Beijing Renji Real Estate Development Group Co., Ltd v. Zhu Min

HCMP 83 & 361/2020
(Heard together)

[2022] HKCFI 1027

HCMP 83/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 83 OF 2020

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HCMP 361/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 361 OF 2020

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(Heard together pursuant to the Order made by
Deputy High Court Judge Eva Sit SC dated 15 October 2020)

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J U D G M E N T

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A. Introduction

1.There are two main applications before the court, both brought by the defendant, first, to set aside the registration in Hong Kong of a Mainland judgment in favour of the plaintiff, and secondly, to discharge the Mareva injunction granted ex parte against the defendant on the strength of the Mainland judgment.  The first raises the questions of whether the Mainland judgment meets the requirements of the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap 597) (“MJREO”) for registration thereunder and whether its enforcement would be contrary to public policy.  The second raises the questions of whether the judgment, even if not registrable, may found a cause of action at common law, whether there was a risk of dissipation of assets warranting a Mareva injunction, and whether the plaintiff was guilty of material non-disclosure in the ex parte application for the injunction.

2.There are also applications by the plaintiff to continue the Mareva injunction, but they are in essence simply the flip side of the coin and raise no separate and different issues.

B.      Background

Parties

3.The plaintiff is a Mainland company which carries on the business of real estate management.

4.The defendant is a Chinese national and a Mainland resident.  He is the founder of a group of companies called the Cybernaut Investment Group which run a private equity and venture capital business.  He is the Chairman and an Executive Director of Cybernaut International Holdings Co Ltd (“Listco”), a Cayman Islands company listed on the Main Board of the Stock Exchange of Hong Kong.  The defendant holds, partly in his name and partly through a Hong Kong company wholly owned by him,  namely Cybernaut International Ltd (“Cybernaut International”), 990,284,000 shares in Listco (equivalent to 24.91% of its issued share capital).

5.The defendant is also the legal person’s representative and a director of a Mainland company called Hainan Zhongtou Joint Investment Management Ltd (海南中投聯合投資管理有限公司) (“Hainan Zhongtou”).  His corporate vehicle, Hangzhou Cybernaut Investment Management Consultancy Ltd (杭州賽伯樂投資管理諮詢有限公司) (“Hangzhou Cybernaut”) is a 38% shareholder in Hainan Zhongtou.

The 2011 agreements

6.On 18 August 2011, the plaintiff and Hainan Zhongtou entered into a “Partnership Agreement” (海南中投聯合漁業投資中心（有限合夥）合夥協議) whereby the plaintiff agreed to invest RMB 150 million into a fishery centre in Hainan (海南中投聯合漁業投資中心) (“Fishery Centre”), which would in turn invest in a Mainland company called 臨高思遠實業有限公司 (“Siyuan”) which was planning for an IPO.  The Partnership Agreement was signed in Huairou District, Beijing.  Clause 90 of it provides as follows:

「 各合夥人履行本協議所發生的爭議，應通過協商解決。合夥人不願通過協商解決或者通過協商不能達成一致意見的，可依法向本合同簽署地人民法院起訴。」

(English translation)

“ Disputes arising from the performance of this agreement by the partners shall be resolved through negotiation. Where the partners are unwilling to resolve the disputes through negotiation or a consensus fails to be reached through negotiation, a lawsuit may be filed in the People’s Court where this contract is signed in accordance with the law.”

7.By a “Supplemental Agreement” (海南中投聯合漁業投資中心（有限合夥）合夥協議之補充協議) between the same parties of the same date, Hainan Zhongtou promised that it would procure the sale of the plaintiff’s shares in the listed entity or in the Fishery Centre to a third party by 31 December 2012 at a price not less than the plaintiff’s original investment.

8.On the same date of 18 August 2011, as provided in clause 3(2) of the Supplemental Agreement, the defendant and Hangzhou Cybernaut,[1] jointly issued a “Guarantee” (保證投資承諾函) in favour of the plaintiff, whereby they undertook that, in the event Hainan Zhongtou failed to perform the obligation under the Supplemental Agreement referred to above, the defendant or Hangzhou Cybernaut would acquire the plaintiff’s interest on the same terms.

9.The plaintiff invested RMB 150 million soon after the agreements were entered into.  Unfortunately, on 29 September 2011, a storm hit Hainan and damaged the assets of the Fishery Centre, apparently rendering the intended IPO impossible.  In around April 2013, the plaintiff decided to recover its capital investment in the project.  On 18 October 2013, Hainan Zhongtou (through its Director of Investment, Mr Shang Xuanyu (尚選玉) (“Shang”)) entered into a repurchase agreement with Zheng Ligang (“Zheng”), the controller of Siyuan, who agreed to repurchase 40% of the equity of Siyuan for RMB 150 million.  The money was transferred by Zheng to bank accounts controlled by Shang.

The 2013 agreements

10.Before the plaintiff could recover its investment, however, on 29 November 2013, the plaintiff and Hainan Zhongtou entered into a “Capital Transfer Agreement” (關於轉讓海口中投聯合漁業投資中心（有限合夥）合夥協議出資份額協議), under which the plaintiff agreed to transfer its interest in the Fishery Centre to Hainan Zhongtou’s nominee for RMB 50 million (if paid before 31 May 2014).  This agreement contains an arbitration clause as follows:

「 因簽訂和履行本協議所發生的或與本協議有關的一切爭議，甲、乙雙方應當友好協商解決。協商不成的，應提交北京仲裁委員會按照該會屆時有效的仲裁規則在北京市仲裁解決。」

(English translation)

“ Any dispute arising from the signing and performance of this agreement or related to this agreement shall be resolved through friendly negotiation by both Parties A and B. Where the negotiation fails, it shall be resolved by being referred to the Beijing Arbitration Commission for arbitration in Beijing in accordance with the arbitration rules in effect at that time.”

11.On the same date, the plaintiff executed an “Undertaking” (承諾函) to release the defendant and Hangzhou Cybernaut from their obligations under the Guarantee. By an agreement (補充協議) dated 5 December 2013 (“Nomination”), Hainan Zhongtou nominated one of its shareholders called Hainan Gusheng Enterprise Investment Ltd (“Gusheng”) to receive the plaintiff’s interest in the Fishery Centre.

12.According to the plaintiff, it was defrauded by one of its own officers, Mr Liu Yue (劉悅) (“Liu”), who was bribed by and colluded with Shang, into executing these documents in November and December 2013.  In particular, it is said that they concealed the fact that Shang had received RMB 150 million from Siyuan and instead led the plaintiff to believe that it could only recover RMB 50 million due to the damage caused by the storm.  As a result, pursuant to these documents the plaintiff was paid off with only RMB 50 million from Gusheng.

The arbitration between the plaintiff, Hainan Zhongtou and Gusheng

13.In 2016, pursuant to the arbitration clause in the Capital Transfer Agreement referred to in §10 above, the plaintiff commenced arbitration proceedings in the Beijing Arbitration Commission against Hainan Zhongtou and Gusheng (“Arbitration”), seeking an award to rescind the Capital Transfer Agreement, the Nomination, and the Undertaking on the basis that the plaintiff had been deceived by Liu and Shang into executing those documents.  On 29 November 2016, the arbitral tribunal issued their award (“Arbitral Award”), allowing the plaintiff’s claims and holding the 3 documents in question invalid.  In relation to the Undertaking, the tribunal reasoned as follows:

「 仲裁庭認為，從性質上看，該《承諾函》為申請人向出具《保証投資承諾函》的賽伯樂基金而單方作出的債務免除的意思表示，系申請人對自己所享有權利的處分。對於此種意思表示，若表意人乃是在受第三人欺詐的情況下作出的，其可隨時予以撤銷，原因在於：其一，債務免除在性質上相當於贈與，行為之撤銷並不會對相對人造成實際損害。事實上，根據《合同法》第186條，除非公益等特殊贈與，贈與是享有任意撤銷權的，換言之，即便並非受欺詐而為的贈與，贈與人都享有撤銷權，本案的債務免除乃是在受欺詐的情況下而為之，故申請人更應當享有撤銷權。其二，申請人在出具《承諾函》時，乃是受尚選玉、劉悅等人欺詐而為，從這個意義上說，應當認為外部的影響造成了申請人對其法律行為內容的認識發生錯誤，故申請人有權根據《中華人民共和國民法通則》第59條第1款第1項及《合同法》第54條第1款第1項請求撤銷其意思表示。」

English translation:

“ The Arbitral Tribunal takes the view that the nature of the Undertaking was a unilateral expression of intent for the waiver of debt by the Applicant [i.e. the plaintiff] to Cybernaut Fund [i.e. the defendant and Hangzhou Cybernaut] who had issued the Guarantee, and was a disposition of the Applicant’s own rights. Regarding this kind of expression of intent, if the expresser does so under deception by a third party, then it can be revoked at any time. The reasons are that, first, the nature of a waiver of debt is tantamount to a gift, and the revocation of the act does not inflict any actual loss on the other party. In fact, according to Art. 186 of the Contract Law, except for special gifts such as relief for charity, a gift can be revoked arbitrarily as of right. In other words, the donor is entitled to revoke the gift even when it was not made under deception. In the present case, as the waiver of debt was done under deception, the Applicant is all the more entitled to revoke it. Secondly, the Applicant issued the Undertaking under the deception from people such as Shang Xuanyu and Liu Yue. In this context, the Applicant should be treated as having misunderstood the content of its juristic act as a result of external influence, and is therefore entitled to demand that his expression of intent be revoked under Sub-clause 1, Clause 1, Art. 59 of the General Principles of Civil Law of the People’s Republic of China, and Sub-clause 1, Clause 1, Art. 54 of the Contract Law.”

