Amed Holding (Hong Kong) Ltd v. Wong Sy Kee and Another

CACV 171/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 171 OF 2014

(ON APPEAL FROM HCA 1879 OF 2012)

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J U D G M E N T

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Hon Cheung JA :

I. The appeal

1.1This is an appeal by the 1^st, 2^nd, 4^th and 5^th defendants by counterclaim (‘the applicants’) against the judgment of Suffiad J who refused their application to stay the counterclaim against them on the ground of forum non conveniens. 

1.2The 1^st defendant in the main action is the plaintiff by counterclaim.  He and his wife (the 2^nd defendant in the main action) act in person.  AMED HK who is the 6^th defendant by counterclaim is legally represented.  It takes a neutral stand in the appeal and has been excused from attending the appeal.  The counterclaim against the 7^th and 8^th defendants was withdrawn at the time of the hearing of the stay application below.

II.  Background of the case

1)  The parties

2.1AMED HK, the plaintiff in the main action and the 6^th defendant by counterclaim, is a Hong Kong company.  It was established to enable Wong Su Yong (‘Father’), the 1^st defendant by counterclaim, who is a Malaysian businessman living in Sabah, Malaysia to hold a property in Yuen Long (‘the Yuen Long shop’).  Sim Siew Ching (‘Mother’), the 2^nd defendant by counterclaim, is his wife.

2)  AMED HK

2.2The shareholders of AMED HK are three of the four children of Father, namely, Wong Sy Chyun (‘Anthony’) the 3^rd defendant by counterclaim, Wong Sye May (‘May’) the 4^th defendant by counterclaim and Wong Sy Kee (‘Donald’) the 1^st defendant in the main action and the plaintiff by counterclaim.  Initially Donald and May were the directors of AMED HK.  May’s directorship ceased as of 24 February 2009 at the same time Donald’s wife (the 2^nd defendant in the main action) became a director.  The directorship of both Donald and his wife in AMED HK ceased as of 6 October 2011 when May was re-appointed to be a director of AMED HK.

2.3The Yuen Long shop has been used by Donald who is a medical practitioner as his clinic.

3)  The main action

2.4In the main action which was commenced on 10 October 2012, AMED HK sued Donald and his wife on the ground that when Donald and his wife were directors of AMED HK, they had in breach of their fiduciary duties as directors withdrawn moneys from the bank account of AMED HK with HSBC.  The withdrawn funds from AMED HK had been put into accounts of Donald and as such are held on trust by Donald for AMED HK and it follows that Donald is under a further duty to account to AMED HK as a trustee.

2.5The relief sought against Donald and his wife are for :

.1) an account of such withdrawals;

.2) damages for breach of fiduciary duties and/or account of profits;

.3) an order for payment of what is found due to AMED HK upon the accounts;

.4) interest and costs.

2.6As against Donald alone, the case of AMED HK is that AMED HK is and has been the registered owner of the Yuen Long shop but the title deeds are kept by Donald who, despite repeated demands, has refused to return them to AMED HK.

2.7AMED HK further claimed that since July 2009 Donald has been occupying the Yuen Long shop without paying any rent to AMED HK.  AMED HK has, by solicitor’s letter dated 18 November 2011, demanded vacant possession of the Yuen Long shop from Donald but he has refused to comply with the demand.

2.8AMED HK claims against Donald for :

.1) an account and inquiry of the sums held on trust by Donald;

.2) an order for payment of such amount found due to AMED HK upon taking of the account;

.3) an order for delivery up and return of all the title deeds of the Yuen Long shop;

.4) delivery up of vacant possession of the Yuen Long shop;

.5) damages and/or mesne profits for breach of fiduciary duties and the occupation of the Yuen Long shop; and

.6) interest and costs.

4)  Defence of Donald and his wife

2.9The defence of Donald and his wife to the claim in the main action are summarised by the Judge as follows :

‘ 28. Firstly, they admitted having withdrawn monies from the bank account of AMED HK but pleaded that the funds of AMED HK were either advanced by Donald or Father. Such withdrawals were not misappropriation but repayment to Donald or Father and that the other directors of AMED HK, in particular May, were aware of the withdrawals at the time of the withdrawals and no objection were raised by them. May also knew full well what the withdrawals were used for by Donald.

29. It was also pleaded by way of defence that AMED HK suffered no loss by reason of the misappropriation because it had no business operation.

30. Thirdly, it was pleaded that Donald’s wife was not a director of AMED HK when most of the withdrawals were made and therefore had no duty to account.

