Li Guozhu v. Ma Hongqi and Others

HCA 2023/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2023 OF 2009

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BETWEEN

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Before:     Deputy High Court Judge Carlson in Chambers

Date of Hearing:     18 March 2010

Date of Delivery of Judgment :     23 March 2010

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J U D G M E N T

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Introduction

1.There are two summonses before me. Firstly, an application by the 10th Defendant, Mr Jiang Wensong to set aside an injunction made by 9 October last year which continued a previous ex parte injunction made on 29 September 2009 by Beeson J. There is also an application on behalf of the Plaintiff to commit Mr Jiang for breaching the injunction. I am bound to say that this is a case with a number of unusual and in many ways unsatisfactory features which I will describe as I set out the background and history of the matter.

2.The first point to observe is that the only Defendant to have been served with the writ has been the 11th Defendant which is a Hong Kong registered company. All the other Defendants are individuals who, as the spelling of their names suggests, are from Mainland China and are resident there.

3.It is just as well to begin by setting out the material terms of the injunction. The order says this [A/46/1-3]:

“IT IS ORDERED THAT:-

The Ex parte Order given by Madam Justice Beeson herein on 29^th day of September, 2009 be continued until Judgment or further order of this Court, i.e. that the 11^th Defendant (whether acting by itself, its directors, officers, employees, servants, agents or otherwise howsoever (including the 1^st to 10^th and the 12^th to 13^th Intended Defendants, namely, Ma Hongqi (马红其), Cai Hongming (蔡鸿铭), Shu Weimin (殳伟民), Zhang Zheng (张正), Huang Shu (黄舒), Zou Xiangzhuang (邹宪壮), Miao Chenwei (缪晨炜), Li Anping (李安平), Shang Jiong (尚烔), Jiang Wensong (姜文松), Mao Ruiqui (茆瑞琪) and Xiao Jin (肖进) be restrained, until Judgement or further order of this Court; from:-

(1)  implementing or otherwise carrying into effect the resolutions (‘the Resolutions’) of the 11^th Intended Defendant dated 25^th August 2009 and 26^th August 2009 passed on the meetings of, namely:-

(a)   the Board of Directors Meeting; and

(b)   the Shareholders/former shareholders;

copy of which are annexed hereto (together with its English translation);

(2)  Purporting to pass any resolutions, doing any acts and/or passing any resolutions of the same effect as the Resolutions;

(3)  Costs of and occasioned by this Application including the costs of the ex parte application on 29^th September, 2009 be to the Plaintiff’s costs in the cause with certificate for counsel;

(4)  Leave be granted to the Plaintiff to serve this Inter Partes Order out of the jurisdiction on the 1^st to 10^th and 12^th to 13^th Defendants pursuant to Order 11(1)(c) Rules of High Court, Cap. 4; and

(5)  Liberty to apply.”

4.The order is, I think, self-explanatory but what can be noted is that the court gave leave to serve the individual defendants with the Order out of the jurisdiction.

5.The 11th Defendant, the company, against which the order was primarily directed has taken no part in the proceedings. Of the 12 individual defendants only the 10th Defendant has sought to have the order discharged. Why he has done so will become clear when I recount the background to dispute which I will now do.

6.With a view to going into partnership with the Department of Health of Bao Ying County and to operate a hospital with it in its locality, the Plaintiff, Defendants one to nine and two other individuals raised capital of RMB7 million between them. The individual contributions varied from RMB1 million to as little as RMB100,000. The other two investors, Zhao Xiying and Zhou Lihui have not been named in the writ. All 12 entered into an agreement in writing dated 27 May 2004. It was expressed to be in conformity with the requirements of PRC company law and apart from its contractual nature it also purports to be the primary constitutional document which governs the [11th Defendant’s] company’s management. In the event of future disputes, its terms would need to be looked at and any dispute would fall to be decided in accordance with PRC company law.