The arbitral tribunal however did not make any monetary award of RMB 150 million as claimed by the plaintiff, because they considered that the arbitration clause did not cover this claim, which should be made pursuant to the jurisdiction clause in clause 90 of the Partnership Agreement (as set out in §6 above).

14.Subsequently, in January 2018, Gusheng applied to the No 3 Intermediate People’s Court of Beijing Municipality (“Intermediate People’s Court”) for an order to set aside the Arbitral Award alleging breach of arbitration rules, but the application was rejected in June 2018.

Criminal investigation & proceedings against Liu and Shang

15.Upon complaint from the plaintiff, in around December 2014 the authorities began criminal investigation into the conduct of Liu and Shang.  Shang, however, absconded from Haikou, and did not return until May 2016.  Liu was subsequently prosecuted and was convicted by the People’s Court of Longhua District, Haikou City, on 27 February 2017, on his own admission, of taking bribes of RMB 20 million from Shang (“Liu Judgment”).  The court found that Liu received a bribe of RMB 20 million from Shang and that the plaintiff had been induced into executing the relevant documents in 2013 by the fraudulent misrepresentations made by Liu concerning Shang’s or Hainan Zhongtou’s purported inability to recover in full the RMB 150 million investment.

16.Criminal investigation was also conducted against Shang but was eventually withdrawn by a decision of the Haikou City Public Security Bureau dated 22 March 2017 for reasons set out in an explanation statement dated 20 July 2017 (“Withdrawal Decision”), which absolved Shang of wrongdoing (“不具備涉嫌合同詐騙罪的主觀故意和客觀行爲”).

Civil proceedings in the Mainland

17.Following the Arbitral Award, in February 2017, the plaintiff commenced proceedings against Hainan Zhongtou in the Intermediate People’s Court for the sum of RMB 150 million and damages of RMB 60 million under the Supplemental Agreement, and also against the defendant and Hangzhou Cybernaut under the Guarantee.

18.There was a jurisdictional challenge raised by Hangzhou Cybernaut in those proceedings, contending that the jurisdiction clause in the Partnership Agreement did not apply to it as a guarantor and that it should not be sued in Beijing but in Hangzhou, its place of incorporation, but the Intermediate People’s Court dismissed the challenge, holding that the court had jurisdiction.  Hangzhou Cybernaut’s appeal to the Higher People’s Court of Beijing Municipality (“Higher People’s Court”) was dismissed in its decision dated 20 November 2017 ((2017) 京民轄終472號) (“BHPC Jurisdiction Decision”).

19.Subsequently, the Intermediate People’s Court dismissed the plaintiff’s claims substantively in December 2018 but, on appeal, in its judgment of 13 August 2019 ((2019) 京民終161號) (“BHPC Judgment”), the Higher People’s Court allowed the plaintiff’s appeal and held that Hainan Zhongtou, the defendant, and Hangzhou Cybernaut were jointly and severally liable to the plaintiff for RMB 150 million together with interest (which was capped at RMB 60 million and later calculated to be RMB 51,769,932), totalling RMB 201,769,932.

20.The BHPC Judgment as a second instance decision could not be appealed further but there is in Mainland law a “trial supervision” system pursuant to which in certain circumstances a party may seek a retrial (as described in §§59-64 below).  On 17 September 2019, the defendant and Hangzhou Cybernaut applied to the Supreme People’s Court for an order for retrial.  On 6 March 2020 the defendant submitted a notarial certificate in support of a retrial, but the application had in fact already dismissed on 27 December 2019, though according to the defendant he did not receive notification of the dismissal until 30 March 2020.  (Hainan Zhongtou also made an application to the Supreme People’s Court for retrial, but the application was dismissed on 30 June 2020.)

21.On 30 December 2019, Hangzhou Cybernaut lodged an application with the People’s Procuratorate of Haikou City requesting it to investigate the Withdrawal Decision in relation to the prosecution of Shang and the correctness or otherwise of the Liu Judgment, but the request was rejected on 24 February 2020.  On 31 March 2020, Hangzhou Cybernaut applied to the People’s Procuratorate of Hainan Province to direct the Haikou City Public Security Bureau to re-open the criminal investigation into Shang’s conduct.  No decision on that application had apparently been made as at the hearing before me.

22.Meanwhile, on the strength of the BHPC Judgment, the plaintiff had obtained from the Beijing court orders freezing the defendant’s bank accounts, limiting the defendant’s spending and including the defendant in a list of discredited judgment debtors.  Eventually bank balances of the defendant in the sum of RMB 333,712.27 were recovered and paid to the plaintiff.  On 27 December 2019, the Beijing court decided to end the enforcement process, there being no other asset identified for enforcement.

23.The defendant in his 3^rd affirmation (supplied on 27 April 2021) claims that even if the People’s Procuratorate of Hainan Province has not responded to his application mentioned in §21 above, he intends to file an application within 2 months with the Supreme People’s Procuratorate to lodge an objection against the BHPC Judgment in order to seek a retrial, but no such application had been made as at the hearing before me.

Injunction proceedings in Hong Kong

24.In early January 2020, the plaintiff became aware that the defendant had recently sold a substantial number of shares in Listco from himself to his company Cybernaut International.  By an application made ex parte on 16 January 2020, the plaintiff obtained from Deputy Judge Dawes SC of the Court of First Instance a Mareva injunction against the defendant for the amount of RMB 201,769,932 or its Hong Kong dollar equivalent and interest on debt for the period of deferred performance, pursuant to section 21M of the High Court Ordinance (Cap 4), in aid of the enforcement of the BHPC Judgment.  An originating summons (HCMP 83/2020) seeking such injunction as final relief and an inter partes summons for continuation of the injunction were issued on the following day.  By summons dated 9 September 2020, the defendant cross-applies for an order to discharge the Mareva injunction.

Registration proceedings in Hong Kong

25.On 16 April 2020, the plaintiff applied by ex parte originating summons (HCMP 361/2020) for the BHPC Judgment to be registered in Hong Kong pursuant to MJREO.  An order for registration was made by Master Hui on 13 May 2020.  By a summons dated 9 September 2020, the defendant applies for the registration to be set aside.

C.      Issues

26.The plaintiff’s originating summons for injunctive relief, its summons for continuation of the injunction, and the defendant’s summons for discharge of the injunction, all in HCMP 83/2020, together with the defendant’s summons to set aside registration in HCMP 361/2020, were heard before me at the same time.

27.The registration of Mainland judgments for enforcement in Hong Kong is governed by the MJREO, a law enacted to give effect to the 2006 Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and the HKSAR (“2006 Arrangement”).[2] There are two principal issues arising from the following contentions in the application to set aside registration:

(1)  The defendant contends that the BHPC Judgment does not qualify for registration because there is no relevant “choice of Mainland court agreement” as required by section 5(2)(b) of the MJREO.

(2)  The defendant contends that, in any event, registration should be set aside because enforcement of the BHPC Judgment would be contrary to public policy, as provided in section 18(1)(j) of the MJREO.

28.On the rival applications concerning the Mareva injunction, the following principal issues arise:

(1)  if registration of the BHPC Judgment under the MJREO is set aside on the ground that there is no relevant “choice of Mainland court agreement”, whether that judgment is final and conclusive such that it may be enforceable at common law and provide the basis for an interlocutory Mareva injunction;

(2)  whether there are risks of dissipation of assets justifying the grant of a Mareva injunction; and

(3)  whether there was material non‑disclosure by the plaintiff at the ex parte stage and, if so, what consequences should follow.

29.I deal with these issues in turn below.

D.      Whether there is a “choice of Mainland court agreement”

30.Section 5(2) of the MJREO requires the court to register a Mainland judgment if the judgment creditor proves that certain specified requirements there are satisfied.  In particular, section 5(2)(b) means that the judgment creditor has to prove that there is a relevant “choice of Mainland court agreement”.

31.The concept of “choice of Mainland court agreement” is defined in section 3 as follows:

“ (2) In this Ordinance, subject to subsections (3) and (4), choice of Mainland court agreement (選用內地法院協議) means an agreement concluded by the parties to a specified contract and specifying the courts in the Mainland or any of them as the court to determine a dispute which has arisen or may arise in connection with the specified contract to the exclusion of courts of other jurisdictions.