31. As for the claim for vacant possession of the Yuen Long Shop, the return of the title deeds and the claim for mesne profits, Donald says that he was ready willing and able to give vacant possession of the Yuen Long Shop and had indeed in November 2012 travelled to Singapore in an attempt to hand over the keys of the Yuen Long Shop to Anthony, but Anthony declined to accept the keys from Donald asking Donald to deal with the matter through the parties’ lawyers.’

5)  Donald’s counterclaim

2.10At the same time, Donald raised a counterclaim against the defendants.  Before I refer to the nature of the counterclaim, it is necessary to note that Father had also established two Malaysian companies, the 7^th and 8^th defendants.  His children who also include Wong Sy Vui (‘Edward’) the 5^th defendant by counterclaim, are also given shares in these two Malaysian companies.  The Judge summarised the nature of the children’s holding of the shares in the Malaysian and Hong Kong companies as follows :

‘ 11. It should be noted that it is the contention of Father that the shares in the Malaysian Companies as well as in AMED HK were put into the names of his children but only to be held by them on trust for him during his lifetime and that it was only upon his death that his children would become the full owners of the shares in their respective names. Donald takes issue with that contention of Father. Donald alleges that the shares [registered in] his name in AMED HK were absolute gifts to him by Father.’

2.11The Judge then summarised the background of the counterclaim and the relief sought in the counterclaim as follows :

‘ 13. Towards the end of 2010 or early 2011, the entire Wong family gathered in Sabah to celebrate the parent’s 50^th anniversary.

14. At around that time, allegations were made that Donald had been using the Yuen Long Shop without paying any rent to AMED HK and that both Donald and his wife had wrongfully misappropriated funds from the bank account of AMED HK.

15. Donald then proposed to exchange the shares registered in his name in the Malaysian Companies for the shares of his other siblings in AMED HK.

16. Anthony drafted a home made written memo evidencing such oral agreement. Because the first copy of the memo contained a mistake as to the address of the Yuen Long Shop, a second corrected copy was made (“the Written Memo”).

17. In June or July 2011, Donald signed the Written Memo in Sabah together with certain forms for the transfer of his shares in the Malaysian Companies, and the director’s resignation form in respect of AMED Malaysia (“the Transfer Documents”).  All these documents signed by Donald were witnessed by May and she was told by Father to keep those documents safely.

18. The following day after signing on the documents above, Donald demanded the return of the executed documents. Donald wrote to the company secretary of the Malaysian Companies alleging that he was under the influence of drug and alcohol when he executed those documents in Sabah.

19. Donald also lodged criminal complaints with the Royal Malaysian Police in Sabah against May and Edward alleging that the documents were stolen from him and that his signature on the share transfer documents had been forged.

20. In August and September 2011 some efforts were made in an attempt to settle the dispute between the family members but ultimately these negotiations failed.

……

36. Donald’s counterclaim against his family members is based on contract. It is Donald’s contention that the Written Memo is a binding and enforceable contract between the family members.  By and large the counterclaim seeks enforcement of that contract evidenced by the Written Memo, alternatively, damages for breach of same.

37. The reliefs sought by Donald in his Re-Re-Amended Counterclaim are as follows:

(a) A mandatory injunction for May and Edward to cause and procure AMED HK to assign the Yuen Long Shop to Donald or his nominee, alternatively for May and Edward to transfer the Yuen Long Shop to Donald or his nominee by transferring all their shares in AMED HK to Donald or his nominee;

(b) Damages for breach of the Written Memo by the other members of the Wong family except Anthony;

(c) Alternatively to (a) and (b) above, if the Written Memo is not binding and enforceable, a declaration that the transfer of Donald’s shares in the Malaysian Companies to the other members of the Wong family is invalid and void with damages for the wrongful acts by the other members of the Wong family;

(d) As against AMED HK, an order that AMED HK transfer, assign and convey all the legal and equitable title and interests in the Yuen Long Shop to Donald and/or his nominees.

38. The Applicants have not as yet pleaded by way of defence to the counterclaim, but their stance can be gathered from the affidavit evidence filed herein.

39. The Applicant’s case is that even if the Written Memo was a valid and binding contract, it had been terminated by Donald’s breach by his attempt to keep the Ninja Malaysia shares after execution of the Written Memo and the Transfer Documents, as well as alleging that May stole the documents from him in order to interrupt the performance of the Written Memo.’

