China Agri Products Exchange Ltd v. Wang Xiu Qun and Another
Read the full judgment text of HCA 1807/2011 on BabelCite. This High Court CFI judgment was delivered on 5 November 2013.
1. The plaintiff was/is a Hong Kong listed company that carried on business of leasing properties and selling food/beverages in Mainland China. The 1 st defendant (“ Wang ”) is the wife of Zhou Jiu Ming (“ Zhou ”), both of whom are PRC nationals. The plaintiff claimed the 2 nd defendant (“ D2 ”) was/is a PRC company in Wuhan City, Hubei, PRC and was/is controlled by Zhou and Wang. Wuhan Baizhazhou Agricultural By-Product Grand Market Company Limited (“ Company ”) was/is a PRC joint venture co
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HCA 1807/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1807 OF 2011 _________________________ BETWEEN
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_________________________ J U D G M E N T _________________________ I. BACKGROUND 1.The plaintiff was/is a Hong Kong listed company that carried on business of leasing properties and selling food/beverages in Mainland China. The 1st defendant (“Wang”) is the wife of Zhou Jiu Ming (“Zhou”), both of whom are PRC nationals. The plaintiff claimed the 2nd defendant (“D2”) was/is a PRC company in Wuhan City, Hubei, PRC and was/is controlled by Zhou and Wang. Wuhan Baizhazhou Agricultural By-Product Grand Market Company Limited (“Company”) was/is a PRC joint venture company whose principal business was/is the operation of a market in Wuhan City, Hubei, PRC (“Market”). 2.In/about December 2010, Wang and D2 (“Ds”) commenced legal action against the plaintiff in the Higher People’s Court of Hubei Province, PRC (“Hubei Court”) with the Company joined as a third party (第三人) ([2011]鄂民四初字第1, “PRC Action No 1”). The subject matter of PRC Action No 1 was said to be “股權轉讓協議糾紛”, and the plaintiff sought inter alia to reverse the transfer of shares in the Company from the Ds to the plaintiff. 3.In/about April 2011, the Company and the plaintiff commenced legal proceedings against the Ds, Zhou and other individuals who were former members of the board of the Company as well as a PRC company known as Wuhan Baishazhou Tianheng Agri-Products Operation Management Company Limited (“Tianheng”) in the Hubei Court ([2011]鄂民四初字第2號, “PRC Action No 2”). In PRC Action No 2, the Company and the plaintiff claimed for loss and damages as a result of unlawful conversion of the Company’s assets and operational profits, and the unlawful assignment of the right to operate the Market to Tianheng. 4.On 24 October 2011, the plaintiff commenced the present action against the Ds for inter alia breaches of contractual terms/warranties and fraudulent misrepresentations. The Statement of Claim (“SoC”) was indorsed on the Writ of Summons. On 24 November 2011, the plaintiff issued an Amended Writ of Summons with amendments in relation to the Ds’ addresses. 5.On 28 November 2011, the plaintiff filed an ex parte application by the affidavit of his solicitor Chan Heung Wing (“Mr Chan”) for leave to issue/serve a Concurrent Amended Writ of Summons (“CAWoS”) out of jurisdiction on the Ds. The plaintiff filed Mr Chan’s 2nd and 3rd affidavits on 9 and 15 December 2011 respectively in answer to the court’s requisitions. On 21 December 2011, Master KK Pang granted leave for the plaintiff to issue a CAWoS against the Ds and to serve the same on them outside jurisdiction at various addresses in Mainland China (“Leave to Serve Out Order”). 6.On 26 April 2012, after several failed attempts, the plaintiff effected service on Wang. On 30 April 2012, the plaintiff filed an ex parte application by the affidavit of their chairman and chief executive officer Chan Chun Hong (“Mr CH Chan”) for an order to effect service on D2 by substituted service. Requisitions were raised by the court, and on 18 May 2012 the plaintiff filed Mr Chan’s 4th affidavit in answer thereto. 7.On 24 May 2012, Wang’s solicitors (“DLP”) filed acknowledgment of service on her behalf. On 25 May 2012 the plaintiff’s solicitors (“DLAP”) invited DLP to accept service on D2’s behalf, but DLP said the plaintiff’s failure to serve D2 had “nothing to do with [Wang]”. On 25 May 2012, Master Ho granted leave for the plaintiff to serve a CAWoS on D2 by prepaid ordinary post to various addresses in Mainland China and Hong Kong and by newspaper advertisement in Mainland China, Hong Kong and Australia (“Ho 1st Order”). 8.On 5 June 2012, the plaintiff filed an ex parte application by Mr Chan’s 5th affidavit to vary the terms of the Ho 1st Order. On 13 June 2012, Master Ho varied the Ho 1st Order as to the mode of newspaper advertisement in Mainland China, Hong Kong and Australia (“Ho 2nd Order”). 9.On 22 June 2012, DLP filed acknowledgment of service on behalf of D2. On 17 July 2012, the plaintiff filed the Amended SoC (“ASoC”). 10.On 3 September 2012, the Ds issued a summons to seek the following reliefs (“Summons”):
11.On 3 September 2012 and 1 March 2013, the Ds filed the 1st and 2nd affirmations of Tao Xin (D2’s PRC legal representative, “Mr Tao”) respectively in support of the Summons. On 11 January 2013, the plaintiff filed Mr CH Chan’s 3rd affidavit in opposition. 12.In Mr Tao’s 1st and 2nd affirmations, the Ds alleged there was material non-disclosure of the PRC Actions by the plaintiff in their applications for the Leave to Serve Out Order and the Ho 1st and 2nd Orders, and the Hong Kong court was not the appropriate forum to try the disputes between the plaintiff and the Ds. In further support of the application for a stay of the present action, the Ds, apart from contending that the Hubei Court was the more appropriate forum, asserted that the continuation of the present action would be oppressive and unjust since such action and the PRC Actions (a) were between the same parties, (b) concerned the same subject matter, and (c) involved the same and/or similar allegations. 13.By Mr CH Chan’s 3rd affidavit, the plaintiff claimed that the Ds’ allegations as to the purported overlap between the present action and the PRC Actions were non-specific, and that upon proper analysis such allegations were wrong and without basis. The plaintiff claimed that since there was no overlap between the present action and the PRC Actions, the continuation of the present action would not be oppressive and/or unjust to the Ds. The plaintiff further complained that the Ds, having chosen to delay the present action by evading service, had caused further delay by their application under the Summons. 14.On 17 September 2012, the plaintiff filed Mr CH Chan’s 2nd affidavit and Mr Chan’s 6th and 7th affidavits in support of an application for interim injunction against the Ds. On 21 September 2012, the plaintiff filed Mr Chan’s 8th affidavit in further support of such application. 15.On 21 September 2012, Poon J granted an injunction restraining the Ds from inter alia indorsing, assigning, transferring or negotiating to any third party two instruments (承付票據) both dated 5 December 2007 and executed by the plaintiff in favour of Wang and D2 respectively (“1st and 2nd Instruments” or collectively, “Instruments”) until further order of the court and/or the return day of an inter partes summons by the plaintiff (“Poon Order”). 16.On 28 September 2012, the plaintiff issued a summons for leave to file a Re-Amended Statement of Claim, a draft of which had been placed before Poon J. On the same day, DLP wrote to DLAP saying that:
17.On the return day hearing on 5 October 2012, upon each and every director and legal representative (法人) of D2 undertaking inter alia not to procure D2 to transfer and/or enforce payment under the 2nd Instrument and upon the following undertakings by the Ds (collectively, “Undertakings”), DHCJ Lok continued the Poon Order until further order and granted liberty for the parties to apply:
18.DHCJ Lok also gave leave for the plaintiff to file their Re-Amended Statement of Claim (“RASoC”) and to file further evidence in relation to the Summons. On 11 October 2011, the plaintiff filed the RASoC which set out their claims inter alia as follows:
On 9 November 2012, DLP confirmed that the Ds would not file any further affirmation to oppose the Summons. 19.On 8 March 2013, DHCJ Lok discharged the Poon Order without prejudice to the continuing effect of the Undertakings. The hearing of the Summons came before Master Levy on 29 April 2013 (“Master Hearing”). Two matters are of note in respect of such hearing:
20.In her Decision, Master Levy dismissed the application to set aside the Leave to Serve Out Order and the Overseas Service (collectively, “Service Order”), but granted “an interim stay for 6 months or until the final outcome of the PRC Action No 1 i.e. the Forged Agreement[8] led to [the Ds] commencing [PRC Action No 1] in December 2010 against [the plaintiff] (with [the Company] as the third party) in the [Hubei Court], whichever is sooner” (“Stay Order”), and a costs order nisi that the plaintiff shall pay the Ds costs of the Summons including costs reserved together with certificate for two counsel (“Cost Order”) (collectively, “Order”). 21.The Decision/Order meant that although Master Levy took the view there was material non-disclosure of the PRC Actions in the plaintiff’s applications for leave to serve out of jurisdiction and for substituted service, she refused to set aside the Leave to Serve Out Order and the Overseas Service on the basis that Hong Kong would be the appropriate forum for the present action and there would be little prejudice to the Ds who had acknowledged service. The only contention by the Ds that ultimately found favour with Master Levy concerned the impact of the outcome of PRC Action No 1 on the present action. The learned master took the view that “the texture of this claim in terms of the heads of claim and nature of the defence will likely be affected by the outcome of the PRC Action No 1”, and after weighing up the “pros and cons” she decided to grant the Stay Order. 22.On 13 May 2013, the plaintiff filed their Notice of Appeal against the Stay and Cost Orders (“Appeal”), and applied for an order that (a) the Stay Order be set aside and (b) the Ds to pay the costs of the Appeal (together with the costs of the Summons) to the plaintiff. 23.For the purpose of the Appeal, the plaintiff filed Mr Chan’s 9th, 10th, 11th and 12th affidavits respectively on 14 June, 26 June, 7 August and 28 August 2013, and the Ds filed the 1st and 2nd affirmations of the Ds’ solicitor Chu Hak Ha Mimi respectively on 21 June and 23 August 2013. Both Mr Ho SC (with him Ms Cheng), counsel for the plaintiff, and Mr Lam SC (with him Ms Ip), counsel for the Ds, agreed that these affidavits/ affirmations should be adduced for the purpose of the Appeal. 24.The Appeal came before me on 27 June 2013 (“1st Hearing”). Counsel’s submissions took longer than expected, and the hearing was only completed on 30 August 2013 (“2nd Hearing”). II. Ds’ CROSS-APPEAL 25.The Ds did not file any Notice of Appeal or cross-appeal against the Order. But after Mr Ho SC lodged his written skeleton submissions for the Appeal against the Stay and Cost Orders on 24 June 2013 (“Ho Submissions”), Mr Lam SC by his written skeleton submissions dated 25 June 2013 (“Lam Submissions”) set out the Ds’ position, ie a permanent stay should be granted or alternatively, the Order should be upheld. But at the 1st Hearing Mr Lam SC conceded that the Ds would not seek any permanent stay. This must be right since the Summons did not ask for such relief in the first place, and it never featured in the Decision/Order. But a careful study of the Lam Submissions (as confirmed by Mr Lam SC at the 1st and 2nd Hearings) showed that the Ds’ position went beyond upholding the Order. In fact, they positively sought to overturn the Service Order (which was not a subject matter of the Appeal) by asking the court to set aside the Leave to Serve Out Order and the Overseas Service on the grounds of material non-disclosure and forum non-conveniens of the local courts. 26.The plaintiff’s Notice of Appeal was issued on 13 May 2013 (ie three days after the Decision was handed down). Before the Lam Submissions were lodged with the court just two days before the 1st Hearing, the Ds did not give any notice whatsoever, whether formally or otherwise, of their intention to re-open arguments on the grounds of material non-disclosure and forum non-conveniens and/or to ask for an order to set aside the Leave to Serve Out Order and the Overseas Service (which in effect was to appeal against the Service Order). The question here is whether the Ds should be permitted to do so without filing any notice of appeal and/or without giving any notice to appeal until the Lam Submissions. 27.It is trite that an appeal from a master to judge in chambers is dealt with by an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him/her for the first time. The judge will give the weight it deserves to the previous decision of the master; but he/she is in no way bound by it.[9] 28.Mr Ho SC in his submissions in reply lodged on the day following the Lam Submissions (or, to put it in another way, on the day just before the 1st Hearing) (“Ho Reply Submissions”) noted even though there was no provision for formal notice of cross-appeal under Order 58 of the Rules of the High Court (“RHC”), long established good practice required that notice be given (to inform/assist the other side and the court and to reduce the risk of embarrassment and/or being taken by surprise) that a party would in fact be seeking an order different to that made by the master. For example, “where a defendant appeals against a master’s order under O 14 giving conditional leave to defend, and the judge is satisfied that there is no defence to the action, he may properly give summary judgment for the plaintiff notwithstanding that no formal notice of cross-appeal has been given by the plaintiff ……”[10] 29.In Chinakong Manufactory Ltd v Uniden Hong Kong Ltd,[11] the plaintiff applied for summary judgment, and the master granted conditional leave to defend. The plaintiff appealed. The defendant did not, but later sought leave to appeal out of time. Kaplan J said as follows:[12]