(3) Subsections (1) and (2) do not apply to an agreement unless it is concluded or evidenced—

(a) in writing;

(b) by any electronic means (including an electronic data message, a telegram, a telex, a facsimile, an electronic data interchange or an electronic mail) by which the agreement is capable of being displayed in visible form and information is accessible so as to be usable for subsequent reference; or

(c) by any combination of the means described in paragraphs (a) and (b).

(4) Subsections (1) and (2) apply to an agreement whether it is concluded or evidenced in one document or several documents.”

32.For the purpose of satisfying this requirement, the plaintiff relies on clause 90 of the Partnership Agreement (quoted in §6 above).  There are three main disputes in this regard, which I deal with in turn below, with regard to the applicability, specificity, and exclusivity of the jurisdiction agreement.

D1.    Does clause 90 of the Partnership Agreement apply to the dispute between the plaintiff and the defendant?

33.The first dispute is whether clause 90 of the Partnership Agreement, which is an agreement between the plaintiff and Hainan Zhongtou, applies to the legal relationship between the plaintiff and the defendant arising from the Guarantee.  The plaintiff submits that it does, based on three alternative arguments: (1) the Beijing courts have decided that clause 90 is applicable and the defendant is precluded from arguing to the contrary; (2) even without any issue estoppel, applying Mainland law as the governing law of the Guarantee to this question, the answer is in the affirmative; (3) even applying Hong Kong law to this question, clause 90 should still be held applicable.

34.I shall deal first with the argument of incorporation under Mainland law.  There can be no serious dispute that the governing law of the Guarantee is Mainland law.  Whether clause 90 is applicable to the Guarantee either by incorporation or by analogous routes is a question governed by Mainland law as the governing law of the Guarantee: Dicey, Morris & Collins on The Conflict of Laws (15^th ed), §12‑104; Sea Powerful II Special Maritime Enterprises (ENE) v Bank of China Ltd [2016] 1 HKLRD 1032, §19.

35.Relying on Dornoch Ltd v Mauritius Union Assurance Co Ltd [2006] 2 Lloyd’s Rep 475 and a passage in Joseph, Jurisdiction and Arbitration Agreement and the Enforcement (3^rd ed), §6.46, the defendant submits that Hong Kong law, as the law of the forum, should be applied instead.  I do not accept this submission.  It seems to me that those authorities are concerned with a different situation, namely, where the proper law of the agreement is unclear and there is more than one possible putative law: see Dornoch, §17; see also The Heidberg [1994] 2 Lloyd’s Rep 287, 306-308.  They do not assist in the present case, where it is plain that the proper law of the Guarantee is Mainland law.

36.As to the applicability of clause 90 to a dispute under the Guarantee under Mainland law, the Beijing courts have given a ruling.  As mentioned in §18 above, Hangzhou Cybernaut had contended that clause 90 only applied as between the plaintiff and Hainan Zhongtou, and that the claim against Hangzhou Cybernaut should be brought in Hangzhou, its place of incorporation.  In the BHPC Jurisdiction Decision, the Higher People’s Court held that the Guarantee was a contract subordinate or subsidiary to the Partnership Agreement and that the claim brought on the former was subject to the jurisdiction agreement in the latter.  The court reasoned as follows:

「 本院經審理認為，《中華人民和國擔保法》第二條規定，“在借貸、買賣、貨物運輸、加工承攬等經濟活動中，債權人需要以擔保方式保障其債權實現的，可以依照本法規定設定擔保。本法規定的擔保方式為保証、抵押、質押、留置和定金。” 第五條規定，“擔保合同是主合同的從合同”。《最高人民法院關於適用〈中華人民共和國擔保法〉若干問題的解釋》第一百二十九條第一款規定：“主合同和擔保合同發生糾紛提起訴訟的，應當根據主合同確定案件管轄。” 本案中，人濟公司的原審訴訟請求系以其與海南中投公司之間在企業合夥經營中簽訂的《合夥協議》及《補充協議》為依據，要求海南中投公司承擔返還投資款、賠償損失等責任，並依據《保証投資承諾函》要求朱敏和杭州賽伯樂公司承擔擔保責任。該《保証投資承諾函》作為擔保合同，系《合夥協議》的從合同。因此，本案應依據主合同《合夥協議》確定管轄法院。」

(English translation)

“ After examination, this court considers that Article 2 of the Guarantee Law of the PRC provides that an ‘act of guarantee can be established in accordance with this law whenever creditors require to safeguard the realization of their rights in such economic activities as debit and credit, selling and purchasing, commodities transport and contracted processing. The means of guarantee stipulated by this law are guarantee, mortgage, hypothecation, lien and deposits.’ Article 5 provides that ‘a guarantee contract is a contract subordinate to the principal contract.’ Paragraph 1 of Article 129 of the Judicial Interpretation of the Supreme People’s Court on Some Issues Regarding the Application of the Guarantee Law of the PRC provides that ‘when a dispute under the principal and the guarantee contract is brought to court, jurisdiction of the case shall be determined on the basis of the principal contract.’ In the present case, [the plaintiff’s] claim for Hainan Zhongtou to be responsible for returning the investment capital and paying damages, etc. was based on the Partnership Agreement and the Supplemental Agreement executed with the latter for the business partnership, and the claim for Zhu Min and Hangzhou Cybernaut to be responsible for guaranteeing was based on the Guarantee. As a guarantee contract, the Guaranteeis subordinate to the Partnership Agreement. Because of this, the competent court in the present case should be determined in accordance with the Partnership Agreement, the principal contract.”

37.This decision by the Higher People’s Court is, in my view, cogent evidence that, as a matter of Mainland law, clause 90 does apply to the dispute between the plaintiff and the defendant under the Guarantee.  In addition, paragraph 2 of Art 129 of the Judicial Interpretation of the Supreme People’s Court on Some Issues Regarding the Application of the Guarantee Law of the PRC states that: “Where the courts of jurisdiction selected in the principal and guarantee contracts are different, the jurisdiction shall be determined based on the principal contract.”  In his opinion evidence, Prof Chen Lei, the defendant’s expert, expresses the view that there is “no written jurisdiction agreement” between the plaintiff and the defendant but I do not understand him to be denying that the BHPC Jurisdiction Decision is a correct application of Mainland law in this respect.

38.In light of the conclusion above, it is not necessary to deal with the question of incorporation under Hong Kong law.  It is also unnecessary to deal with Mr Lai’s argument that there is an issue estoppel, as to which I have some doubt because, even assuming the defendant is to be regarded as privy (through Hangzhou Cybernaut) to the jurisdictional challenge in the Beijing courts, it is not clear whether the Jurisdiction Decision is “final and conclusive” in the relevant sense and the expert evidence given did not focus on this decision (see The Sennar (No 2) [1985] 1 WLR 490, 499B).

D2.    Does the incorporation of clause 90 by construction or operation of law satisfy the requirements of the MJREO?

39.The second main dispute is that, on the basis that clause 90 of the Partnership Agreement does apply to a dispute under the Guarantee, whether this satisfies the requirement for an “agreement concluded by the parties … specifying” the Beijing courts as the courts having jurisdiction to deal with the relevant disputes.  The defendant argues that a clause which is not found in the Guarantee itself, but is deemed by the operation of principles of construction or substantive legal rules to be applicable as between the plaintiff and the defendant in relation to the Guarantee, does not amount to a requisite agreement within the meaning of section 3(2).

40.I find considerable force in this contention. The MJREO does not make all Mainland judgments registrable in Hong Kong, but only those that satisfy the specific requirements.  The approach adopted in the statute is to focus on judgments for payment in civil and commercial matters and give effect to the parties’ agreement in relation to dispute resolution – in other words a consent-based regime for enforcement.  The phrase “choice of Mainland court agreement” is defined to mean:

“ an agreement concluded by the parties to a specified contract and specifying the courts in the Mainland or any of them as the court to determine a dispute which has arisen or may arise in connection with the specified contract to the exclusion of courts of other jurisdictions.”

This requires that the parties’ agreement must specify (指明) the courts in question.  Further, section 3(3) requires that the agreement be concluded or evidenced in writing or by electronic means, in order to avoid disputes as to what their agreement provides.  Whether the facts of a particular case satisfy the requirement of a “choice of Mainland court agreement” is a matter of interpreting the MJREO applying Hong Kong law.

41.For the purpose of construing the MJREO, which as its long title suggests was enacted to give effect to the 2006 Arrangement, it is permissible to make reference to the 2006 Arrangement itself: HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568, §14.  Art 3 of the 2006 Arrangement provides:

「 第三條 本安排所稱『書面管轄協議』，是指當事人為解決與特定法律關係有關的已經發生或者可能發生的爭議，自本安排生效之日起，以書面形式明確約定內地人民法院或者香港特別行政區法院具有唯一管轄權的協議。」

(English translation)

“ A ‘choice of court agreement in writing’ referred to in this Arrangement means any agreement in written form made, as from the day of commencement of this Arrangement, by the parties concerned in which a people’s court of the Mainland or a court of the HKSAR is expressly designated as the court having sole jurisdiction for resolving any dispute which has arisen or may arise in respect of a particular legal relationship.”

