CHINA MEDICAL TECHNOLOGIES INC (In Liquidation) v. PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP (a firm) AND ANOTHER

HCA 577/2015

[2019] HKCFI 2631

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 577 OF 2015

________________________

________________________

HCA 3272/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3272 OF 2016

________________________

________________________

(Heard together)

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D E C I S I O N

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A.     Introduction

1.  China Medical Technologies, Inc (“CMT”), now in liquidation, and its subsidiary, CMED Technologies Ltd (“CMED Tech”), have each brought an action in Hong Kong making a claim in tort against the New York‑registered firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP (“PW LLP”) and its associated Hong Kong firm of Paul, Weiss, Rifkind, Wharton & Garrison (“PW HK”) for allegedly negligent advice or misstatements given or made to CMT’s Audit Committee in July 2009.  There are a number of applications made by the plaintiffs and defendants respectively in these two actions, relating to the question of service and forum.  The principal outcome at stake is whether PW LLP or its partners as such and PW HK may be sued in Hong Kong for these claims.

2.  The issues raised broadly include: (1) whether PW LLP was[1] carrying on business in Hong Kong so that it could be sued and served as a firm in Hong Kong; (2) whether the plaintiffs are entitled to sue the defendants in tort only; (3) what the applicable law to the tort is; (4) whether Hong Kong or New York is the more appropriate forum for the actions; (5) whether curative orders, if necessary, in the form of leave to serve out of the jurisdiction and extension of the writs’ validity, should be granted to the plaintiffs.

B.     Background

3.  This section outlines the facts that form the backdrop to the actions and the present applications.  Specific facts will be set out in greater detail in the subsequent relevant parts.

B1.    The China Medical Technologies group

4.  CMT is a company incorporated in the Cayman Islands in July 2004.  In August 2005 it became listed on NASDAQ and its shares were traded there through American Depositary Shares (“ADS”) until trading was suspended in February 2012 and it was delisted in March 2012. 

5.  At all material times prior to its winding up in July 2012, CMT held itself out as having a principal business of developing, manufacturing and marketing advanced medical equipment in Mainland China.  Its business was conducted through operating subsidiaries in the Mainland.

6.  CMT’s main operating bank account was held at Bank of China (Hong Kong) Ltd (“BOCHK”) at the King’s Road branch in North Point, Hong Kong.  It was the account into which all capital and debt raised by CMT was paid.

7.  CMT operated out of premises located in (a) Beijing, with manufacturing and research and development facilities located in the Beijing Economic‑Technological Development Area and the Fengtai District; and (b) Hong Kong, at an office in Wan Chai that dealt with administrative services, finance, accounting and investors relations.

8.  By the initial public offering of ADS in August 2005 and a secondary offering in March 2006, CMT had raised about US$101m.  In November 2006, by an issue of US$150m convertible senior subordinated notes, CMT raised net proceeds of about US$144.7m.  In August 2008, by an offering of US$276m convertible senior notes, CMT raised net proceeds of approximately US$267.7m.  In December 2010, CMT issued US$150m convertible senior notes, raising approximately US$146.9m in net proceeds.

9.  Between 2009 and 2011, CMT’s directors were:

(1)     Mr Xiaodong Wu (“Mr Wu”), who was also its founder, Chairman, CEO and largest individual shareholder;

(2)     Mr Tsang Tak Yung Samson (“Mr Tsang”), who was also its CFO;

(3)     Mr Iain Ferguson Bruce (“Mr Bruce”), who was a chartered accountant and former senior partner of KPMG in Hong Kong (“KPMG HK”);

(4)     Dr Lawrence Arthur Crum (“Dr Crum”), a scientist resident in Seattle, Washington, United States;

(5)     Dr Yuedong Li (“Dr Li”), a medical doctor resident in Mainland China; and

(6)     Dr Guoming Qi, a medical doctor.

10.  At the material times Mr Bruce, Dr Crum, Dr Li and Dr Guoming Qi were the independent non‑executive directors.  One of the Board of Directors’ sub‑committees was the Audit Committee (“Audit Committee”).  By its charter, the Audit Committee must consist of at least three members of the Board of Directors, at least one of whom should have experience in finance or accounting.  At all material times since 2007, the three members were Mr Bruce, Dr Crum and Dr Li, with Mr Bruce being the chairman from the outset and the member with the requisite finance or accounting experience.

11.  CMED Tech, a company incorporated in the British Virgin Islands (“BVI”) in January 2006, was at all material times a wholly‑owned subsidiary of CMT.  Its directors were Mr Wu and Mr Tsang.

12.  As explained below, CMT is the sole plaintiff in HCA 577/2015 and CMED Tech is the sole plaintiff in HCA 3272/2016.  I shall refer to them collectively as the plaintiffs.

B2.    The FISH and SPR Transactions

13.  On 6 February 2007, the plaintiffs entered into an agreement with a BVI company called Supreme Well Investments Ltd (“Supreme Well”) and its BVI subsidiary called Molecular Diagnostics Technologies Ltd (“Molecular”), to purchase and acquire from them a fluorescent in situ hybridisation (“FISH”) technology for a consideration of US$176.8m.  I shall refer to this as the “FISH Transaction”. 

14.  On 5 October 2008, the plaintiffs entered into a further agreement with Supreme Well and Molecular to purchase and acquire from them a surface plasmon resonance (“SPR”) technology for US$345m.  I shall refer to this as the “SPR Transaction”.  The consideration for these transactions was payable in tranches.

B3.    The Anonymous Letter and the engagement of PW LLP

15.  On 10 February 2009, CMT’s and CMED Tech’s auditors, KPMG HK, received an anonymous letter (“Anonymous Letter”) addressed to its Chairman.

“ John B. Harrison
Chairman, Asia Pacific
KPMG Hong Kong
8^th Floor, Prince’s Building
10 Chater Road
Hong Kong

Dear Mr Harrison,

I am writing to alert you to possible illegal and fraudulent activities engaged by China Medical Technologies, Inc (NASDAQ: CMED), a Beijing, China‑based company of which your firm is auditor. I wish to remain anonymous as I believe I would be endangered should my identity become known. I am also providing information in this letter to the SEC and Wall Street Journal.

On 7 October 2008, CMED announced that it would acquire certain intellectual property rights from Molecular Diagnostics Technologies Limited, a BVI shell company for US$345 million in cash. This transaction is highly unusual and suspicious as: 1) the IPR being acquired is still under research and development and has not been approved by any health authorities in the world for commercial sale, 2) the BVI shell company has no apparent business operations and is controlled by certain parties in China with relationships to the CEO and management of CMED, 3) the purchase price represents almost entirely the cash balance of CMED, of which US$232 was from proceeds of a convertible note issue completed in August, 2008.

On 6 February 2007, CMED announced that it would acquire a different technology and business from the same BVI shell company, Molecular Diagnostics Technologies Limited, and another BVI shell company Supreme Well Investments Limited, for US$136.8 million in cash with a further $40 million milestone payment. The upfront payment accounted for two‑third of CMED’s cash balance of US$217M as of 31 December 2007. Like Molecular Diagnostics Technologies Limited, Supreme Well Investments Limited also has no apparent business operations and is owned by certain parties in China with relationships to CMED’s management.

More recently, CMED announced a US$57M dollar sale of part of its business to a company owned by its CEO, Chengxuan International Ltd, also a major shareholder of CMED. This transaction was purportedly evaluated by a ‘reputable international firm’ but is in many eyes highly suspicious given the untransparent nature.

These irregularities and highly unusual transactions have led industry insiders to believe that CMED grossly inflated the price of its acquisitions and channeled cash from investors to company insiders’ pockets through off‑shore entities and related parties without proper disclosure and possibly in violation of laws.

There is also ground to believe that CMED may have used the same mechanism to channel money paid out as acquisition considerations back to the company through 3^rd parties as revenues from ‘distributors’. This way the company can cook its books in order to manipulate the stock price in order to benefit insiders and to obtain more cash from investors.

Further there are also talks in the market that the management of CMED may have provided improper “incentives” to stock analysts for favorable coverage but meanwhile threatened other analysts for questioning the company’s activities.

As an international reputable accounting firm, I believe it’s in your interest to look into such matters.

Sincerely,

Concerned investor”

16.  On 12 February, KPMG HK provided a copy of the Anonymous Letter to Mr Bruce as the Chairman of the Audit Committee of CMT.  The Audit Committee was in due course advised that it should engage independent lawyers to undertake an investigation of the matters alleged.  The Hong Kong firm Freshfields Bruckhaus Deringer (“Freshfields”) was initially appointed to conduct the investigation (and Mr Bruce signed the engagement letter for and on behalf of the Audit Committee), but its engagement was terminated very soon afterwards because of a dispute apparently arising from their reporting the Anonymous Letter to the United States Securities and Exchange Commission (“SEC”). 

17.  Mr Bruce was entrusted with the task of identifying and instructing an alternative firm on behalf of the Audit Committee.  On 18 March, he approached Paul Weiss.  (The structure of the defendants are described below: see section D3(a).  Where both PW LLP and PW HK are being referred to or it is unclear which one should be referred to, I shall use the generic term “Paul Weiss”.)  Mr Bruce first contacted Mr Liu, a partner of both PW LLP and PW HK, and later that day had a telephone call with Mr Liu, and Mr Ricciardi and Mr Kramer of PW LLP.  Further communications between Mr Bruce and Mr Ricciardi followed, in which the latter provided initial work plans for the investigation.  By written resolution on around 6 April, the Audit Committee resolved that PW LLP be appointed as the independent counsel to the Audit Committee to conduct the investigation of the allegations in the Anonymous Letter (“Investigation”) and that the chairman be authorised and directed to make the appropriate arrangements for that purpose on behalf of the Audit Committee.  This was notified to PW LLP.