6)  The Written Memo

2.12The Written Memo was signed by all the family members.  AMED HK and the two Malaysian companies are not signatories to the Written Memo, the content of which is as follows :

‘1.(1) In 2008, the shareholders of AMED Enterprise Sdn Bhd and Ninja Enterprise Sdn Bhd (Shareholders–Wong Su Yong, Sim Siew Ching, Wong Sy Chyun, Wong Sye May, Wong Sy Vui and Wong Sy Kee) desired to purchase a shop unit in Yuen Long, Hong Kong for investment. Wong Sy Kee was appointed as the Shareholders’ agent and representative to effect this investment.

(2) The Shareholders remitted HK$7,204,610.95 on 21 July 2008 to Wong Sy Kee for the purchase of the Yuen Long shop unit and associated expenses.  The purchase price of the shop unit was HK$5,500,000.00.

(3) Wong Sy Kee proposed to rent the above shop unit from the Shareholders to operate a medical clinic after vacant possession of the shop unit.  The monthly rental would be set at prevailing market rate.  The five other Shareholders (Wong Su Yong, Sim Siew Ching, Wong Sy Chyun, Wong Sye May and Wong Sy Vui) agreed to this arrangement.  No rental has been paid to the Shareholders since vacant possession of the shop unit.

2.(1) In March 2011, Wong Sy Kee proposed to the five other Shareholders to have sole ownership of the above shop unit for himself.  In return, Wong Sy Kee will transfer his existing share holdings in AMED Enterprise Sdn Bhd and Ninja Enterprise Sdn Bhd to the five other Shareholders named above.  The five other Shareholders–Wong Su Yong, Sim Siew Ching, Wong Sy Chyun, Wong Sye May, Wong Sy Vui agreed to Wong Sy Kee’s above proposal.

(2) Wong Sy Kee presently hold the following shares :

AMED Enterprise Sdn Bhd    50,000 shares.

Ninja Enterprise Sdn Bhd 200,000 shares.

3.(1) Wong Sy Kee will proceed to effect transfer of his shares in AMED Enterprise Sdn Bhd and Ninja Enterprise Sdn Bhd to the five other share holders in the following manner as agreed by all parties:

(a) AMED Enterprise Sdn Bhd

10,000 shares each to Wong Su Yong, Sim Siew Ching, Wong Sy Chyun, Wong Sye May and Wong Sy Vui.

(b) Ninja Enterprise Sdn Bhd

40,000 shares each to Wong Su Yong, Sim Siew Ching, Wong Sy Chyun, Wong Sye May and Wong Sy Vui.

4. Pursuant to Paragraph 3 above, Wong Sy Kee will proceed to effect withdrawal as Director in AMED Enterprise Sdn Bhd and Ninja Enterprise Sdn Bhd and Partner in AMED Holdings Singapore LLP.

5. The five remaining Shareholders will take necessary action to effect transfer of the Yuen Long shop unit to Wong Sy Kee after the share transfer in Paragraph 3 above is completed.’

2.13For ease of reading, I have numbered the subparagraphs in each of the three original paragraphs of the Written Memo.

III.  Principles on forum non conveniens

3.The Court’s approach to forum non conveniens is set out by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364 :

‘ 51. We adopt the re-statement of the principles in matrimonial proceedings by the Court of Appeal (Cheung JA and Tang JA (as he then was)) in DGC v SLC (née C) [2005] 3 HKC 293, 297-298, applying Spiliada Maritime Corporation v. Cansulex Limited [1987] 1 AC 460, 477 and Louvet v. Louvet [1990] 1 HKLR 670, 674-675:

“ 1. The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

2. In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

3. If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

4. If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.” ’

IV.  The Judge’s decision

1)  Applicable law

4.1The Judge first rejected the contention by Donald that the applicable law on the counterclaim is the lex situs :

‘ 107. It was the contention by counsel for Donald that the applicable law in so far as the counterclaim goes is the lex situs, on the basis that subject matter in dispute where the Written Memo is concerned in primarily the Yuen Long Shop being a landed property in Hong Kong, which Donald says was at all times intended to be given to him (Donald) by Father. It was also submitted that the performance of the Written Memo, when properly understood, would involve primarily the transfer of the Yuen Long Shop to Donald, the transfer of the shares in AMED HK (to achieve the same effect) being only secondary. That contention was based on the wording employed in the Written Memo in which it was stated: [the paragraph 2.(1) of the Written Memo was then cited.]’

4.2The Judge’s reason for rejecting this contention is simply that as AMED HK was not a party to the Written Memo, it had not agreed to transfer the Yuen Long shop to Donald.  At best, the other parties to the Written Memo could only have agreed to transfer each of their respective shareholdings in AMED HK to Donald, but they had no locus standi to agree to the transfer of the Yuen Long shop without AMED HK being a party to the Written Memo. 