Clause 3(2) of the Bill, as originally introduced, referred to “an agreement concluded by the parties to a specified contract and designating a court in the Mainland to determine a dispute …”. The amendment substituting “specifying” for “designating” was not intended to deviate from Art 3: see Report of the Bills Committee on Mainland Judgments (Reciprocal Enforcement) Bill, §44(a).

42.In my view, the Guarantee, which is the written agreement between the parties here, does not specify the courts in the Mainland or any of them as the courts with jurisdiction to resolve their disputes.  There is nothing in the Guarantee whereby the parties make that agreement, either directly or by reference to another document.  In fact, the Guarantee is completely silent on the parties’ choice of court.  It has admittedly been held that, under Mainland law, which is the governing law of the Guarantee, the jurisdiction agreement in clause 90 of the Partnership Agreement is applicable to the disputes between the parties under the Guarantee, but as explained by the Higher People’s Court that conclusion is based on the effect of Mainland law, not the provisions of the Guarantee.

43.For this reason, the BHPC Judgment is not registrable under the MJREO, and the defendant’s summons to set aside the registration succeeds.  For completeness I shall briefly consider two other arguments raised by the parties under the MJREO.

D3.    Does clause 90 on its proper construction confer exclusive jurisdiction on the Beijing courts?

44.The third main dispute is whether, as a matter of construction, clause 90 relevantly specifies the Beijing courts “to the exclusion of courts of other jurisdictions” within the meaning of section 3(2).  In short, the issue is whether there is exclusivity against other jurisdictions (not against other Mainland courts since the entire Mainland constitutes a single jurisdiction).  The defendant’s main argument here is that the language of clause 90 – in particular, the wording “可依法向本合同簽署地人民法院起訴” – is permissive, not mandatory.  The plaintiff submits the opposite.

45.It seems to me that Mainland law, as the governing law of all the relevant contracts in question, governs this issue which is one of construction: see Export‑Import Bank of China v Taifeng Textile Group Co Ltd[2018] HKCFI 1840, §69; Huang Shu Jian v Dai Wei (黃书建 v 代威) [2020] 1 HKC 309, §60.  Art 125(1) of the Contract Law of the PRC provides: “If any disputes arise between the parties over the understanding of any clause of the contract, the true meaning thereof shall be determined according to the words and sentences used in the contract, the relevant provisions in the contract, the purpose of the contract, the transaction practices and the principle of good faith.”  This is reflected in the approach adopted in Hong Kong cases on this question of construction.  Although the wording of the clauses in those cases differ, they are instructive on the proper approach.

46.In Bank of China Ltd v Yang Fan[2016] 3 HKLRD 7, the relevant clause[3] read “在本合同生效後，因訂立、履行本合同所發生的或與本合同有關的一切爭議，雙方可協商解決。協商不成的，任何一方可以採取下列第3種方式加以解決：… 3. 依法向有管轄權的人民法院起訴。”.  To J reasoned that although the phrase “可以” ordinarily has a permissive sense, its meaning depends on the context in which it is used.  Based on common law principles of construction, To J concluded:[4]

“ Against the above factual matrix and the three means set out in the loan agreements, prima facie, it must be the parties’ intention that the third means is the only means of dispute resolution agreed between the parties if they cannot resolve their dispute by mediation.”

47.In Huang Shu Jian v Dai Wei (黃书建 v 代威), the relevant clause read: “本協議在履行過程中若發生爭議，應友好協商解決。協商不成的，各方均可向本合同簽訂地北京市朝陽區有管轄權的法院起訴。”  Applying Mainland law in construing this clause, Lok J stated:

“ 45. [The applicant’s expert says,] according to the literal Chinese interpretation of the relevant sentence in Clause 6, the adverbial “可” refers to the verb “起訴”. The phrase “向本合同簽訂地北京市朝陽區有管轄權的法院” qualifies the verb (action) “起訴”. Hence, the meaning is that if the dispute cannot be resolved by negotiation, any party can sue, but they are not obliged to sue. If they sue, they sue at the specified Mainland court and not other Mainland courts, i.e. the one with jurisdiction in the Chaoyang District in Beijing.

……

51. … The exercise is to ascertain the true intention of the parties …

52. One should not lose sight of the factual matrix in the present case. All the parties to the Agreement are Mainland individuals and entities. The parties’ place of residence, place of incorporation and place of business are all in the Mainland. The Agreement was executed in the Mainland, with the performance of the Agreement and its breach all in the Mainland. Under such circumstances, it would be against common or any business sense to suggest that, when the parties made the agreement contained in Clause 6, they intended that the parties would be free to commence legal proceedings outside the Mainland. I do not accept that the Mainland courts will come to such conclusion which is very much against common sense and the real intention of the parties.

…

56. … In my judgment, this clearly shows that, even under Mainland law, the word ‘可’ does not only have one meaning, and the Mainland court may take into account all the circumstances of the case and factors beyond the written contract in construing the terms of a contract.

…

58.    … having considered the other Mainland legal materials before me, in particular Article 125 of the Mainland Contract Law and the judicial decisions referred by the experts, there should not be great difference between Mainland law and Hong Kong law so far as the construction of contractual terms is concerned.  Hence, even based on the contractual interpretation principles under Mainland law, I find that Clause 6 is an exclusive jurisdiction clause for the purpose of s 3(2) of the Ordinance.”

48.Art 34 of the procedure Law of the PRC provides: “Parties to a dispute over a contract … may, by a written agreement, choose the People’s Court at the place of domicile of the defendant, at the place where the contract is performed or signed, at the place of domicile of the plaintiff, at the place where the subject matter is located, or at any other place actually connected to the dispute, to have jurisdiction over the dispute …”  Art 30 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law provides that where the court having jurisdiction can be determined according to a jurisdiction agreement when an action is instituted, the agreement shall prevail (“根據管轄協議，起訴時能夠確定管轄法院的，從其約定”).  The plaintiff’s interpretation seems to me to be more consistent with the approach of the Supreme People’s Court in the Xu Zhiming case[5] referred to in Huang Shu Jian (see §§40, 55, 56).  Prof Lin Feng, the plaintiff’s expert, also states that the fact that all the parties were based in the Mainland, the agreements were all signed in the Mainland, the agreements were intended to be performed in the Mainland, all point to the conclusion that the parties had intended to use the court in clause 90 to resolve the disputes arising from the Partnership Agreement.  In my view the preferable construction of clause 90 is that the parties may, not must, choose to litigate their disputes, but if they do litigate, they should do so in the courts where the Partnership Agreement was signed.  Accordingly, I consider that clause 90 has the requisite exclusivity.

E.      Whether enforcement is contrary to public policy

49.Where a Mainland judgment has been registered, the registration may nevertheless be set aside if one of the matters set out in section 18(1) of the MJREO is established. Since, as I have concluded above, there is no relevant choice of Mainland court agreement, the registration of the BHPC Judgment should be set aside under section 18(1)(a), as it “is not a Mainland judgment which satisfies the requirements specified in section 5(2)(a) to (e)”.  In addition, the defendant relies on section 18(1)(j), namely, that “the enforcement of the judgment is contrary to public policy”.  This argument is relevant also to the enforcement of the BHPC Judgment at common law, which is the plaintiff’s fall-back cause of action.

50.The defendant’s contention may be summarised as follows.  By issuing the Undertaking, the plaintiff had released the defendant (and Hangzhou Cybernaut) from the Guarantee.  The plaintiff subsequently brought arbitral proceedings against Hainan Zhongtou and Gusheng for an award to rescind the Capital Transfer Agreement, the Undertaking, and the Nomination, on the basis of fraud, but the defendant was not a party to the arbitration agreement or the Arbitration.  The Arbitral Award setting aside those documents, particularly the Guarantee, was therefore not binding on the defendant.  The plaintiff did not ask the Beijing courts to determine independently whether the Undertaking should be set aside, so that for them to do so would breach the principle of “no accusation, no trial” (不告不理).  The plaintiff was not therefore entitled to sue the defendant on the Guarantee.  The defendant has persistently argued in the Mainland court proceedings that the Arbitral Award was not binding on him as he was not a party to the Arbitration.  However, the Beijing courts (and the Supreme People’s Court on the application for re-trial) simply held that the Undertaking had been set aside in the Arbitration without giving detailed reasons.  Insofar as the Beijing courts simply assumed that because the Undertaking had been set aside as a result of the Arbitral Award, the defendant must therefore be liable under the Guarantee, this was (the defendant says) a serious breach of natural justice.  The courts have ignored the fact the defendant was not a party to the Arbitration.  The injustice is compounded by the fact that there is no available route for the defendant, a non-party, to set aside the Arbitral Award.  Even if the Undertaking is ineffective, the defendant should be given the opportunity to defend himself with respect to the Guarantee.  As such, it would be contrary to public policy to enforce the BHPC Judgment in Hong Kong.