30.Mr Ho SC submitted that whilst there was all the more reason not to condone any deliberate attempt to defy such requirement after the Civil Justice Reform (“CJR”), the present situation was quite unlike an Order 14 application with the possibility of different results (eg summary judgment, condition leave to defend or unconditional leave to defend). Mr Ho SC argued that here the Service and Stay Orders were made on different juridical bases such that the plaintiff’s challenge against the Stay Order would not open the backdoor for the Ds to revisit the Service Order. Mr Ho SC therefore submitted that the court should not entertain the Ds’ contentions for setting aside the Leave to Serve Out Order and the Overseas Service, but should the court do so, the order for costs should reflect the court’s disapproval of the Ds’ deliberate/open flouting of the good practice to give notice to the other party and the court. 31.Mr Lam SC accepted there was no good reason for the departure from the proper and usual practice of giving notice. Although Mr Lam SC agreed the juridical bases of the Stay and Service Orders were relevant considerations, and the reliefs in paragraph 10(a)-(b) above (which resulted in the Service Order) and the relief in paragraph 10(c) above (which resulted in the Stay Order) were said to be in the alternative, he reminded that the subject matter underpinning such orders (being the transfer of the shares of the Company from the Ds to the plaintiff) was not wholly separate or distinct. He further submitted there would be no surprise, embarrassment or unfairness since the Ds’ challenge against the Service Order merely revisited arguments raised before Master Levy, and the plaintiff managed to lodge the Ho Reply Submissions. An appeal against a master’s decision was by way of rehearing, so it was suggested that failure to give prior notice would (and should) not have the drastic consequence of preventing the Ds from challenging the Service Order at the Appeal. 32.But in my view, if a master granted orders on juridically distinct applications at a hearing and a party appealed against the outcome of only one such application, the other party will have to file an independent appeal or cross-appeal if he intends to challenge the outcome(s) of the other juridically distinct application(s). A respondent to an appeal against an aspect of a master’s order granting, say, leave to inspect property cannot without more challenge another aspect of such order requiring, say, security for costs. This falls outside the situation contemplated in Chinakong Manufactory Ltd which considered the possibility of different outcomes for the order already under appeal by the appellant. I bear in mind Kaplan J’s observation that formal cross-appeal was not required was confined to the “circumstances such as those before [him]”. 33.In my view, if an appeal is from part only of the order made by the master below, the whole of the order, or at least the other part of the order premised on different juridical basis, is not open to the respondent who should independently present an appeal under Order 58 of the RHC if he desires to review the whole order or the other part of the order premised on different juridical basis. In doing so, the respondent does not merely defend (or seek a different result in respect of) the part of the order under appeal by the appellant, he actually seeks to improve the overall result in his favour by re-opening other parts of the order not under appeal by the appellant. Such approach gives a purposive and reasonable construction of the scheme created under Order 58 of the RHC, which must now be viewed through the prism of the CJR and the underlying objectives with their emphasis on justice and efficiency.[13] In such circumstances, the good practice in Chinakong Manufactory Ltd (which, as explained above, caters for a different scenario) is not enough. 34.Plainly, the Ds here went beyond either defending the Stay and Cost Orders (being the orders under appeal by the plaintiff) on further/other grounds or seeking a different result in respect of such orders. The Ds were in fact trying to improve the overall result in their favour by seeking to overturn Master Levy’s other order which was not the subject of appeal by any party (ie the Service Order). 35.But the Service and Stay Orders were grounded on different juridical basis. The application that resulted in the Service Order[14] sought to set aside the leave granted to serve a CAWoS out of jurisdiction and the Overseas Service (which the Ds disputed on the grounds of material non-disclosure and forum non-conveniens at the Master Hearing), and the application that resulted in the Stay Order[15] was premised on the alternative footing that the Leave to Serve Out Order and the Overseas Service would not be set aside but the present action would be temporarily put on hold pending the resolution of PRC Action No 1 or the expiry of six months, whichever was earlier. The juridical distinction between the two is evident from the fact that if the Service Order was to be set aside (as the Ds suggested), the present action simply could not proceed and the appeal against the Stay Order would become redundant. It is also reflected in the Ds’ stance vis-à-vis the Undertakings,[16] ie the Undertakings would remain effective until further order including the period of interim stay under the Stay Order, but they would lapse if the Leave to Serve Out Order and/or the Overseas Service were to be set aside (since there would be no inter partes proceedings for the Undertakings to bite). In my view, the Ds’ challenge against the Service Order is in reality an appeal on a separate cause, ie a cross-appeal against the outcome of a juridically different application. 36.There are wider ramifications. The post-CJR era recognises the importance of both procedural fairness and substantive justice, and one looks more keenly to having cards on the table. A last-minute approach puts undue and possibly unfair pressure on the appellant to scramble up a proper response to any late challenge slipped in via the respondent’s written submissions two days before the appeal hearing.[17] This is important because the appellant’s written submissions should state all the points which he intends to take, and a point not taken or an argument not advanced in his written submissions may not be pursued at the appeal hearing without leave of the court.[18] For the present Appeal, it is only through fortuity that Mr Ho SC (no doubt with the able assistance of Ms Cheng) had the time and opportunity to lodge/serve the Ho Reply Submissions at the only available time window immediately after receipt of the Lam Submissions, ie on the day before the hearing of the Appeal. 37.Still further, the plaintiff as appellant in scheduling the hearing of the Appeal against the Stay and Cost Orders would not be able to foretell the Ds’ undisclosed but intended challenge against the Service Order. As a result of the Ds’ last minute challenge against the Service Order, the Appeal could not be disposed of at the 1st Hearing and had to be adjourned, which was unfair not only for the plaintiff who had to suffer unexpected delay caused by adjournment of the Appeal hearing but also for other court users who also had legitimate demands on the court’s finite resources. 38.In my view, the Ds not having filed any appeal against the Service Order (nor having given notice of any such intention) were not entitled to challenge and/or appeal against the Service Order simply by way of the Lam Submissions and Mr Lam SC’s oral submissions at the 1st and 2nd Hearings. But since I have heard arguments on de bene esse basis, I will proceed to consider the merits of such challenge on the assumption (which I disagree) that the Ds were entitled to raise such challenge. But before I do so, I set out below a summary of the plaintiff’s claim (drawn largely from the RASoC and, where appropriate, the plaintiff’s affidavit evidence) to put the Appeal in context. III. PLAINTIFF’S CLAIM 39.The plaintiff claimed that on 2 December 2003 Zhou/Wang caused the Company to be incorporated in Mainland China. On the same day, the Company was granted the right to operate the Market. On 27 April 2008, Wang acquired 70% equity in the Company by purchasing D2’s 45% interest and Wuhan Jinding Real Estate Development Co Ltd’s 25% interest. Until 5 December 2007, Wang, D2 and Wuhan Chuangjie Investment Co Ltd (“Wuhan Chuangjie”) respectively held 70%, 20% and 10% equity in the Company. In the 2nd SPA,[19] D2 claimed they were the beneficial owner of 10% equity in the Company held by Wuhan Chuangjie. The plaintiff claimed that as at 2 May 2007, the five directors of the Company (including Zhou) were under the control of Wang, D2 and Zhou and/or acted as their nominees, and the Company remained under the control of Zhou/Wang. 40.On 2 May 2007, the plaintiff entered into two sale and purchase agreements with Wang and D2 to acquire 70% and 30% equity in the Company for HK$900,000,000.00 and HK$384,000,000.00 respectively. On 10 May 2007, Wang and the plaintiff entered into a supplemental agreement whereby the parties agreed to amend inter alia clause 8.1 of the sale and purchase agreement (“1st SPA Amendment”), and D2 and the plaintiff entered into a supplemental agreement whereby the parties agreed to amend the sale and purchase agreement to the effect that the plaintiff agreed to purchase and D2 agreed to sell 20% (instead of 30%) equity in the Company for a consideration of HK$256,000,000.00 to be paid by way of the 2nd Instrument (“2nd SPA Amendment”). The sale and purchase agreement between the plaintiff and Wang and the 1st SPA Amendment shall be referred to as “1st SPA”, and the sale and purchase agreement between the plaintiff and D2 and the 2nd SPA Amendment shall be referred to as the “2nd SPA” (collectively, “SPAs”). Each of the SPAs was subsequently supplemented by five supplemental agreements. 41.The SPAs were executed in Hong Kong and governed by Hong Kong law, and the parties thereto agreed to submit to the non-exclusive jurisdiction of the Hong Kong courts.[20] Despite the Ds’ allegations disputing the PRC Agt[21] and the MOFCOM Approval[22] discussed below, at the 1st and 2nd Hearings Mr Lam SC confirmed that the Ds accepted the genuineness of the SPAs and the supplemental agreements. 42.On 15 June 2007, as part of the scheme to inter alia allow the plaintiff to gain dominant control over and to operate the Company/Market, Zhou/Wang procured Wuhan Chuangjie to enter into a Sino-foreign equity joint venture (“JV Agreement”) with the plaintiff. On the same day, pursuant to the JV Agreement, on the advice of the existing directors of the Company and on the suggestion by the Ds, the plaintiff appointed Zhou and some of the existing directors to the Company’s board, and they remained as directors of the Company until 12 August 2010. The plaintiff claimed these appointed directors were subsequently discovered to be under the de facto control of the Ds/Zhou and/or acted as their de facto nominees. 43.Upon/after the completion of the SPAs on 5 December 2007 (ie the agreed long-stop completion date (遠期終止日), “Completion Date”),[23] the plaintiff paid the consideration for the SPAs by cash, convertible notes (換股票據) (which were subsequently converted into shares in the plaintiff on 10 January 2008) and by executing two instruments bearing the description of “promissory note” (承付票據) in favour of Wang and D2 respectively (ie the Instruments).[24] The Instruments, which were governed by Hong Kong law, were executed in Hong Kong, and on their face were supposed to fall due for payment on 5 December 2012.[25] It was the plaintiff’s case that they had become the lawful owner of 90% equity of the Company (“Shares”) pursuant to the SPAs. 44.The Company’s management accounts were attached to schedule 2 of both SPAs, and the Ds gave warranties under the SPAs relating to such management accounts and the financial information therein. Clause 6.3 of both SPAs (“Indemnity Clause”) provided a contractual basis upon which the Ds were to indemnify the plaintiff on demand and in cash in the event that any of the Ds’ warranties in the SPAs were broken, untrue and/or misleading. 45.The plaintiff claimed that in fact the 1st Instrument was neither a promissory note nor a bill of exchange in law. Further, clause 3.2(d) and 8.1 of the 1st SPA (as amended by clauses 2.1(b) of the 1st SPA Amendment) (“Profit Guarantee Clause”), clauses 2 and 4 of schedule 6 of the 1st SPA and clause 4 of the 1st Instrument provided that (a) should the Company’s net profit be less than HK$150,000,000.00 for the year ended 31 December 2007 (“Profit Guarantee Period”), the net profit shortfall shall be deducted from the amount stated in the 1st Instrument, and (b) for the avoidance of doubt, if the Company suffered a net loss within the Profit Guarantee Period, the plaintiff would be entitled to be indemnified by Wang for the outstanding amount after deducting HK$150,000,000.00 from the 1st Instrument, which Wang shall pay upon receipt of notice of the same (“Profit Guarantee”). 46.The plaintiff claimed it was discovered in/about October 2008 that Wang and/or D2 had set up and indirectly owned/operated a market situated next to and in direct competition with the Market (“Competing Market”). Subsequent to the signing/completion of the SPAs, Wang/Zhou continued to dominate the Company through their influence over the Company’s management and refused to relinquish their control over the Company and their financial information/documents. Between February and May 2009, the plaintiff experienced difficulties in trying to get control over the Company/Market from the former management and to obtain access to the Company’s financial information/documents. From June 2009 to February 2010, they had difficulties in registering the Company’s new directors with the relevant PRC government authorities, and only managed to do so and to obtain the Company’s chops in August/September 2010 after intervention by the relevant PRC government authorities. The plaintiff claimed that on 1 November 2009, with the help of the PRC government authorities, physical control of the Market was finally handed over to them and/or the Company. The plaintiff also obtained access to the Company’s financial information/documents in November 2009. 