2)  Subject matter of the counterclaim

4.3The Judge held that the Yuen Long shop cannot be the subject matter of the Written Memo and therefore of Donald’s counterclaim.

3)  Reasons for refusing the stay application

4.4The Judge recognized the ‘attractive complexion’ of the applicants’ submission for staying the counterclaim but rejected the stay application on the following grounds :

.1) As a general rule, a claim and counterclaim should be tried together.

.2) There are underlying background to both the main action and counterclaim, namely,

.2.1) Donald’s contention that Father wanted to give the Yuen Long shop to Donald which is not admitted by the applicants is a contentious issue in the counterclaim.  This is also Donald’s defence in the main action.

.2.2) Whether the shares of AMED HK were held in trust for Father and would not be distributed to the children under Father’s death, as contended for by the applicants but denied by Donald who claimed that the shares were outright gifts, is another contentious issue common to both the main action and counterclaim.

.2.3) Given these common issues it is inconceivable that the plaintiff in the main action will not call Father as a witness, since Father alone is the only person who can rebut Donald’s allegation that the Yuen Long shop was intended by Father to be a gift to him.

.2.4) Further it does not make sense for evidence relating to that underlying background to be given twice over, once in the Court in Hong Kong in the main action, and again in the Malaysian Court on the counterclaim.  Given that underlying background being a significant nexus between the main action and the counterclaim, it would be a very strong reason for the Court refusing to sever the main action from the counterclaim and to have each of them tried in different jurisdictions.

.2.5) On the pleadings as they now stand, the shares in the Malaysian companies are no longer the subject matter of dispute in this litigation, and Donald no longer pursues any claim for them in the counterclaim.  However, the shares in AMED HK are still the subject of dispute, both in the main action as well as in the counterclaim.

.2.6) There is no and can be no dispute that the main action is to be heard by the Hong Kong Court since the subject matter of the main action is the Yuen Long shop, a landed property situate within the jurisdiction of the Hong Kong Court.  It would therefore make sense for the Hong Kong Court to try both the main action and the counterclaim together because any order made by the Court in Hong Kong in relation to the shares of AMED HK can simply be enforced in Hong Kong.  On the other hand, an order of the Malaysian Court relating to the shares of AMED HK would need to be enforced in Hong Kong under the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap. 319.

.2.7) The fact that some documents are located in Sabah, Malaysia is not, per se, a matter for which great weight can be attached in coming to a decision on this application.  Given modern technology, those documents or copies of them can be made available even if the trial is to take place in the Hong Kong Court.

4)  The focus of the judgment below

4.5It is clear from a reading of the judgment below that the focus of discussion is centered on the undesirability of splitting up the trial of the claim in the main action on the one hand and the counterclaim on the other hand.  The Judge has, of course, set out in the judgment the arguments relied upon by the applicants for the stay of the counterclaim, namely :

‘ 44. Firstly, the Written Memo forms the basis of Donald’s counterclaim. The Written Memo was negotiated and executed in Sandakan, Sabah.

45. Secondly, that contract, as evidenced by and contained in the Written Memo was breached by Donald in Sandakan when Donald went back on his own words and demanded to keep the shares in AMED Malaysia.

46. Thirdly, had that contract not been breached by Donald, it would have been performed in Sandakan, Sabah.

47. Fourthly, even on Donald’s own case, the alleged breach of the Written Memo caused by the wrongful acts of May and or the other members of the Wong family must have taken place in Sandakan, Sabah.

48. Fifthly, given the above matters, since there is no governing law clause in the Written Memo, the fact that the Written Memo expressly describes the parties thereto as entering the agreement in their capacity as shareholders of the Malaysian Companies and the fact that three of the parties to the Written Memo reside in Sabah, the general rule of law would dictate that the Written Memo is governed by Malaysian law.

49. Sixthly, in so far as witnesses in the counterclaim are concerned, the key witnesses are Father, Mother, May, Edward, Anthony, Donald and the company secretary of the Malaysian Companies.

50. Father, Mother, May and the company secretary all reside in Sabah. Father is aged 86, suffers from hypertension and glaucoma and needs regular medical check-up. Moreover, Father has to use a wheelchair. It is therefore more convenient for them to testify in a Malaysian court.

51. Edward and Anthony, although settled in Singapore, travel to Sabah frequently to visit their parents. Whether the trial is in Hong Kong or Malaysia, they will still have to travel there from Singapore.

52. Donald, although a Hong Kong resident, was born and raised in Sabah and is a Malaysian citizen holding a Malaysian passport. It cannot be disputed that he has a close connection with Malaysia.

