Gain Park Holdings Ltd and Another v. Eversino Investments Ltd and Others

HCA 1638/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1638 OF 2013

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J U D G M E N T

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A. INTRODUCTION

1.In a nutshell, the 2^nd plaintiff entered into various agreements on 26 March 2012 relating to, and effecting, the transfer of the plaintiffs’ shareholdings of (i) 32% in the 2^nd defendant, (ii) 50% in the 3^rd defendant and (iii) 32% in the 6^th defendant respectively, allegedly as the result of “threats and fear” whilst he was detained in custody in Zhangjiagang, the People’s Republic of China (“PRC”).  The 2^nd plaintiff says he was “under both physical and mental oppression and never did possess the free will to enter into any binding agreements voluntarily”.

2.Following the subject transfers:

(1)   The 1^st plaintiff’s 32% shareholding in the 2^nd defendant and the 2^nd plaintiff’s 32% shareholding in the 3^rd defendant were transferred to the 1^st defendant (a BVI company).

(2)   The 2^nd plaintiff’s 18% shareholding in the 3^rd defendant was transferred to the 4^th defendant (a PRC company).

(3)   The 1^st plaintiff’s 32% shareholding in the 6^th defendant was transferred to the 5^th defendant (another BVI company).

3.The plaintiffs take issues on the subject transfers on the following outlined bases:

(1)  The alleged written agreements and/or instruments in effecting the share transfers were signed involuntarily under coercion and/or duress during the 2^nd plaintiff’s detention in Zhangjiagang and should be avoided/rescinded.

(2)  Further or alternatively, such agreements and/or instruments are void and/or unenforceable being executed under undue influence and/or the doctrine of non est factum.

(3)  The plaintiffs also claim that, even if the agreements and/or instruments were valid and enforceable, there was in fact no performance of the alleged obligations by the defendants thereunder.  There was no payment of the “consideration” and the transfers had not been completed.  In the circumstances, such alleged agreements had been terminated and/or discharged and there could not be any valid transfer.

(4)  As the written agreements were null and void under various grounds, there could not be any valid transfer of the plaintiffs’ shares at law.  The purported share transfers as shown in the companies’ registry and/or records amounted to or evidenced the wrongful conversion of the plaintiffs’ property by the defendants.

4.As put in paragraph 26 of the plaintiffs’ Skeleton Submissions, the fact that the documents were signed involuntarily by the 2^nd plaintiff and under duress meant that such documents were voidable (under duress), or alternatively void, null and/or unenforceable (by non est factum).  This forms the gist of the plaintiffs’ complaints in the present action.

5.In addition, the 2^nd plaintiff also claims to have wrongly “resigned” by reason of being coerced into signing the letters of resignation as director of the 2^nd, 3^rd and 6^th defendants.

6.It is against this backdrop that the 1^st and 3^rd to 6^th defendants (the “overseas defendants”) bring the present application under Order 12, rule 8, Rules of the High Court, to set aside the order of Master H Au Yeung giving leave to serve the Concurrent Writ of Summons issued herein on 29 October 2013 out of jurisdiction (“Setting Aside Application”).

7.For similar, and additional, reasons, the 2^nd defendant and the overseas defendants seek to stay the present proceedings on the ground of forum non conveniens (“Stay Application”).

B. SETTING ASIDE APPLICATION

B1. Applicable legal principles

8.Regarding the Setting Aside Application, the relevant principles were succinctly set out by the Court of Appeal in Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454:

(1)   In order to obtain leave under Order 11, rule 1, the plaintiff must satisfy the court that, inter alia, Hong Kong is the appropriate forum under the principle governing “forum conveniens” for the trial of the action.

(2)   As to forum conveniens, the burden is on the plaintiff to show that there is a serious question that Hong Kong is not only the appropriate forum to try the case but that this is clearly so.

(3)   The “appropriate” or “natural” forum is one “with which the action has the most real and substantial connection”.  This includes not only factors affecting convenience and expense (such as availability of witnesses) but also other factors such as the law governing the relevant transaction and the place where the parties respectively reside and carry on business.

(4)   The “real and substantial connection” requirement needs to be emphasised.  Inevitably a case may contain various jurisdictional aspects.  However, some of these aspects may feature only as the backdrop to the case.  They may have little, if any, substantial relevance to the issues that may be required to be canvassed at the trial.  Ultimately one has to consider the forum where the action could most suitably be tried in the interests of all the parties and for the ends of justice.