18.  PW LLP started working on the Investigation, and enlisted the New York firm AlixPartners LLP (“AlixPartners”) as forensic accountants, though the formal retainer letter of PW LLP was not issued until 21 April and countersigned by Mr Bruce on 22 April. AlixPartners’ retainer letter (which referred to their being retained by PW LLP) was issued by AlixPartners on 17 April, and signed by PW LLP on 21 April, but it was also countersigned by Mr Bruce on 22 April and so AlixPartners was retained with the knowledge and consent of the Audit Committee.

B4.    The Investigation and report of findings

19.  PW LLP proceeded to carry out the Investigation from April 2009 onwards.  The bulk of the work (at least as far as the FISH and SPR Transactions are concerned) had been completed by July 2009.

20.  On 1 July 2009, Mr Bruce, who was in Hong Kong, had a lengthy telephone conversation with Mr Ricciardi, who was in the United States, in which the latter provided an update on the investigation and advised that considerable progress had been made to almost establishing that there was no merit whatsoever in the allegations raised in the Anonymous Letter.

21.  On the next day, Mr Ricciardi sent an email to Mr Bruce, advising that PW LLP had given an update to KPMG HK and relayed to them the view that PW LLP were convinced that the SPR technology appeared to be a viable technology with a promising future.

22.  On 6 July, Mr Bruce relayed to the other two members of the Audit Committee the views of PW LLP from the telephone conversation he had on 1 July.

23.  On 18 July (HK time), PW LLP provided a substantive report on the investigation orally to Mr Bruce and the other two members of the Audit Committee.  The advice was that the allegations in the Anonymous Letter had no merit and that the weight of the evidence was that the transactions were legitimate.  On the same date, the Audit Committee, having regard to the information provided by PW LLP, resolved that “the allegations of the fraudulent activities contained in the anonymous letter had no merit”.  A month later, on 19 August 2009, the Audit Committee resolved to close the Investigation, concluding that “no fraudulent activity accused in the anonymous letter [had] been found”.

B5.    The liquidation of CMT

24.  It turned out that the allegations in the Anonymous Letter were in fact largely true.  The troubles of CMT began to surface in late 2011.  In December 2011 and February 2012, it failed to make the required interest payment on the notes issued in December 2010 and August 2008 respectively.  By the end of February 2012, CMT’s ADS had ceased trading on NASDAQ, and were delisted on 26 March 2012.

25.  On 27 July 2012, on a petition presented on behalf of the bondholders in mid‑June 2012, CMT was ordered to be wound up in the Cayman Islands.  Mr Kenneth Krys (of KRyS Global in Grand Cayman) and Mr Cosmo Borrelli (of Borrelli Walsh Ltd in Hong Kong) were appointed Joint Official Liquidators (“JOLs”).  On 7 April 2017, Ms Margot MacInnis replaced Mr Krys as one of the JOLs.  On 10 May 2018, Ms Samantha Wood of Borrelli Walsh (Cayman) Ltd was appointed as successor to Ms McInnis as a JOL.

B6.    CMT’s liquidation in Hong Kong

26.  On 26 November 2012, CMT presented a petition for its own liquidation in Hong Kong.  On 29 November, Mr Borrelli and Ms Yuen Lai Yee were appointed joint and several provisional liquidators of CMT in Hong Kong.  However, after a hearing at which the petition was opposed by Mr Tsang, as a contributory, on 5 September 2013 Harris J dismissed the petition and discharged the provisional liquidators, on the ground that the case did not satisfy the third “core requirement” in Hong Kong law for winding up an unregistered foreign company, namely, that there are persons with sufficient connection with the jurisdiction and sufficient economic interest in the winding up of the company to justify an order which will engage the Hong Kong winding‑up regime.[2]

27.  Before the order was drawn up and the reasons handed down,[3] however, CMT applied to reopen the matter, amend the petition and adduce further evidence.  After a further hearing, Harris J allowed the matter to be re‑opened and, on 1 September 2014, ordered the winding up of CMT in Hong Kong.  On 5 February 2015, Mr Borrelli and Ms Yuen were appointed as the joint and several liquidators of CMT (“Liquidators”) by the High Court of Hong Kong.

B7.    The US bankruptcy proceedings and discovery contest

28.  Meanwhile, CMT also filed under Chapter 15 of the US Bankruptcy Code for recognition of the Cayman Islands liquidation proceedings in the US Bankruptcy Court.  This was granted on 11 October 2012, with Mr Krys being treated as the “Foreign Representative” of CMT. Mr Krys was later replaced by Ms MacInnis and then Ms Wood.

29.  In September 2012 the JOLs requested documents from PW LLP but this was refused on the ground that PW LLP only acted for the Audit Committee and not CMT.  Motions were filed in November 2012 for, and in January 2013 the US Bankruptcy Court authorised, the issuance of subpoenas to PW LLP and 13 other parties (including AlixPartners LLP) for the production of documents and examination of witnesses.  In response, in August 2013 and February 2014 PW LLP produced the documents and information it had collected from CMT, but withheld approximately 1,700 documents (in particular, their own working papers) on the ground of attorney‑client privilege. The privilege objection was upheld by the US Bankruptcy Court at first instance in December 2014, which ruled that (a) US federal privilege law governed the attorney‑client privilege (the JOLs had argued that Cayman Islands law governed instead as the corporate law), and (b) the privilege was owned by the Audit Committee and did not devolve to the JOLs.  This was overruled on appeal by the US District Court for the Southern District of New York on 30 September 2015 which held that CMT and therefore the JOLs owned the privilege.  Pursuant to that ruling, PW LLP produced 996 documents to the JOLs (and therefore the Liquidators) in November 2015, which constituted the bulk of the privileged documents relied on in the statement of claim herein, with the remaining documents produced in April and June 2016.

B8.    The actions in Hong Kong and their procedural history

30.  On 19 March 2015, CMT filed the writ of summons in Hong Kong in HCA 577/2015 (“CMT Writ”).  There were four defendants, namely (i) PW LLP, (ii) PW HK, (iii) AlixPartners, and (iv) AlixPartners Hong Kong, Ltd.  The claims indorsed thereon are for, inter alia, damages and restitution for breach of contract, negligence and unjust enrichment in connection with the Investigation performed by the defendants from around March 2009 to around 31 December 2010.

31.  The writ was stamped “Not for service out of the jurisdiction” and stated, at the end of the general endorsement, that it was “issued solely for the purpose of preserving the claims identified above in light of the pending expiry of a possible limitation period”.  The address of PW LLP stated on the writ was “1285 Avenue of the Americas, New York, NY 10019‑6064 USA”, the address of its New York headquarters.

32.  According to the evidence of Mr Borrelli,[4] after obtaining documents from PW LLP and AlixPartners in November 2015 following the US court’s rejection of the privilege objection, the Liquidators formed the view that they should pursue Paul Weiss but not AlixPartners, and that PW LLP was carrying on business in Hong Kong such that it was appropriate to effect service on it pursuant to Order 81 of the Rules of the High Court (“RHC”). Accordingly, on 8 March 2016, CMT amended the CMT Writ pursuant to RHC Order 20 rule 1, removing AlixPartners and AlixPartners Hong Kong, Ltd as defendants,[5] and adding an alternative address for PW LLP being “12/F, The Hong Kong Club Building, 3A Chater Road, Central, Hong Kong” (“Chater Road office”), which is the same address as that stated for PW HK.  References below to the CMT Writ are to the writ as amended unless otherwise specified.

33.  On 15 March 2016, Lipman Karas, the plaintiffs’ solicitors, sent a fax to Paul Weiss’s Chater Road office requesting a partner of each of the defendant firms to be made available for service of the CMT Writ the following day.  Paul Weiss declined the request in its reply on 16 March, and asked the plaintiff to serve the writ on PW HK “by other means” and stated that PW LLP did not have a place of business in Hong Kong.  On 16 March, a solicitor and a law clerk from Lipman Karas attempted but were unable to effect personal service at the Chater Road office or to obtain an appointment for effecting service.

34.  The Liquidators say they interpreted this response as evasive and engaged a process server to effect personal service on two individuals, both of whom were then (and still are) partners of both PW LLP and PW HK, namely, Ms Jeanette Chan (“Ms Chan”) and Mr John (Jack) Lange (“Mr Lange”). 

35.  Further, on 17 March 2016, CMT filed an affidavit made by the solicitor who had unsuccessfully attempted service the previous day, whereby it applied ex parte (i) for leave pursuant to RHC Order 65 rule 4 to effect substituted service of the CMT Writ on the defendants by leaving a sealed copy at the Chater Road office; and (ii) for an order pursuant to RHC Order 6 rule 8 extending the validity of the CMT Writ to 31 March 2016.  On the same day, Master Hui of the High Court granted an order extending the validity of the writ for 14 days (but not for substituted service).

36.  As it happened, CMT did not need to rely on the extension of the CMT Writ’s validity for, as is common ground, it was personally served, within the original period of validity, on Ms Chan in Hong Kong on 18 March 2016.  There is no dispute that this constituted good service on PW HK pursuant to RHC Order 81, but whether or not it did so for PW LLP is one of the main issues, and is dealt with in section D below.  The CMT Writ was served on Mr Lange on 22 March 2016 — during the extension — but this is immaterial.

