HO SIU PUI AND OTHERS v. YUE SHENG FINANCE LTD. AND ANOTHER

HCA 3060/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3060 OF 2001

____________

____________

_______________

J U D G M E N T

_______________

1. This is an appeal from the decision of a Master in which the application taken out by the 1st defendant Yue Sheng Finance Limited ("Yue Sheng"), for a stay of all further proceedings, alternatively for the striking out of the Statement of Claim, was dismissed. The Master dismissed the application because no supporting evidence was filed by Yue Sheng at the time of the hearing. In this appeal, I have allowed Yue Sheng to rely on evidence filed subsequent to the hearing before the Master and the plaintiffs to rely on evidence filed in answer.

2. The application for stay of proceedings is made under the inherent jurisdiction of the court, on the ground that the Hong Kong court is not the appropriate forum and that the court in mainland China is the most appropriate and natural forum. The application to strike out the Statement of Claim is made on the basis that the issues pleaded in these proceedings in Hong Kong are essentially the same as those raised in the defence in an action brought by Yue Sheng against two of the plaintiffs in the Intermediate People's Court in Zhongshan city, Guangdong province, China ("the mainland action"). It was contended that as these plaintiffs have chosen to commence this action in Hong Kong instead of litigating those issues in the existing mainland action, this would render the Hong Kong proceedings frivolous, vexatious or an abuse of the process of the court and the claim should be struck out on that ground.

3. I should mention that the 2nd defendant herein, Hi Sun Holdings Limited (this company was formerly known as Guangdong Corporation Limited, it had changed its name to Guangdong Building Industries Limited in December 1997 and then to its present name in June 2001, I shall refer to it as "GBI") does not take part in this application, nor is it a party in the mainland action. The 1st plaintiff herein, Mr Ho Siu Pui ("Mr Ho"), is not a party in the mainland action. The mainland action is brought by Yue Sheng alone against Yi Hua (Holding) Limited of Zhongshan city, the 2nd plaintiff herein ("Yi Hua") and Mr Chen Jianren, the 3rd plaintiff herein ("Mr Chen").

Background matters

4. Yue Sheng and GBI are companies incorporated in Hong Kong. Yue Sheng was and is a finance company and a licensed money lender. GBI has been carrying on business in construction and it has a wholly owned subsidiary in the business of construction materials known as Full Arts Metal Works Limited ("Full Arts"). The shares of GBI have been listed in Hong Kong since December 1997. At the time when the events which gave rise to this litigation took place, Yue Sheng and GBI were subsidiaries of Guangdong Investment Limited ("GDI"). Whilst Yue Sheng has remained a subsidiary of GDI, GBI has ceased to be so since about March 2001. Yue Sheng and GBI have filed separate pleadings in this action.

5. Yi Hua is a company incorporated in the mainland with Mr Chen as its legal representative and general manager. Yi Hua was the majority shareholder in a Sino-foreign joint venture company formed in Zhongshan in 1988 known as the Dynasty Ceramic Sanitary Ware Company Limited ("Dynasty Ceramic"). Dynasty Ceramic operated a factory in Zhongshan manufacturing ceramic sanitary ware. Mr Chen also owned a significant interest in Dynasty Ceramic.

6. Yi Hua also owned the entire interest in a company established in the mainland known as Dynasty Sanitary & Decorative Materials Company Limited ("Dynasty Materials"), which handled most of the sales operation of Dynasty Ceramic. Further, Mr Chen was the majority shareholder of a company incorporated in Hong Kong known as Dynasty Industries (Hong Kong) Limited ("Dynasty HK"), which handled a part of the sales in Hong Kong.

7. Dynasty Ceramic, Dynasty Materials and Dynasty HK (collectively "the Dynasty group") were the subject of an intended acquisition involving Yi Hua, Mr Chen and GBI. Negotiations were commenced in about 1993 for the acquisition of a 53.5% interest in the Dynasty group. Full Arts was the corporate vehicle intended to be used to acquire such interest. Yue Sheng's undisputed role was to provide finance in the proposed acquisition. It is alleged by the plaintiffs herein that both GBI and Yue Sheng were parties to the proposed acquisition but this is denied by Yue Sheng. Yue Sheng and GBI had some directors and officers in common at the time of proposed acquisition.

8. As for Mr Ho, he held the entire shareholding of a company incorporated in the British Virgin Islands known as Higson Holdings Limited ("Higson"). Mr Ho was and is a Hong Kong resident. Higson in turn held all the shares in a company incorporated in Hong Kong known as Canton Concord Enterprises Limited ("Canton Concord"). Canton Concord had held 49% of the shares in Dynasty HK. In a loan agreement signed between Mr Ho and Yue Sheng on 29 November 1995 ("the 1st loan agreement"), Mr Ho provided a declaration and undertaking that a restructuring of companies would be carried out as soon as possible so that Canton Concord would hold a 53.5% interest in the Dynasty Group.

