD 454 at §29 in which Cheung JA stated that a plaintiff, in seeking leave to serve a writ outside jurisdiction, must satisfy the Court that:-

(a)  There is good arguable case (in the sense that there is a good prospect of success at trial)  that his case comes within one of the jurisdictional gateways under Rules of the High Court (Cap. 4A)  (“RHC”)  O.11 r.1.

(b)  The discretion should be exercised in its favour in that:-

(i)  There is a serious issue to be tried on the merits of the case; and

(ii)  Hong Kong is the appropriate forum under the principle governing forum conveniens for the trial of the action.

Jurisdictional gateways

15.Mr Chain submitted that there is at least a good arguable case that the Plaintiff’s claim falls within the jurisdictional gateways under O.11 r.1(1)(d)(i)  and/or 1(1)(d)(iii)  of the RHC. In this case, the relevant contract is the Accountability Agreement, as recorded in the Letters of Undertaking.

16.For a case to fall within r.1(1)(d)(i), the relevant contract must be one made within the jurisdiction.  According to the Indorsement of Claim, the Accountability Agreement is said to have been made orally.  Yet, the Indorsement of Claim provides extremely little information as to the circumstances under which the Accountability Agreement was concluded.  It mentioned that there was “an oral agreement between the Plaintiff and each of Xu and Wang”.  It did not mention when and where the said oral agreement was concluded.  It did not even mention who represented the Plaintiff in the oral negotiations with Xu and Wang which resulted in an oral agreement.  The 1^st Affirmation of Lee provided no better evidence.  After mentioning about the completion of registration of Xu and Wang’s appointments as GZ Mayer’s directors on 4 August 2017 and the relevant public announcement on 17 August 2017, Lee said at §17:-

“Given the historical problems the Listco had faced with its control over GZ Mayer and its subsidiaries, to avoid history repeating itself, prior to 14 February 2017, the board of the Listco made clear to every person to be appointed director of GZ Mayer at the Listco’s arrangement and nomination that, during their appointment they would be accountable to and must follow the instructions of the Listco board, which each appointee fully accepted and agreed to (i.e. the Accountability Agreement).”

Lee did not say where the aforesaid event took place, particularly in relation to Xu and Wang who were and are residents in the Mainland.  Lee only shed light on the rough timing of the event: prior to 14 February 2017.  In my judgment, there is simply no evidence that the said oral agreement with Xu and Wang was concluded in Hong Kong. Lee did not even say that Xu and Wang were both in Hong Kong at the time, whether individually or together. Mr Chain referred to another paragraph in Lee’s affirmation mentioning that Xu agreed to the Accountability Agreement at “board meetings” held in Hong Kong. However when he exhibited various board minutes in support, none of them were related to the period of February 2017. In any event, this bare averment of Lee did not relate to the position of Wang.

17.Mr Chain made a series of submissions in relation to the Letters of Undertaking saying that they were addressed to the Plaintiff’s board in Hong Kong; their drafts were prepared by the Plaintiff’s staff in Hong Kong; and although they were signed by Xu and Wang in Mainland China, the signing of the Letters of Undertaking was communicated to the Plaintiff at the time and they were subsequently sent to the Plaintiff’s HK Head Office by courier.  With respect, all these matters are beside the point. The Plaintiff’s cause of action is based on an oral agreement (i.e. the Accountability Agreement). It was clearly stated in the Indorsement of Claim “the Plaintiff’s claims arise out of an oral agreement… (“Accountability Agreement”)”.  The Plaintiff’s case is not that the Letters of Undertaking constitute separate agreements on which the Plaintiff’s claims are based. In both the Indorsement of Claim and §18 of Lee’s Affirmation, it was stated that “the Accountability Agreement was subsequently formally recorded in writing through letters of undertaking…”.  The Letters of Undertaking are thus “written post records” of the alleged oral Accountability Agreement. The sole question for this Court is whether the said oral agreement was concluded in Hong Kong. There is simply no such evidence before me.