37.  On 13 April 2016, the plaintiffs and the defendants entered into a tolling agreement pursuant to which the proceedings under the CMT Writ were stayed until December 2017.

38.  On 14 December 2016, CMED Tech issued a writ of summons in Hong Kong in HCA 3272/2016 against PW LLP and PW HK (“CMED Tech Writ”).  The claims indorsed on it are the same as those in the CMT Writ.  The plaintiffs’ position is that CMT is the principal and primary plaintiff, and that CMED Tech’s claim is brought, in the alternative, to cater for the circumstances where some or all of the payments causing loss were transmitted through a bank account held in the name of CMED Tech.[6] The CMED Tech Writ was served personally on Ms Chan and Mr Lange on 31 October 2017 and on PW HK by registered post on 2 November 2017.

39.  On 19 December 2017, the plaintiffs filed a common statement of claim in the two actions.  Although the general indorsements on the writs include claims for breach of contract, in the pleading the plaintiffs claim only damages for tortious breaches of duty and restitution of the fees paid.  This election is discussed in section E below.

40.  On 6 November 2018, CMT and CMED Tech together filed a third writ of summons (in HCA 2612/2018) against PW LLP and PW HK and 123 individuals being the partners of PW LLP, for the stated purpose of preserving the plaintiffs’ rights under s 31 of the Limitation Ordinance (Cap 347) in the event the defendants are successful in their challenges to the validity of the two earlier writs.  This writ has not been served.

C.     The applications and the main issues raised

41.  By a summons dated 13 February 2018 taken out by both defendants in each action, the following principal orders are sought:

(1)     PW LLP seeks a declaration that the CMT Writ and the CMED Tech Writ were not duly issued or served on it as it does not carry on business in Hong Kong, and an order setting aside service of the writs on that ground.

(2)     PW LLP seeks an order setting aside the ex parte order made by Master Hui on 17 March 2016 extending the validity of the CMT Writ on the ground of material non‑disclosure.

(3)     Both defendants seek in both actions a declaration that the claims against them are governed by and must be established under New York law and an order staying the proceedings on forum non conveniens grounds in that the New York State Supreme Court for New York County (Manhattan) is clearly and distinctly the more appropriate forum for the resolution of the actions.

(4)     Both defendants seek an order staying the proceedings against them in both actions on the ground, inter alia, of the absence of any real issue between the plaintiffs and PW HK which the plaintiffs may reasonably ask the court to try.

42.  On 31 May 2018, CMT and CMED Tech each took out a summons in their respective actions applying for orders as follows:

(1)     In the event the court finds that PW LLP does not carry on business in Hong Kong, CMT seeks (a) leave to serve PW LLP out of the jurisdiction; and (b) either (i) a declaration that service on 18 March 2016 on Ms Chan was good and sufficient service on PW LLP, or (ii) an order extending the validity of the CMT Writ to allow service to be effected on PW LLP in the United States.

(2)     Alternatively, if the correct defendants have not been correctly named in the CMT Writ through the firm name, then CMT seeks (a) leave to re‑amend the writ by adding the partners of PW LLP as at 1 July 2009[7] as defendants; (b) to the extent necessary, leave to serve the named individual defendants out of the jurisdiction; and (c) an order extending the validity of the re‑amended writ to allow service to be effected on those individuals.

(3)     CMED Tech seeks similar orders, mutatis mutandis, in relation to the CMED Tech Writ.

43.  I shall deal with the principal issues raised by these applications below in the following sequence:

(1)     I first consider, in section D below, whether PW LLP could be sued in the firm name and served by service on Ms Chan in Hong Kong pursuant to RHC Order 81 rules 1 and 3, which in turn depends on whether it was carrying on business in Hong Kong.  If it was, then its application for a stay on forum non conveniens grounds is engaged. If it was not, then the plaintiffs’ application for curative orders including leave to serve out of the jurisdiction and extension of the writs arises for determination.  As will be seen below, I consider Order 81 applicable.

(2)     To adjudicate on the defendants’ application for stay on forum non conveniens grounds, I shall first deal with two questions: whether the plaintiffs are entitled to sue the defendants in tort only (section E), and what law applies to the tort (section F).  The stay application is then dealt with in section G, which involves considering whether Hong Kong or New York is the more appropriate forum for the actions, in light of the answers to the prior questions and other relevant matters.

(3)     While strictly obiter I then turn to consider, assuming Order 81 is inapplicable, whether the curative orders sought by the plaintiffs on their fall‑back position should be made.  This raises the questions whether the case is in principle a proper one for leave to serve out (see section H).  Section I then deals with whether in all the circumstances leave to serve out should be granted, whether the validity of the writs should be extended, and whether the writs should name PW LLP or all the individual partners as defendants.

(4)     Finally, I shall refer to PW LLP’s application to set aside the order of 17 March 2016 for extending the validity of the CMT Writ on the ground of material non‑disclosure.

D.     The carrying on business issue

D1.    The question and the burden

44.  RHC Order 81 provides:

“ 1. Actions by and against firms within jurisdiction (O 81, r 1)

Subject to the provisions of any written law, any 2 or more persons claiming to be entitled, or alleged to be liable, as partners in respect of a cause of action and carrying on business within the jurisdiction may sue, or be sued, in the name of the firm (if any) of which they were partners at the time when the cause of action accrued.

…

3. Service of writ (O 81, r 3)

(1) Where by virtue of rule 1 partners are sued in the name of a firm, the writ may, except in the case mentioned in paragraph (3), be served—

(a) on any one or more of the partners, or

(b) at the principal place of business of the partnership within the jurisdiction, on any person having at the time of service the control or management of the partnership business there, or

(c) by sending a copy of the writ by registered post (in accordance with Order 10, rule 1(2)) to the firm at the principal place of business of the partnership within the jurisdiction;

and, subject to paragraph (2), where service of the writ is effected in accordance with this paragraph, the writ shall be deemed to have been duly served on the firm, whether or not any member of the firm is out of the jurisdiction.

…”

45.  It is not in dispute that under Hong Kong law, a general partnership as such has no separate legal personality from the partners and that these rules merely provide a convenient machinery for partnerships to sue or be sued in the firm name, without “incorporating” the firm.

46.  The requirement of carrying on business in the jurisdiction was added to the English rules when they were revised in 1891 to reform unsatisfactory aspects of the old rule on service on partnerships,[8] which did not apply where the partners were not resident or domiciled in England.[9]  It is clear that where RHC Order 81 (which is based on the revised English rules) is applicable, a writ may be issued against the partners in the firm name without leave obtained pursuant to Order 11, whether the partners are themselves resident within or without the jurisdiction: Worcester City and County Banking Co v Firbank, Pauling & Co [1894] 1 QB 784.[10]

47.  The rules proceed on the basis that where persons in partnership are “carrying on business within the jurisdiction”, they may fairly be taken to have agreed to be amenable to the processes of the courts here.  Expressions such as this go to the general notion of whether the defendant has a sufficient “presence” in Hong Kong: South India Shipping Corporation Ltd v Export‑Import Bank of Korea [1985] 1 WLR 585, 589; Adams v Cape Industries plc [1990] Ch 433, 523G.  I do not think it is right to characterise the use of Order 81 in such cases as going through the “back door” “bypassing” the requirements of Order 11 as the defendants have alleged.  While the question of carrying on business has to be assessed carefully, it is one to be approached with no preconceived notions. Any concern that this could extend Hong Kong jurisdiction to wholly foreign disputes is addressed in our law under the concept of forum non conveniens.

48.  Relying on the fact that the CMT Writ as originally issued gave its New York address as PW LLP’s address, and that the Chater Road office was only added by amendment on 8 March 2016 shortly before service on Ms Chan, the defendants submit that this amendment was a “deliberate” step taken to “circumvent” the need to obtain leave to serve out of the jurisdiction.  However, in the present context, if there is a sufficient case in fact that PW LLP was carrying on business in Hong Kong, then there was in my view nothing improper for the plaintiffs to avail themselves of the facility of serving PW LLP without relying on Order 11.

49.  The plaintiffs’ case is that PW LLP, comprising its partners as such, was carrying on business in Hong Kong, and it may therefore, by virtue of Order 81 rule 1 be sued in the name of PW LLP and be served by serving on one or more of its partners, namely, Ms Chan.  There is no dispute that the burden lies on the plaintiffs to establish this jurisdictional requirement.  This is, however, not a trial of the underlying claims on the merits, but an interlocutory contest of jurisdiction based on affidavit evidence.  As such, the plaintiffs submit that their burden is to show a “good arguable case” that PW LLP carried on business in Hong Kong, which is generally the standard applied for the purpose of determining an issue about jurisdiction: see Saab v Saudi American Bank [1999] 1 WLR 1861 at §29; Canada Trust Co v Stolzenburg (No 2) [2002] 1 AC 1 at 13E‑H; Newocean Petroleum Co Ltd v O W Bunker China Ltd (in provisional liquidation) (unrep, HCMP 1474/2016, 11 July 2016) at §9; Goldman Sachs International v Novo Banco SA [2018] 1 WLR 3683 at §9.