9. It is the contention of Yue Sheng that Mr Ho was put forward by Yi Hua and Mr Chen as their representative in the proposed acquisition because Yi Hua and Mr Chen needed to re-organise the Dynasty group by acquiring the interests of minority shareholders (some of whom held their interests through a company incorporated in Hong Kong known as Chase Point Investment Limited; "Chase Point",) so that a 53.5% in the Dynasty group was to be transferred to GBI or its subsidiary Full Arts. It was envisaged that the other 46.5% would continue to be held by Yi Hua after the acquisition. As Dynasty Ceramic is a Sino-foreign joint venture, if Yi Hua were to acquire the minority interests instead of through Mr Ho, it would become a company wholly owned by mainland parties and the time taken to obtain the necessary approval from the authorities in China would have been significantly longer.

10. Mr Ho does not dispute that it was arranged by Yi Hua and Mr Chen that he was to act as a representative or nominee in the proposed acquisition. However, Mr Ho alleges that in acting as an agent in the proposed acquisition, he was not acting on behalf of Yi Hua and Mr Chen as alleged by Yue Sheng, but was acting on behalf of GBI and Yue Sheng. This is central to the dispute in these proceedings.

The loan agreements and guarantees

11. According to the 1st loan agreement, which was written in Chinese, it was entered into between Yue Sheng as the lender and Mr Ho as the borrower for a loan of HK$20 million to Mr Ho. It is Yue Sheng's case that the loan was made to him as the representative put forward by Yi Hua and Mr Chen in the proposed acquisition. The 1st loan agreement contained inter alia these material provisions:

(1) the loan was to be repaid within six months from the date of draw down but not later than 1 June 1996 (clause 6);

(2) on the repayment date, the principal and interest were to be applied by Full Arts or its subsidiary towards the consideration payable for its acquisition from Mr Ho of Higson; if the acquisition could not be completed by 1 June 1996, Mr Ho was to deposit the amount repayable in Hong Kong dollars in a bank account outside the mainland as directed by Yue Sheng (clause 9);

(3) as a condition precedent to this agreement, Mr Ho was to provide a corporate guarantee from Yi Hua and a personal guarantee from Mr Chen in respect of his liability to Yue Sheng under this agreement (clause 13(1) and annexure 3 and 4);

(4) as further conditions precedent to this agreement, Mr Ho was to charge the entire shareholding of Higson, Canton Concord and Chase Point to Yue Sheng as security for the loan (clauses 13(3), (4) and (5)).

12. The 1st loan agreement contained a provision headed "governing law" and the original in Chinese is as follows:

"管轄法律：本合約的訂立、解釋及爭議的解決均適用於香港或中華人民共和國法律，均受兩地法律保障。在爭議發生時，甲方有權選擇經香港法律或中華人民共和國法律途徑解決。" (clause 16)

13. I have not been given a translation of this clause, or indeed of any of the documents in this action as the parties have asked for a bilingual judge to hear the application. I will give a translation of clause 16 for present purpose as follows:

"The laws of Hong Kong or the laws of the People's Republic of China are applicable to the formation of this agreement, its interpretation and the resolution of dispute; these matters are protected by the laws of both places. In the event of a dispute, Party A [i.e. Yue Sheng] has the right to choose to resolve the dispute via legal channel under the laws of Hong Kong or the laws of the People's Republic of China."

14. There is dispute as to the effect of the latter part of clause 16. Mr Kenneth Chow, who appeared for the plaintiffs, contended that this relates to the choice of forum. Mr Rimsky Yuen, who appeared for Yue Sheng, submitted that this relates to the governing law of the agreement.

15. Yue Sheng paid the first sum of HK$20 million the day after the 1st loan agreement was signed. Yi Hua provided a guarantee to Yue Sheng dated 29 November 1995 ("the 1st corporate guarantee") as agreed. Mr Chen likewise provided a guarantee to Yue Sheng also dated 29 November 1995 ("the 1st personal guarantee"). Both guarantees were written in Chinese and contained similar provisions. It was stated in each that they formed an inseparable part of the 1st loan agreement and that the guarantor was to register the guarantee with the relevant authority in accordance with the requirement under the laws of the People's Republic of China. There was no express provision in the guarantees as to the governing law or the forum to resolve disputes.

16. On 1 May 1996, a letter of intent in Chinese was signed between Mr Ho and GBI ("the letter of intent"), setting out the key terms for the proposed acquisition of 53.5% of the Dynasty group by GBI or its subsidiary. It was provided that the relevant agreement of sale and purchase was to be signed by the parties on or before 1 July 1996 and that agreement was to be interpreted in accordance with and governed by Hong Kong law.