18.Mr Chain argued that the Letters of Undertaking could be regarded as separate contracts. However, that was not how the Plaintiff’s case was identified in the Indorsement of Claim. Mr Chain argued that the Indorsement of Claim stated that “pursuant to the Accountability Agreement and/or the Letters of Undertaking” the Demand Letters were issued and the Defendants were said to be in breach. I cannot agree that it is tantamount to pleading the Letters of Undertaking to be “separate contracts”. In any event, the evidence of Lee is that the Letters of Undertakings were signed by Xu and Wang in the Mainland.  They were not couriered to Hong Kong until some 4 years later at the request of the Plaintiff’s administrative staff.  As to how the fact that Xu and Wang had executed the Letters of Undertaking was communicated to the Plaintiff, Lee’s affirmation did not shed any light. In particular, there is no evidence that their acceptance of the undertakings were “telecommunicated” to Hong Kong.  In the circumstances, I can only conclude that the Plaintiff has failed to discharge the burden of showing a good arguable case that the Accountability Agreement was concluded in Hong Kong.  Even if I were to accede to Mr Chain’s submission that the Letters of Undertaking arguably constitute separate contracts, the Plaintiff has equally failed to show a good arguable case that they were concluded in Hong Kong.

19.Mr Chain argued that r.1(1)(d)(iii)  applies because the Accountability Agreement is a contract which is, by its terms, or by implication, governed by Hong Kong law.  The Letters of Undertaking were the formal records of the Accountability Agreement and hence its terms.  It is clear that they do not contain an express choice of law clause.  Mr Chain argued that there is at least a good arguable case that the Accountability Agreement is governed by Hong Kong law by implication based on the notion of “closest and most real connection”.  Mr Chain relied on the following connecting factors:-

(a)  Hong Kong legal concepts: The Letters of Undertaking contain extensive specific references to at least 6 different statutes and regulations under Hong Kong law (including HKEx’s Listing Rules), whereas in contrast there is only one general reference to the laws of the PRC. In this regard, references to legal concepts and terminologies connected to Hong Kong law is an important factor in determining the governing law: see S Megga Telecommunications v Etowaru Co Ltd [1995] 2 HKC 761 at 767B-C per Bokhary JA (as he then was).

(b)  Hong Kong inspired template: Similarly, the Letter of Undertaking signed by Xu and the 1^st Letter of Undertaking signed by Wang were based on a template prepared by the Plaintiff based on Form B of Appendix 5 of the Listing Rules, which is an instrument of Hong Kong law: see §51(b)  of Lee’s 1^st Affirmation.

(c)  Plaintiff resident in Hong Kong: Although Xu and Wang reside in Mainland China, the Plaintiff, being the other party to the contract, has its central management and control in Hong Kong and is thus considered resident in Hong Kong in applications for service out: see Pacific Aerosupplies v Dakota Air Parts (unrep., HCA 1233/2010, 24^th June 2011)  at §65 per DHCJ Coleman SC (as he then was).

20.On Mr Chain’s first point, for purpose of illustration, I will refer to the 1^st Letter of Undertaking signed by Wang and dated 4 August 2017[4]. After stating that it was addressed to the Plaintiff, it read: “本人王東奇…現時職位為公司非執行董事/公司之附屬公司廣州美亞股份有限公司董事/法人代表”.  It is thus clear that the letter of undertaking was made in respect of 3 capacities: (a)  as a director of the Plaintiff; (b)  as a director of GZ Mayer; and (c)  as the Legal Representative of GZ Mayer. Then Wang continued to state “在此確認並承諾本人于任職期間: …” before setting out his obligations in 6 sub-paragraphs.  It is true that sub-paragraphs 1 and 2 referred to the Hong Kong Listing Rules and sub-paragraph 4 referred to the Companies Ordinance, the Companies (Winding-up and Miscellaneous)  Ordinance, the Securities and Futures Ordinance, the Regulations on Mergers and Acquisition and other securities laws and regulations in Hong Kong.  Yet, it can be readily understood that these sub-paragraphs relate to Wang’s capacity as a director of the Plaintiff.  Sub-paragraph 3 was clearly related to Wang’s capacity both as a director of the Plaintiff as well as a director and the Legal Representative of GZ Mayer because it referred to Wang’s obligation to ensure the Plaintiff’s and GZ Mayer’s compliance with all relevant laws and regulations of the PRC. Sub-paragraph 5 set out a general obligation to follow the instructions of the Plaintiff’s board.  Sub-paragraph 6 set out a general obligation to act in the overall interest of the Plaintiff and its shareholders.