47.After the plaintiff took over the management/control of the Company, Mr CH Chan caused the plaintiff to engage investigators and experts to look into the financial information/documents of the Company, including the information presented in the management accounts that were attached to the SPAs. The plaintiff claimed that such investigations revealed breaches of the SPAs and various fraudulent acts which formed the basis of the present action. 48.The plaintiff claimed that by engaging in a business which competed/competes with the Company, ie the Competing Market, the Ds were in breach of the terms of and warranties in the SPAs.[26] The plaintiff claimed for loss of profits as a result of such breach or alternatively for an order that the Ds shall indemnify them on demand and in cash for a sum to be assessed under the Indemnity Clause (“Ds Indemnity Order”) and for an account of the profits earned by the Competing Market. 49.The plaintiff also claimed that Wang failed to use her best endeavours to assist the plaintiff/Company to obtain land use certificates for the 318 acres of land neighbouring the registered address of the Company (which were not yet in use),[27] and as a result the Company did/does not have good title and/or valid rights to such land. In the circumstances, Wang was in breach of the 1st SPA,[28] and the plaintiff claimed for loss and damages being the cost of bidding for such land from the PRC government (including the market value of such land and stamp duty) less fees up to RMB100,000,000.00 to be borne by the Company,[29] and for an order that Wang shall on demand indemnify the plaintiff in cash for a sum to be assessed under the Indemnity Clause (“Wang Indemnity Order”). 50.The plaintiff claimed that Wang failed to use her best endeavours to assist the plaintiff/Company to obtain the property ownership certificates for any of the buildings constructed in the Market that were/are used by the Company, which resulted in such buildings being considered as illegal constructions. The plaintiff claimed Wang was therefore in breach of the 1st SPA,[30] and further claimed for loss and damages being penalty costs payable to the PRC government for the illegal constructions and for a Wang Indemnity Order. 51.The plaintiff claimed there were buildings constructed/used by the Company before the completion of the SPAs that were illegally built on public roads, and Wang was therefore in breach of the 1st SPA[31] and D2 was in breach of the 2nd SPA.[32] The plaintiff claimed for loss and damages being expenses for demolition of such buildings that were illegally built on public roads, and for a Ds Indemnity Order. 52.The plaintiff claimed that upon investigation into and verification of the management accounts attached to the SPAs, the Company’s other accounting books/records and/or financial information supplied to the plaintiff, it was discovered that (a) the assets of the Company as stated in such management accounts had been falsely inflated by reason of the payment of inflated/fictitious construction costs to third parties, and (b) two items of income stated in such management accounts were not genuine. The plaintiff further claimed that Wang was in breach of the 1st SPA,[33] and D2 was in breach of the 2nd SPA.[34] The plaintiff claimed for loss and damages suffered due to the diminution in value of the Shares, and for a Ds Indemnity Order. 53.The plaintiff claimed the Ds made fraudulent representations as to certain purported construction costs and income in the aforesaid management accounts with a view to induce them to purchase (and in reliance upon such representations they did purchase) the Shares for the consideration as stated in the SPAs. The plaintiff claimed for loss and damage as they would have paid substantially less than the stated consideration for the Shares. 54.The plaintiff claimed the Ds were not entitled to enforce (and should be restrained from enforcing) payment under the Instruments by presenting them to the plaintiff or otherwise. If and insofar as the Ds were to succeed in obtaining judgment against the plaintiff in PRC Action No 1 and in reversing the transfer of the Shares by the Ds to the plaintiff, the Ds would not be entitled to enforce the Instruments which were executed by the plaintiff in consideration for the Shares. Further, by reason of the operation of the Indemnity Clause, the Ds were liable to the plaintiff for a sum to be ordered by the court. 55.The plaintiff claimed that certain purported payments to the Company derived from various agreements between the Company and certain third parties were recorded in the Company’s accounts as income for the Profit Guarantee Period when they should not be, so such purported income should be disregarded in ascertaining the audited net profit of the Company for the Profit Guarantee Period. Further, the total construction costs as valued to have been paid by the Company were substantially less than the total construction costs purportedly paid by the Company. About 67% of the purported construction costs for the Profit Guarantee Period were paid to only two entities, and a substantial part of such purported construction costs was in fact not paid in consideration of genuine construction works for the Company. Accounting adjustments should be made to write down the assets of the Company for the Profit Guarantee Period back to its fair value, which would have an adverse impact on the profits of the Company. By reason of the aforesaid, the plaintiff was entitled to a declaration against Wang that the 1st Instrument be set-off against the net profit shortfall of the Company under the Profit Guarantee for the Profit Guarantee Period. IV. SPAs AND INSTRUMENTS 56.I set out below some of the relevant terms and conditions of the 1st SPA (with corresponding provisions of the 2nd SPA):
57.The relevant terms of the Instruments were as follows:
58.I now turn to the allegedly forged agreement which featured in PRC Action No 1. V. ALLEGEDLY FORGED AGREEMENT 59.Mr Tao claimed that the transfer of the Shares from the Ds to the plaintiff was subject to stringent approval process by the PRC Ministry of Commerce (“MOFCOM”), and there would be considerable difficulty because the consideration under the SPAs involved the issuance of the Instruments and convertible notes by the plaintiff as a foreign investor (外國投資者) in exchange for equity in the Company which was a PRC company (境內企業). Mr Tao further claimed that the Company with the knowledge of the plaintiff’s then management procured the Company’s personnel to forge a share transfer agreement dated 2 May 2007 (“PRC Agt”) for the purpose of submitting the same to MOFCOM for approval so as to avoid tax liability and the uncertainty/delay due to MOFCOM’s approval process for the SPAs. But Mr Lam SC submitted that for the present purpose it was sufficient for the Ds to proceed on the basis that the PRC Agt was submitted to MOFCOM for approval “[for] whatever reasons”, and I need not be concerned with whether or not the forgery allegation could be made out in due course. 60.On the face of the PRC Agt, the parties were the plaintiff as purchaser (“乙方”) and the Ds as vendors (“甲方”). The PRC Agt purported to be a sale and purchase agreement whereby the Ds agreed to sell and the plaintiff agreed to buy the Shares for a consideration of RMB89,817,930.00:
61.The Ds claimed there were five areas in the PRC Agt which were different from what was agreed under the SPAs:
62.On/about 26 November 2007 (ie before the long-stop Completion Date on 5 December 2007), MOFCOM approved the plaintiff’s acquisition of the Shares (“MOFCOM Approval”)[37] on the basis of the PRC Agt. VI. PRC ACTION NO 1 63.In/about December 2010, the Ds commenced PRC Action No 1 in the Hubei Court against the plaintiff with the Company joined as a third party (第三人). In the Statement of Claim (民事起訴狀) filed by the Ds, they claimed inter alia that because of MOFCOM’s stringent approval process the plaintiff permitted/acquiesced in (a) making/forging the PRC Agt (with false contents) by the Company’s personnel and (b) submitting the PRC Agt (with other forged documents) to MOFCOM for approval, and pursuant to the MOFCOM Approval so obtained the plaintiff with the cooperation of the Company registered change of shareholdings of the Company with the PRC authorities. The Ds applied inter alia for the following reliefs:
64.The plaintiff and the Company filed their respective Defence on 4 and 5 June 2012. The plaintiff’s Defence dated 4 June 2012 averred inter alia as follows:
65.On 5 June 2012, PRC Action No 1 was heard by the Hubei Court, but judgment was still pending. VII. PRC ACTION NO 2 66.Mr Lam SC submitted, as he did before Master Levy, that the Ds would mainly rely on PRC Action No 1, but he would refer to PRC Action No 2 for the sake of completeness. 67.In/about April 2011, the plaintiff and the Company commenced PRC Action No 2 by filing the Statement of Claim (民事起訴狀).[40] On 23 August 2011, the plaintiff and the Company made an Application for Amendment of Claim (變更訴訟請求申請書). According to the Amended Claim, the Company and the plaintiff sued the Ds and others in their capacity as persons/entities formerly in control of the Company, and alleged that Tianheng executed an “assignment agreement” (租賃承包經營合同書) with the Company on 10 February 2009 (“Assignment Agreement”) that purportedly granted Tianheng the right to operate the Market for 20 years at an annual fee of RMB40,000,000.00. The Company and the plaintiff sought an order that the defendants:
68.In PRC Action No 2, D2 also had a Counterclaim (民事反訴狀) dated 2 May 2012 together with an Application for Additional Counterclaim (增加反訴請求申請書) dated 2 July 2012 and an Application for Amendment of Counterclaim (變更反訴請求申請書) dated 25 July 2012. What happened was that D2 initially counterclaimed for an order that the PRC Agt was null and void and that the plaintiff was to return the Shares, but they subsequently applied to withdraw such counterclaim because the reliefs sought thereunder were already covered by their claims in PRC Action No 1. In September 2012, the plaintiff and the Company respectively submitted their Defence to Counterclaim (答辯狀). A hearing before the Hubei Court took place on 12 September 2012. VIII. PRC EXPERT OPINION 69.The plaintiff obtained various expert reports on PRC law by their (and the Company’s) PRC legal representatives Zhong Lun Law Firm (“ZL”), and the Ds also obtained various such reports by their PRC legal representatives Jincheng Tongda & Neal Law Firm (“JTN”). Master Levy noted there was divergence of views between ZL and JTN on a number of matters, including: “the probabilities of the transfer of the Shares being declared invalid in the PRC Action No 1; whether the subject matter of this action and the PRC Action No 1 is the same; the chance of the Forged Agreement [ie the PRC Agt] being found void; whether there was an overlap of issues between this action and the PRC Actions; the impact of the PRC Action No 1 on the legality of the plaintiff’s shareholding in the Company; the chance of the PRC courts exercising jurisdiction over the dispute, and the prospect of success of the PRC Actions etc.”[41] The learned master took the view that it was not appropriate or necessary to rely on the opinion evidence of the PRC lawyers, and she was disinclined to give consideration to such evidence. For the Appeal, both Mr Ho SC and Mr Lam SC agreed it would not be appropriate for me to resolve the differences of opinion on PRC law save to note there was divergence of views and the outcome of the PRC Actions could not be predicted. In a nutshell, ZL considered that the likelihood of the PRC Agt being declared void and the transfer of the Shares being reversed by the Huebi Court was relatively low, but JTN opined there was a high likelihood. IX. ADMINISTRATIVE COMPLAINT TO MOFCOM 70.For completeness, I should mention that on/about 7 September 2011 the Ds filed an administrative complaint in relation to the validity of the PRC Agt with the MOFCOM against the plaintiff. X. PROGRESS OF THE PRC ACTIONS 71.In late May 2013, the Hubei Court replaced the original panel of three judges for PRC Action No 1 with a reconstituted court consisting of five judges. On 31 May 2013, ZL collected 《開庭傳票》, 《出庭通知書》and《舉証通知書》from the Hubei Court that notified a hearing of PRC Action No 1 on 10 July 2013 with fresh opportunity to adduce evidence, but ZL advised “暫無新的証據補充提交”. 72.On 31 May 2013, ZL reported that the presiding judges “確認需要重新完成全部審理流程”, and “根據 [ZL] 以往的經驗，預計 [PRC Action No 1]完成開庭程序需要花費較長的時間 。…… 由於[PRC Action No 1]屬於涉外民事案件，因此，該案件無審理期限限制。此外，[PRC Action No 1]已被[the Hubei Court]列為重大疑難復雜案件，組成五人合議庭對案件進行審理，因此新的合議庭很可能會花費更多時間了解案情”. ZL opined it might take up to five years or more before judgment would be delivered in PRC Action No 1. As regards PRC Action No 2, ZL understood the Hubei Court “已將 [PRC Action No 2] 列為2012年度標的額最大的案件，且 [the Hubei Court] 一直將 [the PRC Actions] 結合審理。由於 [PRC Action No 1] 需重新開庭，且短期內難做出判決，[ZL]預計 [PRC Action No 2] 如開庭，其開庭時間在 [PRC Action No 1] 開庭之後。并新合議庭將會投入更多時間審理該案件，…… 預計 [PRC Action No 2] 完成開庭程序、作出判決的時間應遲於 [PRC Action No 1]”. 73.According to JTN’s legal opinion dated 20 June 2013, the Hubei Court had not expressly or implicitly designated the PRC Actions as “重大疑難複雜案件” which was not known to PRC law. In respect of PRC Action No 1, the Ds would not submit new evidence, so if both parties would not adduce new evidence at the hearing on 10 July 2013, “新組成的合議庭會在原合議庭組成人員審理情況的基礎上進行審理”, so even though the new presiding judges “重新開庭進行全部審理流程 ……; 但 …… 鑒於前期已進行審理，如雙方無新的證據提交，庭審過程 ……會比較快地進行。根據上一次審訊經驗，整個庭審過程基本可以在一天內完成”. According to “《最高人民法院案件審限管理規定》第10 條，涉外、涉港、澳、台民事案件應當在庭審結束三個月內結案”, hence the Hubei Court “應在[PRC Action No 1]庭審結束後三個月內及時審理結案，出具判决 ……”. Further, JTN said they had not received notice from the Hubei Court that the PRC Actions had been consolidated, so PRC Action No 1 “的判決基本不會受 [PRC Action No 2] 審理程序影響”. 74.On 26 June 2013, ZL responded to the major points raised by JTN by (a) setting out the basis on which they claimed the PRC Actions were designated as “重大疑難複雜案件”, and (b) confirming the likelihood of the hearing of PRC Action No 1 would not be completed within a day, “合議庭仍有可能根據案件審理需要，要求當事人補充材料，或重新開庭進行調查等”. ZL opined that despite the provisions in “《最高人民法院案件審限管理規定》第10 條”, there was nothing to show that the hearing on 10 July 2013 would be the last hearing. In any event, the Hubei Court had not handed down its judgment in PRC Action No 1 for more than three months since the hearing on 5 June 2012. ZL therefore opined that PRC Action No 1 “於2013 年7 月10 日結束庭審的可能性較低， [the Hubei Court] 在三個月內作出判決可能性較低。法院 …… 可能花費比一般涉外案件更長的時間來審理 [the PRC Actions]”. 75.In August 2013, ZL[42] and JTN[43] respectively reported on the hearing of PRC Action No 1 on 10 July 2013. There was no dispute that at such hearing the Ds abandoned their claim for payment of “已確定的2008 年度應得利潤分配損失”, hence “現訴訟請求僅為請求確認 [the PRC Agt] 無效”. At the hearing, the Hubei Court also requested the parties to submit further evidence as follows:
76.ZL opined that “雙方按照合議庭定時間提交補充材料後，合議庭將依法進行審查。此外，考慮到此次合議庭要求提交資料較多，且 [PRC Action No 1] 案情複雜，合議庭 …… 可能會花費比一般涉外案件更長的時間對該案件進行審理”. On the other hand, JTN claimed that “法庭已明確表明將擇期判決” and “法庭從未明示或暗示本案件再次安排開庭，也從未表示本案尚存有未經審理清楚之問題”. But ZL disagreed and claimed that “合議庭並未表示將擇日作出判決”. XI. PRC ACTIONS AND PRESENT ACTION 77.A running theme throughout the Appeal against the Stay Order and the Ds’ challenge against the Service Order was whether the subject matter of PRC Action No 1 (and to a lesser extent PRC Action No 2) was the same as (or similar to) or was different from that of the present action, and whether and if so how the outcome of PRC Action No 1 (and to a lesser extent PRC Action No 2) would impact on the present action. I propose to first deal with this matter. 78.Mr Ho SC argued there was no overlap of issues between the PRC Actions and the present action, and that the present action had a life of its own such that its continuation would not be oppressive or unjust to the Ds. 79.In respect of PRC Action No 1, Mr Ho SC pointed out that the subject matter of such action (which concerned the PRC Agt and its validity) and that of the present action (which concerned the SPAs and the parties’ rights/obligations thereunder) were clearly different. He submitted that the Ds’ forgery allegation was directed solely at the PRC Agt, and they accepted the genuineness of the SPAs which were not canvassed at all in PRC Action No 1. Further, the reliefs sought in the present action for inter alia damages and indemnity for breaches of the terms of and warranties in the SPAs (including the Profit Guarantee Clause) and for Ds’ misrepresentations that induced the plaintiff to purchase the Shares for the consideration stated in the SPAs, and injunction orders in relation to the Instruments executed in Hong Kong and governed by and to be interpreted according to Hong Kong law, and those sought in PRC Action No 1 for the revocation of the PRC Agt, avoidance of the MOFCOM Approval and reversal of the transfer of the Shares were also distinctly different. Indeed, the governing law of the SPAs (ie Hong Kong law) and that of the PRC Agt (ie PRC law) were different, and the SPAs had a non-exclusive Hong Kong jurisdiction clause whilst the PRC Agt had a PRC jurisdiction clause. 80.In respect of PRC Action No 2, Mr Ho SC submitted there was also no identity of subject matter between such action (which primarily concerned claims by the plaintiff and the Company against inter alia the Ds and others being former directors previously in control of the Company and Tianheng being the company that purportedly executed the Assignment Agreement with the Company[44] for losses suffered by the Company after 31 December 2007)[45] and the present action (which primarily concerned claims by the plaintiff as purchaser of the Shares against the Ds as vendors of those Shares for losses suffered before 31 December 2007). 81.On the other hand, Mr Lam SC submitted that it was the PRC Agt and not the SPAs that was approved by MOFCOM, and those two agreements were mutually incompatible since they bore the same date and purportedly dealt with the same subject matter (ie the sale of the Shares) by the same vendors (ie the Ds) and the same purchaser (ie the plaintiff). He submitted it was impossible for the same vendors to sell the same subject matter to the same purchaser on the same date but for a different consideration and on different terms, especially when each agreement contained an entire agreement clause.[46] Yet, the plaintiff relied on the SPAs in the present action and inconsistently alleged in PRC Action No 1 that the PRC Agt was not forged and that the transfer of the Shares was properly effected pursuant thereto. 82.It was the Ds’ case that MOFCOM would not have approved the SPAs since the consideration therein included cash payment, convertible notes and the Instruments contrary to the provisions/practice of the relevant authority, and this led to the forgery of the PRC Agt for the purpose of seeking the MOFCOM Approval, which approval was void and should be revoked.[47] Mr Lam SC submitted that the plaintiff’s defence in PRC Action No 1 merely referred to additional provisions in the SPAs on obligations beyond the transfer of the Shares, but failed to explain why two agreements of the same date would deal with the same subject matter on different terms.[48] He claimed that despite the superficial attraction of the suggestion that PRC Action No 1 and the present action involved different “subject matter” (ie the PRC Agt and the SPAs respectively), in substance they concerned the same/similar matter, ie the transfer of the Shares. Mr Lam SC submitted that the legality of the plaintiff’s ownership of the Shares to be canvassed in PRC Action No 1 directly related to the present action because if the plaintiff never properly/validly held the Shares they should be returned to the Ds in which case the plaintiff could not sue the Ds for damages in respect of their control over the Company. 83.In this respect, Mr Lam SC argued that MOFCOM Approval being the only approval granted in respect of the transfer of the Shares was of the utmost significance since such approval was essential for the lawful transfer of the Shares.[49] It was said that although (a) the MOFCOM Approval had been obtained prior to the long-stop Completion Date and (b) the consideration specified in the SPAs had been paid over for the transfer of the Shares, as a result of the operation of clause 4.1(g) of the 1st SPA and clause 4.1(e) of the 2nd SPA (which provided that the approval by MOFCOM was a condition precedent for the execution/performance of the SPAs,[50] and that no waiver of such condition precedent was permitted),[51] if the Hubei Court in PRC Action No 1 were to declare the MOFCOM Approval invalid/ineffective and to revoke the same, and then go on to reverse the transfer of the Shares, there would be non-fulfillment of the aforesaid condition precedent and (save for a few specific provisions) the SPAs would cease to have legal effect.[52] Mr Lam SC argued there was no question of any “retrospective” triggering of clause 4.4 of the SPAs because (i) the MOFCOM Approval was granted in respect of the PRC Agt and not the SPAs, and (ii) completion under the SPAs was a question of fact that depended on fulfillment of the conditions precedent in the SPAs[53] and not on payment of the consideration which might occur at any time but no later than the time of completion.[54] 84.Mr Lam SC submitted that if the Hubei Court in PRC Action No 1 were to revoke the MOFCOM Approval, the Shares would revert to the Ds and the parties’ legal rights in respect of the SPAs would be entirely different from those pleaded in the RASoC that were premised on the plaintiff being the owner of the Shares. Instead, subject to any claim for potential set-off by the Ds, the plaintiff might then be entitled to recover the consideration already paid on the basis of total failure of consideration, but their existing claims in the present action founded on breaches of the SPAs (which agreements would not have survived save for a few specific provisions) and/or based on fraudulent misrepresentations would be unsustainable and liable to be struck out. Mr Lam SC noted that in any event paragraph 65 of the RASoC relied on an alternative case that if the Ds succeeded in PRC Action No 1 they would not be entitled to enforce payment under the Instruments executed by the plaintiff in consideration of the Shares.[55] 85.Mr Lam SC submitted that evidently the outcome of PRC Action No 1 would have direct relevance to the legal effect of the SPAs, and consequently a direct/significant impact on the plaintiff’s claim in the present action. He said this was not altered by the re-amendments in the RASoC which removed the allegation in paragraph 47 of the ASoC that the Ds produced the PRC Agt to avoid their obligations under the SPAs, which re-amendments Mr Tai suggested were to distance the present action from PRC Action No 1, but which, Mr Lam SC submitted, did nothing to alter the fundamental issue. 86.Mr Lam SC further argued that the above contentions would not turn on the chances of success of the Ds’ claim in PRC Action No 1 because the relevant consideration was not the merits of the Ds’ claim but whether the outcome of PRC Action No 1 (whether in favour of the plaintiff or the Ds) would have a material impact on the present action. If the Ds were to succeed, the judgment/findings would be binding on the parties (including the plaintiff). Should they fail, Mr Lam SC conceded the Ds could hardly re-argue those matters. Whilst Mr Lam SC accepted one had to look at the reliefs sought in the PRC Actions and the present action, he submitted that any determination and/or findings by the Hubei Court in PRC Action No 1 as to whether or not (a) the PRC Agt was forged, (b) the MOFCOM Approval was valid, and (c) the plaintiff remained as lawful owner of the Shares would amount to issue estoppel or res judicata between the plaintiff and the Ds, or at least it would be an abuse of process to re-litigate in substance those same issues as canvassed in PRC Action No 1. 87.In this respect, Mr Lam SC relied on the doctrine against abuse of process discussed in China North Industries Investment Ltd v Chum,[56] which was founded on an extension to the res judicata doctrine to circumstances where a collateral challenge to a previous “final” decision pronounced on the merits by a local or (with certain exceptions) a foreign court of competent jurisdiction offended the principles underlying the doctrine. Given the nature of the conditions precedent to an abuse finding, ie (a) manifest unfairness and/or (b) bringing the administration of justice into disrepute, the resolution of such issue would be highly fact sensitive, and the court would exercise such power (which had the effect of shutting out litigation) only after scrupulous examination of all circumstances. The burden of establishing abuse rested on the party that relied on the earlier decision. 88.On the facts of China North Industries Investment Co Ltd, it was held that the Hong Kong proceedings were an attempt to overturn a “final” determination in previous Bermudan proceedings on the very issue, ie the identical fundamental question, determined in those proceedings, and that such procedure offended the spirit of the rule of res judicata and constituted an abuse of process. 89.In respect of PRC Action No 2, the plaintiff and the Company complained of various wrongdoings committed by the Ds after the transfer of the Shares. Mr Lam SC submitted that although the specific allegations in the present action that overlapped with PRC Action No 2[57] had been removed in the ASoC, the allegation that the Ds hindered/prevented the plaintiff from gaining control of the Company/Market remained,[58] and the plaintiff continued to rely on the SPAs to assert their right to gain control of the Company/Market.[59] He submitted that determination of the issue as to the Assignment Agreement in PRC Action No 2 would be directly relevant to such issue and to inter alia the issue of whether there was any financial damage done to the Company and/or any inducement for overpayment for the Shares. 90.The Ds argued that it was disingenuous for the plaintiff to suggest that the nature of the present action and PRC Action No 2 was different because the capacities of the parties were different. In both actions, the plaintiff sued as the current owner of the Shares, and any challenge to their capacity or to the legal effect of the SPAs would inevitably have a direct impact on their claims, regardless of whether such claims related to damages suffered before or after 31 December 2007,[60] and regardless whether the Ds were sued as vendors of the Shares or as former directors of the Company. The plaintiff’s interest in both actions would be called into question if the transfer of the Shares had not been made with proper approval. 91.In my view, there is no doubt that on their face the present action and PRC Action No 1 are quite different.[61] As Mr Ho SC submitted, what the present action seeks to do is to ask the Hong Kong court to examine the plaintiff’s allegations as to misrepresentations and breaches of the terms of and the warranties in the SPAs such that if the Hong Kong court is with the plaintiff, the Ds will have to pay damages and to honour the Indemnity Clause. On the other hand, PRC Action No 1 deals with the alleged forgery of the PRC Agt and consequent impact on the MOFCOM Approval. So prima facie the present action and PRC Action No 1 deal with different matters, and indeed the reliefs sought in the present action are outside and not the subject of PRC Action No 1, eg the plaintiff’s claims in relation to the Instruments can only be litigated in the present action. 92.The rhetorical question is how PRC Action No 1 will affect the present action notwithstanding their prima facie differences. Mr Lam SC’s arguments that the outcome of PRC Action No 1 has significant impact on the present action boil down to his contention that both the Hong Kong and PRC proceedings share a common fundamental premise, ie the transfer of the Shares, but when the validity of that transfer becomes suspect (as a result of the alleged forgery of the PRC Agt that may lead to revocation of the MOFCOM Approval in PRC Action No 1) the underlying basis for the SPAs also becomes questionable, and the present action will also fall away as an infringement of the issue estoppel or res judicata principle or it will be an abuse of process for either party to run claims/defences contrary to the determination/findings in PRC Action No 1. 