17. On 8 May 1996, Yi Hua executed another guarantee in favour of Yue Sheng ("the 2nd corporate guarantee") in respect of a further loan of HK$20 million to be advance by Yue Sheng to Mr Ho. On the same day, Mr Chen executed a similar guarantee in favour of Yue Sheng ("the 2nd personal guarantee") in respect of the same liability. According to a second loan agreement dated 10 May 1996 ("the 2nd loan agreement"), it was stated that the agreement was made between Yue Sheng as the lender and Mr Ho as the borrower for another loan of HK$20 million, to be repaid on 30 June 1996. The 2nd loan agreement contained similar provisions as in the 1st loan agreement, including the conditions precedent and the "governing law" clause. The 2nd corporate guarantee and the 2nd personal guarantee were described as annexure 3 and 4 respectively to the agreement, although it was not expressly stated in the guarantees that they formed an inseparable part of the 2nd loan agreement. All three documents were written in Chinese. As in the earlier guarantees, it was provided in the second set of guarantees that the guarantor was to register the guarantee with the relevant authority in accordance with the requirement under the laws of the People's Republic of China.

18. Yue Sheng duly paid a further sum of HK$20 million three days after the 2nd loan agreement was executed.

19. The alleged loans of HK$40 million were not repaid in June 1996. Instead, a series of repayment extension agreements were signed between Mr Ho and Yue Sheng, extending the repayment date of the loans first to 31 December 1996, then to 30 June 1997 and finally to 31 December 1997, as the agreement for the proposed acquisition was not executed.

20. According to the case of Yue Sheng, the proposed acquisition of an interest in the Dynasty group did not materialise, and that this was due to the fact that the Dynasty group had failed to achieve the net assets value and the profit level guaranteed under the letter of intent.

21. On the case of the plaintiffs, it is alleged that at the behest of Yi Hua and Mr Chen, Mr Ho was acting on behalf of GBI and Yue Sheng in acquiring the interests of the minority shareholders in the Dynasty group, in anticipation of transferring a 53.5% of the interest in the group to GBI and Yue Sheng or their nominee. As for the money provided by Yue Sheng under the 1st loan agreement, although this was provided in the form of a loan, it was in substance paid by Yue Sheng as a deposit and first instalment payment in the acquisition of the relevant interest in the Dynasty group and that the money was to be applied and was indeed applied for the purpose of acquiring the interests of the minority shareholders in the group, the re-organisation of the companies and the development of the business of the group. Similarly, the money provided under the 2nd loan agreement, although in the form of a loan, was in substance payment for the balance of the purchase price in the acquisition. Hence, there was no lender and borrower relationship between Yue Sheng and Mr Ho. As the money provided was utilised entirely for the purpose of the acquisition by GBI and Yue Sheng of the relevant interest in the Dynasty group, there was no obligation to repay on the part of Mr Ho, Yi Hua or Mr Chen.

22. As for the acquisition of the relevant interest in the Dynasty group, it is alleged by the plaintiffs that all the steps required to be taken by Mr Ho, Yi Hua and Mr Chen had been taken and that GBI and Yue Sheng had in substance acquired the relevant interest notwithstanding that an agreement was not executed. In support of this allegation, the plaintiffs relied on inter alia a memorandum of understanding in English made on 25 October 1997 ("the memorandum of understanding") between GBI, Yi Hua and Laufen Asia Limited ("Laufen Asia") in respect of a proposed joint venture to be formed by GBI and Laufen Asia, which would hold a 60% interest in Dynasty Ceramic through Higson. Laufen Asia is a company incorporated in Hong Kong and the wholly owned subsidiary of a Swiss company. In the memorandum of understanding, it was represented by GBI and Yi Hua to Laufen Asia that GBI "currently holds or has the right to acquire" a 53.5% interest in Dynasty Ceramic, with the remaining 46.5% interest being held by Yi Hua. The proposed joint venture with Laufen Asia did not materialise.

The mainland action and the Hong Kong proceedings

23. On 20 August 1998, Yue Sheng sent a letter to Mr Ho demanding repayment of the loans totalling HK$40 million under the 1st and 2nd loan agreements with interest. In reply, the three plaintiffs wrote to Yue Sheng on 8 September 1998 stating inter alia that the money paid under the agreements was not simply a loan and that they hoped to come up with a repayment scheme by the end of December 1998 in view of a cash flow problem. No agreement was reached subsequently on a repayment scheme.