21.In my view, in so far as these 6 sub-paragraphs are regarded as accurate record of the oral terms entered into between the Plaintiff and Wang, they referred to both Hong Kong law and PRC law.  It was naturally so because the alleged oral agreement was purporting to deal with all three capacities of Wang.  I do not regard it as particularly meaningful to compare the number of laws and regulations specified.  The exercise is not purely quantitative.  More pertinent in my view is to view the oral agreement as one through which a Hong Kong group of companies was seeking to engage Wang to take up directorship in the Hong Kong-listed group holding company as well as further positions in the group’s PRC subsidiaries.

22.As for the second point, I agree that there is evidence from Lee that the 1^st Letter of Undertaking was based on a template adopted from the Listing Rules.  However, one should not forget that the focus should be on the oral agreement when it was made. I find it inherently incredible to expect that when the Accountability Agreement was orally concluded, such a template was specifically used or mentioned.  There is in any event no such evidence from Lee.  Lee’s evidence at §17 of his 1^st Affirmation mentioned merely the agreed obligation as set out in sub-paragraph 5.  Again, I am unable to draw much weight from the template of a document compiled some 6 months after the alleged oral agreement.

23.On the third point, clearly the Plaintiff should be regarded as resident in Hong Kong. On the other hand, the other contracting party is resident in the Mainland. The subject matters of the oral agreement concern Wang’s capacities both in Hong Kong and in the Mainland.  In my view, the factors are quite finely balanced.  It is certainly arguable that the appointment of directorship in the listed holding company should be regarded as the prominent subject matter of the oral agreement whilst the other appointments relating to a subsidiary company should only be subordinate or incidental in nature.  However, I find it difficult to conclude that the Plaintiff has satisfied me that there is a “good arguable case” (in the sense of a good prospect of success)  that the Accountability Agreement has the “closest and most real connection with Hong Kong” such that Hong Kong law applies to it as a matter of implication.

Exercise of discretion

24.Even if I were to find that the Plaintiff has satisfied me of a good arguable case on a jurisdiction gateway, the problem faced by the Plaintiff is in the exercise of discretion under the principles governing forum conveniens.  On this issue, I find the following dicta of Cheung JA in the Dynasty Line Ltd. case illuminating:-

“Real and substantial connection

57. The issue is whether the plaintiff has raised a serious question that Hong Kong is not only the appropriate forum to try the case but that this is clearly so. The burden is on the plaintiff.

58. The ‘appropriate’ or ‘natural’ forum is one ‘with which the action had the most real and substantial connection’. This includes not only factors affecting convenience and expense (such as availability of witness)  but also other factors such as the law governing the relevant transaction and the place where the parties respectively reside and carried on business, Spiliada at page 478.

59. In my view, the ‘real and substantial connection’ requirement needs to be emphasised. Modern commercial transactions usually entail multiple jurisdictional aspects. Like the present case, they may involve, for example, the use of a company incorporated in a foreign country with tax benefits; the acquisition or disposition of assets in different locations; employment of lawyers and accountants in these locations to facilitate the transactions. Inevitably a case may contain various jurisdictional aspects. However, some of these aspects may feature only as the backdrop to the case. They may have little, if any, substantial relevance to the issues that may be required to be canvassed at the trial. Ultimately one has to consider the forum where the action could most suitably be tried for the interests of all the parties and for the ends of justice. Comments of a similar nature although differently put have been made by the Courts in the past : the Court is not simply to load up factors which point to any particular jurisdiction but to focus on the appropriateness of a forum from the point of view of the trial of the action, see : Rambas Marketing Co. LLC v. Chow Kam Fai David [2001] 3 HKC 250 per Recorder Ma (now Ma CJHC)  at 255.