(5)   The court is not simply to load factors which point to any particular jurisdiction but is to focus on the appropriateness of a forum from the point of view of the trial of the action, see: Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250, per Mr Recorder Ma (as he then was) at 255.

B2. Issues at trial

9.I agree with Mr Jose‑Antonio Maurellet (with him Mr Michael Lok), counsel for the defendants, that this case very much boils down to a question of fact, namely whether the 2^nd plaintiff was subjected to the acts of duress and coercion as alleged.

10.It is of particular significance that, on the 2^nd plaintiff’s case, the acts constituting duress arose out of continued treatment spanning over “a continuous period of 4 months until his release from custody”. All of this happened outside Hong Kong.

11.The 2^nd plaintiff alleges that he was “prohibited from leaving the room and was forbidden to meet others without prior permission”.  He was “placed in custody and confined in a room of the said guesthouse for 24 hours a day”.

12.He says that he was, for example, not allowed to turn off the lights in the evening whilst the television had to remain on with sound at all times.

13.Before signing, he was under “immense fear” and “desperate hope to be released” after having been “detained in custody for three consecutive months”.

14.On 26 March 2012, representatives of Jiangsu Shagang, including one Zhang Jie, came to visit the 2^nd plaintiff during his detention in the guesthouse in Zhangjiagang, and brought with them the relevant documents. Upon pressure by these representatives, including Zhang Jie, the 2^nd plaintiff says he had no choice but to sign the documents as director on the 1^st plaintiff’s behalf and/or on his own behalf.

15.Thus, as submitted by Mr Maurellet, quite apart from any other factors, the very causes and circumstances said to constitute duress or illegitimate pressure on the 2^nd plaintiff raise considerable questions of fact, involving circumstances which occurred over a substantial period of time, and all of which took place on the mainland of the PRC.

16.Significantly, on the defendants’ case, substantial questions of fact connected to the PRC have also been raised.  The 2^nd plaintiff had apparently executed a loan agreement and an addendum on behalf of Shagang Shipping (HK) with a third party in the absence of its knowledge or approval.  This led to a sum of US$6,661,946.57 being transferred into the 2^nd plaintiff’s personal bank account.

17.In the belief that such conduct amounted to a criminal act and a fraud on Shagang Shipping (HK), the matter was reported to the Zhangjiagang Public Security Bureau in December 2011.

18.The 2^nd plaintiff wrote a letter to Ms Zhu Jianhong and Mr Zhang Jie of Jiangsu Shagang, making proposals as to how the sum of US$6.6 million should be dealt with.

19.It then transpired that the 2^nd plaintiff might have been engaged in certain other unauthorised conduct in breach of his duties as a director of Shagang Shipping (HK) and other joint venture companies.

20.Accordingly, claims were commenced and steps taken to terminate the 2^nd plaintiff’s employment in the PRC.

21.It was in this context that the 2^nd plaintiff proposed to have a meeting with Jiangsu Shagang to explore the possibility of resolving the matter in an amicable manner.  The parties then agreed on and proceeded with the transfer of the shares pursuant to the subject documents.  The defendants say that no duress or coercion was involved.

22.Again, therefore, the long and short of it is that it will fall upon the competent court to determine at trial what had factually happened during the time when the 2^nd plaintiff alleges that he was under “wrongful and prolonged detention”.  I agree with Mr Maurellet that whether it was unlawful must be determined by reference to what is lawful in mainland China.

23.This invariably involves the consideration of the circumstances in which the 2^nd plaintiff came to be detained, as well as the way the 2^nd plaintiff was treated throughout the material times.

B3. Circumstances of the 2^nd plaintiff’s arrest is an essential question

24.On the plaintiffs’ own evidence, the 2^nd plaintiff was arrested by officers of Jiangsu Zhangjiagang County Public Security Bureau and detained under an administrative order of “Residential Surveillance”.

25.On the face of the administrative order, the 2^nd plaintiff was lawfully arrested and detained under residential surveillance pursuant to the criminal laws of the PRC.  This stands in stark contrast with the 2^nd plaintiff’s suggestion that he was arrested “without any valid cause or reason”.

26.One important issue is whether the 2^nd plaintiff was indeed under “false imprisonment” or whether he had been arrested and detained lawfully in accordance with the criminal laws of the PRC.

27.Further, the 2^nd plaintiff has also accused his guards of having “orally warned [the 2^nd plaintiff] several times that [the 2^nd plaintiff] should be ‘deferential’ and ‘cooperative’ in order to ‘help himself’ otherwise it would be ‘impossible for [the 2^nd plaintiff] to be released and ‘accidents might occur’ ”.