24. On 14 and 15 December 1999, Yue Sheng's solicitors in Hong Kong sent letters of demand to each of the plaintiffs demanding repayment of the loans of HK$40 million with interest. On 25 January 2000, Yi Hua wrote to Yue Sheng in reply stating that the alleged loans were utilised to acquire the interests of the minority shareholders through Mr Ho, and for the purchase of new equipment for Dynasty Ceramic, pursuant to the arrangement of the parties.

25. In March 2001, GBI ceased to be a subsidiary of GDI. On 22 March 2001, Yue Sheng brought the mainland action against Yi Hua and Mr Chen in the Intermediate People's Court in Zhongshan, suing under the guarantees they have given in respect of Mr Ho's liability to Yue Sheng under the 1st and 2nd loan agreements. By a notice to Yue Sheng issued by the court in Zhongshan dated 29 March 2001, the court acknowledged receipt of the claim and informed Yue Sheng that this was in accordance with the requirements of the Code of Civil Procedure in the People's Republic of China and that the claim would be accepted for adjudication. On 23 April 2001, Yue Sheng applied to the court in Zhongshan and obtained an order against Yi Hua and Mr Chen restraining them from disposing of their assets to the extent of HK$59,501,369.72, being the amount of Yue Sheng's claim against them in the mainland action.

26. On 9 April 2001, Yi Hua and Mr Chen lodged an application in the Zhongshan court to dispute its jurisdiction to try the claim on the ground that the claim should be adjudicated in Hong Kong. Their application was dismissed by the Intermediate People's Court on 23 April 2001. Yi Hua and Mr Chen appealed against that decision to the Higher People's Court of Guangdong on 1 June 2001. Their appeal was dismissed by the Higher People's Court on 31 August 2001. In essence, it was held that in accordance with a provision of the Guarantee Law in the People's Republic of China as interpreted by the Supreme People's Court, where a creditor seeks to enforce his right against a guarantor, the action would come within the jurisdiction of the court where the guarantor resides.

27. The writ in these proceedings in Hong Kong was issued by the three plaintiffs against Yue Sheng and GBI on 9 July 2001 with an Indorsement of Claim. The claim is for various declarations to the following effect, namely, that all three plaintiffs (not just Mr Ho) were acting as agents of Yue Sheng and GBI in the acquisition of the relevant interest in the Dynasty group and in the signing of the two loan agreements, the two corporate guarantees and the two personal guarantees; that the amount paid under the loan agreements in the total sum of HK$40 million were used by the plaintiffs as agents for Yue Sheng and GBI in the acquisition as directed by the principals; and that in the premises, the plaintiffs are not liable to Yue Sheng and GBI for the sum of HK$40 million. The plaintiffs seek rectification of the two loan agreements, the two corporate guarantees and the two personal guarantees to reflect truly the underlying relationship of principals and agents between the parties in the acquisition. Further, the plaintiffs seek an order that Yue Sheng and GBI do indemnify and reimburse them in respect of all losses and disbursements incurred by them in acting as agents for these principals in the acquisition, further or alternatively, damages to be assessed.

28. The Statement of Claim herein, which is in Chinese, was filed on 9 November 2001. Yue Sheng and GBI filed their respective Defences in English; neither has put in a counterclaim against any of the plaintiffs. On 19 December 2001, Yue Sheng issued the present summons seeking security for costs, a stay of proceedings or striking out of the Statement of Claim. Pursuant to an order made by consent on 7 March 2002, Yi Hua and Mr Chen, who are resident out of the jurisdiction, provided security for costs to Yue Sheng up to the setting down of this action.

29. Upon dismissal of the appeal by the Higher People's Court, the mainland action was scheduled to be heard in the Intermediate People's Court on 9 November 2001. A few days before the scheduled date, Yi Hua and Mr Chen put in a substantial volume of documentary evidence. The hearing was adjourned to 21 November 2001. The day before the adjourned hearing and on 20 November 2001, Yi Hua and Mr Chen filed their joint defence, alleging inter alia that the laws of the People's Republic of China are the applicable law and that Yue Sheng's claim in respect of the guarantees is time barred under Chinese law. It was further stated in the defence that the primary obligation under the loan agreements is the subject of litigation in Hong Kong and that the resolution of the mainland action should be deferred until after the determination of the Hong Kong proceedings. Other than these matters, the allegations in the defence followed the same lines as in the Statement of Claim herein. The hearing on 21 November 2001 was adjourned to 24 July 2002 and then to 14 August 2002.

30. Despite the volume of evidence filed in this application, mainly on the part of the plaintiffs, I have not been given any or any sufficient information as to the stage reached in the mainland action, save that it has been adjourned several times. I do not know whether any further procedural steps would be required to be taken by the parties before the dispute is to be resolved by the court.