50.  Being able to show a good arguable case generally means that the party has “the better of the argument”.  In particular, in Brownlie v Four Seasons Holdings Inc [2018] 1 WLR 192 at §7, Lord Sumption rejected the word “much” in the phrase “has a much better argument” used in some previous cases, saying that he did not believe that anything was gained by the word “much”, which suggests “a superior standard of conviction that is both uncertain and unwarranted in this context”.  His Lordship reformulated the effect of the test (subsequently endorsed unanimously by the UK Supreme Court in Goldman Sachs International) as follows:[11]

“ What is meant is (i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the Court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.”

51.  It is generally accepted that a good arguable case means something more than a prima facie case or being merely sufficient to raise an issue, but less than proof on the balance of probabilities: The Atlantik Confidence [2018] EWCA Civ 2590 at §34; Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 10 at §119.

52.  On behalf of PW LLP, Mr Wong SC does not dissent from the proposition that the applicable standard is good arguable case, although he submits that the onus in the present case should fall towards the higher end of the spectrum and call for a “much better” argument.  I am unable to accept the emphasis on the word “much”, which is now generally considered unhelpful and, in the words of Davis LJ in Kaefer Aislamientos at §119, “can now safely be taken as consigned to the outer darkness”.

D2.    The concept of carrying on business

53.  On behalf of the plaintiffs, Mr Hollander referred to Adams v Cape Industries plc.  In that case the plaintiffs brought proceedings in England to enforce a default judgment entered by a federal court sitting in Texas against Cape and one of its subsidiaries, Capasco, both English companies.  The question relevant for present purposes was whether these two companies were resident in the United States (specifically, Illinois) so as to afford a basis for recognition of the Texas judgment.  The plaintiffs contended that those two companies did carry on business and were present in Illinois through Cape’s Illinois subsidiaries, NAAC and CPC, successively.

54.  Although Adams v Cape Industries plc concerns the presence of a corporation through the carrying on of business in a foreign jurisdiction, while the question in the present case is the carrying on of business by a partnership in Hong Kong, it seems to me the general principles discussed in that case nevertheless provide useful guidance, particularly because the court there also derived guidance from “the Okura line of cases” (after Okura & Co Ltd v Forsbacka Jernverks Aktiebolag [1914] 1 KB 715) in which the court had to consider whether to allow process to issue to foreign companies as being amenable to its jurisdiction.  Following a review of the authorities, the English Court of Appeal set out the following general principles (at p 530):

“ (1) The English courts will be likely to treat a trading corporation incorporated under the law of one country (“an overseas corporation”) as present within the jurisdiction of the courts of another country only if either (i) it has established and maintained at its own expense (whether as owner or lessee) a fixed place of business of its own in the other country and for more than a minimal period of time has carried on its own business at or from such premises by its servants or agents (a “branch office” case), or (ii) a representative of the overseas corporation has for more than a minimal period of time been carrying on the overseas corporation’s business in the other country at or from some fixed place of business.

(2) In either of these two cases presence can only be established if it can fairly be said that the overseas corporation’s business (whether or not together with the representative’s own business) has been transacted at or from the fixed place of business. In the first case, this condition is likely to present few problems. In the second, the question whether the representative has been carrying on the overseas corporation’s business or has been doing no more than carry on his own business will necessitate an investigation of the functions which he has been performing and all aspects of the relationship between him and the overseas corporation.

(3)  In particular, but without prejudice to the generality of the foregoing, the following questions are likely to be relevant on such investigation: (a) whether or not the fixed place of business from which the representative operates was originally acquired for the purpose of enabling him to act on behalf of the overseas corporation; (b) whether the overseas corporation has directly reimbursed him for (i) the cost of his accommodation at the fixed place of business; (ii) the cost of his staff; (c) what other contributions, if any, the overseas corporation makes to the financing of the business carried on by the representative; (d) whether the representative is remunerated by reference to transactions, e.g. by commission, or by fixed regular payments or in some other way; (e) what degree of control the overseas corporation exercises over the running of the business conducted by the representative; (f) whether the representative reserves (i) part of his accommodation, (ii) part of his staff for conducting business related to the overseas corporation; (g) whether the representative displays the overseas corporation’s name at his premises or on his stationery, and if so, whether he does so in such a way as to indicate that he is a representative of the overseas corporation; (h) what business, if any, the representative transacts as principal exclusively on his own behalf; (i) whether the representative makes contracts with customers or other third parties in the name of the overseas corporation, or otherwise in such manner as to bind it; (j) if so, whether the representative requires specific authority in advance before binding the overseas corporation to contractual obligations.”

55.  The court added that the list of questions in (3) above is not exhaustive, and the answer to none of them is necessarily conclusive.  Every case is likely to involve “a nice examination of all the facts, and inferences must be drawn from a number of facts adjusted together and contrasted”.

56.  It is common ground that the question of carrying on business in Hong Kong is to be assessed with reference to the time of suit, which I take to be the time of service of the writs in March 2016 and October 2017 rather than the time of their issuance (see Adams at p 518B‑C), but nothing turns on this.

57.  A firm can be carrying on business in more than one jurisdiction at the same time: Worcester City and County Banking Co v Firbank, Pauling & Co [1894] 1 QB 784, and an overseas firm may be carrying on business in the jurisdiction through a local representative, notwithstanding that the representative also carries on business on its own behalf: Actavis Group HF v Eli Lilly & Co [2013] RPC 37.[12] It is not necessary to establish that the whole or a substantial part of the business of the overseas firm is carried on from the place in question within the jurisdiction; an overseas firm may have a place of business within the jurisdiction even if the activities carried on there are incidental to the main objects of the firm: South India Shipping Corporation Ltd v Export‑Import Bank of Korea [1985] 1 WLR 585 at 591B & 592A‑C;[13] Actavis Group HF, §55.

58.  The plaintiffs say that it does not matter which of the two limbs referred to in (1) in the quoted passage in Adams above applies.  The business of PW LLP was carried on from the Hong Kong office at the Chater Road office.  The plaintiffs’ case, as summarised in their skeleton submissions, is as follows:

(1)     The starting point is that PW LLP holds itself out to the world as doing business in Hong Kong from the Hong Kong office and a court should be very reluctant to conclude that what it holds out is false.

(2)     The Engagement Letter between PW LLP and the Audit Committee refers expressly to the Hong Kong office of PW LLP. Extensive work was carried out pursuant to the Engagement Letter in Hong Kong, from the Hong Kong office.

(3)     The Engagement Letter did not give PW LLP any permission to subcontract its work, and there is no evidence to suggest that it did subcontract; all invoices delivered to the plaintiffs are invoices for work done by PW LLP.  It follows therefore that the work done pursuant to the Engagement Letter at the Hong Kong office was work done by PW LLP and that it carried on business there.

(4)     It is hardly as though the way in which PW LLP claims to have conducted the Investigation was a one‑off.  In support of their position the plaintiffs have provided evidence of a number of other engagements entered into by PW LLP where extensive work was done by the Hong Kong office; in many cases formal documentation was entered into where PW LLP used the Hong Kong office as its relevant address.  PW LLP has not engaged with these matters in its evidence.

(5)     The evidence shows that PW LLP is a “New York‑centric” law practice which carries on business from a number of overseas offices.  PW LLP’s own evidence makes clear that in every other international office of PW LLP, it is the New York entity that practises there.

59.  The defendants’ case in summary is that while PW LLP used to carry on business in Hong Kong prior to July 1998, pursuant to the legislative scheme under the Legal Practitioners Ordinance (Cap 159) (as amended in 1994), PW LLP, a registered foreign law firm at the time, explicitly ceased carrying on business in Hong Kong on 30 June 1998, and, in its place, PW HK, a separate, Hong Kong firm, went into business as from 1 July 1998.  PW HK practises in a principal capacity in its own right, undertaking business, financial and administrative matters in its own name (see §100 below for examples).

60.  The defendants argue that the relationship between a foreign law firm and an affiliated Hong Kong law firm is far removed from the situation in Adams.  They emphasise that legal practice is a regulated area in Hong Kong and that there is a legislative framework segregating Hong Kong firms and foreign firms.  It seems to me nevertheless that the question is ultimately one of objective facts.  It does not follow simply because a foreign firm has set up a local affiliated firm, that the foreign firm does not carry on business in Hong Kong.  It is still necessary to examine the functions of the Hong Kong office and all aspects of its relationship with the overseas firm.

D3.    The evidence

(a)     The partnerships

61.  PW LLP is a limited liability partnership registered under the State of New York, United States, with its headquarters in New York.  PW LLP[14] established a Hong Kong office in 1983.  Pursuant to the change in the registration regime of law firms in Hong Kong referred to below, in 1998, a Hong Kong partnership, ie PW HK, was set up “as a separate and distinct partnership formed to satisfy Hong Kong requirements for the practice of Hong Kong law”.[15] 

62.  In 2009, PW LLP had 122 partners of whom 115 were based in the United States, with 107 in New York and eight in Washington DC.  PW HK had only three partners at the time, namely, Mr Lange, Ms Chan and Mr Liu.  All of them were also partners of PW LLP. Mr Lange and Ms Chan were based in Hong Kong while Mr Liu was based in Beijing.  In consequence, it would appear that each of the partners of PW HK, in his or her capacity as partner of PW LLP, has the capacity to act on behalf of, and to bind, PW LLP.