53. In response to Donald’s suggestion that evidence can be given by video-link, the Applicants say that video-link is the exception rather than the rule and in a case such as the present which is highly fact-sensitive and credibility of the witnesses are of crucial importance to the court’s findings of fact, video-link would not be an appropriate alternative to live evidence from the witnesses.

54. Seventhly, most of the documents to be adduced as evidence in the counterclaim are located in Malaysia. They include correspondences between the parties, statements made in the criminal investigation lodged by Donald, documents kept by the Companies Commission of Malaysia and documents filed in the defamation action in the Malaysian court. Moreover, the Written Memo is located in Malaysia, being the subject of criminal investigation by the Malaysian police.

55. Finally, it was submitted that since related criminal investigation and defamation proceedings concerning the signing of the Written Memo is on-going in the Malaysian court, and albeit that the causes of action are different in the defamation action, nevertheless, the underlying facts in dispute in the defamation action duplicate or overlap with the present counterclaim by Donald. There is therefore a real risk of contradictory findings of facts being made by the Hong Kong and Malaysian courts if the counterclaim is tried in Hong Kong.

56. Furthermore, Father and Mother are contemplating a further action in Malaysia to recover from Donald loans made by them to Donald for some MYR438,565 over the years to enable Donald to purchase a condo in Sabah which loans Donald have failed to repay.

57. Given the above, it was submitted by the Applicants that it would be more appropriate for all the relevant disputes between the members of this Malaysian family to be heard and resolved in the Malaysian Court to avoid multiplicity of proceedings, and that the Malaysian Court is clearly and distinctly the more appropriate forum to try the counterclaim of Donald.’

4.6However, the Judge only slightly touched upon this question in the judgment when he held that :

‘ 114. Once that premise is reached, the contention by the Applicants that the counterclaim, being a dispute within a Malaysian family, relating to the performance of the Written Memo executed by the respective parties in Malaysia appears to take on an attractive complexion.’

4.7The premise that the Judge referred to is his holding that the Yuen Long shop cannot be the subject matter of the Written Memo and therefore of Donald’s counterclaim.

V.  The applicants’ case on appeal

5.Ms Frances Lok for the applicants, who ably conducted the appeal, does not challenge the Judge’s approach.  Her appeal is based on two limbs.  First, the Judge’s holding that the main action and counterclaim are closely connected is wrong.  Second, while the Judge had set out some of the factors relied upon by the applicants in favour of a stay, he had not fully addressed all the factors and his ruling on some of the factors is wrong.

VI.  My view

1)  The Judge’s approach

6.1In my view what the Judge had done is to use the nexus between the main action and counterclaim as the backdrop upon which he considered the factors relied upon by the applicants in support of staying the counterclaim in favour of Sabah, Malaysia.  This is justified because the applicants have to show not only is Hong Kong not the appropriate forum but Sabah, Malaysia is clearly more appropriate than Hong Kong.  If the main action and counterclaim should be tried together and since the applicants who control AMED HK have chosen to litigate the main action in Hong Kong, then they cannot even begin to show Hong Kong is not the appropriate forum.  But in any event, the Judge had also assessed the factors in favour of Sabah (subject to Ms Lok’s arguments on the correctness of the assessment).

6.2I have to say that the topic of the nexus between the main action and counterclaim is also relevant to the question of juridical advantage that Donald may be deprived of in the event it is established by the applicants that Sabah, Malaysia and not Hong Kong is the appropriate forum because the stay of the counterclaim will prevent him from meeting and extinguishing the claim in the main action full on.

2)  Nexus between the main action and counterclaim

6.3That in general a claim and counterclaim should be tried together, particularly when there are common issues and common witnesses, is a sound principle which is based on an efficient disposal of the issues and economical use of the Court’s resources.  This is expressly recognized by the procedural rules under Order 15, rule 2 of the Rules of the High Court (‘RHC’) which allows the defendant to make a counterclaim against the plaintiff and such counterclaim must be added to the defence.  Order 15, rule 3 further allows a defendant to make a counterclaim against additional parties other than those parties named in the claim.