31. One other matter to note is that although ideally, all the issues in dispute ought to be resolved in the same action by the same court, this is not the case in the mainland action or the Hong Kong proceedings. Mr Ho and GBI are not parties in the mainland action. The action between the three plaintiffs and GBI in Hong Kong would still proceed even if the action between the plaintiffs and Yue Sheng were to be stayed or struck out. Further, as there is no identity of parties in the two actions, even if the Hong Kong proceedings were to be stayed pending the outcome of the mainland action, the findings in the mainland action would not be binding on Mr Ho or GBI. As for the Hong Kong proceedings, the enforceability of the four guarantees by Yue Sheng is not in issue in these proceedings, as Yue Sheng has chosen to bring its claim against the guarantors only in the place where they reside and where Yue Sheng may enforce any judgment against the assets of the guarantors that are subject to a restraining order of the Zhongshan court up to the limit of Yue Sheng's claim. Thus, notwithstanding there is a considerable degree of overlap in the issues in dispute in the two actions, there is no identity of subject matter on all issues. Regardless of whether there is a stay of the Hong Kong proceedings, the mainland action will continue.

The three-stage test in The Adhiguna Meranti

32. I turn to the law governing the exercise of the discretion to stay proceedings on the ground of forum non conveniens. In Hong Kong, the effect of the principles in Spiliada Maritime Corporation v. Cansulex Ltd. [1987] AC 460 is encapsulated in a three-stage test put forward by Hunter J.A. in The Adhiguna Meranti [1987] HKLR 904 at 907E to 908B, which is as follows:

"(I) Is it shown that Hong Kong is not only not the natural or appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong. The evidential burden is here upon the applicant. The emphasis is upon 'appropriate' rather than 'convenient' because this is not simply a matter of practical convenience. The purpose is to identify the forum 'with which the action has the most real and substantial connection' per Lord Keith in the Abidin Daver [1984] AC 398 ... Failure by the applicant at this stage is normally fatal.

(II) If the answer to (I) is yes, will a trial at this other forum deprive the plaintiff of any 'legitimate personal or juridical advantages'? The evidential burden here lies upon the plaintiff.

(III) If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II), Abidin Daver per Lord Brandon at p. 419. 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 appropriate forum'. The court must try to be objective. Proof of this, which can fairly be called the ultimate burden of persuasion, rests upon the applicant for the stay. By these means he establishes that on balance the other forum is more suitable 'for the interests of all the parties and the ends of justice'. This may be another way of saying that the plaintiff's choice of forum has been shown to be so inappropriate as to deserve the pejorative description of 'forum shopping' and to be restrained accordingly, cp. Lord Reid in The Atlantic Star [1974] AC 436."

The issues in the Hong Kong proceedings

33. In considering whether Hong Kong is not only not the natural or appropriate forum for the trial of the action but that the court in Zhongshan is clearly or distinctly more appropriate for the trial of the issues in the Hong Kong proceedings, one should first focus on what these issues are.

34. Mr Yuen has helpfully summarised them as follows:

(1) Whether Yue Sheng was involved in the intended acquisition of an interest in the Dynasty group apart from providing finance?

(2) Whether Mr Ho and Yi Hua were acting as agents of Yue Sheng and GBI in the intended acquisition?

(3) Whether the HK$40 million paid under the two loan agreements was a loan or money paid in consideration of the intended acquisition?

(4) Whether there was a binding agreement whereby Yue Sheng and GBI had agreed to acquire an interest in the Dynasty group?

(5) If the answer to (4) is yes, whether Yue Sheng and GBI had acted in breach of that agreement?

(6) If the answer to (5) is yes, whether the plaintiffs had suffered loss and damage and whether they could claim an indemnity against Yue Sheng and GBI?

35. Issues (1), (2) and (3) are primarily issues as to fact and issues (4) to (6) are issues of mixed fact and law. Assuming that clause 16 in each of the two loan agreements relates to the governing law of these agreements as well as the four guarantees as contended by Mr Yuen, and that Yue Sheng has the right to choose and has chosen to invoke the laws of the People's Republic of China as the law applicable to the resolution of dispute in respect of the loan agreements and the guarantees, I cannot see how this provision would have any or any material impact in the resolution of the issues as outlined above. The enforceability or validity of the four guarantees, which features significantly in the mainland action, is not in issue in the Hong Kong proceedings, as Yue Sheng has decided not to counterclaim against Yi Hua and Mr Chen under the guarantees in the Hong Kong action.

