Hui Kao Chu v. Wu Chi Cheng

HCA001612/1982

Plaintiff restrained from litigating same issues in Chinese court until after conclusion of Hong Kong proceedings. Tests to be applied.

BETWEEN

Coram: Hon. Bewley, J. in Chambers

Date: 11 June 1984

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JUDGMENT

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1. The plaintiff's father died in China in 1946. He was the owner of 400 shares in Sui Cheng International Trading Co. Ltd., a company incorporated in China, but registered to carry on business in Hong Kong. The assets of this company now lie mainly in Hong Kong. The plaintiff is the administrator of his father's estate, the other beneficiaries of which were his mother, who died in 1979 and his brother.

2. The defendant is the majority shareholder in the company. He is a man of 80 and has lived in Hong Kong at all material times. The other principal shareholder is Mr. WU Tek-yen, also a resident of Hong Kong and the defendant's younger brother.

3. Between 1962 - 1977 there was a continuing dispute as to the ownership of the deceased 's 400 shares. This was apparently resolved by an agreement between the plaintiff and Mr. WU Tek-yen, acting as the defendant's agent, whereby the plaintiff, as administrator of his father's estate, agreed to transfer the shares to the defendant for HK$2.8 million.

4. This was done in 1977 under the aegis of, and with the approval of, the People's Court of Kun Ming. The money was paid to the plaintiff in China in Chinese currency.

5. The plaintiff came to Hong Kong for the first time in 1980. He made enquiries about the company and, according to his statement of claim, discovered that the true value of the shares in 1977 was at least HK$22 million.

6. He issued a writ in 1982, in which it is alleged that the Kun Ming agreement was procured by Mr. WU Tek-yen by fraud and undue influence and which seeks various declarations and the return of the shares, or their value, to the plaintiff in his capacity as administrator of his father's estate.

7. Interlocutory proceedings ensued, but the case was finally set down for hearing on 6th June this year before Deputy Judge Leathlean. As it happened, the case did not come on, because the judge was overrunning, and was adjourned to an early date, to be fixed in consultation with counsel.

8. Meanwhile, however, the plaintiff had taken a dramatic step. Without notice to the defendant, he and his brother had lodged a complaint in the Kun Ming People's Court, alleging fraud and seeking revocation of the 1977 agreement and acknowledgment of their ownership of the shares.

9. On 30th May the defendant received. a telex from the Kun Ming court informing him that such a complaint had been received on 22nd April and that the court intended to enquire into the matter. The defendant was required to reply by telex within three days and was invited to return to Kun Ming and to deposit HK$16 million as security in the meantime.

10. As this was only six days before the Hong Kong hearing date, the defendant and his legal advisers were somewhat perturbed and they sent off a telex seeking a delay until 12th June.

11. Had the case come on before Judge Leathlean, he would no doubt have been invited to rule on the matter as a preliminary issue. Since he was unavailable, the defendant took out a summons inter alia to stay the Chinese proceedings, which came before me, as duty judge, later the same day. The plaintiff received notice of the summons and has appeared. It is proper in the circumstances, therefore, that I order the time for service to be abridged as prayed.

12. In this summons the defendant applies for an order that the plaintiff withdraw the complaint and proceedings in Kun Ming; further or alternatively that the plaintiff be restrained form continuing the same until the final disposal of the Hong Kong action; and further or alter-natively that the Hong Kong action be dismissed or struck out.

13. Mr. Mills-Owens, for the defendant, submits that, as the relief sought in both proceedings is substantially the same - though the plaintiff's complaint to the Chinese court is qua beneficiary not administrator - there is no legitimate reason for a second action in another jurisdiction. Counsel has adumbrated various hardships that would be suffered by the defendant were both actions to proceed and further submits that this would cause injustice to his client.

14. Mr. Bernacchi, for the plaintiff, concedes that only in the Hong Kong action can there be a meaningful judgment, since this is where the assets are. He submits, however, that the plaintiff will suffer injustice unless he has the opportunity to invite the Chinese court to remove its approval of the 1977 agreement. He maintains that this would significantly ease his path in the Hong Kong action, since the court might otherwise find its hands tied, even though fraud or undue influence are proved. Counsel undertakes, moreover, that he will not attempt to do anything to induce the Chinese court to take the matter further and will not rely on anything that is decided in Kun Ming, other than the removal of that court's approval of the 1977 agreement and transfer.

15. The remedy sought by the defendant is discretionary and must be exercised with caution. Although an order restraining foreign proceedings is directed to the party, not  to the court, the effect is to interfere with proceedings in another jurisdiction. This is a particularly relevant consideration in the situation in which Hong Kong finds itself today.

16. It is for the defendant to show that continuance of the Chinese proceedings will cause him injustice and that a stay will not cause injustice to the plaintiff; plurality of actions is not of itself a sufficient ground for intervention. Atlantic Star v. Bona Spes ⁽¹⁾

17. It was held in MacShannon v. Rockware glass Co. ⁽²⁾ that the conditions necessary to justify a stay were (a) the defendant must satisfy the court that there was another forum to whose jurisdiction he was amenable, in which justice could be done at substantially less inconvenience and expense and (b) the stay would not deprive the plain-tiff of a legitimate personal or juridical advantage which would be available to him in England. In the context of this application, for "England" read "China".

18. Lord Denning, applying these principles in Smith Kline Ltd, v. Bloch ⁽³⁾, said at page 738:

"The plaintiff has no longer an inborn right to choose his own forum.  He no longer wins the toss on every throw. The decision rests with the courts. No matter which jurisdiction is invoked the court must hold the balance between the plaintiff and the defendant. It must take into account the relative advantages and disadvantages to each of them; not only the juridical advantages and disadvantages, but also the personal conveniences and inconveniences; not only the private interests of the parties but also the public interests involved. The court decides according to which way the balance comes down."