6.4That in this case there are common issues in the main action and counterclaim as identified by the Judge cannot be seriously challenged.  In this case, in the main action, AMED HK contends, among other things, that Donald has been in breach of his fiduciary duty as its director by not paying rental for the use of the Yuen Long shop at least since July 2009.  In Donald’s Re-Re-Amended Defence and Counterclaim, he expressly pleaded that Father had offered him to use the Yuen Long shop for as long as he wished without the need of paying rent.  The fact that Donald has also pleaded that he is willing to give up vacant possession of the Yuen Long shop and had attempted to return the keys to his siblings but without success and had actually moved out of the premises does not mean the circumstances of the Yuen Long shop’s acquisition and its rent free use are not relevant to the claim in the main action at all because Donald’s actions taken in relation to the Yuen Long shop do not affect his contention that he has not breached any fiduciary duty.  Further, Donald has expressly pleaded that he chose not to assert his rights concerning the Yuen Long shop because he wished to avoid conflict with his siblings when family dispute arose in mid-January 2011 after Father asked him to return to Sabah, Malaysia to help out with the family business.

6.5Further, the mere fact that Donald is relying on a contract in the form of the Written Memo in the counterclaim does not mean that the matter of the Yuen Long shop becomes irrelevant.  It provides the background to the reason why he was prepared to sign the Written Memo giving up his interest in the Malaysian companies.

6.6Likewise, the same reasoning applies to Donald’s contention on the nature of his shareholdings in AMED HK.

3)  Outside the ambit of Order 15, rule 3?

6.7Ms Lok relying on the Judge’s rejection of Donald’s contention that the primary subject matter of the counterclaim is the Yuen Long shop and the proper law of the counterclaim is the lex situs, submitted that the joinder of the applicants in the counterclaim falls outside the permissible ambit of Order 15, rule 3 which provides :

‘ Where a defendant to an action who makes a counterclaim against the plaintiff alleges that any other person (whether or not a party to the action) is liable to him along with the plaintiff in respect of the subject-matter of the counterclaim, or claims against such other person any relief relating to or connected with the original subject-matter of the action, then, subject to rule 5(2), he may join that other person as a party against whom the counterclaim is made.’

6.8That the subject matter of the counterclaim is the Written Memo cannot be doubted but it does not mean that there has been a wrong joinder of parties.  This is so irrespective of the issue relating to the proper law of the contract.  First, Donald’s counterclaim against AMED HK is not outside the ambit of Order 15, rule 3.  The argument raised by Ms Lok is whether there is any cause of action by Donald against AMED  HK.  But as Donald in his counterclaim against May and Edward is asking for an order directing them to procure AMED HK to transfer the shares back to him, I see no reason why AMED HK cannot be joined as a party so as to ensure that it will observe the order as well.  The ‘relating to and connected with the original subject matter of the action’ requirement is satisfied.  The fact that Donald may not be entitled to seek an order that AMED HK transfer the Yuen Long shop to him (which he has also pleaded in the prayer of the counterclaim) is irrelevant.

6.9As for joinder of the other applicants, Ms Lok further submitted that under the Written Memo, Donald is at most entitled to the share swap against the applicants (in fact Donald had admittedly elected for the transfer of the AMED HK shares).  The share swap is in any event a different subject matter from a direct transfer of the Yuen Long shop which Donald claims against AMED HK.  Further, the relief claimed by Donald against the applicants in the counterclaim (enforcement of the Written Memo and damages or declarations against the transfer of the Malaysian Shares) has nothing to do with the subject matter of the main action (possession of the shop, mesne profits, account of profits to AMED HK).

6.10In my view, Ms Lok is taking too restrictive a view of the words ‘relief relating to or connected with the original subject-matter of the action’ in Order 15, rule 3.  The cause of action in the main action against Donald is for breach of fiduciary duty.  The relief sought by Donald in the counterclaim, namely, May and Edward to procure the transfer of shares in AMED HK, damages, and the alternative relief of restoring the original shareholding of the parties is based on the factual foundation of the circumstances of the acquisition of the Yuen Long shop, the gift of the shares in the Malaysian companies to Donald by Father, May’s own withdrawal of funds from AMED HK, the siblings’ knowledge of Donald handling of the affairs of AMED HK without disagreement, and the events leading to the signing of the Written Memo.  These circumstances form the factual basis for Donald’s answer to the claim for breach of fiduciary duty.  The relief sought in the counterclaim is related to or connected with the subject matter of the main action.  One cannot and should not simply look in isolation at the form of the relief without looking at the factual background set out in the counterclaim, particularly at this stage of the proceedings when only pleadings have been exchanged.

6.11In my view the Judge’s view on the nexus between the claim in the main action and counterclaim cannot be faulted.  This nexus provides the most powerful reason for refusing to stay the counterclaim and yet allowing the claim in the main action to continue.

4)  Undertaking to stay main action

6.12Following the discussion between the Court and Ms Lok before she commenced her appeal, Ms Lok stated that the applicants are prepared to give an undertaking to stay the main action pending the resolution of the counterclaim in Sabah, Malaysia.