36. Mr Yuen has also pointed to other factors which may indicate that the court in Zhongshan is a more appropriate forum. He relied on the fact that of the three plaintiffs, Yi Hua is a mainland company and Mr Chen a mainland resident. Further, an important part of the intended acquisition has a close connection with the mainland in that Dynasty Ceramic is a Sino-foreign joint venture established in Zhongshan and that Dynasty Materials, which handled most of the sales operation, is a mainland company and wholly owned by Yi Hua.

37. In my view, although the above factors may indicate a connection with the mainland, they are not sufficiently weighty to establish that the Zhongshan court is distinctly more appropriate than the Hong Kong court in trying the issues in dispute in the Hong Kong proceedings.

38. On behalf of the plaintiffs, Mr Chow has submitted that there are these factors which would point to Hong Kong as the appropriate and natural forum to resolve the issues in dispute in the Hong Kong proceedings. Firstly, both defendants herein are Hong Kong companies, so the action brought against them is as of right. Secondly, one of the plaintiffs, Mr Ho, is a Hong Kong resident. Thirdly, as pleaded in the Statement of Claim, a significant part of the negotiations and discussions in respect of the intended acquisition had taken place in Hong Kong; further, it was provided in the letter of intent that the relevant agreement of sale and purchase to be entered into should be interpreted in accordance with and governed by Hong Kong law. Fourthly, the place of performance as stipulated in the two loan agreements was outside the mainland and payment was to be made in Hong Kong currency. Fifthly, Dynasty HK, which was part of the subject of the intended acquisition, is a Hong Kong company. Sixthly, some of the minority shareholders in the Dynasty group, whose interests were acquired by Mr Ho in anticipation of transferring a 53.5% interest in the intended acquisition, held their interests through Chase Point, a Hong Kong company, and it is pleaded in the Statement of Claim that the agreement entered into by Mr Ho through a Hong Kong company, Canton Concord, with the minority shareholders was governed by Hong Kong law and subject to the jurisdiction of the Hong Kong courts.

39. Even if the above factors do not suffice to make Hong Kong the most appropriate and natural forum in the trial of the issues in the Hong Kong proceedings but merely an alternative or available forum, this would not avail Yue Sheng as the applicant seeking a stay of the Hong Kong proceedings, applying stage one of the test in The Adhiguna Meranti. Mr Yuen has submitted that there are two other factors which ought to tip the balance in favour of the Zhongshan court as a more appropriate forum than Hong Kong. Firstly, there are parallel proceedings in the Zhongshan court in respect of the same or substantially the same issues as in the Hong Kong proceedings. Secondly, one must bear in mind that the declarations sought in the Hong Kong proceedings are in the nature of negative declarations and it is established that where such relief is sought in a situation involving conflict of jurisdictions, the court would view such claims with great caution as they may lend themselves to improper attempts at forum shopping (The Volvox Hollandia [1988] 2 Lloyd's Rep. 361 at 371, per Kerr L.J.).

40. Before I turn to these additional factors submitted by Mr Yuen, I would like to deal with a point made by Mr Chow as showing the Hong Kong court to be more appropriate than the Zhongshan court in trying the issues in the Hong Kong proceedings and which I do not accept. Mr Chow has relied on a case decided by the Higher People's Court of Guangdong in 2000 (Sing Fai Holding Limited v. Nanhai City Planning Bureau升輝集團有限公司訴南海巿計劃局，(2000)粵法經二終字第113號).

41. That case concerned a debt owed by the Nanhai City Planning Bureau and allegedly assigned by the creditor in Hong Kong to Sing Fai Holding Limited, the plaintiff of the proceedings commenced in the Intermediate People's Court in Foshan. It was held on appeal to the Higher People's Court that the validity of the assignment of the debt, which was governed by Hong Kong law, should first be ascertained by the Intermediate People's Court and as there was insufficient evidence on that issue which had not been properly determined, the judgment of the lower court was set aside and the case was remitted to the lower court for a re-trial.

42. On the basis of this decision, Mr Chow submitted that the Zhongshan court should have ascertained what is the true legal position under Hong Kong law before it could arrive at its own final decision and that the Zhongshan court should defer the determination of the mainland action until after the Hong Kong court has ruled on the issues in the Hong Kong proceedings, as advocated in the defence submitted in the mainland action. The plaintiffs have not produced any expert opinion in Chinese law to establish that that should be the legal effect of the above decision. As I have mentioned above, half of the issues in the Hong Kong proceedings are issues of fact and half of them are of mixed fact and law. There does not appear to me any reason why the Zhongshan court could not have determined these issues and made its own findings, if that court is minded to do so.