93.Such arguments must be placed in context. There is no dispute that (a) the MOFCOM Approval was obtained in November 2007 prior to the long-stop Completion Date on 5 December 2007, (b) completion had taken place on 5 December 2007, (c) upon completion the consideration had been paid over to the Ds and the Shares had been transferred to the plaintiff, and (d) both the plaintiff and the Ds had proceeded on the basis (or as if) that the relevant condition precedent[62] had been fulfilled and they had performed their respective obligations under the SPAs. 94.Mr Ho SC claimed that Mr Lam SC’s arguments were misconceived in that any order to revoke the MOFCOM Approval and/or to reverse the transfer of the Shares by the Hubei Court years after the completion of the SPAs did not mean that in the first place such approval had never been obtained and that such transfer had never taken place at all, and any such order also would not alter the fact that the plaintiff had complied with their obligations under the SPAs by payment of the cash consideration, execution of the Instruments and provision of the convertible notes (which were converted into shares in the plaintiff on 10 January 2008). Mr Ho SC suggested that even if the Hubei Court were to revoke the MOFCOM Approval in PRC Action No 1, it would not be open to the Ds to rely on clause 4.1(g) of the 1st SPA and clause 4.1(e) of the 2nd SPA to retrospectively trigger the operation of clause 4.4 of the SPAs for the SPAs to cease to have legal effect and for the transfer of the Shares to be invalidated. It was argued that despite clause 5.1 of the SPAs, such subsequent event could not possibly have the effect of unwinding the clock or rewriting history to achieve the effect as desired by the Ds. 95.Moreover, Mr Ho SC submitted that even if the PRC Agt and the MOFCOM Approval were to be set aside, the plaintiff’s claim in the present action in respect of the SPAs (the genuineness of which the Ds did not dispute) would not go away. It did not follow that in such circumstances the plaintiff would necessarily be confined to a claim on the SPAs based on total failure of consideration, and the plaintiff might well choose to enforce secondary obligations pursuant to the terms of the SPAs to claim for loss and damages or to put their claim in the alternative. The choice of cause of action and relief rested with the plaintiff, so it would be up to them to decide whether to sue on either basis or in the alternative. Once such flaw in the Ds’ argument was exposed, their entire case on the purported impact of PRC Action No 1 must fall away. So even if the Hubei Court were to decide PRC Action No 1 in the Ds’ favour, the plaintiff would still be entitled to maintain their claims in the present action for inter alia breaches of the terms of and the warranties in the SPAs and for fraudulent misrepresentations, and contrary to the Ds’ suggestion, such decision would not have any material impact on the present action. 96.I agree with Mr Ho SC that at this stage of the proceedings it is not possible to form a definitive view that should the Hubei Court decide PRC Action No 1 in favour of the Ds the plaintiff’s claim as pleaded in the RASoC would be so unsustainable that it is liable to be struck out. 97.In my view, even if the Hubei Court in PRC Action No 1 declares in due course the PRC Agt to be void ab initio due to forgery and on such basis reverses the transfer of the Shares, I am not persuaded that such finding will necessarily have the effect desired by the Ds of putting an end to the present action. After all, the transfer of the Shares is premised on the SPAs (the genuineness of which is not in dispute), and the completion under SPAs has taken place with the consideration paid over by the plaintiff and the Shares transferred over by the Ds. So apart from the issue of the MOFCOM Approval discussed below, I cannot say that simply a reversal of the transfer of the Shares by avoiding the PRC Agt will put an end to the present action premised on the SPAs. 98.But Mr Lam SC goes further to argue that the determination/ findings by the Hubei Court will constitute issue estoppel or res judicata so that plaintiff cannot maintain in the present action that the transfer of the Shares was valid, or at the very least it will be an abuse of process for the plaintiff to mount any collateral challenge against such determination/ finding in the present action. Again, if we put aside the matter of the MOFCOM Approval for the time being, I am not persuaded by such arguments. First, I believe a respectable argument can be made to the effect that any reversal of the transfer of the Shares based on a finding that the PRC Agt was forged may not amount to issue estoppel or res judicata against any assertion that such transfer is valid under the SPAs (which are admittedly genuine and which sale and purchase transaction had been completed). 99.Further, there has to be “final” decision by the Hubei Court to support the arguments of issue estoppel, res judicata and abuse of process. This point has not been raised by either counsel, but Mr Lam SC’s reliance on China North Industries Investment Ltd highlights this question for that case concerns the Hong Kong proceedings and a “final” judgment in the Bermudan proceedings. The state of the authorities suggests that whether PRC judgments are “final” is still an open question as can be seen from the following summary in my decision in 深圳市量子景順投資管理有限公司 v Huang Binghuang & anor:[63]
In the circumstances, there is doubt whether a reversal of the transfer of the Shares in PRC Action No 1 will necessarily put an end to the present action. 100.It is perhaps appropriate now to bring the MOFCOM Approval into consideration. Mr Lam SC argues that invalidation of the MOFCOM Approval by the Hubei Court in PRC Action No 1 will bring about the desired effect he suggests. But this is quite a different situation from one in which the parties fail to obtain approval by MOFCOM or such approval has been revoked before the long-stop Completion Date in which case the SPAs will simply cease to have effect and completion will not take place at all. Here, any revocation of the MOFCOM Approval will be made years after completion of the SPAs has taken place so that in the ensuing years the parties have altered their respective position by (a) the plaintiff paying over the consideration and the Ds transferring over the Shares, and (b) the plaintiff carrying on business as owner of the Shares and majority owner of the Company. Indeed, it is arguable whether such cancellation of the MOFCOM Approval years after completion will fall within the provision “如果在遠期終止日 …… 之前 [ie before the Completion Date]，第4.1條所列的任何先決條件未能被滿足 ……，或者第4.1(b)至(g) [或(e)]條中所列的先決條件在其他所有先決條件已被滿足或被放棄時未能實現，……” (my emphasis) under clause 4.4 of the SPAs to bring about the effect as suggested by the Ds. In any event, the consequence prescribed in clause 4.4 is that the SPAs “不再有任何效力” (my emphasis). In my view, it is at least arguable that such revocation of the MOFCOM Approval only affects the future and not past legal effect of the SPAs. That being the case, Mr Ho SC’s submissions that it will be up to the plaintiff to decide how to pursue their claim (whether for total failure of consideration or for damages or in the alternative) is at least arguable. 101.I agree with Mr Ho SC that at best it is for the Ds to plead any favourable outcome/finding in PRC Action No 1 in their Defence to the plaintiff’s claim in the present action and see what the Hong Kong court will say, but it is arguable that the factual allegations in the SPAs will still remain as the backbone of the plaintiff’s claim even though they may need to further plead and deal with any adverse outcome in PRC Action No 1. However, at this stage this court is not required to (and it is not possible to) come to any final view that the RASoC as pleaded is so unsustainable in light of any determination in PRC Action No 1 in favour of the Ds that it should be struck out, especially when the Ds have yet to articulate their substantive defence to the claims in the RASoC and when clause 17.1 of the SPAs provides that the SPAs are to be construed according to Hong Kong and not PRC law.[64] Also, this court is not in a position as yet to form any definitive view on the merits of the PRC Actions, and the Ds’ suggestions as to the weaknesses of the plaintiff’s defence in the PRC Actions merely indicate there are different views on the merits.[65] 102.Interestingly, at the 2nd Hearing when I queried what should I make of the Hubei Court’s intention to decide PRC Action No 1 according to PRC law and practice[66] even though it required the parties to produce the Statement of Claim in the present action and expert legal opinion on Hong Kong law for their reference, Mr Lam SC submitted that this was irrelevant because (a) PRC Action No 1 (and hence the Hubei Court) focused on the PRC Agt and not the SPAs and (b) no party had yet commenced proceedings or pursued claims in the PRC Actions concerning the SPAs. This acknowledgment of the difference of subject matter between the PRC Actions and the present action does not sit well with his other submissions on identity of parties and subject matters for these proceedings, and Mr Ho SC complained that the Ds should not be allowed to blow hot and cold. 103.In light of the above analysis, there is no need for me to consider Mr Ho SC’s further argument that even if clause 4.1(g) of the 1st SPA and clause 4.1(e) of the 2nd SPA have the effect as suggested by the Ds (which the plaintiff denies), such clauses (like the other condition precedents in clause 4 of the SPAs) are clearly inserted for the benefit of the plaintiff as purchaser of the Shares such that the plaintiff can waive such conditions and sue on the SPAs as if the conditions have occurred.[67] But such argument runs on thinner ice. Mr Lam SC submitted that it was not obvious why clause 4.1(g) of the 1st SPA and clause 4.1(e) of the 2nd SPA were inserted for the plaintiff’s sole benefit,[68] and he reminded that clause 4.2 of the SPAs expressly provided that the above condition precedent could not be waived. Further, the terms of the SPAs required any waiver to be in written form, and there was no evidence of any waiver (since it was the plaintiff’s case all along that the MOFCOM Approval had been validly obtained). The Ds also suggested that since they had exercised their right under clause 4.4 of the SPAs upon failure of the above condition precedent by filing the Statement of Claim in PRC Action No 1, it was too late for the plaintiff to rely on any waiver.[69] But as explained above, there is no need for me to consider these contentions. 104.I need only say a few words about PRC Action No 2 given the main focus of Mr Lam SC’s arguments on PRC Action No 1. Mr Ho SC submitted that PRC Action No 2 had nothing to do with the PRC Agt and it was commenced precisely as a result of Ds’ acts (along with the acts of other individuals formerly in the control of the Company) which caused loss and damages to the Company. Given Mr Lam SC’s arguments in respect of PRC Action No 2 that it involves the same issues as those (and that depends on the decision) in PRC Action No 1, and it therefore relates to the present action in the same manner as PRC Action No 1, and given my conclusions on the impact of PRC Action No 1 on the present action, I am not persuaded that PRC Action No 2 takes the Ds’ case much further. 105.Bearing in mind the above analysis, I turn to the Ds’ challenge against the Service Order. But first I set out below the affidavit evidence filed by the plaintiff for seeking the Leave to Serve Out Order and the Ho 1st Order. XII. LEAVE TO SERVE OUT ORDER AND HO 1ST ORDER 106.For the Leave to Serve Out Order, Mr Chan’s affidavit referred to the plaintiff, Wang, Zhou, D2, the Company and the SPAs, and summarised the plaintiff’s claim under the SoC. For the purpose of Order 11 rule 1 of the RHC, he also noted that the SPAs were executed in Hong Kong, and that Hong Kong was the appropriate forum in that the SPAs were governed by Hong Kong law and all of the plaintiff’s witnesses were domiciled in Hong Kong. He referred to a number of addresses of the Ds in Mainland China, some of which could be found in the Statement of Claim (民事起訴狀) in PRC Action No 2 which was exhibited to such affidavit. 107.Mr Chan’s 2nd affidavit referred to inter alia the Statement of Claim (民事起訴狀) in PRC Action No 1 which was exhibited and which gave an address of Wang in Mainland China being one of her two addresses found in the Statement of Claim (民事起訴狀) in the PRC Action No 2. 108.Mr Chan’s 3rd affidavit exhibited inter alia the SPAs, the JV Agreement, the Assignment Agreement, the audited reports of the Company, a summons (傳票) by the Hubei Court in the PRC Action No 1 and the PRC Agt. 109.For the Ho 1st Order, Mr CH Chan’s affidavit noted that Wang had previously instructed Li & Partners (“LP”) in Hong Kong regarding the Shares of the Company. He stated inter alia that in/about December 2010 the Ds (represented by JTN) commenced PRC Action No 1 against the plaintiff, which proceedings were then still ongoing. Mr CH Chan suggested that substituted service of the CAWoS could be effected by inter alia sending a copy of the CAWoS to LP and JTN. XIII. SERVICE ORDER: MATERIAL NON-DISCLOSURE (a) Legal principles 110.In China North Industries Investment Ltd,[70] Stock JA held that the question of material non-disclosure was one to be determined in isolation, assuming for that purpose that the issues of abuse and forum had not been decided. The learned judge also observed that: “109. The duty upon an ex parte application of the present kind is to make full and frank disclosure of all material facts, which is to say facts material for the judge to know: …… in determining whether to exercise his power to grant leave to serve out of jurisdiction …… the fact that the proposed Hong Kong proceedings ran the same issues as had been run elsewhere and, later in the piece, that the proceedings constituted a collateral attack on that selfsame issue was highly material for the judge to know. Moreover, the duty of full and frank disclosure is a continuing one: ……” 111.In Secretary for Justice v Choy Bing Wing,[71] the Court of Appeal in dealing an appeal from an ex parte order said: “46. We accept that in any ex parte application, an applicant must proceed with the utmost good faith as the court is asked to grant relief without the person against whom the relief is sought having the opportunity to be heard.