28.These are serious accusations.  Particularly when they are made against guards who are officials of the Chinese State and who have not been made parties to the present action.

29.This has much bearing on whether the 2^nd plaintiff did sign the agreements “because of fear of personal safety and continuous loss of personal freedom” as he claims is the case.

30.I agree with Mr Maurellet that as a matter of procedure, the PRC court is in a better position to investigate such domestic matters, not least, as opined by the defendants’ PRC expert, by being able to obtain relevant evidence from the authorities and in determining the lawfulness of the detention procedures.

B4. Accusations against the Zhangjiagang Notary Officers

31.In his 2^nd Affirmation, Zhang Jie has referred to a meeting on 19 March 2012 between the 2^nd plaintiff and two Zhangjiagang Notary Officers, during which the 2^nd plaintiff apparently confirmed to the Notary Officers that he had signed certain other agreements on 12 March 2012 voluntarily and free of coercion or fraud.  The 2^nd plaintiff strongly disputes these in his 1^st Affirmation.  In gist, according to the 2^nd plaintiff, he was asked to sign a series of blank sheets of papers on which the contents were subsequently “fabricated” by the Notary Officers.

32.Needless to say, these are extremely serious accusations lodged against public officers who are part of the subordinate agency of the Ministry of Justice of the PRC.

33.The circumstances in which the notarial services were provided to the 2^nd plaintiff will be an important issue in dispute.

34.I agree with Mr Maurellet that the PRC Court will be more suitable and in a better position to resolve this issue, particularly in light of the serious accusations made by the 2^nd plaintiff, and with its ability to investigate the validity and legality of the notarial documents with the Zhangjiagang Notarial Office.

B5. Witnesses

35.The trial will necessarily involve the calling of witnesses coming from/residing in the PRC.  This includes officers from the Zhangjiagang Public Security Bureau involved in the investigation against the 2^nd plaintiff, the relevant security guards, the Notary Officers and Zhang Jie.

36.As Zhang Jie has deposed in his 3^rd Affirmation, the two Notary Officers have indicated that they are unwilling to come to Hong Kong to give evidence, for they consider that they have no obligation to do so.

37.This is undesirable for the Hong Kong court clearly lacks the power to subpoena these unwilling, yet disinterested, witnesses given that they reside outside the territory of Hong Kong.

38.On the other hand, in the absence of proof of foreign law, it should be presumed that similar rules of subpoena are available to the PRC court for witnesses residing within the PRC.

39.In the premises, given the circumstances of the case, and in particular the very serious accusations made againstboth the guards and the Notary Officers (as outlined above) and the importance of their evidence to the very matters in dispute between the plaintiffs and defendants in this matter, it is important that the relevant witnesses are/can be made available.

40.I agree with Mr Maurellet that having the trial in Hong Kong, which has no connection to the facts leading to the dispute, and where most of the key actors will not be present, would be very undesirable.

B6. Putative law immaterial

41.Similarly, as the case turns substantially on questions of fact, there is not so much a legal dispute as to whether certain acts constitute duress or not; or whether such acts are sufficient to invalidate the agreements.

42.It thus follows that the governing law stipulated in the various agreements is of little, if any, significance when it comes to determining the jurisdiction with the most substantial connection.

43.In any event, the defendants’ PRC expert has pointed out that the application of Hong Kong law does not affect the jurisdiction of the PRC court to try the case.  It is neither unusual nor difficult for the PRC court to handle cases involving the application of foreign law.  The expert has quoted various PRC legislations which provide the mechanism for the application of foreign law.

44.Furthermore, in any event, “duress” is not necessarily a novel concept and therefore it is not contemplated that much assistance will be required from “common law experts”.  Thus, I agree with Mr Maurellet’s submissions that the governing law of the various agreements and the application of Hong Kong law should have minimal, or no, bearing on the question of forum conveniens in the present case.

B7. Non-exclusive jurisdiction clause also immaterial

45.I agree with Mr Maurellet that it is also immaterial that there is a non‑exclusive jurisdiction clause in favour of the Hong Kong courts contained in the agreements signed by the 2^nd plaintiff.