7.On 10 June 2004, the 11th Defendant was incorporated in Hong Kong. The subscribers to it were Defendants one to nine, Mr Zhao Xiying and Mr Zhou Lihui. Additionally, D4 became the managing director and D1 the vice-management director.

8.On 15 November 2004, the 11th Defendant entered into a partnership agreement (“the Partnership Agreement”) with the Department of Health at Bao Ying County to manage and invest in the hospital. Under this agreement, the Plaintiff became the person in charge of the hospital and D4 its Legal Representative.

9.On 10 June 2005, the Plaintiff, D1, D2 and D4 each agreed to invest a further RMB500,000. The hospital went on to operate successfully although, thus far, no dividend has been distributed to the shareholders.

10.As at the end of July 2009, D1, D2 and D3 decided that they wanted to sell their shares in the 11th Defendant to D10, D12 and D13. The agreement of 27 May 2004 requires that any shareholders wishing to sell their share must give the existing shareholders the right of first refusal. This they did by Offer Notices which indicated that the prospective purchasers were willing to pay three times their individual contributions in the 11th Defendant. The Plaintiff declined to pay the share offer price in the Offer Notice. In circumstances were none of the shareholders and directors were willing to take up their options to purchase, D1, D2 and D3 proceeded to transfer their shares to D10, D12 and D13. On 25 August 2009, the respective transfer agreements were entered into.

11.Before that, on 19 August 2009, D1 gave notice to the other directors (and shareholders) including the Plaintiff that a meeting was to be convened on 26 August 2009 to resolve a number of issues including the change of directors and the appointment of a new managing director.

12.On 25 August, following the entering of the share transfer agreement between D1, D2 and D3 by which they transferred their shares to D10, D12 and D13, a meeting of the Directors of the Company took place at which D6, D7, D8 and D9 transferred all of their shares to D1 with the result that the company’s directorships and shareholdings became these: D1 [RMB2.5 million], D2 [RMB1.5 million], D4[RMB1.5 million], D10 [RMB1.5 million], D12 [RMB1.5 million], the Plaintiff [RMB1.5 million], somebody called Cui Guoyan [RMB2.59 million], Zhao Xiying [RMB250,000] and Zhou Lihui [RMB500,000].

13.On 26 August, at the meeting asked for by D1 on 19 August, various resolutions were passed including the appointment of D10 as managing director of the company. The Plaintiff, D4, Zhao Xiying and Zhou Lihui were not present at these meeting. On the recommendation of those present [that is to say D1, D2, D10, D12 and D13], D10 was recommended to be the Administrator of the hospital and on 3 September that recommendation was implemented by D10’s election to that position.

The Proceedings

14.The Plaintiff asserting that these transfers in the various shareholdings are invalid as to the appointment of D10 to the position of hospital administrator has brought this action and sought and obtained the injunction ex parte from Beeson J and continued inter partes by myself. These injunctions have been challenged by D10 who is the only defendant who has concerned himself with this process in Hong Kong. A question had arisen as to whether D10 had any locus to challenge the making of the injunction in view of the fact that the injunction had only been directed against D11, the company, although of course D10 had been served with it. I directed that as the injunction affected him challenging as it did his position as the hospital administrator that he did have a sufficient interest to address the court and seek relief albeit, that the company itself has taken no steps to have the injunction varied or discharged. This therefore is the basis upon which he is now seeking to either discharge or vary the injunction. For his part, the Plaintiff is seeking D10’s committal failing to observe the terms of the injunction by continuing to carry out the duties of the hospital administrator.

15.It is to the D10’s credit that he has troubled to involve himself in these proceedings because by being resident in the PRC and not having been served with the writ he could have adopted the stance of the other Defendants, all of whom have also been served with the injunction, and ignored the order of the court on this side of the border. He has no assets in Hong Kong which could be attached and he could only be arrested in respect of any contempt of court if he chose to come to Hong Kong which, at present, he is not inclined to do.