112.In dealing with an application for discharge of an ex parte injunction, Kwan J (as she then was) in Securities and Futures Commission v “A” summarised the relevant principles on material non-disclosure as follows:[72]
113.Mr Lam SC relied on DHCJ Coleman SC’s observation in Pacific Aerosupplies Ltd v Dakota Air Parts International Inc[73] to suggest that even if “…… the disclosure, if made, might not have changed the order which was in fact made does not mean that the disclosure need not have been made”. Mr Lam SC submitted it did not mean that the information needed to be disclosed must have changed the outcome because in every case the court would take into account a basket of considerations in coming to its view as to whether to grant leave to serve out of jurisdiction. 114.Pacific Aerosupplies Limited concerned an application to set aside the order permitting service out of jurisdiction on the ground of inter alia the plaintiff’s failure to make full and frank disclosure of matters material to the court’s determination. DHCJ Coleman SC referred to the “well settled” principles as follows:
115.In that case, a Hong Kong company commenced proceedings in Hong Kong against a US company on 13 August 2010, and instructed US lawyers at about the same time. The ex parte affidavit application was made in September 2010, and the master granted leave to serve out of jurisdiction on 4 October 2010. On that very day, the plaintiff gave instructions to commence US proceedings against the defendant, which proceedings were commenced on the following day in breach of the Hong Kong exclusive jurisdiction clause. There was no reference to any or any intended US proceedings in the affidavits in support of the order for leave to serve out of jurisdiction. DHCJ Coleman SC held that the plaintiff’s active preparation for the US proceedings with the assistance of their Hong Kong lawyers was material to the consideration of whether or not to grant leave to serve out of jurisdiction (particularly where that application was based largely upon the existence of the exclusive jurisdiction clause) and should have been disclosed. 116.In that case, the defendant also took issue over non-disclosure of the fact that the plaintiff’s directors were resident in Australia and Vietnam. The plaintiff suggested inter alia this was not a matter that might have led the court not to grant the order sought, and DHCJ Coleman SC said as follows: “72. This seems to me to be a clear recognition of the materiality of the place of residence of the controlling mind of the plaintiff. Mr Arthur now wishes to assert that it is material in favour of the plaintiff, but the point is that it was material. That the disclosure, if made, might not have changed the order which was in fact made does not mean that the disclosure need not have been made.
117.Master Levy drew assistance from the above observation by DHCJ Coleman SC and opined that the question for determining materiality was not whether the court would have granted the leave to serve out, but whether the plaintiff had fully disclosed facts relevant to the consideration of court.[74] Mr Lam SC supported this view, but Mr Ho SC submitted it was wrong in principle to equate relevance with materiality. 118.In my view, DHCJ Coleman SC’s above observation does not support the proposition that if the information is relevant then its non-disclosure is material non-disclosure. When read in its proper context, such observation deals with a different point, ie the plaintiff should have realised the residence of their directors ought to have been disclosed in the affidavits, but DHCJ Coleman SC was not discussing what amounts to materiality for the purpose of deciding what constitutes sufficient non-disclosure to justify setting aside the ex parte order. Under the principles summarised by the Court of Appeal in Choy Bing Wing and by Kwan J (as she then was) in SFC v A, which I respectfully agree, non-disclosure is culpable only when the information goes to the ex parte judge’s “weighing operation”, ie “it must be something which would have affected the judge’s decision on the application”.[75] Indeed, DHCJ Coleman SC makes the same point in another way by saying that the requisite material facts are those “relevant to the consideration as to whether to assume jurisdiction over the defendant and the dispute in question”.[76] In that case, the learned judge ultimately found that the material non-disclosure was not the mere failure to disclose the residence of the plaintiff’s directors but the incorrect/misleading way in which the plaintiff described itself as being resident in Hong Kong to explain why there would be disadvantage in bringing proceedings in the United States. 119.As Mr Ho SC submitted, in most cases there will be a number of relevant matters (some of which may be more remote even though they are still regarded as relevant), but the law does not impose such a low threshold for determining material non-disclosure that requires disclosure of relevant but not truly material matters otherwise it will be open to “counter-abuse” as explained by Kwan J (as she then was). I agree that if the disclosure will not have affected the order to be made, then non-disclosure will not have qualified as material non-disclosure. But if my understanding is wrong and DHCJ Coleman SC by his observation was setting such low threshold as the Ds contend, then, with respect, I disagree with such view which misses the concern over “counter-abuse” as explained by Kwan J (as she then was). (b) Discussion 120.Mr Lam SC submitted that for the reasons given by Master Levy in the Decision it was wrong in principle for the plaintiff to suggest that the PRC Actions were immaterial and need not be disclosed:
121.Mr Tao’s 1st affirmation referred to a series of matters in respect of PRC Actions No 1[77] and No 2[78] which he claimed the plaintiff ought to have disclosed, including the fact that (a) the validity of the PRC Agt was heavily disputed in the PRC Actions, (b) PRC witnesses would have to be called in the present action to give evidence on the MOFCOM Approval, and (c) PRC audit experts would be required to give valuation evidence on the Company’s assets. Mr Lam SC submitted that although the PRC Actions and the present action were not mirror image proceedings the former would have a material impact on the latter, and DHCJ Coleman SC had observed that the existence or prospect of concurrent/overlapping proceedings in a foreign jurisdiction between the same parties was likely to be matter of materiality which must ordinarily be disclosed.[79] Mr Lam SC complained that here the culpability lied in not drawing attention to the nature/progress of and the reliefs sought in the PRC Actions. 122.Mr Lam SC argued that a “passing reference” of material matters in the affidavit would not do,[80] but the only places here where the PRC Actions were mentioned were paragraph 20(ii) of Mr Chan’s affidavit where the Statement of Claim (民事起訴狀) in PRC Action No 2 was exhibited, paragraph 13 of Mr Chan’s 2nd affidavit where the Statement of Claim (民事起訴狀) in PRC Action No 1 was exhibited, which disclosure was only for the purpose of showing Wang’s address. Although paragraph 42 of the SoC[81] made reference to a summons issued by the Ds in PRC Action No 1 and to the PRC Agt, it did not reveal any material particulars of the PRC Actions. 123.It is plain, as Mr Ho SC submitted, that the Ds’ allegation as to the materiality of the PRC Actions was premised on their contention that the present action overlapped with and/or would be materially affected by either or both of the PRC Actions. However, for the reasons discussed in Part XI above, I am not persuaded that the outcome of the PRC Actions will materially impact on the present action in the sense that even if the matters the Ds have referred to were placed before the court at the time of the plaintiff’s ex parte applications they would not have affected the court’s decision. Further, for reasons explained below, Hong Kong is the appropriate forum for the present action, so it will not be unjust or prejudicial to the Ds for the court to grant leave for the plaintiff to serve out of jurisdiction and thereby to assume jurisdiction over the present action. Accordingly, the matters referred to by the Ds do not pass the threshold of materiality for the purpose of determining whether there is material non-disclosure. Further, the need (or otherwise) to call PRC witnesses in the present action are not matters material to the court’s consideration when the plaintiff applied for the Leave to Serve Out Order or for Ho’s 1st Order. 124.In any event, the plaintiff has set out in paragraph 42 of the SoC endorsed on the Writ of Summons in the present action the gist of the Ds’ case in PRC Action No 1 with particular reference to the submission of the PRC Agt with the MOFCOM in lieu of the SPAs. The plaintiff has also referred to and exhibited the Statement of Claim (民事起訴狀) by the Ds in the PRC Action No 1 and by the plaintiff in the PRC Action No 2. Even if there has been any material non-disclosure (which I do not accept), I agree with Master Levy that any such non-disclosure is not deliberate or serious. 125.If I am wrong and there has been material non-disclosure, the court still has a broad discretion as to how to react to such finding, and if necessary the court may consider whether this is a proper case for service out in any event. In SFC v A, Kwan J (as she then was) said as follows: “42. Even if it is established there was material non-disclosure which justifies discharge of the ex parte order, the court has a discretion to continue the order or make a new order on terms. The court must assess the degree and extent of the culpability, the importance and significance to the outcome of the application of the matters which were not disclosed, and whether the punishment of discharging the ex parte order would be out of proportion to the failure of the applicant to make full and frank disclosure ……” DHCJ Coleman SC said as follows in Pacific Aerosupplies Limited:
126.I agree with Master Levy that even if there has been material non-disclosure (which I do not accept), the court should exercise its discretion to continue or re-grant the Leave to Serve Out Order and (if necessary) the Ho 1st and 2nd Orders and not to set aside the Overseas Service.[82] I have found there has been no deliberate attempt to conceal the PRC Actions from the court. Also, since the alleged non-disclosure, the plaintiff has filed/served detailed affidavits that disclose full details of the PRC Actions. As seen below, I consider (a) the Hong Kong court to be the appropriate forum in the present action, (b) the plaintiff is entitled to bring proceedings on the SPAs in Hong Kong pursuant to the non-exclusive jurisdiction clause, and (c) the local courts will assume jurisdiction. In any event, both of the Ds have acknowledged service and are legally represented, and will not be prejudiced by any alleged non-disclosure. In my view, it will be disproportionate and unjust for the court to set aside the Leave to Serve Out Order and the Overseas Service. XIV. FORUM 127.In an application to serve process out of jurisdiction under Order 11 of the RHC, it must be shown that one of the sub-heads of Order 11 rule 1(1) of the RHC is engaged, and that the case is a proper one for exercise of discretion by the court.[83] Question as to the appropriate forum to hear the dispute is relevant in the exercise of the court’s discretion in this regard. 128.In Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd, Ma CJHC (as he then was) said as follows:[84]
129.Central to this issue is the non-exclusive jurisdiction clauses under the SPAs.[85] Mr Lam SC acknowledged that prima facie this would be a strong factor supporting the Hong Kong courts as the appropriate forum. As CJHC Ma (as he then was) held in Noble Power Investments Ltd,[86] the basic premise (albeit not absolute) was that the courts would hold parties to their contractual bargain, and in the case of a non-exclusive jurisdiction clause it would be important to recognise that the parties had agreed to submit to a named jurisdiction. 130.Ma CJHC (as he then was) said as follows:[87] “31. In considering the effect of a non-exclusive jurisdiction clause, it is critical to recognize that there are differences in approach depending upon where proceedings have been instituted. Where proceedings are instituted in the named forum (to which the parties have agreed to submit), the party who seeks a stay or otherwise to contest the jurisdiction or appropriateness of that forum, has a very heavy burden to discharge, since that party has by definition agreed contractually to submit to the jurisdiction. In other words, he is seeking to avoid a forum to which he has, by contract, agreed to submit. The extent of this burden is discussed below.