63.  In response, Mr Baughman, a partner of PW LLP, has stated that “as a matter of long‑standing practice and procedure, which has never needed to be reduced to writing, no partner of Paul Weiss LLP (including the partners based in Hong Kong) may materially commit Paul Weiss LLP contractually without seeking appropriate management approval from Paul Weiss LLP”.  Several observations may be made. First, this confirms that partners based in Hong Kong have the same authority and capacity to bind PW LLP as partners based in other offices.  Secondly, there would be no effect on contractual relations unless this “practice” was brought to the attention of a third party dealing with PW LLP which does not seem to be the case.  Thirdly, this qualification on authority is couched in very vague terms.  What is meant by “materially” and “appropriate management approval” is not clear.  It would hardly be credible if it was being suggested that no partner based anywhere could accept any retainer with any client regardless of the urgency of the matter without the approval of the senior partner or a certain committee located in New York.  I do not think that could have been what Mr Baughman meant to suggest.  Fourthly, this is only said to be an unwritten “long‑standing practice and procedure”, which seems to me to be more in the nature of a convention of how people generally conduct themselves, rather than a legal restriction.  It is to be noted that PW LLP has declined to disclose their partnership agreement, either in part or in full.

64.  Further, while the capacity to bind the overseas firm is a relevant factor and regarded as a significant one in relation to a trading business, PW LLP’s business is not in buying and selling and therefore it seems to me the question of the authority to enter into the initial contract is not of overriding significance.  It is at least equally important to see who actually provides the legal services and where the services are provided.  Such work may well result in prima facie entitlement of the overseas firm to fees on a time‑cost basis and is also binding on the firm in the sense that it is attributable to the firm as its services and work product for which it is legally responsible.

(b)     The Engagement Letter and public documents

65.  The letterhead of PW LLP set out the full name of the firm, namely, “Paul, Weiss, Rifkind, Wharton & Garrison LLP” and below it, in addition to the address of its headquarters in New York, five other specific addresses in Washington DC, Tokyo, Beijing, Hong Kong and London respectively.  The Hong Kong address given is “12^th Floor, Hong Kong Club Building, 3A Chater Road, Central, Hong Kong”, which is also the address of PW HK’s office. PW LLP’s letterhead was the same before and after the setting up of PW HK.

66.  Of the other addresses given, it appears that Washington DC, Tokyo and Beijing are all simply “branch offices” of PW LLP.[16] The Hong Kong office is the only non‑US office in which Paul Weiss is authorised to practise local law.  The Chater Road office is stated in the letterhead as an address of PW LLP in the same way as the branch offices are put forward as its overseas addresses.

67.  The plaintiffs also refer to Paul Weiss’ website,[17] which refers to Paul Weiss’ location in Hong Kong and the “Hong Kong office”, with the name of PW LLP prominently displayed at the foot of the page.  The text states: “In addition to our US law capabilities, Paul, Weiss is a registered Hong Kong firm qualified to advise on Hong Kong legal issues”. 

68.  The Organisation Profile published by PW LLP on the website “Getting The Deal Through” stated “Paul, Weiss, Rifkind, Wharton & Garrison LLP is a globally oriented, full‑service firm with over 700 lawyers and officers in Beijing, Hong Kong, Tokyo, London, New York, Toronto, Washington DC, and Wilmington”. It also stated: “In 1998 our Hong Kong office was qualified and registered as a Hong Kong law firm, enabling us to advise on Hong Kong law matters”.  Presentations on PW LLP’s Internal Investigations practice listed Hong Kong (the Chater Road office) as an office of PW LLP.

69.  These are some of the materials among others referred to in the affidavit of Borrelli that, in my view, do give the impression that PW LLP has a Hong Kong office at the Chater Road office.  They are not conclusive as to whether there is in fact such an office, there being no question of any argument of estoppel in the present context, but in my view they form part of the factual matrix for the assessment of the question at hand and demonstrate how the Hong Kong office is regarded by and utilised by PW LLP.  Mr Baughman explains in his affidavit that professional services firms, such as large accountancy firms, often use a common global brand name but with different legal entities of partnerships in different jurisdictions.  As the plaintiffs point out, however, (i) the relevant name being used here is specifically the name of the US firm “Paul, Weiss, Rifkind, Wharton & Garrison LLP”, not a generic global brand name such as those used by large accountancy firms like “KPMG”, “Deloitte”; and (ii) large international accounting firms are generally structured as global networks of independent member firms with a coordinating entity of the network separate from each of the national member firms, whereas Paul Weiss had stated that it “chose to remain primarily a New York and Washington firm, with small vibrant and expert offices in the major foreign financial centres of the world — London, Tokyo, Hong Kong and Beijing”.  Different entities may for their own reasons adopt different structures for their business, and the evidence does suggest that Paul Weiss’ strategy is to be a “New York‑centric” firm with relatively modest overseas offices held out as “extensions” of the US practice.

(c)     Actual work done

70.  As already explained, compared to cases about sales agents where the conclusion of the sales contracts may be said to constitute the transacting of business, in a case such as the present, a factor of significance is where the services are carried out on a regular basis.

71.  In this regard the plaintiffs have unearthed from publicly available information a number of instances (seven based on SEC filings[18] and another five based on PW LLP’s website[19]) where Mr Lange and Ms Chan and other lawyers based in Hong Kong appear to have carried on the business of PW LLP in Hong Kong.  I have studied the details set out in Mr Borrelli’s affidavit and Annexure A to the plaintiffs’ skeleton submissions, which I shall not repeat entirely here.  Two examples will suffice to show the nature of the information available. 

72.  Between 2011 and 2016, PW LLP were retained by a Morgan Stanley entity in respect of its investment in Yongye International, Inc.  The relevant SEC filings show that Mr Lange was the key contact person for PW LLP.  The agreements entered into for the substantive transactions provided for notices and correspondence to be copied to PW LLP with only one address stated, ie “Paul, Weiss, Rifkind, Wharton & Garrison LLP, Hong Kong Club Building, 12^th Floor, 3A Chater Road, Central, Hong Kong, Attention: John E. Lange”.  A total of 3406 hours were billed to the client, of which 1719 hours (50.5%) were attributable to the Hong Kong office.

73.  Between 2015 and 2017, PW LLP acted for Tencent Holdings Ltd (“Tencent”) in connection with its investment in Bitauto Holdings Ltd and Yixin Capital Ltd. Ms Chan and a partner from the New York office were the key contacts for PW LLP.  The business address for each of the executive officers of Tencent was in Hong Kong and Tencent was listed on the Hong Kong Stock Exchange.  In various transactional documents, notices were required to be copied to “Paul, Weiss, Rifkind, Wharton & Garrison LLP, 12^th Floor, The Hong Kong Club Building, 3A Chater Road, Central, Hong Kong … Attention: Jeanette K Chan” (in addition to a second address being PW LLP’s New York office for the attention of Steven J Williams).  Of the total of 1593 hours billed to the client, 75% were billed by the Hong Kong office.  In describing the deal, PW LLP’s website only mentioned Ms Chan and another lawyer, both based in Hong Kong, as being part of the Paul Weiss team.

74.  The position that has emerged from the seven examples taken from SEC filings appears to be as follows:

(1)     In each case, the clients, or client representatives, were Hong Kong or Mainland based, and it was not surprising the preferred arrangement was to have lawyers based in Hong Kong to take the lead.

(2)     The transactions each involved investments in companies or groups listed on either the NASDAQ or NYSE exchanges in New York, with the result that United States regulatory and legal advice and SEC filings were required.  The law firm engaged was not PW HK (even though its partners could practise US law), but PW LLP.  It was therefore PW LLP’s business.

(3)     The public materials do not reveal, and the defendants have not disclosed, who signed the retainer on behalf of PW LLP or where it was entered into.  But in each case Mr Lange or Ms Chan was identified as the key contact person or one of the key contact persons for PW LLP.  In many cases PW LLP’s address was stated to be the Chater Road office.  It seems to me that Mr Lange and Ms Chan were the key contact in their capacity as representatives of PW LLP, not PW HK, dealing with PW LLP’s engagements and PW LLP’s clients, as the representatives of PW LLP in Hong Kong.

(4)     In each case a very substantial amount of work was carried out from the Hong Kong office.  Indeed, in five out of the seven examples, the majority of the hours billed were attributable to the Hong Kong office. 

75.  In respect of the work undertaken for the Investigation in 2009, the defendants have said that the work done by the lawyers and paralegals in the Hong Kong office was conducted at the direction and under the supervision of PW LLP’s US‑based partners, Ms Ioffredo and ultimately Mr Ricciardi.  This suggests they were carrying out work for PW LLP under the direct supervision of PW LLP’s partners (who were not also partners of PW HK).  One may note here that the defendants have also stressed that PW HK was not retained by CMT, was not a party to the Engagement Letter, owed no duties of care to CMT, and “had no relationship with the Plaintiffs”.

76.  In connection with the examples raised by the plaintiffs, Mr Baughman’s reply affidavit contains the following proposition:[20]

“ Work conducted in Hong Kong by partners or legal staff of Paul Weiss HK was conducted in their capacity as partners or staff of Paul Weiss HK.”

He also states that both PW LLP and PW HK were working on those transactions and that the billable hours recorded were mostly attributable to “Paul Weiss HK lawyers”.