43. For the above reasons, it does not appear to me that the case relied on by Mr Chow is comparable to the present situation. Nor should I assume, as Mr Chow has submitted, that if the issues in the Hong Kong proceedings (which are distinct from the issue of enforceability or validity of the guarantees, which might be determined by applying Chinese law, as contended in the defence in the mainland action) were to be determined by the Zhongshan court on its own without deferring to a Hong Kong ruling, that court would have determined the issues of mixed fact and law by applying Chinese law, not Hong Kong law. There is no expert opinion in Chinese law to support that submission. Further, I cannot see how Articles 2 and 19 of the Basic Law, which Mr Chow has also relied on, could be of any relevance to the exercise of the discretion whether the Hong Kong proceedings should be stayed.

Lis alibi pendens

44. It is established that the existence of simultaneous proceedings may be an additional factor relevant to the determination of the appropriate forum. There are two considerations to be borne in mind.

45. Firstly, where proceedings are pending between the parties in a foreign court which is a natural and appropriate forum, and the defendant in the foreign suit commenced proceedings as plaintiff in the jurisdiction in which a stay of proceedings is sought about the same matter, the additional inconvenience or expense which must result from allowing two sets of proceedings to be pursued at the same time in two different jurisdictions, where the same facts would be in issue and the testimony of the same witnesses required, could only be justified if the party resisting the stay could establish objectively by cogent evidence that there was some personal or juridical advantage that would be available only in the jurisdiction in which he commenced proceedings that is of such importance that it would cause injustice to him to deprive him of it (The Abidin Daver, supra. at 411H to 412A, per Lord Diplock).

46. Secondly, where genuine proceedings have been commenced in a foreign court and have not merely been started but have developed to the stage where they have had some impact upon the dispute between the parties, especially if such impact is likely to have a continuing effect, then this may be a relevant factor to be taken into account when considering whether the foreign jurisdiction provides the appropriate forum for the resolution of the dispute between the parties (de Dampierre v. de Dampierre [1988] 1 AC 92 at 108D, per Lord Goff).

47. In the present situation, I feel unable to give much weight to the fact that the mainland action is being pursued concurrently with the Hong Kong proceedings. I say this for the following reasons.

48. This is not truly a case of lis alibi pendens as there is no identity of parties or identity of subject matter in the two sets of proceedings, as in the situation encountered in the recent decision of Intel Corporation v. Via Technologies Inc. & Anr., HCA No. 4265 of 2001, 30 July 2002. It was held by Sakhrani J in that decision that the applicable principles in this kind of situation, which were modified from the principles stated by Ma J in Linfield Ltd. v. Taoho Design Architects Ltd. & Ors. [2002] 2 HKC 204 at 208 (a case concerned with an application for stay of proceedings in favour of arbitration), may be summarised as follows:

(1) The court must consider what would serve the ends of justice between the parties to the litigation and the administration of justice generally.

(2) A stay should not cause an injustice to the plaintiff.

(3) The applicant for stay must satisfy the court that continuing the proceedings would be unjust to him. In the light of what Lord Brandon had said in The Abidin Daver, supra. at 419C to D, there is no need for the applicant to show that continuing the proceedings would be oppressive or vexatious to him or an abuse of process. It is sufficient to show that continuing the proceedings would be unjust to the applicant.

(4) Where the plaintiff commences proceedings as of right, he should not be deprived of the right to continue those proceedings in the absence of very good reasons

(See paragraph 19 of the judgment).

49. Sakhrani J further held that the application of these principles to a given situation would involve the balancing of all the relevant factors on either side, those favouring the grant of a stay on the one hand, and those militating against it on the other, as stated by Lord Brandon in The Abidin Daver, supra. at 419H.

50. I consider first the factors favouring the grant of a stay. There are some common issues in the two sets of proceedings. The duplication of proceedings would create the risk of inconsistent findings and the courts in the two jurisdictions may reach conflicting decisions. The mainland action was commenced four months ahead of the Hong Kong proceedings. As the challenge to jurisdiction made by the defendants earlier in the mainland action was unsuccessful, the mainland action would continue regardless of whether there is a stay of the Hong Kong proceedings. Lastly, the mainland action was initially scheduled to be heard in November 2001 and it has been adjourned to a date in July 2002 and then August 2002.

51. Next, I look at the factors militating against a stay of proceedings. There is no identity of subject matter on all issues in the two sets of proceedings, nor is there identity of parties. The plaintiffs' claim against GBI, which involves similar issues as the plaintiffs' claim against Yue Sheng, will continue regardless of whether their claim against Yue Sheng is stayed. The findings in the mainland action would not be binding on GBI or Mr Ho, as they are not parties in that action. Thus, it would appear that the risk of inconsistent findings is unavoidable. Further, there is insufficient information as to the progress of the mainland action save that the hearing was adjourned several times. Nothing is known as to whether any further procedural steps would be required before a determination would be made in the mainland action.