16.Additionally, Mr Alan Ng, who appears for him, has shown me correspondence passing between D10 and the county officials in Bao Ying in which D10 had asked for them to release him from his duties at the hospital, which would at least have removed from him the threat of contempt proceedings in this court, but the county has replied to say that it is unwilling to do so and that he must continue in post. I cannot tell at this stage how genuine this correspondence is — that is something for the trial, but this is, at all events, the current state of his evidence.

17.Mr Ng has challenged the making of the injunction by me at which hearing none of the Defendants except the company are said to have been served with the notice of the hearing, on a number of grounds including the failure to serve the notice of the hearing, material non-disclosure of aspects of the dispute between the parties and on the validity of the various transactions and resolutions which he submits were valid and demonstrate that the Plaintiff can have no case in now seeking to challenge these, their alleged invalidity being his justification for this action. Additionally, if all else fails, Mr Ng says damages would be an adequate remedy and for that reason there is no need for the injunction.

The Failure to Serve the Writ on the Individual Defendants

18.The question of service of the notices of the hearing on these Defendants may be an issue but the real contest, it seems to me must centre on the validity of the various share transfers and the validity of the consequent resolutions implemented on 25 and 26 August as well as D10’s election as hospital administrator on 3 September. The agreement to form D11 [the company] is to the effect that disputes are to be resolved in accordance with PRC company law and to this aspect I will return in a moment.

19.The matter which does concern me is that by not serving the writ on the individual defendants, all of whom are PRC residents, the Plaintiff has deprived them of the opportunity to address these proceedings by, for example, challenging the court’s jurisdiction over them and/or by applying for a stay of the action on the basis that Hong Kong is forum non conveniens in favour of a nominated court at Bao Ying County. Instead the Plaintiff has restricted himself to the relatively easy task of only serving D11 [a Hong Kong company], obtaining the injunction and seeking to enforce it and have it carried out by serving it on the individual defendants.

20.I appreciate that the Plaintiff would have up to a year to serve the writ and that a named Defendant can, under Order 12 RHC, ask the court to direct that he should be served with the writ, but I regard the principal duty for such service to lie on the Plaintiff as the party having carriage of the action.

21.In this case, I am of the view that the Plaintiff should not be allowed to punch from a distance by obtaining an injunction in Hong Kong against the Hong Kong Defendant and seeking to bind all the other overseas defendants and yet not serving them with the writ.

22.In this discretionary jurisdiction, I propose to discharge the effects of the injunction against D10 for this reason alone but additionally, I also propose to discharge it because it seems to me that the proper place to litigate this dispute is before the appropriate court at Bao Ying. Everything that has happened in this case happened there. The hospital is there. The parties are there and the law governing the dispute is there. These individual defendants should be pursued in those courts and not in this one. The court at Bao Ying is best placed to decide what PRC law says about these various transactions and how best to apply the appropriate remedies.

23.And so, for these two separate reasons, I do not think that it would be right to maintain the current injunction against D10. Whilst my remarks are of general application, only D10 has sought relief from the court which I will give him so that, so far as this court is concerned, he is now at liberty to continue in his position as the hospital administrator. As the other defendants have made no application, I propose to say nothing more about their cases and because D11 [the Hong Kong company] is content to leave matters as they are I will make no further order which affects it, although I hope I have made my views clearly known as to which is the appropriate forum for this litigation.

24.As to the contempt proceedings, I will give the Plaintiff 7 days to withdraw them. If the Plaintiff wishes some other form of order for those proceedings let his solicitors inform the court by letter within 7 days and I will give appropriate directions.

25.In respect of the costs of the discharge of the injunction, I will make an order nisi that the Plaintiff should pay D10 his taxed costs on a party and party basis.

Lorinda Lau, instructed by Messrs K.Y. Lo & Co., for the Plaintiff

Alan M. S. Ng, instructed by Messrs Yip, Tse & Tang, for the 10th Defendant