77.  These statements are, with respect, an unsupported assertion and inconsequential.  They are an assertion unsupported by any actual facts because the only basis cited is paragraphs 36 to 39 of Mr Baughman’s first affidavit which do no more than set out the steps taken to convert to a Hong Kong firm under the regulatory framework (as discussed in section D4 below).  But I do not think that because PW LLP filed a notice to cease practice as a registered foreign firm, it follows that it could not possibly be found to have in fact been carrying on business in Hong Kong.  There is no explanation at all as to how PW LLP’s engagements came to be performed, repeatedly and in substantial part, by PW HK, which PW LLP has in these proceedings stressed to be “a separate and distinct partnership”.  It should be noted that the standard terms of PW LLP attached to the Engagement Letter in the present case (and there is nothing to suggest different terms applied in these examples) stipulated that the client’s advance approval would be obtained if persons of special training or expertise were required to assist in the rendition of legal services.  There is nothing to suggest that this mechanism was invoked to permit PW HK’s participation in PW LLP’s retainers (including the partners in their capacity as PW HK’s partners and the employees who are presumably not employed by PW LLP).  No evidence from the Hong Kong partners or staff has been adduced at all; nor have the defendants disclosed contemporaneous records such as any file opened by PW HK themselves in relation to the client or the transaction in question or any invoices issued by PW HK.  If the invoices issued for the Investigation in this case are anything to go by, it would appear that the work was charged to clients as work done by PW LLP rather than by any other firm.

78.  In emphasising that PW HK is a separate and distinct partnership, the defendants have said that, during and after 2015, PW HK had its own separate letterhead identifying only the partners of PW HK and entered into terms of engagement with its clients in its own name.[21] However, no letter from PW HK or terms of engagement with any client have been disclosed to support that PW HK (rather than PW LLP through the Hong Kong office) was doing the work in question in these examples.  There is no suggestion that in any of these cases PW HK was retained by the client or that the necessary work was subcontracted to PW HK, as a separate firm, with the client’s consent. 

79.  It is apparent from the evidence assembled by the plaintiffs that on numerous retainers of PW LLP, substantial work was carried out from the Chater Road office by individuals based in Hong Kong.  Mr Hollander submits that the work must have been carried out in Hong Kong either by PW LLP or by PW HK as their agent in the jurisdiction.  He pertinently asks: if it was PW LLP, how is that compatible with the case that PW LLP does not carry on business in Hong Kong?  If it was PW HK, how did that come about, what was the contractual arrangement, and why has the information on that not been provided to the court?  And if that can be shown to have been done as agent for PW LLP, why does it not follow that the agent was carrying on PW LLP’s business within the jurisdiction?  There have been no satisfactory answers to these questions.

80.  The defendants argue that commonality of partners is a necessity in order to use a common firm name.  The rules do require at least one common partner: see r 2A(2)(b) of the Solicitors’ Practice Rules in §97 below.  However, no one has suggested that having an affiliated firm in Hong Kong or having common partners with that affiliated firm in itself suggests in any way the carrying on of business in Hong Kong.  The question depends on what they actually do, the capacity in which they do it and if the affiliated firm performs the overseas firm’s engagement, the precise arrangements.  The fact that the Hong Kong based partners have since 1998 been listed in the Law List published by the Law Society of Hong Kong as partners of PW HK only, seems to me to be nowhere to the point.

81.  In my opinion, Mr Baughman’s statements are also inconsequential, because they do not begin to engage the question whether PW LLP’s business was carried on in Hong Kong.  Even if, as asserted, the Hong Kong based partners and staff were working in their capacity as partners and staff of PW HK, it would still mean that the retainers of PW LLP were being repeatedly and very substantially performed by PW HK’s people out of the Chater Road office.

82.  Mr Wong goes so far as to contend that even where an overseas firm’s retainers are in fact wholly performed by an affiliated Hong Kong firm’s people out of the Hong Kong office, there is still no carrying on of the overseas firm’s business in Hong Kong, provided the Hong Kong individuals are working in their capacity as partners or staff of the Hong Kong firm.  He is unable to explain, however, how and why those individuals should be treated as working in such capacity, other than based on the assertions of the firms.

83.  Viewed objectively, it seems to me that the evidence points to the fact that the relevant individuals have in those examples worked in and from Hong Kong to perform the engagements of PW LLP, for clients who have retained PW LLP.  As such, the Hong Kong office appears to be in part an extension of PW LLP, with resident partners of PW LLP present, able and equipped to accept engagement from and provide legal services to clients based in the region who wish to engage PW LLP and who, by this expedient, do not have to deal directly with the head office in New York.

84.  The defendants argue that such cooperation is “routine” for international professional services firms with a global network.  But the consequences with regard to the question of “presence” of a foreign firm within a jurisdiction depends on the precise arrangements both vis‑à‑vis the clients and internally between members of the network.  There is no evidence that other “global firms” structure and organise themselves in the same way as Paul Weiss.

(d)     Relationship with the Beijing and Tokyo offices

85.  Paul Weiss has an office in Beijing, which is a representative office of PW LLP and not a separate partnership.  Since February 2016, Ms Chan has been the Managing Partner of Paul Weiss’ “China Practice”, which encompasses the Beijing office. In that role she is supported by a number of administrative personnel with responsibilities covering the Beijing office, such as the Director of China Practice and the China Law Legal Manager.  An organisation profile published by Paul Weiss states that “[t]he Hong Kong and Mainland China offices operate on an integrated basis”.  Mr Baughman says that it is “overly simplistic and incorrect” to say that the Beijing office is managed from Hong Kong by Ms Chan, and that Mr Liu, who is a partner of both defendants, is PW LLP’s resident partner in Beijing and therefore responsible for the Beijing office.  He nevertheless accepts that Ms Chan has “broader management responsibility for the China practice”, which comprises the Hong Kong office and PW LLP’s Beijing office.  What such “broader management responsibility” means is unknown, for the defendants have declined to provide a role description of the position of Managing Partner of the China Practice.

86.  In addition, it appears from the evidence that the Hong Kong office provides extensive administrative and managerial support to the Beijing and Tokyo offices of PW LLP, including IT, banking and accounting, recruitment, managerial support, business and practice development.  Managers working for PW LLP with responsibilities not just for Hong Kong but also for PW LLP’s offices in Beijing and Tokyo worked from the Hong Kong office.

(e)     PW LLP’s integration with and control over PW HK

87.  The manner in which Paul Weiss have structured their practice, as far as one can see from the materials available, demonstrates a high degree of integration among PW LLP and Paul Weiss’ overseas offices including the Hong Kong office. Their Asia strategy, in contrast to that adopted by some other US law firms, is a “New York‑centric” one, in which the overseas offices are relatively modest in size and draw upon the firm’s New York resources.  As at 2009, PW LLP had 122 partners, of whom 115 were based in the United States (with 107 in New York), two based in Hong Kong and one in Beijing.  This geographic spread of partners has remained broadly consistent since then.  In 2018, there were nearly 800 lawyers in the New York office, compared to 23 in the Hong Kong office.

88.  Ms Chan explained in a published interview in 2013 that the Hong Kong office had not diversified beyond its core focus (private equity market and a developing technology, media and telecommunications practice) to, for example, capital markets work, because “[t]he key is that we really are an extension of our New York corporate apartment”.  The way in which Paul Weiss have portrayed themselves (outside of these proceedings) is that they are primarily a New York and Washington firm, with small but vibrant overseas offices that extend the firm’s capabilities.

89.  Paul Weiss have a 13‑member Management and Operations team all of whom are based in the United States, including an Executive Director, Chief Strategy Officer, Chief Legal Personnel and Recruitment Officer and Chief Financial Officer, with functions and responsibilities on a “firm‑wide” and “worldwide” basis.

90.  While the lease of the Chater Road office and the utilities contracts are entered into in the name of PW HK, the evidence suggests that the office and PW HK’s staff were routinely used for PW LLP’s purposes, including the carrying out of PW LLP’s retainer.  Thus, for example, PW HK’s staff in Hong Kong worked on the Investigation in the present case, for which PW LLP invoiced CMT.  Such cross‑staffing appears to be a common practice within Paul Weiss, but the precise arrangements including the reimbursement or sharing of expenses (if any) are undisclosed despite requests by the plaintiffs in correspondence.

(f)     Profit‑sharing

91.  PW HK applied for and obtained a waiver of the restriction in r 4 of the Solicitors’ Practice Rules (Cap 159H) against a solicitor sharing profit costs with any person not being a solicitor practising in Hong Kong.  PW LLP is an “all‑equity, single‑tier partnership”.  Pursuant to the waiver, the partners of PW HK, who are also partners of PW LLP, share profits with PW LLP.  There seems to be a high degree of financial integration between PW LLP and PW HK.  If the profits received by the partners of PW HK are derived largely from PW LLP’s business, this would suggest that the partners of PW HK contribute to the business of PW LLP, including by performing the retainers of PW LLP in Hong Kong, while PW LLP financially supported the Hong Kong office or in effect paid for the use of the facilities including human resources.  The defendants, however, have not disclosed the information necessary for any such analysis to be carried out.

92.  It has been submitted on behalf of PW LLP that they do not file any tax return in Hong Kong.  As pointed out by Mr Hollander, however, this is not a useful indicator of whether a defendant is carrying on business in the jurisdiction, because the test for liability to be assessed to profits tax is not the same as the test for carrying on business in Hong Kong under Order 81: Actavis Group HF v Eli Lilly & Co [2012] EWHC 3316 (Pat), at §79.[22]  Conversely, although it is now asserted that it was PW HK that were working on the transactions mentioned above (insofar as Hong Kong based individuals worked on them), nothing has been disclosed by the defendants to show that PW HK’s tax returns included any profits from such work.