19. These tests were approved by the House of Lords in the recent case of the Abidin Daver (4).

20. In Chapter 12 of Dicey and Morris' The Conflict of Laws, 10th Ed., the author comments at page 251 that, since MacShannon ⁽²⁾ and the Atlantic Star ⁽¹⁾, it is not likely that the court will allow, except in very unusual circumstances, the continuance of proceedings by the same plaintiff against the same defendant for the same cause of action in two different jurisdictions. Indeed, in the Abidin Daver ⁽⁴⁾, Lord Diplock said at page 203:

"Quite apart from the additional inconvenience and expense, if the two actions are allowed to proceed concurrently in the two jurisdictions the courts of the two countries may reach conflicting decisions ..... Comity demands that such a situation should not be permitted to occur as between courts of two civilised and friendly  states. It is a recipe for confusion. and injustice."

21. Applying these principles to the present case, I note first the personal hardships likely to be suffered by the defendant if he has to defend the Chinese proceedings.  He is 80 years of age and  his brother is 72. They will suffer the inconvenience of travelling to Kun Ming, perhaps more than once and in very hot. weather. They will have to give evidence before-two different tribunals. They may have to remain in Kun Ming for a protracted period.

22. Then there is the question of time. The Hong Kong action can be heard before the vacation. If the Chinese proceedings are to be useful, it is essential that they be determined before the Hong Kong action is tried. I bear in mind that the lengthy negotiations prior to 1977 took place during the cultural revolution, in an atmosphere unlikely to have been conducive to business. Nevertheless, being realistic, I can hardly anticipate that the matter will be resolved in a matter of weeks, or even months. Indeed the notice of 25th May invites the parties to return 'to negotiate again for resolution'. Having regard to the allegation of fraud and the lapse of time since 1977, it is likely to be a considerable time before the Chinese court delivers judgment.  It will then be necessary for the Hong Kong action to be heard. Even if the defendant and his witness are still alive, such delay is a factor I am entitled to take into account. See Guihing Agricultural and Development and Others v. Owners of the Ship "Palawan" ⁽⁵⁾.

23. Mr. Mills-Owens refers to the costs already incurred by the defendant, while the plaintiff was putting his pleadings in order. If the defendant is successful in Hong Kong, most of these will be recovered.  Likewise, if the Hong Kong action is struck out.

On the other hand, the costs in Kun Ming are unlikely to be heavy. I think, therefore, that there is unlikely to be injustice to the defendant on this count.

24. Nevertheless, in my judgment, the defendant has satisfied the first, or positive, condition, that justice can be done in Hong Kong at substantially less inconvenience.

25. As to the juridical advantage that Mr. Bernacchi claims for the Kun Ming court, I confess I have difficulty following his argument. The purpose of the Chinese proceedings is to set aside the notarisation and court approval of the 1977 transfer and agreement. This, it is true, can only be done by the Kun Ming court. But will this advance his case in Hong Kong? Is it a juridical advantage?

26. The certificate of transfer was signed by the plaintiff and the other two beneficiaries in the presence of the Kun Ming notary on 25th June, 1977. The agreement to transfer the shares was registered in the Kun Ming court on 31st August, 1977. Paragraph 3 states that it is to be executed under the supervision of the court and its interpretation is vested in the court.

27. As to the notarisation, this is merely the witnessing of a contract by a person publicly authorized to do so. In this case there is no dispute about the actual contents of the document. The notary's signature, therefore, is no bar to any order the Hong Kong court may make.

28. As to the agreement, if it was brought about by fraud or undue influence - which can be proved as easily in Hong Kong as in Kun Ming - the Hong Kong court has power to impeach a foreign judgment and, a fortiori, an agreement registered by a foreign court. See Dicey and Morris' The Conflict of Laws, Chapter 33, at pages 1081 - 1085.

29. Thus I fail to see how the Hong long court could find its hands tied in the absence of a further order by the Kun Ming court. It follows that there is no juridical advantage to the plaintiff in seeking such an order. I am satisfied, therefore,  that the defendant is entitled to relief.

30. In Halsbury's Laws of England, 4th Edition, Volume 8, paragraph 789, it is stated, "If the court finds that a case has been made out for intervention, it will require the plaintiff to continue the action he began first unless substantial reasons exist for favouring continuation of the second or subsequent actions; but this factor is to be considered with others and is not conclusive." Mr. Mills-Owen concedes that, had the Kun Ming complaint been made sooner, his position would have been less strong. Having regard to the time sequence, and also to the plaintiff's  concession that a Hong Kong judgment is necessary to do justice between the parties, I am not prepared to strike out the Hong Kong action. This is the case that must go on.

31. Mr. Bernacchi submits that it may not now be possible for the plaintiff to withdraw his claim in China, as prayed in paragraph 1 of the summons. There is no evidence to this effect, but to avoid any suggestion of discourtesy to the Kun Ming court, I propose to make an order in terms of paragraph 2. This may be an easier order for the plaintiff to comply with and is more appropriate in any case, I think, having regard to the fact that his brother is also a complainant. Accordingly, the plaintiff is restrained from continuing the Kun Ying proceedings until the final disposal of this action.

(1)    1974 A.C. 436

(2)    1978 A.C. 795

(3)    1983 1 W.L.R. 730

(4)    1984 2 W.L.R. 196

(5)    1982 H.K.L.R. 513

Representation:

Richard Mills-Owens, Q.C. & Audrey Eu (Gallant Y.T. Ho & Co.) for defendant

Brook Bernacchi, Q.C. & Robert whitehead (O'Cock & Day) for plaintiff