46.The grounds advanced by the plaintiffs in contesting the validity of the various agreements may also suffice to invalidate the jurisdiction clauses contained in those agreements.  In Fiona Trust & Holding Corp v Privalov [2008] 1 Lloyd’s Rep 254, Lord Hoffmann held at paragraph 17, in the context of an arbitration agreement, that:

“… Of course there may be cases in which the ground upon which the main agreement is invalid is identical with the ground upon which the arbitration agreement is invalid. For example, if the main agreement and the arbitration agreement are contained in the same document and one of the parties claims that he never agreed to anything in the document and that his signature was forged, that will be an attack on the validity of the arbitration agreement. But the ground of attack is not that the main agreement was invalid. It is that the signature to the arbitration agreement, as a ‘distinct agreement’, was forged. Similarly, if a party alleges that someone who purported to sign as agent on his behalf had no authority whatever to conclude any agreement on his behalf, that is an attack on both the main agreement and the arbitration agreement”. (emphasis supplied)

47.The above dicta was cited in Civil Jurisdiction and Judgments (5^th ed, 2009), in which the learned editors opined, at paragraph 4.44, that:

“… if a person has allowed himself to stray close enough to an agreement on jurisdiction which may be valid, he runs the risk of being required to accept that it may be binding on him whether or not any contract with which it was to be associated was itself concluded. Of course, if he alleges that the contract was not made by him – that the case is one of mistaken identity, or of non est factum, or of forgery – that will be different...” (emphasis supplied)

48.The defendants also rely on the case of Mackender v Feldia AG [1967] 2 QB 590, where at 598 C‑E, Lord Denning MR had this to say:

“I can well see that if the issue was whether there ever had been any contract at all, as, for instance, if there was a plea of non est factum, then the foreign jurisdiction clause might not apply at all. But here there was a contract, and when it was made, it contained the foreign jurisdiction clause. Even if there was non‑disclosure, nevertheless non‑disclosure does not automatically avoid the contract. It only makes it avoidable. It gives the insurers a right to elect. They can either avoid the contract or affirm it. If they avoid it, it is avoided in this sense, that the insurers are no longer bound by it. They can repudiate the contract and refuse to pay on it. But things already done are not undone. The contract is not avoided from the beginning but only from the moment of avoidance. In particular, the foreign jurisdiction clause is not abrogated…” (emphasis supplied)

49.Mr Jin Pao (and with him Mr Adrian But), counsel for the plaintiffs, try to get around the problem by offering an undertaking on the part of the plaintiffs not to pursue in these proceedings with any claim based on non est factum if the defendants’ stay application is dismissed.

50.I agree with Mr Maurellet that giving such an undertaking at the present stage will not assist the plaintiffs.  The fact is that leave to serve out of jurisdiction had been given by the Master based on the existing pleadings.  There is currently no application by the plaintiffs to amend the Statement of Claim (which includes a plea that the agreements executed by the 2^nd plaintiff are void by the doctrine of non est factum – see paragraph 4 above).  I agree that the applications should be decided on the existing pleadings.

B8. Related proceedings in the PRC

51.Furthermore, it should be pointed out that the 2^nd plaintiff himself had commenced and pursued proceedings in the Shanghai court, on the basis of substantially similar factual premises.  The 2^nd plaintiff’s claim concerned a share transfer agreement signed on 12 March 2012, and the attempt to invalidate this agreement was largely based on similar grounds as those relied upon in the present action.

52.The crux of the matter in both the PRC actions as well as the present action is whether the 2^nd plaintiff was under duress or coercion at the material time, when he was supposedly under unlawful detention, so as to invalidate the subject agreements.

53.In the leading case of The El Amria [1981] 2 Lloyd’s Rep 119, in which the English Court of Appeal highlighted the undesirability of multiplicity of proceedings, Brandon LJ at 128 held:

“I agree entirely with the learned Judge’s view on that matter, but would go rather further than he did in the passage from his judgment quoted above. By that I mean that I do not regard it merely as convenient that the two actions, in which many of the same issues fall to be determined, should be tried together; rather that I regard it as a potential disaster from a legal point of view if they were not, because of the risk inherent in separate trials, one in Egypt and the other in England, that the same issues might be determined differently in the two countries …”

54.Likewise, in Donohue v Armco Inc [2001] UKHL 64, the House of Lords declined to give effect to an exclusive jurisdiction clause, where interests of other parties were involved or that there was a risk of contrary decisions in parallel proceedings.  Lord Bingham held, at paragraph 34, that:

“… Determination of the truth or falsity of that allegation lies at the heart of the dispute concerning the transfer agreements and the sale and purchase agreement. It will of course be necessary for any court making that determination to consider any contemporary documentation and any undisputed evidence of what was said, done or known. But also, and crucially, it will be necessary for any such court to form a judgment on the honesty and motives of the four alleged conspirators. It would not seem conceivable, on the Armco case, that some of the four were guilty of the nefarious conduct alleged against them and others not. It seems to me plain that in a situation of this kind the interests of justice are best served by the submission of the whole dispute to a single tribunal which is best fitted to make a reliable, comprehensive judgment on all the matters in issue. A procedure which permitted the possibility of different conclusions by different tribunals, perhaps made on different evidence, would in my view run directly counter to the interests of justice.” (Emphasis supplied)

55.I agree with Mr Maurellet that it would be undesirable for the present action to proceed in Hong Kong, whilst the PRC actions proceed in China.