D4.    The Legal Practitioners Ordinance

93.  As mentioned above, the regulatory regime of foreign law firms in Hong Kong was changed in 1994.  The Legal Practitioners Ordinance (Cap 159) (“LPO”) and its subsidiary legislation were amended.  In order to practise foreign law in Hong Kong, foreign law firms and foreign lawyers were required to register with the Law Society of Hong Kong: see Part IIIA of the LPO.  Section 50B was added in Part V, which provided:[23]

“ 50B. Offences in relation to foreign lawyers, foreign firms and Associations

(1) A person who offers his services to the public as a practitioner of foreign law commits an offence unless he is a solicitor, barrister or foreign lawyer.

(2) A person who is qualified to practise foreign law and who—

(a) from within a foreign firm but not as a foreign lawyer; or

(b) from within a Hong Kong firm but not as a solicitor or foreign lawyer,

offers his services to the public as a practitioner of foreign law, does not commit an offence under subsection (1) so long as he does not so offer his services in any 12 month period for more than 3 continuous months or more than 90 days.

(3) A foreign lawyer who offers his services to the public as a practitioner of foreign law in a capacity other than as a practitioner in a foreign firm or a Hong Kong firm commits an offence.

(4) A foreign lawyer or foreign firm shall not take a solicitor into partnership or employ a solicitor who holds a practising certificate or a barrister who holds a practising certificate.

(5) Where a Hong Kong firm and a foreign firm have an agreement as described in section 39C(1) and they are not registered as an Association, the partners or the sole practitioners of each firm commit an offence.

(6)     A person who commits an offence under this section is liable to a fine of $500,000.”

94.  “Foreign firm” is defined in s 2 to mean a law firm or sole practitioner that is registered as a foreign firm under Part IIIA; “foreign lawyer” is likewise defined to mean a person registered as a foreign lawyer under Part IIIA; “Hong Kong firm” is defined to mean a law firm in which (a) all of the partners resident in Hong Kong are solicitors; or (b) the sole practitioner of which is a solicitor.

95.  By s 50B(4), a (registered) foreign firm may not take into partnership or employ a solicitor who holds a practising certificate.  In contrast, by s 39D, a Hong Kong firm may employ a (registered) foreign lawyer.

96.  PW LLP[24] was registered with the Law Society as a foreign firm from 1995 to 1998.  The effect of the legislative changes was that if Paul Weiss wished to practise Hong Kong law in addition to foreign law such as US law, it would have to be a “Hong Kong firm”.  This meant that Paul Weiss had to form a new partnership for that purpose because all the resident partners of a Hong Kong firm had to be Hong Kong‑qualified solicitors, which presumably was not the case for PW LLP.

97.  Paul Weiss decided to form a partnership in Hong Kong that would qualify as a Hong Kong firm.  They also decided to avail themselves of the provisions in r 2A(2)(b) of the Solicitors’ Practice Rules which permitted a firm to use a name that does not consist solely of the solicitors who are principals of the firm.  This is permissible because the restriction does not preclude:

“ (b) in the case of a firm (“Hong Kong firm”) that is established as a branch of a firm that is carrying on the business of practising the law in a foreign jurisdiction (“overseas firm”), the use of the name of the overseas firm if—

(i) for the period of 3 years immediately preceding the establishing of the Hong Kong firm, there had been a foreign firm of the same name practising or advising on the law of a foreign jurisdiction;

(ii) at least one of the principals of the Hong Kong firm is a partner in the overseas firm; and

(iii)  one of the principals of the Hong Kong firm had, for not less than 3 years during the 5 years immediately preceding the establishing of the firm, been a partner in, or a consultant to, or employed by, the foreign firm referred to in subparagraph (i) or the overseas firm.”

98.  On 23 June 1998, PW LLP wrote to the Law Society applying for the registration of a “Hong Kong firm”, with 3 partners, namely, Mr Lange, Ms Chan and one Mr Kinmonth, and with the same name of “Paul, Weiss, Rifkind, Wharton & Garrison”.[25] On 30 June 1998, PW LLP submitted papers to the Law Society confirming that PW LLP would cease practice in Hong Kong as a registered foreign firm or close its Hong Kong branch on 30 June 1998 which would be re‑registered as a Hong Kong firm commencing practice with effect from 1 July 1998.  On 10 July 1998, the Law Society gave formal approval for commencement of practice of PW HK.[26]

99.  Since 1 July 1998, PW HK has been continuously registered as a Hong Kong firm and registered also with the Business Registration Office of Hong Kong.  Since the same point of time, PW LLP has not been registered as a foreign firm under the LPO and has not maintained any registration under the Business Registration Ordinance (Cap 310).

100.  It is not in dispute that, as a Hong Kong firm, PW HK (i) maintains an office in Hong Kong at the Chater Road office, where the firm name displayed is “Paul, Weiss, Rifkind, Wharton & Garrison”, which was the trading name of PW HK; (ii) uses its own separate letterhead, naming only the partners of PW HK; (iii) enters into its own engagement letters with its own clients; (iv) employs its own staff; (v) enters into rental and utilities contracts in its own name; (vi) maintains its own bank accounts; and (vii) files its own tax returns.  These features essentially show that PW HK does carry on its own business and has its own separate “commercial existence”.  This, however, misses the point, because the plaintiffs’ case is not that PW HK has no business of its own at all, but that part of the business of PW LLP has been carried on from the Hong Kong office.  As was held in Actavis Group HF, an overseas firm may nevertheless be found to have carried on business in the jurisdiction through a local representative even though the representative also carries on business on its own behalf.

101.  So far as PW LLP’s business is concerned, I have seen nothing to suggest that, factually, the way in which the Hong Kong office and the partners and staff there were involved in performing work in the name of PW LLP had in any way changed after the formation of PW HK in 1998.  As a matter of fact, the way in which PW LLP’s letterhead refers to their addresses in, inter alia, Hong Kong has remained unchanged after 1998.

102.  On behalf of the defendants Mr Wong submits that if the plaintiffs were right, there would be very serious, perhaps even criminal, consequences for PW LLP.  In particular, he submits that if PW LLP were held to have offered services in Hong Kong in relation to US law, all the partners of PW LLP who were not Hong Kong solicitors could be liable for an offence under s 50B(1).  However PW LLP’s position under s 50B is not the question before me and I have no intention of going into it.  It seems to me that the question under RHC Order 81 is different from the question under s 50B of the LPO, and an affirmative answer to the question of whether PW LLP was carrying on business does not necessarily lead to liability under s 50B.  Mr Hollander has observed that s 50B(1) expressly permits Hong Kong solicitors within PW LLP to practise foreign law; and s 50B(2) permits non‑Hong Kong solicitors within PW LLP to practise foreign law from within a Hong Kong firm for up to 3 continuous months or 90 days within any 12‑month period.  Ultimately, however, I do not think the implications under the LPO should alter the conclusions that flow from the facts and evidence.

D5.    Conclusion

103.  The present exercise does not involve making actual findings of fact, but rather a weighing of the relative strengths of the arguments.  The plaintiffs have in my view put forward credible materials suggesting that there has been the carrying on of the business of PW LLP in Hong Kong, systematically and with some regularity, out of the Hong Kong office, for PW LLP and its clients.  The management and administration of the Beijing and Tokyo offices, being undoubtedly branches of PW LLP, was also carried on in part from Hong Kong.

104.  The pattern suggested by the information available fits the passage in Okura & Co Ltd v Forsbacka Jernverks Aktiebolag [1914] 1 KB 715 at 720, relied on by the defendants themselves:

“ The point to be considered is, do the facts shew that this corporation is carrying on its business in this country? In determining that question, three matters have to be considered. First, the acts relied on as shewing that the corporation is carrying on business in this country must have continued for a sufficiently substantial period of time. That is the case here. Next, it is essential that these acts should have been done at some fixed place of business. If the acts relied on in this case amount to a carrying on of a business, there is no doubt that those acts were done at a fixed place of business. The third essential, and one which it is always more difficult to satisfy, is that the corporation must be ‘here’ by a person who carries on business for the corporation in this country. It is not enough to shew that the corporation has an agent here; he must be an agent who does the corporation’s business for the corporation in this country.”

105.  Here, the matters relied on by the plaintiffs had continued for years.  They were done at or from the Chater Road office which had been the Hong Kong office since even before 1998.  PW LLP not only had resident partners in Hong Kong but they, together with other lawyers and staff at the Hong Kong office, from time to time performed PW LLP’s engagements for PW LLP in Hong Kong.

106.  I have accordingly come to the conclusion that on the materials before me, the plaintiffs have established a good arguable case that PW LLP was carrying on business in Hong Kong at the time of service.  Indeed, it seems to me that the plaintiffs have much the better argument on this question.

E.     The cause of action relied upon by the plaintiffs

107.  As indicated above, in their statement of claim the plaintiffs have formulated their cause of action only in tort.  In this hearing the defendants have spent much time criticising the plaintiffs for not pursuing a cause of action in contract, variously describing its choice to sue in tort alone as “tactical”, “artificial”, “lawyerly manipulation” and “choice of law shopping”.  Clearly this attack makes no sense in the case of CMED Tech which had no contract with the defendants.  But even in the case of CMT, I do not think the criticism is well‑founded.  An examination of the authorities shows that there is nothing improper in CMT’s decision to pursue a claim in tort and in tort only.