51.I do not accept the defendant’s contention.  The plaintiff’s case in the Mainland courts, as set out in its statement of claim (民事起訴狀) there, was that the plaintiff was procured by the deception practised on it by Liu and Shang to dispose of its interest in the project for RMB 50 million and to execute the Undertaking releasing the defendant and Hangzhou Cybernaut from their liability under the Guarantee.  In the Arbitration commenced by the plaintiff, the tribunal issued the Arbitral Award which set aside the Capital Transfer Agreement, the Nomination, and the Undertaking.  Accordingly, the plaintiff claims an order, inter alia, for Hainan Zhongtou to repay RMB 150 million with interest, and for the defendant and Hangzhou Cybernaut to be jointly liable by virtue of the Guarantee.  The defendant had full notice of the plaintiff’s case and had every opportunity to rebut it.  The defendant in fact did raise the argument, amongst others, that the Undertaking remained valid vis-à-vis him because (a) he was a bona fide third party not involved in the fraud against the plaintiff; and (b) he was not a party to the Arbitration and therefore the Arbitral Award which set aside the Undertaking had no legal effect on him.  He was able to and did advance his case at first instance in the Intermediate People’s Court, on the plaintiff’s appeal in the Higher People’s Court, and in his application for re-trial in the Supreme People’s Court. 

52.In its judgment, the Higher People’s Court accepted the factual findings made by the Intermediate People’s Court that Liu had been convicted by the People’s Court in Haikou of bribery.[6]  The Haikou court had found that because of the false reporting by Liu, the plaintiff signed the Capital Transfer Agreement on 29 November 2013 with Shang (for Hainan Zhongtou).  The Higher People’s Court also accepted the factual findings made by the Intermediate People’s Court that the arbitral tribunal had on the application of the plaintiff granted an award which, inter alia, set aside the Undertaking.[7] With reference to the defendant’s arguments, the Higher People’s Court stated:

「 三、 關於朱敏和賽伯樂公司是否承擔連帶保証責任

首先，關於保証責任的內容。朱敏和賽伯樂公司認為朱敏和賽伯樂公司的保証義務就是保証人濟公司對合夥企業投入的份額以不低於人民幣1.5億元的價格轉讓給第三方，目前該義務已經完成。對此本院認為，如前所述，中投公司在《補充協議》項下的義務是於2012年12月31日前向人濟公司返還投資款人民幣1.5億元。《保証投資承諾函》第4條也明確，中投公司完全履行被保証投資是要通過轉讓IPO主體部分股權或轉讓人濟公司的合夥權益，使人濟公司全收回其投資本金。因此，在人齊公司尚未收回投資本金且《承諾函》已經被北京仲裁委員會（2016）京仲裁字第1617號裁決撤銷的前提下，朱敏和賽伯樂公司仍應承擔相應的保証責任。

其資，根據《保証投資承諾函》的約定，賽伯樂成長基金、其普通合夥人朱敏先生及其關聯企業賽伯樂公司就被保証投資作為共同保証人向人濟公司作出保証與承諾，同意對人濟公司就上述保証投資承擔連帶責任。同時，《保証投資承諾函》還約定，中投公司完全履行了被保証投資後，連帶責任自行終止。因此，根據最高人民法院《關於適用〈中華人民共和國擔保法〉若干問題的解釋》第三十二條第二款 “保証合同約定保証人承擔保証責任直至主債務本息還清時為止等類似內容的，視為約定不明，保証期間為主債務履行期屆滿之日起二年” 的規定，本案《保証投資承諾函》中對保証期間的約定應當視為約定不明，保証期間為主債務履行期屆滿之日起二年，即自2013年1月1日至2014年12月31日止。

第三，關於人濟公司是否在保証期間內向保証人主張了權利。2013年11月21日，人濟公司在受欺詐的情況下向賽伯樂成長基金、朱敏和賽伯樂公司出具了《承諾函》，免除了保証人的保証責任。但此發函行為也足以說明，人濟公司在出具《承諾函》前已經要求朱敏和賽伯樂公司承擔連帶保証責任，否則就無需在《承諾函》中表達免除保証責任的意思。同時，人濟公司向保証人發函的行為本身也是其主張、處分權利的一種意思表示，雖然該意思表示因受欺詐而與其真實意思相反，但也証明了人濟公司如果沒有受到期詐，是不會放棄向保証人主張權利的。因此，朱敏和賽伯樂公司關於人濟公司未在保証期間內向其主張承擔保証責任的抗辨意見，與事實不符，本院不予采信。人濟公司要求保証人朱敏和賽伯樂公司對中投公司的義務承擔連帶保証責任的訴訟請求，於法有據，本院予以支持。」

English translation:

“ 3. Whether Zhu Min and Cybernaut Company [i.e. the defendant and Hangzhou Cybernaut] should bear joint and several liability of suretyship

First, as to the content of the surety liability, Zhu Min and Cybernaut Company took the view that their surety obligation was to guarantee that the share (of investment) input by Renji Company [i.e. the plaintiff] in the partnership enterprise would be transferred to a third party at a price not below RMB 150 million; this obligation has been fulfilled. As to this, this Court considers that, as previously mentioned, Hainan Zhongtou’s obligation under the Supplemental Agreement was to return the investment capital of RMB 150 million to Renji Company before 31 December 2012. Clause 4 of the Guarantee also explicitly states that Hainan Zhongtou’s full performance of the guaranteed investment is through the transfer of the shareholding in the IPO entity or Renji Company’s interests and rights in the partnership, so that Renji Company will be able to receive its investment capital in full. Therefore, on the basis that Renji Company has not yet recovered its investment capital and the Undertaking has been set aside by the Beijing Arbitration Commission through its award of (2016) Jing Zhong Cai No. 1617, Zhu Min and Cybernaut Company should still bear the corresponding surety liability.

Moreover, according to the provisions in the Guarantee, Cybernaut Growth Fund, its ordinary partner, Mr Zhu Min, and an affiliated enterprise, Cybernaut Company, as joint guarantors of the guaranteed investment, gave guarantee and assurance to Renji Company, and agreed to bear joint and several liability in relation to the above-mentioned guaranteed investment. Meanwhile, the Guarantee also provides that after Hainan Zhongtou has completely fulfilled the guaranteed investment, the joint and several liability automatically comes to an end. Therefore, according to Clause 2, Art. 32 of the Judicial Interpretation of the Supreme People’s Court on Some Issues Regarding the Application of the Guarantee Law of the PRC: ‘The agreed provision will be considered unexpressed if the guarantee contract provides that the guarantor shall undertake suretyship until the principal amount and interest for the principal debt have been paid. The guarantee term shall be two years from the expiration of the term for performance of the principal obligation’. In the present case, the provision on the guarantee term in the Guarantee should be regarded as unexpressed. The guarantee term is two years from the expiration of the term of performance of the principal obligation, i.e., from 1 January 2013 to 31 December 2014.

Thirdly, as to whether Renji Company exercised its rights towards the guarantors during the guarantee term, on 21 November 2013, Renji Company under deception issued the Undertaking to Cybernaut Growth Fund, Zhu Min and Cybernaut Company waiving the guarantors’ surety liability.  But the act of issuing this document also suffices to show that before the Undertaking was issued, Renji Company had already demanded that Zhu Min and Cybernaut Company bear joint and several surety liability, otherwise it would not have been necessary to express the intent of waiving the surety liability in the Undertaking.  At the same time, the act of Renji Company issuing the document to the guarantors was itself also an expression of intent on the disposition of its rights.  Although, because of the deception, the expression of the intent became the opposite of its actual intent, it also proved that if Renji Company had not been deceived, it would not have given up on exercising its rights against the guarantors.  Therefore, the defence that Renji Company did not exercise its rights with Zhu Min and Cybernaut Company during the guarantee term is contrary to the fact, and will not be accepted by this Court.  Renji Company’s claim for Zhu Min and Cybernaut Company, the guarantors, to bear joint and several surety liability for Hainan Zhongtou’s obligation is well founded in law, and is endorsed by this Court.”

53.I do not think that the Higher People’s Court considered that the Arbitral Award was binding on the defendant as such.  This was the subject matter of express submission by the defendant and the plaintiff did not argue to the contrary.  It is common ground before me that the Arbitral Award was not binding in the Mainland court proceedings between the plaintiff and the defendant.  However, as a matter of PRC law, particularly Art 93 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the PRC (最高人民法院關於適用《中華人民共和國民事訴訟法》的解釋) and Art 9 of Some Provisions of the Supreme People’s Court on Evidence in Civil Procedure (最高人民法院關於民事訴訟證據的若干規定), the Liu Judgment and the Arbitral Award are admissible to show, rebuttably, the facts determined, including that a fraud was practised on the plaintiff by Liu and Shang in collusion which caused it to execute the relevant documents including the Undertaking.  While the defendant may not have the requisite standing to apply to a Mainland court to have the Arbitral Award set aside, it was open to it to try to rebut with evidence the findings therein relied on by the plaintiff for the purpose of its claim, and to contend to the contrary.  Prof Lin has referred to the possibility of a “collateral challenge” of the Arbitral Award and at least to this extent I think that was open to the defendant.  However, as pointed out by Prof Lin, it appears that the thrust of the defendant’s submissions in the Mainland courts was that the Arbitral Award was not binding on him because he was not a party, rather than any substantive submissions on the merits denying that the plaintiff had been induced by fraud to issue the Undertaking, even though material evidence including the Withdrawal Decision relating to the non-prosecution of Shang was placed before the Beijing courts.  Nor did the defendant argue there that the Guarantee had been discharged by the 2011 storm as force majeure.