Relevant factors

60. In my view it is here that the plaintiff runs into difficulties. The fact that the plaintiff has satisfied the requirement that the claim comes within the ambit of paragraphs (f)  and (p)  does not mean that one is precluded from examining the factors that had been considered in the paragraphs (f)  and (p)  context to see if they point towards Hong Kong as clearly the appropriate forum for the purpose of the exercise of discretion. In some situations these factors may provide the conclusive answer but they are not necessarily so in all cases.

61.   Factors such as the Commerzbank pledge in Hong Kong, the CDC shares having been sold in Hong Kong and judgment having being obtained in Hong Kong are relevant in so far as they show that there were acts done in Hong Kong and damage was sustained by the plaintiff in Hong Kong.  Where these acts are relied upon in the context of forum conveniens, one has to see whether they are indeed relevant considerations for the trial of the action.”  [emphasis added]

25.It is thus necessary to focus my attention on factors that point to the appropriateness of a forum from the point of view of the trial. In this regard, I conclude that not only has the Plaintiff failed to establish a serious question that Hong Kong is clearly the appropriate forum to try the case, the circumstances of this case actually points to the PRC court as clearly the appropriate forum to try the case. My reasons are as follows:-

(1)  The relief sought in the Writ is a mandatory order requiring Xu and Wang (two of the current directors of GZ Mayer)  to deliver the Seals (belonging to GZ Mayer and each of the 4 direct/indirect subsidiaries of GZ Mayer)  to the Plaintiff (the ultimate holding company, through Bamian which is a Singaporean corporation).

(2)  These Seals are no doubt creatures of and governed by PRC company laws/regulations and PRC contract laws.  As observed in Macau First Universal International Ltd. v. Ding Xiaohong (CACV 193/2001, unreported 31 July 2012)  at §13 per Yuen JA, a particular type of seal could be designated for a particular use or for the conduct of particular types of transaction in accordance with PRC laws and regulations. The seven types of seals mentioned in the Indorsement of Claim are doubtlessly required for carrying out a myriad of different aspects of the company’s external and internal activities.  They must be essential to the day-to-day operation and control of the company.  There can be little doubt that the relevant seals of GZ Mayer are very much the properties of that company. The same applies for each individual subsidiary which is PRC incorporated.  The use of the Seals is likely to be governed by the articles of association of each respective PRC company.  Who has the right to possession of the Seals under a particular set of circumstances should be a matter to be resolved under PRC laws. Furthermore, it is well established that questions of internal management of a company are governed by the law of the place of incorporation (see Konamaneni & ors v. Rolls Royce Industrial Power (India)  Ltd & ors [2002] 1 WLR 1269 at §55).  In my view, the Mainland court is clearly the appropriate forum to adjudicate on this issue.

(3)  In this particular case, focusing on the Seals of GZ Mayer, the ultimate question for trial is whether an indirect holding company of GZ Mayer is entitled to compel two of the current directors of GZ Mayer to take possession of the Seals (which are properties of GZ Mayer)  and hand them over to the Plaintiff by reason of the personam contracts entered into between the Plaintiff, Xu and Wang. Adjudication of this dispute necessarily involves resolving the conflict between the personam obligations of Xu and Wang under the Accountability Agreement on the one hand and the obligations owed by Xu and Wang to GZ Mayer in their capacity as directors of GZ Mayer under PRC laws on the other. It is important to note that the day-to-day operation of GZ Mayer would necessarily be affected if this company is deprived of the possession of these Seals[5]. Whether the circumstance of this case justifies the likely disruption to the internal operation and management of GZ Mayers should also be a matter governed by PRC laws. There can also be legitimate query as to whether the Accountability Agreement, which fetters Xu and Wang’s discretion, powers/duties and independence as directors of GZ Mayer, is likely enforceable[6] or should be allowed to affect the operation of a PRC company.  One should also not loose sight of the fact that GZ Mayer is owned only to the extent of 81.4% by Bamian. There are thus other minority shareholders of GZ Mayer whose interest could be affect by such a relief.  Whether the rights of these minority shareholders can be allowed to be jeopardized is also a complex question under PRC laws.