131.Stone J also held that in the case of a non-exclusive jurisdiction clause, the evidential burden fell instead upon the defendant to demonstrate strong reasons why Hong Kong was not appropriate as the trial forum.[88] He referred to Bas Capital Funding Corp & ors v Medfinco Ltd & ors in which Mr Justice Lawrence Collins observed:[89]
The learned judge also cited inter alia the following passage in Antec International Ltd v Biosafety USA Inc:[90]
132.I bear in mind the plaintiff here did not commence the present action against the Ds as of right since leave to serve out of jurisdiction is required, so the legal burden is on the plaintiff (and not the Ds) to demonstrate that Hong Kong is clearly the appropriate trial forum, and it is insufficient to show that there is no appropriate forum elsewhere.[91] But in discharging this burden, the plaintiff can do so simply by referring to the existence of the non-exclusive jurisdiction clauses in the SPAs in which the parties have agreed to submit to the jurisdiction of the Hong Kong courts. It will then be for the Ds to demonstrate the existence of strong or powerful reasons why this contractual bargain should not be upheld. So practically speaking, the approach will be akin to the situation where a plaintiff has instituted an action as of right.[92] 133.Mr Lam SC referred to Pacific Aerosupplies Limited as an example where the Court was satisfied that there was a “strong cause” not to give effect to an exclusive jurisdiction clause. In that case, the plaintiff commenced US proceedings (including a motion for preliminary injunction) in breach of a Hong Kong exclusive jurisdiction clause such that the rationale for holding the parties to their contractual bargain was significantly weakened, and whilst there were in substance no factors connecting the dispute to Hong Kong there were factors which suggested that the matter would probably be best decided in a US court. 134.Mr Lam SC submitted that the present action was one of those exceptional occasions where there were strong/overwhelming reasons or exceptional circumstances not to give substantial effect/weight to the Hong Kong non-exclusive jurisdiction clauses under the SPAs because (a) it would be against the interests of justice to allow the plaintiff to rely on such provision heavily or at all, and (b) there were factors unforeseen at the time of the conclusion of the SPAs. 135.In respect of (a), Master Levy held it could not be said the plaintiff had been acting inconsistently by commencing the present action in Hong Kong by relying on the SPAs as the cause of action “while bringing an action on the [PRC Agt] in the PRC proceedings”.[93] Mr Lam SC complained that such approach was too simplistic and failed to appreciate the consequence of the contradictions between the SPAs and the PRC Agt. He argued that the plaintiff should not be allowed to blow hot and cold by relying on the PRC Agt (with a PRC jurisdiction clause) and ignoring the SPAs before the Hubei Court, but relying on the SPAs (with Hong Kong non-exclusive jurisdiction clauses) and ignoring the PRC Agt before the Hong Kong court. Mr Lam SC submitted that since the plaintiff denied any forgery of the PRC Agt,[94] they were in fact choosing to rely on either the PRC Agt or the SPAs (which were mutually incompatible) at their own whim, and such “cherry-picking” would be an affront to any sense of justice. Mr Lam SC submitted also that since the plaintiff did not show wholehearted respect for the SPAs by choosing to rely on the PRC Agt or the SPAs whenever it suited their purpose, they should not be permitted to rely on the jurisdiction clause in the SPAs. 136.I do not think that the plaintiff has been “blowing hot and cold” in the present action and PRC Action No 1. Unlike the plaintiff in Pacific Aerosupplies Limited, the plaintiff did not commence (and in fact it was the Ds who commenced) PRC Action No 1, so the plaintiff did not invoked the PRC jurisdiction clause in the PRC Agt and they did not sue the Ds on the basis of the same. As explained in Part XI above, the present action has a life of its own quite apart from the PRC Actions, and the cause of action in PRC Action No 1 is not based on the SPAs (which is the basis for the present action) but on the alleged forgery of the PRC Agt. In this sense, the plaintiff has not “ignored” the SPAs in PRC Action No 1, and the reality is that the validity/effect of the SPAs is not canvassed in the PRC Actions. I am not persuaded that the Ds have raised exceptional circumstances by reason of the above arguments. 137.In respect of (b), Master Levy was unable to discern evidence that the PRC Agt and the PRC Actions were unforeseen circumstances for the Ds had not provided any evidence to explain why PRC Action No 1, impugning the PRC Agt and the MOFCOM Approval, was only commenced more than three years after the Shares were transferred.[95] Mr Lam SC submitted it was unforeseen at the time when the SPAs were concluded that the MOFCOM Approval for the transfer of the Shares would be obtained by relying on the PRC Agt which eventually resulted in the PRC Actions. He argued that if Master Levy’s analysis were correct and the plaintiff succeeded in PRC Action No 1, it would mean that the Hubei Court would uphold the validity of the MOFCOM Approval and the transfer of the Shares on the basis of an agreement that did not reflect the true terms of the parties’ agreement. 138.Looking first at PRC Action No 2, I agree with Mr Ho SC that such proceedings have nothing to do with the PRC Agt so it is not unforeseeable to the Ds. Indeed, the plaintiff has commenced such action on the basis that the Ds’ acts (along with the acts of other individuals/entities formerly in the control of the Company) caused loss and damages to the Company. 139.As regards PRC Action No 1 which concerns the PRC Agt and its submission to MOFCOM for approval, I find there is some basis for the learned master’s view. In their Defence in PRC action No 1, the plaintiff denies the allegation of forgery and notes that D2 has never challenged the authenticity of their company chop on the PRC Agt.[96] It is also alleged that the PRC Agt could only have been submitted to MOFCOM for approval by the Ds (rather than the plaintiff), and the Ds would be the ones who would gain a tax benefit by putting forward an agreement that stipulated a lower consideration.[97] Mr Ho SC fairly concedes that this court cannot be a “final arbiter” of the above dispute, but I agree with him that in light of the conflicting evidence between the parties and bearing in mind the burden is on the Ds to demonstrate the existence of exceptional circumstances, there is insufficient evidence before me to demonstrate that the PRC Agt and PRC Action No 1 are plainly unforeseeable matters to the Ds. 140.That being the case, the Ds have failed to demonstrate the existence of exceptional circumstances for this court to consider releasing them from their contractual bargain as to the Hong Kong non-exclusive jurisdiction clauses in the SPAs. In such circumstances, Master Levy cannot be criticised for not proceeding to consider the usual factors relating to forum conveniens in any detail. 141.For completeness, I turn to those matters. Mr Ho SC submitted that in addition to the non-exclusive jurisdiction clauses the following factors would demonstrate that Hong Kong was clearly the appropriate forum for the present action:
142.On the other hand, Mr Lam SC submitted that the following considerations would demonstrate that Hong Kong would not be the appropriate forum:
143.Having carefully considered the basket of factors in paragraphs 141-142 above, I am not persuaded that they are sufficient to show that Hong Kong is an inappropriate forum. Given the Ds’ failure to demonstrate exceptional circumstances against reliance on the non-exclusive jurisdiction clauses in the SPA, I find the Ds’ contest over the forum of the present action must fail. It has been suggested that having parallel proceedings in Hubei and in Hong Kong vis-à-vis the same parties on the same subject matter and involving similar allegations would be oppressive to the Ds. But for reasons explained in Part XI above, I do not find there is such overlap of issues between the present action and the PRC Actions that clearly demonstrates that Hong Kong is an inappropriate forum. XV. INTERIM STAY 144.The common fundamental premise of the Appeal against the Stay Order is that Hong Kong is the appropriate forum for the present action. I note that although the Ds by the Summons asked for an interim stay of the present action pending the final outcome of the PRC Actions in the Hubei Court or until further order, for the purpose of the Appeal Mr Lam SC only sought to uphold the Stay Order. 145.In Hyundai Engineering & Construction Co Ltd v UBAF (Hong Kong) Ltd, DHCJ Lok held that:[98] “37. There is no serious dispute about the following legal principles which apply where a litigant seeks a stay of proceedings pending concurrent foreign proceedings:
146.Kwan J (as she then was) held in Ho Siu Pui & ors v Yue Sheng Ltd [99] that (a) where genuine proceedings had been commenced in a foreign court and had not merely been started but had developed to the stage where they had some impact upon the dispute between the parties, especially if such impact was likely to have a continuing effect, then this might be a relevant factor to be taken into account,[100] and (b) it was sufficient to show that continuing the proceedings would be unjust to the applicant and there was no need for the applicant to show that continuing the proceedings would be oppressive or vexatious to him or an abuse of process.[101] 147.Two matters are of note. First, the plaintiff did not commence the present action as of right, hence only the first three factors discussed by DHCJ Lok in Hyundai Engineering & Construction Co Ltd will be relevant. But under the SPAs the Ds have contracted to submit to the non-exclusive jurisdiction of the Hong Kong courts, so it is for the plaintiff to justify why any stay of the present action is warranted at all. Secondly, as explained in Part XI above, given the differences between the PRC Actions and the present action, this is not a case of lis alibi pendens. 148.Mr Lam SC submitted that PRC Action No 1 had reached an advanced stage and its outcome would have a significant impact on the present action, and in particular the findings by the Hubei Court on the transfer of the Shares and the MOFCOM Approval (and hence on the question whether the plaintiff was the lawful owner of the Shares) would give rise to issue estoppel or res judicata or it would be an abuse of process to revisit those matters. It was further suggested that if the result of PRC Action No 1 favoured the Ds the present action (or at least the bulk of it) would be liable to be struck out, and the findings of the Hubei Court would undoubtedly impact on how the Ds’ defence to the remaining part was going to be run. 149.Mr Lam SC confessed that defences which failed in PRC Action No 1 might no longer be open to the Ds although he claimed that findings in the Ds’ favour might give rise to issue estoppel or res judicata. In any event, a multiplicity of parallel proceedings would involve additional/unnecessary costs for the parties in both jurisdictions, and there would be a real risk of having conflicting findings in different jurisdictions on common issues between the same parties. 150.I am not persuaded by such arguments. As explained in Part XI above, it is unlikely that the PRC Actions will put an end to the present action, and it is unclear whether any judgment that favoured the Ds in PRC Action No 1 will necessarily enable a large part of the plaintiff’s claim in the present action to be struck out. Instead, there is a real likelihood that the plaintiff’s claim in the present action will continue regardless of the PRC Actions. Further, as explained in Part XI above, it is also unclear whether any judgment in PRC Action No 1 will necessarily give rise to issue estoppel or res judicata, and in such circumstances, it appears that the risk of inconsistent findings may well be unavoidable. 