54.Nor do I think there was a breach of the “no accusation, no trial” (不告不理) principle by the Higher People’s Court.  The plaintiff’s claim for monetary relief against the defendant was based on the continuing validity of the Guarantee, and hence the invalidity of the Undertaking.  It is not to the point to say there was no prayer for a specific declaration that the Undertaking was invalid or an order for it to be set aside. The defendant himself squarely raised the Undertaking as a defence. 

55.As a juristic act, the legal status of the Undertaking depends on the intention expressed by the actor, i.e. the plaintiff, being genuine.  The Undertaking was part of the transaction pursuant to the Capital Transfer Agreement, and indeed contained a condition precedent based on the performance of the latter.  The defendant did not participate in that transaction.  The Undertaking was not given in consideration of anything coming from him.  In fact, the defendant says that he did not know it existed until the commencement of the Mainland civil proceedings.  He nevertheless tried to claim the benefit of the Undertaking, even though it was an incident of an agreement between the plaintiff and Hainan Zhongtou, which had by then been set aside for fraud in the Arbitral Award between them. As mentioned in the Arbitral Award, Art 59 of the General Principles of Civil Law of the PRC (《中華人民共和國民法通則》) provides: “A party shall have the right to request a people’s court or an arbitration agency to alter or rescind the following civil acts: (1) those performed by an actor who seriously misunderstood the contents of the acts; …  Rescinded civil acts shall be null and void from the very beginning.”  Art 58 also provides: “Civil acts in the following categories shall be null and void: (3) those performed by a person against his true intentions as a result of cheating, coercion or exploitation of his unfavourable position by the other party; …”. 

56.Reading the BHPC Judgment as a whole, it can be seen that like the arbitral tribunal, the Higher People’s Court considered that the plaintiff was defrauded into issuing the Undertaking (“在受欺詐的情況下 … 出具了《承諾函》”).  The court considered that the act of issuing the Undertaking was an expression of intention by the plaintiff on the disposition of its rights (“是其主張、處分權利的一種意思表示”), but that because of the fraud of Liu and Shang, the intention expressed was the opposite of its true intention (“該意思表示因受欺詐而與其真實意思相反”).  On this basis the Higher People’s Court was entitled to agree with and adopt the arbitral tribunal’s conclusion that the Undertaking as a juristic act ought to be set aside and as such was no defence to the claim on the Guarantee.  I do not consider that the court simply “assumed” the Undertaking was invalid.  The fact that the court referred to the “premise” (“前提”) of the Undertaking having been set aside by the Arbitral Award does not show that it considered it was bound by that ruling.

57.In conclusion, I do not think there was any breach of natural justice in the Mainland civil proceedings.  The criticisms raised by the defendant are in reality arguments that the Higher People’s Court’s findings and conclusions are wrong.  This affords no basis for holding that enforcement of the BHPC Judgment in Hong Kong would be contrary to public policy: Mei Yu Lau v Shiu Ki Lau (CACV 197/1995, 31 January 1996).  Likewise, allegations that the court did not give sufficiently detailed or satisfactory reasons with reference to the points raised by the defendant do not assist: Malicorp Ltd v Government of the Arab Republic of Egypt & others [2015] l Lloyd’s Rep 423, §25; Nintendo of America Inc v Bung Enterprises Ltd [2000] 2 HKC 629, 637.

F.       Whether BHPC Judgment is final and conclusive

58.Notwithstanding my conclusion above that the BHPC Judgment is not registrable under the MJREO, at common law the plaintiff can sue on a money judgment obtained outside Hong Kong on the basis of an implied contract to pay: Grant v Easton (1883) 13 QBD 302.  Like a monetary claim based on any other cause of action, the plaintiff may apply for a Mareva injunction pending judgment if the usual conditions are satisfied.  It seems to me however that a Mareva injunction thus granted should be granted on an interlocutory basis rather than under the plaintiff’s originating summons issued under section 21M.  The plaintiff has to show a good arguable case on the merits, but this does not mean the merits of the claim underlying the foreign judgment.  Rather, it refers to the prospects of establishing the conditions for the enforcement of the judgment by action.  In the present case, among the conditions, which are set out in Hong Kong Civil Procedure 2022, vol. 2 at E3/0/5, apart from the requirements of public policy and natural justice (dealt with above under the MJREO), the issue arising is whether the BHPC Judgment is “final and conclusive”.  This concept essentially means that the judgment to be enforced must be final and unalterable in the court which pronounced it: Bank of China Ltd v Yang Fan, §§36-37.

59.The defendant submits that the BHPC Judgment is not final and conclusive because of the “trial supervision” system in the Mainland.  The parties’ experts are largely in agreement with regard to the operation of that system.  Art 200 of the Civil Procedure Law of the PRC (as revised in 2017) (《中華人民共和國民事訴訟法》) sets out 13 grounds on which a court has to conduct a re-trial on the application of a party.  There are three routes for procuring a retrial of the case by the Higher People’s Court.

60.First, if the President of the Higher People’s Court considers there is an error in the BHPC Judgment, he will submit it to the judicial committee of the Higher People’s Court for decision whether there should be a retrial: Art 198 of the Civil Procedure Law.  In practice, the President will not generally initiate this of his own motion, but only on application by a party.  Prof Chen says this route of procuring a retrial through the original court itself is much less frequently invoked than the other two, though not unheard of.  Prof Lin says that since, in the present case, the Supreme People’s Court has rejected the defendant’s application for retrial, it is extreme unlikely, and practically impossible, for the Higher People’s Court to entertain an application for retrial.  I accept this evidence.  The position may be different in an extreme situation such as discovery that the BHPC Judgment was obtained by fraudulent or forged evidence, but then such a reopening of the judgment would be similar in nature to the procedure for setting aside a judgment for fraud in Hong Kong, and the availability of such a course does not in my view imply that the BHPC Judgment is not final and conclusive.  In the circumstances of this case it seems to me this route can be effectively disregarded.

61.Secondly, if the Supreme People’s Court considers there is an error in the BHPC Judgment, it can retry the case or direct the Higher People’s Court to retry the case: Art 198 of the Civil Procedure Law.  The defendant has applied to the Supreme People’s Court but failed.  In any event, there is force in Mr Lai’s submission that this route is analogous to an appeal and its availability should not necessarily lead to a conclusion that the BHPC Judgment is not final and conclusive.

62.Thirdly, if the Higher People’s Court rejects his request for retrial, the defendant can apply to the Supreme People’s Procuratorate (“SPP”) for intervention.  Thus the Civil Procedure Law provides:

「 第二百零八條 最高人民檢察院對各級人民法院已經發生法律效力的判決、裁定，上級人民檢察院對下級人民法院已經發生法律效力的判決、裁定，發現有本法第二百條規定情形之一的，或者發現調解書損害國家利益、社會公共利益的，應當提出抗訴。

……

第二百零九條 有下列情形之一的，當事人可以向人民檢察院申請檢察建議或者抗訴：

（一） 人民法院駁回再審申請的；

（二） 人民法院逾期未對再審申請作出裁定的；

（三） 再審判決、裁定有明顯錯誤的。

人民檢察院對當事人的申請應當在三個月內進行審查，作出提出或者不予提出檢察建議或者抗訴的決定。當事人不得再次向人民檢察院申請檢察建議或者抗訴。

第二百一十一條 人民檢察院提出抗訴的案件，接受抗訴的人民法院應當自收到抗訴書之日起三十日內作出再審的裁定；有本法第二百條第一項至第五項規定情形之一的，可以交下一級人民法院再審，但經該下一級人民法院再審的除外。」

(English translation)

“ Art 208Where the Supreme People’s Procuratorate finds that a legally effective judgment or ruling made by a people’s court at any level falls under any of the circumstances described in Article 200 of the Law or where a superior people’s procuratorate finds that a legally effective judgment or ruling made by a subordinate people’s court falls under any of the circumstances described in Article 200 of the Law; or the Supreme People’s Procuratorate or a superior people’s procuratorate finds that a mediation statement is against the interests of the State or the public, the Supreme People’s Procuratorate or the superior people’s procuratorate shall lodge an objection thereto.

……

Art 209 Under any one of the following circumstances, a party may apply to the competent people’s procuratorate for a procuratorial proposal or objection:

1. where the people’s court rejects the retrial application;

2. where the people’s court does not issue a ruling over the retrial application within the specified time limit; or

3. where the judgment or ruling of the retrial is obviously erroneous.

The people’s procuratorate shall examine the retrial application within three months after the receipt thereof and decide whether to make a procuratorial proposal or objection, after which the parties are not allowed to apply to the people’s procuratorate for a procuratorial proposal or objection again.