(4)  The situation is more acute when one looks at the position of GZ Meiheng which is a solely owned PRC subsidiary of GZ Mayer. Xu and Wang are not even directors of GZ Meiheng. In fact, one Mr He Peng is the sole director and legal representative of GZ Meiheng.

(5)  In respect of SZ Meiheng, whilst Wang is the sole director and legal representative, Xu apparently holds no position in SZ Meiheng.

(6)  In respect of SZ Fulland, again neither Xu and Wang holds any position in this PRC company. The sole director and legal representative is one Ms Wen Liman. Whether Xu and Wang are entitled to or in a position to take possession of the Seals of SZ Fulland is very much a matter of PRC laws in as much as whether Ms Wen should be obliged to hand over company properties to Xu and Wang.

(7)  The situation is again more acute in relation to SZ Heijing which is owned only to the extent of 51% by SZ Fulland.  Again, the interests of other minority shareholders would likely be affected.  Similarly, Xu and Wang hold no position in SZ Heijing.  One of the two directors is Mr Lin who sides with the Plaintiff.  The other is Ms Wen who is also the legal representative.

(8)  There is one further complication. On 1 December 2020, Bamian and GZ Mayer entered into an agreement with Xu (“Bamian Agreement”)[7]. As explained by Mr Lee[8], in 2020, GZ Mayer applied for a loan of RMB 40m from a bank which was guaranteed by Xu personally. The Bamian Agreement was entered into with a view to giving assurances to Xu. In particular under Clause 1, Baiman (as majority shareholder of GZ Mayer)  promised to Xu that prior to the full repayment of the loan, Baiman would not use any method to cause changes to be made to Xu’s role/position in GZ Mayer; alter its legal representative; or add/reduce/alter the directors and senior management of GZ Mayer without the prior consent of Xu.  Clause 5 further stipulated that all dispute under the agreement shall be submitted to arbitration in Guangzhou. The Plaintiff does not suggest that the Bamian Agreement is invalid or that the loan has been fully repaid. In fact, Lee admitted the existence of this agreement and exhibited it in his affirmation[9]. Lee also accepted that Bamian intends to pass resolutions to remove Xu and Wang from the board of GZ Mayer and that the Seals are sought so that they can be properly affixed to the resolutions for registration to enforce the intended removal[10]. In my view, there is little doubt that the Bamian Agreement is governed by PRC law and Mr Chain had not suggested otherwise.  Surely, the PRC court is clearly the appropriate forum to decide on what impact the Bamian Agreement has on the question of whether Xu and Wang should be compelled to obtain the Seals of GZ Mayer, deliver them to the Plaintiff (which wholly owns and controls Bamian)  for Bamian to remove Xu and Wang from the board of GZ Mayer in breach of the Bamian Agreement.

24.  By reason of the above, I am of the view that clearly the Mainland court is a distinctly more appropriate forum to adjudicate on this matter. Accordingly, I will decline to exercise my discretion in favour of the Plaintiff even on the assumption that it has satisfied me on jurisdictional gateway.  I therefore dismiss the ex parte application for leave to serve the Writ outside jurisdiction.  Having so determined, this Court has no jurisdiction to entertain the other ex parte application for interim injunction which is also dismissed.

25.  On the issue of costs, Mr Chain fairly accepted that costs should follow the event with certificate for two counsel. Mr Lam SC asked for costs on a stringent indemnity basis. With respect, I did not find the Plaintiff’s applications to be an abuse of process even though I dismissed them. Neither did I find any material non-disclosure or any conduct amounting to an affront.  I thus declined to exercise my discretion to order indemnity costs. I accordingly ordered the Plaintiff to pay to Xu and Wang costs of the applications, to be taxed if not agreed, on party-and-party basis with certificate for two counsel.

Mr Christopher Chain and Ms Jasmine Cheung instructed by C.L. Chow & Macksion Chan for the Plaintiff

Mr Douglas Lam SC and Ms Tiffany Chan instructed by King & Wood Mallesons for the 1^st and 2^nd Defendants

Annexure 1

Organization chart of the Mayer Group