6.13Donald and his wife indicated that they are not willing to accept this approach. In my view, the staying of the main action in Hong Kong pending the resolution of the counterclaim in Malaysia does not resolve the problem of having the case litigated in two jurisdictions with the possibility of having different finding of facts by different tribunals.  More importantly, I do not consider at this stage of the proceedings that the resolution of the counterclaim in Sabah, Malaysia, will effectively determine the outcome of the claim in the main action.  There are simply too many variables and contingencies that one cannot comprehensively address now in order to safely say the claim in the main action itself will be determined without further arguments by a judgment of the Malaysian Court on the counterclaim.  Such uncertainties can only be resolved if both the claim in the main action and counterclaim are determined by one tribunal and in this case Hong Kong.

5)  Malaysian connecting factors

(1)  The applicants’ arguments

6.14I have earlier referred to the factors relied upon by the applicants in favour of the Malaysian Court and the Judge’s ruling on them.  Ms Lok further submitted that the Judge had either incorrectly addressed some of these factors or omitted to consider other relevant factors :

.1) Although the Judge was of the view that any order made by the Court in Hong Kong in relation to the shares of AMED HK can be directly enforced in Hong Kong, in fact Donald makes no claim against the shares of AMED HK themselves.  The primary relief he sought was a personal injunction against May and Edward, alternatively damages against his parents and siblings.  The parents and May are Malaysian residents and Edward has substantial connection with Malaysia.  They have no significant assets in Hong Kong.  However, the contrary situation is that the relief sought by Donald would be meaningful and effective if given and enforced by the Malaysian Court.

.2) Donald has withdrawn his claim against the two Malaysian companies and yet maintains the relief for a declaration that the transfer of Donald’s shares in the Malaysian companies to Father, Mother, Anthony, May and Edward is invalid and void and has no effect and damages. Ms Lok submitted that the transfer took place in Malaysia.  There is uncontested evidence on Malaysian law that such declaration made by the Hong Kong Court will not be enforced or recognized by the Malaysian Court, hence the order serves no useful purpose.  The Judge had failed to consider this at all.

.3) Although the Judge rejected Donald’s argument on the proper law, he had not actually ruled that the proper law of the Written Memo is Malaysian law which she contends to be applicable in this case.  She refers to Johnston’s The Conflict of Laws in Hong Kong, 2^nd Ed., paras. 5.004 and 5.009 that ‘the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connexion’.  She relied on the following matters in support of her argument :

.3.1) The parties to the Written Memo were Father, Mother, Donald, Anthony, Edward, and May in their capacity as shareholders of the two Malaysian companies.

.3.2) Among the parties, the parents and May are permanent residents of Malaysia.  Among the three sons, two are based in Singapore having connections with Malaysia but not Hong Kong.  Donald himself holds a Malaysian passport.

.3.3) Donald’s own pleaded case is that negotiation leading to the Written Memo started in Sandakan, Sabah during the celebration of his parent’s 50^th anniversary.  The Written Memo itself was undisputedly signed and witnessed in Sandakan.

.3.4) Donald’s own pleaded case is that the performance of the Written Memo would be carried out in Sandakan.

.3.5) On the applicants’ case, the contract was breached and terminated in Sandakan when Donald changed his mind.  On Donald’s case, the contract was breached when May and Edward refused to transfer the shares of AMED HK to him, which were also to take place in Sandakan as agreed.

.4) Ms Lok further submitted that the Judge is wrong to take the view that the applicants’ submissions came to one point only, namely that it would be convenient for Father to give evidence in the Malaysian Court because their case goes far beyond the convenience of Father.  The significant nexus between the counterclaim and the Malaysian Court includes all the factors she now submits and the conclusion (which the Judge failed to draw) that the Written Memo was governed by Malaysian law, the location of documents and witnesses, and the related criminal complaint and civil litigation on-going in Malaysia.  In respect of the Sabah civil litigation, a defamation claim brought by Edward and May against Donald, Ms Lok informed us that judgment had been obtained against Donald.  The applicants are no longer relying on the continuation of the civil action in the Malaysian Court.

.5) Ms Lok also argued that the Judge had failed to consider the relief claimed by Donald (the mandatory injunction against May and Edward, damages against his family members, and the declaration against the Malaysian Shares), should be granted and enforced by the Malaysian Court because :

.5.1) the declaration is not recognized in Malaysia if granted by the Hong Kong Court;

.5.2) May and Edward are not residents of Hong Kong;

.5.3) the applicants have no significant assets in Hong Kong.