B9. Conclusion on the Setting Aside Application

56.For the reasons set out above, I hold that the plaintiffs have failed to discharge their burden of establishing that Hong Kong is clearly the “appropriate” or “natural” forum with which the present action has the most real and substantial connection.

57.Accordingly, the order of Master H Au Yeung dated 29 October 2013 should be set aside.

C. STAY APPLICATION

C1. Applicable legal principles

58.The relevant principles from Spiliada Maritime Corp v Cansulex Ltd [1987] 1 AC 460 were formulated into a 3‑stage approach by the Hong Kong Court of Appeal in The Lanka Muditha [1991] 1 HKLR 741 at 744 A‑D as follows:

(1)   Is it shown that Hong Kong is not only not the natural and appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong;

(2)   if the answer to (1) is yes, will a trial at the other forum deprive the plaintiff of any legitimate personal or juridical advantage.  The evidential burden lies on the plaintiff; and

(3)   if the answer to (2) is yes, a court has to balance the advantages of (1) against the disadvantages of (2).  Deprivation of one or more personal or juridical advantages will not necessarily be fatal to the applicant provided that the court is satisfied that notwithstanding such loss substantial justice will be done in the available forum.  Proof of this rests upon the applicant.

C2. PRC court more appropriate than Hong Kong

59.According to Cheung JA in the Dynasty Line case, supra, at paragraph 75:

“The burden is, of course, reversed in the first defendant’s application to stay the action against him based on forum non conveniens. He bears the burden of showing that not only is Hong Kong not the natural or appropriate forum in the sense I have addressed but there is another jurisdiction available which is clearly or distinctly more appropriate than the Hong Kong forum: Spiliada…and Louvet… Many of the matters I have discussed earlier onconnecting factors in relation to the second defendant apply to the first defendant as well…” (emphasis supplied)

60.Thus, I agree with Mr Maurellet that the factors identified and discussed above under Section B in relation to the Setting Aside Application apply equally here, such that Hong Kong is not the natural or appropriate forum and that the identified PRC Court is clearly or distinctly the more appropriate forum.

C3. No juridical disadvantage to the plaintiffs

61.It is nowadays unlikely that concerns as to the quality of justice to be had in mainland courts per se will persuade the Hong Kong court not to grant a stay in favour of the PRC.  It is open to plaintiffs in Hong Kong to make allegations of a denial of justice, but these must be asserted candidly and supported by cogent and positive evidence, which is lacking in the present case.  In this regard, it is again emphasised that the 2^nd plaintiff himself has commenced proceedings in the PRC court.

62.In the present case, the 2^nd defendant was sued by the plaintiffs as of right in Hong Kong because the 2^nd defendant is a Hong Kong registered company.  However, by virtue of the true nature of the dispute, it seems wholly unnecessary for the 2^nd defendant to be joined as a party in the first place.  As an illustration, where Party A agreed to sell his shares in HSBC to Party B allegedly under duress by the latter, surely it would not be right (nor necessary) to join the bank as a party.

D. CONCLUSION

63.In the premises, I hold that the order of Master H Au Yeung dated 29 October 2013 giving leave to the plaintiffs to serve the Concurrent Writ of Summons out of jurisdiction should be set aside, and that the Hong Kong action should be stayed in favour of the PRC court, as being the distinctly more appropriate forum.

64.There will be liberty to the parties to apply if any difficulty is encountered in the drafting of the formal order.

65.I make a costs order nisi that the plaintiffs do pay to the defendants the costs of the Setting Aside Application and the Stay Application, such costs to be taxed if not agreed and paid forthwith.  The costs order nisi shall become absolute in the absence of application to vary within 14 days. 

66.Lastly, I thank counsel for their helpful assistance in this matter.

Mr C Y Li SC and Mr Adrian But (on 24 June 2014); Mr Jin Pao and Mr Adrian But (on 29 September 2014), instructed by Leung & Lau, for the plaintiffs

Mr Jose-Antonio Maurellet and Mr Michael Lok, instructed by Latham & Watkins, for the defendants