Art 211 In the event that a people’s procuratorate files an objection, the people’s court that accepts the objection shall order a retrial within 30 days after the date on which it receives the Objection Letter; under any of the circumstances described in Items 1 to 5 of Article 200 of the Law, the people’s court shall transfer the case to a competent immediate subordinate people’s court, unless the case has been retried by the immediate subordinate people’s court.”

63.There is no prescribed time limit for such an application but it is expected to be made within a reasonable time.  If the SPP finds that the BHPC Judgment falls within one of the prescribed ground in Art 200, it may within 3 months of receipt of the application lodge an objection (Art 208), though the SPP will be cautious in relying on the same ground rejected by the court for retrial.

64.Prof Lin does not dispute the possibility of this route; in fact he largely agrees with Prof Chen’s opinions on the operation of the procuratorial system in this case, but he disagrees with the conclusion that the BHPC Judgment is not final and conclusive because “in Chinese law the judgment from the Higher People’s Court of Beijing Municipality is final according to Article 175 of the Civil Procedure Law”; he also refers to §§23-26 of his opinion.  However, whether the judgment is final for present purposes is a concept of Hong Kong law rather than Mainland law.  Art 175 provides that the judgments and rulings of the people’s court of second instance shall be final, but the point of this provision is that there is generally a two-tiered adjudication system in the Mainland and does not, in my view, really address the question at hand.  Nor do §§23-26 of his opinion assist because they simply show that where there is a pending application for a retrial, the execution of the judgment is not automatically suspended: Art 199.

65.As shown by To J’s discussion of the case law in Bank of China Ltd v Yang Fan at §§46-51, however, the impact of the procuratorate’s objection procedure on whether a Mainland judgment is final and conclusive for Hong Kong law purposes is a complicated one.  In that case, To J proceeded on the basis that the people’s court which accepts the objection is usually at one level higher than the people’s court whose judgment is objected to.  On that basis To J concluded the objection system operates like another avenue for appeal and does not prevent a Mainland judgment from being treated as final and conclusive (see §§53 & 54):

“ 53. … It appears from article 211 of the current Code that under the present protest regime re-trial by the court protested is not a matter of course upon receipt of a protest. First, the people’s court which accepts the protest is usually one level higher than the court the decision of which is protested against. It has 30 days to decide whether to entertain the protest by ordering a re-trial or to dismiss the protest. It may or may not order a re-trial. If it dismisses the protest, that is the end of the protest. Second, if it orders a re-trial, it may conduct the re-trial itself or order it to be tried by a lower level court or the court protested. It may conduct the re-trial itself, except where the protest was made in circumstances under paragraphs (1) to (5) of article 200, ie matters relating to insufficiency of evidence. In that light, the protest regime is more like an appellate regime. The protest by the procuratorate is just another avenue of appeal, except that it is initiated by a non-party. But the result is no different from an appeal by a party. The protest is to be adjudicated by the higher level people’s court. The remedies, if successful, are no different from those available under the appellate system in the PRC. Those remedies are also similar to the remedies under our system. The appellate court may set aside the judgment of the original court, re-hear the case itself and reach its own decision or remit it to the court appealed or protested against to continue hearing with further directions or for re-trial de novo. There is no doubt that judgments of our courts under our system are final and conclusive. Thus, equally, it can be argued that PRC judgments under a system containing a protest regime as set out in article 211 is final and conclusive. My understanding of Lord Watson’s dictum in Nouvion v Freeman & Another is that a judgment is final and conclusive if it is unalterable voluntarily (my emphasis) by the court pronouncing it. The court becomes functus officio and has no jurisdiction to reopen or amend its decision on its own volition. Hence, it is final and conclusive as far as the court pronouncing it is concerned. Under our law, the fact that the pronouncing court’s jurisdiction is revived by an appellate court does not render its original decision not final and conclusive. Applying the same rationale, there is no reason why, if jurisdiction is revived by a protest by the procuratorate resulting in the same remedies available under the appellate system in that foreign jurisdiction, the original decision should be treated as not final and conclusive.

54.  … I am well satisfied for the purpose of the present interlocutory application that the Plaintiff has discharged its burden of showing an arguable case that such judgment, if obtained, is final and conclusive for the purpose of the Ordinance.”

66.In the present case, the evidence also suggests that insofar as this route is concerned, the objection lodged by the SPP is to be dealt with by the Supreme People’s Court.[8] Based on the reasoning in Bank of China Ltd v Yang Fan, it seems to me that the plaintiff has established sufficient prospects that the BHPC Judgment is final and conclusive and may as such be enforced at common law in Hong Kong.

G.      Risks of dissipation

67.The principles guiding the court in assessing whether there are risks of dissipation of assets such as to warrant the grant of a Mareva injunction are well established (see e.g. Convoy Collateral Limited v. Cho Kwai Chee [2020] HKCA 537) and need not be repeated.  This assessment is not an exact science but is based on an evaluative judgment by the court taking a holistic view of the circumstances of the case.

68.There were initially 5 main matters relied upon by the plaintiff in this respect, as set out in Zhang Yi’s 1^st affirmation placed before the ex parte judge.  However, the defendant’s first round of evidence in support of his discharge application, i.e. the defendant’s 2^nd affirmation dated August 2020 (incorporating by reference his 1^st affirmation and the first affirmation of his solicitor, Mr Shum) did not deal with these matters except the sale of the defendant’s shares in Listco to Cybernaut International.  It was only in the defendant’s 3^rd affirmation, made in reply less than a month before the hearing, that he purported to deal with the other matters.  This is highly unsatisfactory, and also unfair to the plaintiff who was deprived of a proper opportunity to deal with the matters raised.  Accordingly, I grant leave for the plaintiff to adduce the 4^th affirmation of Zhang Yi which deals with some of the new matters raised in the defendant’s 3^rd affirmation, but at the end I have not found it to be of much relevance.

69.At the hearing before me, 4 of the 5 matters are relied upon by the plaintiff.  First, the defendant has refused to satisfy the BHPC Judgment when he has the apparent ability to do so.  This is in my view a significant factor.  The defendant had fully taken part in the proceedings in both levels of the Beijing courts and had then applied unsuccessfully to the Supreme People’s Court for a retrial.  There is now a judgment of a court of competent jurisdiction against him, which has been outstanding for a long time.  Even assuming the defendant is still taking steps to seek a retrial, that does not operate to suspend the judgment.  There is no evidence of any concern that the plaintiff would not be good for the money if the defendant pays the judgment debt and later succeeds in overturning the judgment.  By refusing to satisfy the judgment or at least to offer means of securing the plaintiff’s rights under the judgment, he has demonstrated a complete disregard of his legal obligations in the Mainland.  The defendant’s explanation that because he considers the judgment “wrong and unfair”, he has decided he will not voluntarily comply with it, is not only not an excuse, but heightens the concern that he will do whatever he can to thwart its enforcement.  The courts, for good reasons, are more ready to grant post-judgment Mareva injunctions than before judgment (see e.g. China Citic Bank Corporation Ltd (Quanzhou Branch) v Li Kwan Chun [2018] HKCFI 1800, §§26-32).  The fact that the judgment here is not that of a Hong Kong court does not make this approach entirely irrelevant.

70.Secondly, the plaintiff relies on the fact that the defendant has failed to comply with the asset disclosure requirements in the Mainland pursuant to the BHPC Judgment.  Under Art 241 of the Civil Procedure Law of the PRC, where a person has not complied with an enforcement notice (執行通知), he has to report the situation concerning his assets (財產情況) (not limited to assets in the Mainland).

71.The defendant claims that he had never received an enforcement notice.  This bald assertion, raised for the first time in his 3^rd affirmation, is entitled to but little weight.  The enforcement documents issued by the Intermediate People’s Court after the BHPC Judgment show that it had issued an enforcement notice to the defendant, and it was on the very basis that he had failed to comply with it that the court proceeded to issue a freezing order, an order restricting consumption (限制消費令), and an order putting him on the list of discredited judgment debtors (失信被執行人名單). The defendant has not explained what he did in response after these orders were issued, mistakenly on his case since he had not received the enforcement notice.  In any event there is no suggestion that the defendant had taken steps to fulfil his obligations when he admittedly learnt of the enforcement notice subsequently.  The fact that the defendant’s shareholdings in Mainland companies may be ascertained from public registers does not obviate the need for a full disclosure of his assets under Mainland law.

72.Thirdly, the plaintiff says that Listing Rule 13.51(2)(k) and 13.51B require the unsatisfied BHPC Judgment against the defendant, as a director of Listco, to be announced, and that the defendant failed to procure such announcement to be made.  Whilst strictly speaking the obligation might have been owed by Listco, it was the defendant who had to initiate the compliance.  After enquiry was raised by the Stock Exchange, Listco wrote to explain that the judgment was not considered to be final and, as such, did not need to be disclosed.  However, it is notable that Listco’s letter dated 9 April 2020 falsely stated that “the re-trial application of the PRC Judgment is still processing by the PRC Supreme Court”. This is disingenuous and misleading, as the defendant well knew by then that his (and Hangzhou Cybernaut’s) application for retrial had been dismissed by that court.  The fact that Hainan Zhongtou had also made a re-trial application (which was dismissed on 30 June 2020) is not to the point.  The fact that the defendant might have intended to invoke the SPP route (see §62 above) does not mean that his retrial application was being processed by the Supreme People’s Court.