.6) Ms Lok also argued that the inconvenience to the elderly parents caused by a trial in Hong Kong is a significant consideration on which the Judge did not put sufficient weight.  Donald argues that trial can be conducted via video-link, yet in the present counterclaim, all the key witnesses will be giving evidence via video-link except Donald himself.  This is most unsatisfactory and reflects the counterclaim’s meagre connection with Hong Kong.  There will also be daunting pre-trial legal process concerning discovery and witness statements that requires travel.  Further Donald argues that the counterclaim formed his main defence to the main action because if he succeeds in obtaining specific performance of the Written Memo, he owns AMED HK.  Despite the length of his pleading it is not so pleaded.  More importantly, this argument is a red herring because Donald can maintain the same position if the counterclaim is tried in the Malaysian Court.

(2)  The applicants fail to overcome the first hurdle

6.15It is not necessary for me to address these points because the applicants have failed to overcome the first task of showing that Hong Kong is not the appropriate forum.  In the context of this case, Hong Kong must be the appropriate forum because of the nexus between the claim in the main action and counterclaim.

(3)  Juridical advantage

6.16In any event, in so far as it may be necessary for this Court to exercise the discretion afresh, I am of the view that even if Sabah, Malaysia is the more appropriate forum, the juridical advantage that Donald may have for both the claim in the main action and counterclaim determined together in Hong Kong calls for the discretion to be exercised against the applicants.

VII.  Conclusion

7.I consider the Judge’s refusal to stay the counterclaim to be correct and for my part, I would dismiss the appeal with costs to Donald and his wife.

Hon Yuen JA :

8.1I have to say that when I first read the papers in this case, it seemed to me that the Malaysian Court was clearly the more appropriate forum as far as the counterclaim was concerned.  However it was just as clear that the counterclaim was intertwined with the main action, for which the Hong Kong Court was the appropriate forum.  Accordingly the question was whether the counterclaim could and should be separated from the main action, contrary to the usual practice. 

8.2It seemed that a deviation from the usual practice was viable because the plaintiff in the main action is AMED HK, the control of which company is an issue in the counterclaim.  If it were to be held that Donald controlled it, then obviously he would cause the company to discontinue the main action against himself and his wife.

8.3Accordingly one possible solution would be for the main action to be stayed pending the resolution in the counterclaim of the issue of control of AMED HK.  The Court put forward this idea for discussion at the hearing of this appeal.  It was not proposed by the applicants, whether before the judge or prior to the hearing before this Court, but the applicants indicated through their counsel that they were prepared to give such an undertaking.  Donald and his wife objected to this idea but they were disadvantaged in that it only arose at the hearing of the appeal and they did not have the benefit of legal advice.

8.4After some consideration, in the end I agree with Cheung JA that it would not be appropriate for this Court to allow the applicants’ appeal on the basis that they give an undertaking that the main action be stayed.  For one thing, AMED HK, the company that is the plaintiff in the main action and which has separate legal representatives from the applicants, is not before this Court.  Secondly, the terms of the stay would have to be considered and drafted carefully to avoid the variables and contingencies referred to by Cheung JA in paragraph 6.13 of his judgment.  It might well have been possible to craft clear and comprehensive terms for a stay had the idea been put forward below, with the benefit of input from all parties’ legal representatives and adjudication by the judge, but that is not possible at the hearing before this Court.

8.5Absent a stay of the main action, I agree with Cheung JA that the intertwining of the main action and the counterclaim is such that Suffiad J was clearly right to dismiss the application for stay of the counterclaim for forum non conveniens and the appeal must be dismissed with costs to Donald and his wife.

Hon Poon J :

9.1I agree with Cheung JA that this appeal should be dismissed with costs to Donald and his wife.  In light of the substantial intertwining of the main action and the counterclaim, they must be tried and determined by one tribunal.  And for the reasons stated by his Lordship, it must be Hong Kong.

9.2I would also mention that initially I was also attracted by the idea of staying the main action pending the determination of the counterclaim in Malaysia.  But like Yuen JA, after further consideration and for the reasons given by Cheung JA and her Ladyship, I am now convinced that it is after all not a viable option for the case to proceed.

Hon Cheung JA :

10.Accordingly the appeal is dismissed with costs to Donald and his wife.

Ms Frances Lok, instructed by Christine M. Koo & Ip, for the 1^st, 2^nd, 4^th and 5^th defendants (by Counterclaim)

The 1^st defendant (by Original Action) and the plaintiff (by Counterclaim) appeared in person

The 2^nd defendant (by Original Action) appeared in person

Attendance of Ma Tang & Co., for the plaintiff (by Original Action) and for the 6^th defendant (by Counterclaim) be excused