52. Applying the principles in Intel Corporation, I am of the view that the factors militating against a stay would out weigh the factors favouring a stay and that Yue Sheng has not shown that it would be unjust for the Hong Kong proceedings to be continued against it.

Negative declarations

53. I accept the submissions of Mr Yuen that the declarations sought in the Statement of Claim are negative declarations. Where a stay of proceedings for a negative declaration is sought, the court will have to consider both the question whether there is justification for seeking that form of relief and the question whether the forum in which the claim is brought is the appropriate forum (Dicey & Morris on the Conflict of Laws, 13th ed., Vol. 1, para. 12-035).

54. It is pertinent to ask if the negative declarations sought would serve any useful purpose. In other words, were the plaintiffs acting reasonably in bringing these claims in the Hong Kong proceedings or was that clearly an attempt of forum shopping? The approach of the court towards a negative declaration is pragmatic. It is not a matter of jurisdiction but a matter of discretion. A claim of this nature would be scrutinised carefully and relief would be refused where it would serve no useful purpose. However, where a negative declaration would be helpful to ensure that the aims of justice are achieved, the courts should not be reluctant to grant relief (Camilla Cotton Oil Co. v. Granadex S.A. [1976] 2 Lloyd's Rep. 10 at 14, per Lord Wilberforce; Messier-Dowty Ltd. v. Sabena S.A. [2000] 1 WLR 2040 at 2049 to 2051, per Lord Woolf M.R.)

55. The writ issued by the plaintiffs herein at a time when two of them were challenging the jurisdiction of the Zhongshan court would seem to me to be in the nature of a riposte to the mainland action, but is there no useful purpose in bringing these proceedings in Hong Kong? I have no expert evidence in Chinese law whether any declaration made in the Hong Kong proceedings would be recognised in the mainland action, and I do not think the case of the Higher People's Court of Guangdong cited by Mr Chow (Sing Fai Holding Ltd. v. Nanhai City Planning Bureau) is of any real assistance on this point. In the end, I am not persuaded by Mr Yuen that no useful purpose would be served in bringing the Hong Kong proceedings. I do not think it is a foregone conclusion that the court would refuse to exercise its discretion to grant negative declarations in favour of Mr Ho, just because Yue Sheng has not sued him under the two loan agreements, as the reality of the situation is that Yue Sheng has brought proceedings against the guarantors on the basis that Mr Ho is liable to it under the two loan agreements. The plaintiffs have also sought similar declarations against GBI, which has ceased to be a subsidiary of the parent company of Yue Sheng as from March 2001. Last but not least, in the event that liability is established and the declarations sought are granted, the plaintiffs have claimed damages against Yue Sheng and GBI, alternatively an indemnity, in respect of their losses incurred in acting as agents for these principals in the intended acquisition. For the above reasons, it seems to me there may be some justification in bringing these proceedings in Hong Kong and it could not be said that Hong Kong is not an appropriate forum for seeking these declarations against the defendants, which are both Hong Kong companies.

Conclusion on stage (I) of the three-stage approach

56. Thus, notwithstanding the two additional factors submitted by Mr Yuen, I am not satisfied that Yue Sheng has established that the court in Zhongshan is a clearly and distinctly more appropriate forum for the trial of the issues in the Hong Kong proceedings. That being the case, the application for a stay of the proceedings against Yue Sheng must fail and it is not necessary to consider stages (II) and (III) of the three-stage approach in The Adhiguna Meranti.

Orders

57. For the above reasons, the appeal against that part of the Master's order dismissing the application for stay of proceedings alternatively for striking out of the Statement of Claim is dismissed. Costs of this application should follow the event, save in respect of the plaintiffs' opposition that Yue Sheng should have leave to file evidence subsequent to the hearing before the Master, which is without merit. I make an order nisi that the plaintiffs are to have 75% of the costs of this application in any event.

58. I make a further order, of my own motion and in the interest of better case management, pursuant to the powers under section 4(2) of the High Court Civil Procedure (Use of Language) Rules, Cap. 5C, directing the plaintiffs to provide an English translation of the Statement of Claim, within 28 days from the date of this judgment. I do so for two reasons. There may be further interlocutory applications and it would not be necessary to list such applications before a bilingual judge where the documents in Chinese do not form a material part of the applications. Further, the Statement of Claim in Chinese prepared by counsel is not an entirely satisfactory document. Although by virtue of section 4(1) of the Rules aforesaid, a party may file a document in court in either of the official languages, it ought to be appreciated that unlike an affirmation or a witness statement, a pleading that is professionally prepared should plead the material facts and the legal issues involved in clear and precise terms, so that the case of a party may be readily understood and there would be no misunderstanding arising out of any imprecise use of language in the allegations in the pleadings.