73.Fourthly, the plaintiff discovered from shareholding disclosures relating to Listco that on 26 November 2019 and 7 January 2020, the defendant had respectively sold 479,284,000 and 155,000,000 shares in Listco to Cybernaut International, for the price of $81.5m and $25.7m.  The plaintiff applied promptly thereafter for an injunction.  Although Cybernaut International was wholly beneficially owned by the defendant, this move apparently turned the defendant’s directly held assets from shares in Listco into cash.  The defendant also stated in his 2^nd affirmation that “out of caution, [he] arranged for Cybernaut-International to pay a proper consideration for the Listco shares, at the market price”.  He later said in his 3^rd affirmation that this statement was a mistake and that in fact Cybernaut International “did not pay [him] any cash consideration”.  It is difficult not to be sceptical as to how such a mistake could have been made, given that the plaintiff’s ex parte skeleton argument had made the very point the defendant had received cash but he did not use it to satisfy the outstanding judgment.  In any event, even without finding any nefarious intent on his part, on the defendant’s own case, the transaction divested himself of unencumbered publicly tradeable Listco shares, in return for a debt owed by a private company whose financial position is opaque.

74.The defendant has also said that the sale of shares was a restructuring undertaken for various reasons including lowering his personal tax liability and the booking of the share management expenses to Cybernaut International and that it was done in anticipation of an acquisition by Listco of a multi-media business.  There is however not a single piece of paper to show that what he did was done pursuant to financial advice allegedly received.

75.Having regard to all these matters, it seems to me that the plaintiff has shown a real risk of dissipation of assets to justify a Mareva injunction.

H.      Material non‑disclosure

76.The defendant contends that the plaintiff failed to disclose relevant matters at the ex parte application in January 2020.  I take the particulars of alleged failure from the affirmations filed on behalf of the defendant.

77.First, it is said that the potential lack of finality of the BHPC Judgment was not sufficiently addressed.[9] Of course the argument at this inter partes hearing had been much fuller, but the existence of the “trial supervision” system in the Mainland and the consequent potential argument by the defendant that the BHPC Judgment is not final and conclusive were both expressly drawn to the court’s attention in the ex parte skeleton argument.  I do not think there is merit in this complaint.

78.Secondly, it is said that the plaintiff did not draw the court’s attention to the possibility of the defendant’s appeal[10] or the fact that he had applied to the Supreme People’s Court for a retrial.^[11]  There is no evidence that there could be any further “appeal” from the BHPC Judgment.  The plaintiff has credibly explained that, at the time of the ex parte application, it did not know that the defendant (and Hangzhou Cybernaut) had made an application for retrial.^[12]  Further, as we now know, the defendant’s application had already been dismissed as at the date of the ex parte application.

79.Thirdly, it is said that the fact that the defendant was not a party to the Arbitration, and the potential argument that he was therefore not bound by the Arbitral Award and remains a beneficiary of the Undertaking, were not disclosed.^[13]  In fact, the ex parte skeleton argument referred to the defendant’s potential argument that the Arbitral Award was obtained in breach of natural justice as not all relevant respondents were informed of the Arbitration.  Further, as the defendant himself subsequently accepted,^[14] at the ex parte hearing counsel specifically brought to the court’s attention that the defendant was not a party to the Arbitration and his consequent potential argument.

80.Fourthly, the defendant says that whereas the Liu Judgment suggests that Shang bribed Liu and deceived the plaintiff, the Withdrawal Decision indicated that Shang had not been involved in any conspiracy, and there were therefore conflicts between the two decisions.  These inconsistencies in turn cast doubt on the Arbitral Award. The defendant complains that at the ex parte hearing, the plaintiff failed to mention these problems underlying the Arbitral Award.  In addition, the defendant says that the plaintiff failed to bring the Withdrawal Decision to the attention of the Higher People’s Court, and even accuses the plaintiff of thereby obtaining the BHPC Judgment by fraud.[15]

81.First, it is simply not true to say that the Withdrawal Decision was not brought to the attention of the Higher People’s Court.  The Withdrawal Decision was expressly referred to in the judgment of the Intermediate People’s Court which was appealed to the Higher People’s Court.  The evidence adduced on appeal by Hainan Zhongtou included the Withdrawal Decision.  In fact Shang himself appeared at the hearing before the Higher People’s Court as Gusheng’s representative, and submitted that he had never been involved in any relevant criminality and that the criminal investigation against him had been discontinued.

82.Furthermore, it should be noted that the Arbitral Award was issued before both the Liu Judgment and the Withdrawal Decision, and was not based on either of them.  The Higher People’s Court in turn did not simply base its decision on the Arbitral Award, but found as a fact that Liu had been convicted under the Liu Judgment for deceiving the plaintiff and taking bribes from Shang.  The alleged problems underlying the Arbitral Award arising from the inconsistencies between the Liu Judgment and the Withdrawal Decision were in substance arguments on the merits of the dispute before the Higher People’s Court, which the defendant himself did not raise there, and were remote from the plaintiff’s claim which was to enforce the BHPC Judgment, not the Arbitral Award.  I do not consider that the ex parte injunction was tainted simply because the plaintiff did not specifically bring this particular argument to the ex parte judge’s attention.

83.Fifthly, it is said that the plaintiff failed to draw to the court’s attention that the defendant was not involved in the collusion or deception practised on the plaintiff.[16]  Whilst there was no express statement to that effect, the ex parte affirmation stated that the collusion was between the representative of the Fishery Centre and the Director of Investment of the plaintiff.  Although Liu’s and Shang’s names were not mentioned, I do not think this would have been understood as a reference to the defendant.  It is also notable that the evidence and submissions on risk of dissipation of assets did not allege the defendant had been involved in a fraud against the plaintiff.  The ex parte skeleton argument expressly stated that the plaintiff was fraudulently induced “by a third party” to execute the 2013 documents. While the position could have been made clearer, I do not think there was any material non-disclosure or that the ex parte judge was misled in this regard.

84.Sixthly, it is said that the plaintiff failed to disclose that a storm damaged the Fishery Centre in 2011.[17]  The defendant says he believed at the time that the storm discharged his obligation.  But the fact is that he did not raise any force majeure defence based on the storm or otherwise in the Higher People’s Court.  Even if he had, it is not a ground for resisting enforcement of the BHPC Judgment in Hong Kong.  I do not think the plaintiff can be faulted for not referring to it.

85.Shortly prior to the hearing, by way of skeleton argument, the defendant made certain additional complaints of non-disclosure, which were mentioned neither in the summons nor the affirmations.  I do not consider that it would be fair to entertain these complaints: see Gee on Commercial Injunctions (7^th ed), §9-032.

86.In conclusion, I do not think there was such material non-disclosure as to warrant discharging the ex parte Mareva injunction.

I.       Disposition

87.In conclusion, there was no “choice of Mainland court agreement” between the plaintiff and the defendant within the meaning of the MJREO.  Accordingly, the BHPC Judgment cannot be registered under that Ordinance.  There will therefore be an order that its registration be set aside.  Nevertheless, there is a good arguable case that it may be enforced at common law by an action brought upon it.  There is a sufficient risk of dissipation of assets by the defendant.  There was no material non-disclosure at the ex parte stage to warrant a discharge of the Mareva injunction.  There will therefore be an order that the Mareva injunction be continued until judgment in the action on the BHPC Judgment or further order.

88.Given the parties have each achieved a measure of success, on a provisional basis I make no order as to costs.

Mr Lai Chun Ho, instructed by Nixon Peabody CWL, for the Plaintiff

Ms Audrey Eu, SC and Mr Danny Tang, instructed by Jones Day, for the Defendant

[1]  together with a fund related to them called “Cybernaut Growth Fund”.

[2]  There is a subsequent arrangement entered into in January 2019 but it is not relevant for the present case.

[3]  There were two relevant clauses in that case: see §28.  The one quoted here is clause 15 of the Chenghua Agreement.

[4]  at §34.

[5]  徐志明與張義華股權轉讓糾紛申請再審民事裁定書（2015）民申字第471號

[6]  See pp 8, 17, 22 of the BHPC Judgment.

[7]  See pp 8, 17-18, 22 of the BHPC Judgment.

[8]  See Prof Lin’s report, §16.

[9]  Affirmation of Liu Ka Kiu Joey, §7(iii)(c).

[10]  Affirmation of Liu Ka Kiu Joey, §7(iii)(c).

[11]  1st Affirmation of Shum Ka Ming, §26.

[12]  2ndAffirmation of Zhang Yi, §§11-12.

[13]  1stAffirmation of Shum Ka Ming, §§21-23.

[14]  1stAffirmation of Zhu Min,§16.

[15]  1stAffirmation of Shum Ka Ming, §§14-20.

[16]  1^st Affirmation of Shum Ka Ming, §§12 & 13.

[17]  1^st Affirmation of Shum Ka Ming, §§12 & 13.3.