151.I agree with Mr Ho SC that the highest the Ds can put their case is that, if the Hubei Court is to find in their favour in PRC Action No 1, the parties will have to incur some extra costs in amending their respective case in the present action. Mr Lam SC complained that without any interim stay the Ds would have to defend the plaintiff’s claim in the present action against a tight procedural timetable (to be expected in the post-CJR era) which, given the complexity of the case, would incur substantial time and costs, and these considerations would apply equally to the conduct of the plaintiff’s case. Mr Lam SC endorsed Master Levy’s observations that with an interim stay “…… [the] parties will have certainty of their rights and liabilities that would in turn likely result in significant saving of costs and time. This will resonate with one of the underlying objectives of the [CJR]”.[102] 152.In my view, even though a refusal of any stay may result in some wasted costs, it is not a good or sufficient reason for granting an interim stay of the present action. In light of the discussion in Part XI above, I do not envisage any amendments to the plaintiff’s case to be extensive, especially when there is no clear identity of subject matter between the Hong Kong and Hubei proceedings, and in all likelihood the plaintiff may proceed with the claims in the RASoC regardless of the outcome of the PRC Action No 1 in which case the factual allegations in support of the plaintiff’s claims will still be relevant and the Ds will still be required to answer them. Should the plaintiff plead a further or alternative case based on a judgment in favour of Ds in PRC Action No 1, the amendments again will not be extensive or the costs will not be substantial, especially when viewed in the context of the scale of and the amount involved in the present action. There is no suggestion that the plaintiff being a Hong Kong listed company will be unable to satisfy any adverse costs order against them. 153.Further, the Ds are not able to tell when the Hubei Court will deliver judgment in PRC Action No 1. Recent developments with change of the panel of presiding judges of the Hubei Court, the further hearing in July 2013 and the reconstituted court asking for more evidence make it more apparent that the “outcome” may not come about any time soon, especially when one takes into account the real possibility that either party may appeal against the judgment by the Hubei Court. Even though Mr Lam SC submitted that the plaintiff could be adequately compensated for any delay by an award for interest on damages if they were to succeed at trial, and Master Levy imposed a six-month time limit for the interim stay and granted liberty to apply,[103] in balancing the competing interests of the parties, the above uncertainty in relation to the progress of the PRC Actions works against Mr Lam SC’s suggestion that a stay is warranted in the interests of justice. The prejudice to the plaintiff in the event of any stay (including an interim one) cannot be said to be minimal bearing in mind that the present action was commenced two years ago and the Hong Kong is the appropriate forum. Any stay means the plaintiff is kept out of a just and speedy resolution of the dispute. 154.Having considered the above matters, I am of the view that the factors that militate against a stay outweigh the factors that favour a stay, and the balance clearly comes down in favour of the plaintiff. The RASoC and in Mr CH Chan’s 2nd affidavit set out an arguable claim for substantial damages and other reliefs, and to date the Ds have yet to disclose the substance of their defence. In all the circumstances, no interim stay of proceedings ought to be granted at all. However, by the time this Judgment is handed down, the six-month interim stay granted under the Order has just expired. There is no reason why the present action should not proceed. I therefore direct that the Ds shall file and serve their Defence within 21 days from today. XVI. CONCLUSION 155.In the circumstances, I grant an order that (a) the Ds’ application to set aside the Service Order is dismissed, (b) the Stay Order and the Cost Order be set aside, and (c) the Ds shall file and serve their Defence within 21 days from today. There is no reason why costs should not follow event. I therefore grant a costs order nisi that the Ds do pay the plaintiff costs of the Appeal and of the Summons (including all costs reserved, if any) with certificate for two counsel to be taxed if not agreed
Mr Ambrose Ho SC and Ms Bonnie Cheng, instructed by DLA Piper Hong Kong, for the plaintiff Mr Paul Lam SC and Ms Chyvette Ip, instructed by David Lo & Partners, for the 1st and 2nd defendants [1] see paragraph 40 below [2] see paragraph 44 below [3] see paragraph 40 below [4] see paragraph 45 below [5] see paragraph 45 below [6] by Mr Tao’s 2nd affirmation and the oral submissions by Mr Lam (now Mr Lam SC) at the Master Hearing [7] see para 33 (and also para 70) of the Decision [8] ie the PRC Agt referred to in paragraph 59 below [9] see Hong Kong Civil Procedure 2013 Vol 1 para 58/1/2 at p 1018 [10] see Hong Kong Civil Procedure 2013 Vol 1 para 58/1/4 at p 1019 [11] [1993] 1 HKLR 28 [12] [1993] 1 HKLR 28, 30 [13] see Order 1A rule 1 of the RHC [14] see paragraph 10(a)-(b) above [15] see paragraph 10(c) above [16] see paragraph 17 above [17] see para 12 of Practice Direction 5.4 [18] see para 7 of Practice Direction 5.4 [19] see paragraph 40 below [20] see clause 17.1 of the SPAs and paragraph 56 below [21] see paragraph 59 below [22] see paragraph 62 below [23] see supplemental agreements to the 1st and 2nd SPAs both dated 2 December 2007 [24] see clause 3.2 of the SPAs [25] see paragraph 57 below [26] see clauses 10.1-10.3 in the 1st SPA and clauses 8.1-8.3 of the 2nd SPA [27] see clause 8.3 of the 1st SPA [28] see clause 8.3 of the 1st SPA and/or clauses 2.4(a), 6.3(b), 9(a)-(c) and/or 12.2 of schedule 3 of the 1st SPA [29] see clause 8.3 of the 1st SPA [30] see clause 8.3 of the 1st SPA and/or clauses 2.4(a), 6.3(b), 9(a)-(c) and/or 12.2 of schedule 3 of the 1st SPA [31] see clauses 2.4(a), 6.3(b), 9(a)-(c) and/or 12.2 of schedule 3 of the 1st SPA [32] see clauses 2.4(a), 5(a), (b) and/or (c) of schedule 3 of the 2nd SPA [33] see clauses 1.1, 1.2, 3.1(a), 3.1(c), 3.2(a) and/or 3.5(a) (ii) of schedule 3 of the 1st SPA [34] see clause 1.1 of schedule 3 of the 2nd SPA [35] “雙方同意，本協議的簽訂、履行、解釋及爭議解決等，均運用中華人民共和國法律” [36] “凡因簽訂及履行本協議所發生或與本協議有關的一切爭議，…… 任何一方將爭議提交有管轄權的人民法院通過訴訟解決” [37] see approval no 商資批[2007]1978號dated 26 November 2007issued by MOFCOM and the Certificate of Approval under Approval no.商外資字[2007] 0445號 [38] Zhong Lun Law Firm, the PRC legal representatives of the plaintiff and the Company, advised that the Ds (rather than the plaintiff) would be the ones who would gain a tax benefit by putting forward an agreement that stipulated a lower consideration [39] Zhong Lun Law Firm advised that even if the Hubei Court were to declare the PRC Agt invalid, the approval by MOFCOM for the transfer of the Shares might not be automatically revoked [40] see paragraph 3 above [41] see paras 34-35 of the Decision [42] by their reports dated 6 and 27 August 2013 [43] by their report dated 22 August 2013 [44] see paragraph 67 above [45] 31 December 2007 marked the end of the Profit Guarantee Period under the 1st SPA (see paragraph 45 above) [46] see clause 13.4 of the PRC Agt in paragraph 60 above and clause 16.2 of the 1st SPA and clause 14.2 of the 2nd SPA in paragraph 56 above [47] see paragraph 63 above [48] see paragraph 64(d) above [49] see 商務部第六部委令2006年第10號公佈《關於外國投資者併購境內企業的規定》 [50] see clauses 1.1, 2.1 and 5.1 of the SPAs in paragraph 56 above [51] see clause 4.2 of the SPAs in paragraph 56 above [52] see clause 4.4 of the SPAs in paragraph 56 above [53] see clause 5.1 of the SPAs in paragraph 56 above [54] see clause 3 of the SPAs [55] see also paragraphs 207 and 285 of Mr CH Chan’s 2nd affidavit [56] [2010] 5 HKLRD 1, 18-24 [57] see paragraphs 29-30 and 44 of the SoC [58] see paragraphs 20-26 of the RASoC [59] see paragraph 63 of the ASoC and paragraphs 20-26 of the RASoC [60] expiry of the Profit Guarantee Period under the 1st SPA [61] see paragraphs 79-80 above [62] ie approval by MOFCOM had been granted for the transfer of the Shares (under clause 4.4 of the SPAs) [63] HCA1093/2009 (unreported, 9 February 2011) [64] see paragraph 56 above [65] as exemplified by the differing expert legal opinion of ZL and JTN (see paragraph 69 above) [66] see paragraph 75(d) above [67] see Trietel, The Law of Contract 13th ed (2011) para 2-112 at p 69 [68] in Heron Garage Properties Ltd v Moss & anor [1974] 1 WLR 148, it was held that the proposition that a contracting party seeking specific performance might waive a stipulation of the contract on the ground that it was intended only for his benefit only applied where the stipulation was in terms for the exclusive benefit of such contracting party or where the stipulation was by implication for the benefit of him alone. In that case, since the condition was expressed to be a condition fundamental to the enforceability of the agreement as a whole, it did not confer rights only on the purchasers and could not therefore be waived unilaterally by them [69] it was said in Chitty on Contracts 31st ed Vol 1 para 2-160 at p 272 that “[nor] can the party for whose benefit the condition was inserted waive it (so as to enforce the contract) after the other party has duly exercised a right, conferred by one of its other terms, to terminate the contract” (see also Irwin v Wilson [2011] 2 P & CR 8 at p 126) [70] [2010] 5 HKLRD 1, 37-38 [71] CACV11/2004 (unreported, 3 December 2004) para 48 [72] HCMP 1407/2007 (unreported, 29 November 2007) [73] HCA 1233/2010, DHCJ Coleman SC (unreported, 24 June 2011) [74] see paragraph 46 of the Decision [75] see paragraphs 111-112 above [76] see paragraph 114 above [77] that it involved “identical parties” and “a very similar subject matter to that in [the present action]”, that the Ds’ claimed to have the PRC Agt declared invalid, the plaintiff’s defence in PRC Action No 1 (which asserted that the PRC Agt was valid), the Ds’ assertion that PRC law would not recognise the validity of both the SPAs and the PRC Agt in parallel, and that the trial for the PRC Action No.1 was to take place on 5 June 2012; [78] the Application for Amendment of the Claim (變更訴訟請求申請書), that the parties to the present action overlapped with those in PRC Action No 2, the subject matter of the claims in PRC Action No 2, that the same alleged misconduct also formed the basis of the plaintiff’s claims against the Ds in the present action according to the SoC, that the plaintiff’s claims in PRC Action No 2 “is or are presumably premised on its contractual rights (if any) under the SPAs and/or the [PRC Agt]”, that there was an overlap between the damage claimed in the present action and in the PRC Action No 2, the trial for PRC Action No 2 was to take place on 12 June 2012 [79] see Pacific Aerosupplies Limitedat para 15 (see paragraph 114 above) [80] see Hong Kong Civil Procedure 2013 Vol 1 para 11/4/3A at p172 and Dallah Albaraka (Ireland) Ltd v Symphony Gems NV & ors [2005] 3 HKLRD 703, 712-713 in which Stone J rebuked the plaintiff for making a mere passing reference to litigation in Belgium and United Kingdom “relating to precisely the same debt and involving precisely the like cause of action” (ie the “mirror image” proceedings”) [81] ie paragraph 47 of the ASoC (now deleted in the RASoC) [82] see paragraph 57 of the Decision [83] see Order 11 rule 4(2) of the RHC [84] [2008] 5 HKLRD 631, 641-642 [85] see clause 17.1 of the 1st SPA and clause 15.1 of the 2nd SPA which provide that the SPAs shall be governed by Hong Kong law and all parties agree to submit to the non-exclusive jurisdiction of the Hong Kong courts (see also paragraph 56 above) [86] at p 643 [87] see pp 644-646 [88] see pp 652-653 [89] [2004] 1 Lloyd’s Rep 652, 678 [90] [2006] EWHC 47 (Comm) at para 7 [91] see China North Industries Investment Ltd at p 30 and 34-35 and see also Pacific Aerosupplies Limited at para 10 [92] see Noble Power Investments Ltd at p 647 [93] see paragraph 54 of the Decision [94] see paragraph 64(b) above [95] see para 55 of the Decision [96] see paragraph 64(b) above [97] see paragraph 64(c) above [98] [2012] 5 HKLRD 620, 633-634 [99] HCA 3060/2001 (unreported, 27 August 2002) (affirmed on appeal in [2003] 1 HKC 621) [100] see para 46 of the judgment [101] see para 48(3) of the judgment [102] see para 67 of the Decision [103] see para 72 of the Decision |
Cases cited in this judgment
Further hearings and rulings under HCA 1807/2011