108.  In Matthews v Kuwait Bechtel Corporation [1959] 2 QB 57, the plaintiff, while working for the defendant in Kuwait under a contract made in England and governed by English law, suffered personal injury by falling into a trench.  He brought proceedings in England for breach of contract and obtained leave to serve the writ out of the jurisdiction under the then RSC Order 11 r 1(1)(e).[27]  It was argued by the defendant that the plaintiff’s claim properly lay in tort, which was committed in Kuwait, and that leave to serve out should be set aside.  The Court of Appeal held that while certain duties were imposed upon employers at common law, they might also be implied terms of the contract, and that it was at the election of the employee in those circumstances to sue in contract or in tort.  Sellers LJ, with whom Willmer LJ agreed, said (at p 67): “In this case, if it suits his purpose, he may sue in contract.”  Matthews is still cited in Dicey, Morris & Collins, The Conflict of Laws (15^th ed), vol 1, §11‑219 for the proposition that if a claimant has a cause of action in both contract and tort, he can elect to sue in either or both and may apply for leave to serve out under the corresponding heads.

109.  In Coupland v Arabian Gulf Oil Co [1983] 1 WLR 1136, the plaintiff, who was an employee of the defendant, a Libyan company registered in the UK, sued the defendant in England for personal injuries suffered by him in the course of his employment in Libya.  The plaintiff’s pleaded case was based on negligence, breach of contract, and breach of Libyan statutory duty. Hodgson J, after a trial of preliminary issues, held that the proper law of the contract was Libyan law but that it was of no relevance to the claim in tort. On appeal, it was submitted on behalf of the defendant that the tortious claim could not be looked at in isolation and that in considering the question of the applicable law in the claim for tort, it would be wrong to disregard the fact that there was a Libyan contract (p 1153B‑D).  This submission was firmly rejected by the English Court of Appeal.  Robert Goff LJ, with whom Oliver[28] and Waller LJJ agreed, stated (pp 1153‑1154):

“ Now, I find myself unable to accept [the defendant’s counsel’s] submission. It seems to me that the position is this. The plaintiff can advance his claim, as he wishes, either in contract or in tort; and no doubt he will, acting on advice, advance the claim on the basis which is most advantageous to him. It appears that he is likely to proceed primarily on the bases of his claim in tort, for reasons which I suspect are connected with the assessment of damages.

That being so, I ask myself: what impact does the existence of the contract have on the claim in tort? In my judgment, on ordinary principles the contract is only relevant to the claim in tort in so far as it does, on its true construction in accordance with the proper law of the contract, have the effect of excluding or restricting the tortious claim.

However, this is not a case where an exclusion clause, or anything of that kind, is relied upon by the defence. There is in the contract no clause which limits or restricts the plaintiff’s right to claim damages in tort; and so that line of defence is not open to the defendants. …

… At all events, so far as I can see on the case as pleaded, there is no term of the contract which, whether the contract be governed by Libyan law or by English law, purports to have the effect of either excluding or restricting the claim in tort. I find myself therefore in entire agreement with the judge that even if the contract, as he held, is governed by Libyan law, then that contract has no impact on the claim in tort.” (emphasis added)

110.  The existence of concurrence of causes of action in contract and in tort, and a plaintiff’s liberty to choose between them, was subsequently affirmed by the House of Lords in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145.  Lord Goff, with whom the other law lords agreed, expressly (at p 191C) agreed with the following passage from the judgment of Le Dain J for the Supreme Court of Canada in Central Trust Co v Rafuse (1986) 31 DLR (4^th) 481, 522:

“ A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular legal consequence.”

Lord Goff further stated (at pp 193‑194):

“ My own belief is that, in the present context, the common law is not antipathetic to concurrent liability, and that there is no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy. The result may be untidy; but, given that the tortious duty is imposed by the general law, and the contractual duty is attributable to the will of the parties, I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him, subject only to ascertaining whether the tortious duty is so inconsistent with the applicable contract that, in accordance with ordinary principle, the parties must be taken to have agreed that the tortious remedy is to be limited or excluded.

… But, for present purposes more important, in the instant case liability can, and in my opinion should, be founded squarely on the principle established in Hedley Byrne itself, from which it follows that an assumption of responsibility coupled with the concomitant reliance may give rise to a tortious duty of care irrespective of whether there is a contractual relationship between the parties, and in consequence, unless his contract precludes him from doing so, the plaintiff, who has available to him concurrent remedies in contract and tort, may choose that remedy which appears to him to be the most advantageous.”

111.  Lord Browne‑Wilkinson, who expressed “complete agreement” with Lord Goff’s speech, added the following observations on the relationship between a contract and any duty of care arising under the Hedley Byrne principle[29] (at p 206):

“ The existence of an underlying contract (e.g. as between solicitor and client) does not automatically exclude the general duty of care which the law imposes on those who voluntarily assume to act for others. But the nature and terms of the contractual relationship between the parties will be determinative of the scope of the responsibility assumed and can, in some cases, exclude any assumption of legal responsibility to the plaintiff for whom the defendant has assumed to act. If the common law is not to become again manacled by ‘clanking chains’ (this time represented by causes, rather than forms, of action), it is in my judgment important not to exclude concepts of concurrent liability which the courts of equity have over the years handled without difficulty. I can see no good reason for holding that the existence of a contractual right is in all circumstances inconsistent with the co‑existence of another tortious right, provided that it is understood that the agreement of the parties evidenced by the contract can modify and shape the tortious duties which, in the absence of contract, would be applicable.”

112.  There is in my opinion no conflict between Coupland and Lord Browne‑Wilkinson’s observations in Henderson which are relied on by the defendants.  The court in Coupland did not confine the relevance of a contract to a case where there is an exclusion or limitation clause in the contract.  When Robert Goff LJ referred to matters in the contract that have the effect of excluding or restricting the tortious claim, he plainly envisaged that the scope and content of the tortious duty may be affected by the contract.

113.  In the case of lawyers, it has been recognised for some decades that a cause of action for negligent misstatements can lie against them in tort as well as in contract.  The claims can be relied upon by the plaintiff concurrently, but there may be reasons in particular cases why the plaintiff prefers to sue in one rather than the other: Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384; Yeung Shu v Alfred Lau & Co [1996] 1 HKLR 119.  Examples of such reasons include the question of limitation of actions, the absence of a right to contribution between negligent contract‑breakers, the rules as to remoteness of damage, and the question of leave to serve proceedings out of the jurisdiction.  These are reasons which Lord Goff recognised in Henderson (at pp 185F‑186B) as being practical issues of “great importance to the parties” which “cannot sensibly be ignored”.

114.  Hong Kong law has adopted the same approach.  In the Court of Final Appeal’s decision of Thanakharn Kasikorn Thai Chamkat (Mahachon) (also known as Kasikornbank Public Company Limited) v Akai Holdings Ltd (in liquidation) (2010) 13 HKCFAR 479, Lord Neuberger of Abbotsbury NPJ, accepting the plaintiff’s submission in that case that it could elect between the two claims based on conversion and knowing receipt respectively when it came to assessing compensation, stated (at §130) that the proposition:

“ rests on the general principle that, where a person can bring a claim on two alternative bases, he can elect to proceed on the basis which is more beneficial to him. This proposition is not challenged — unsurprisingly, as it receives support from three decisions of the House of Lords, Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 193, Kleinwort Benson Limited v. Lincoln City Council [1999] 2 AC 349, 387 (in each case per Lord Goff of Chieveley), and Deutsche Morgan Grenfell Group Plc v. Inland Revenue Commissioners [2007] 1 AC 558, para 51 (per Lord Hope of Craighead).”[30]

115.  There are numerous domestic cases in Hong Kong where a plaintiff was permitted to sue in tort despite his cause of action in contract had become time‑barred: see eg The Bank of East Asia Ltd v Tsien Wui Marble Factory Ltd & Others (1999) 2 HKCFAR 349; Yeung Shu v Alfred Lau & Co & another [1996] 1 HKLR 119.  While it is entirely possible for a rational legal system to outlaw the concurrence of claims in contract and tort (which is notably the approach in French law[31]), it is not a position that has commended itself to Hong Kong law.

116.  If a plaintiff can elect to pursue the cause of action most beneficial to him under domestic law, it is not easy to see why he cannot do so having regard to any available advantages as a matter of private international law.  Suppose a plaintiff’s contractual claim would be time‑barred under a foreign governing law of the contract, but his claim in tort would be governed under a different system of law under which it would not be time‑barred, the same principle would suggest that the plaintiff should be free to pursue that cause of action which is most advantageous to him.

117.  This is indeed the approach adopted in England and Singapore.  I have already referred above to Matthews, where the plaintiff sued in contract to avail himself of English jurisdiction, and Coupland, where the plaintiff sued in tort[32] which would be determined by reference to English law, unlike the contract which was governed by Libyan law.  It may be noted that in Ennstone Building Products Ltd v Stanger Ltd [2002] 1 WLR 3059 (see §139 below), the claimant sued in both contract and tort, and the English Court of Appeal determined the applicable law to the tort without accepting the defendant’s submission there (at §46) that the law applicable to the tort claim should follow the contract (although, in the result, the two laws were both independently found to be English law).

118.  In the subsequent English case of Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157, the Court of Appeal held that Guernsey law applied to the claim for breaches of directors’ duties even though Russian law applied to the causes of action in contract and tort arising out of the same transactions.  What is notable for present purposes is that the submission that, for the purposes of private international law (eg to attract the application of a law that favours him), a plaintiff should not be allowed an unrestricted choice to rely on one of two or more concurrent causes of action, was rejected by the Court of Appeal.  Tuckey LJ stated:[33]

“ 33. … These are interesting submissions but I cannot accept them. Domestic law allows concurrent claims in contract and tort and it has always been assumed that English private international law does so also. Thus Dicey & Morris, The Conflict of Laws, 13^th ed, vol 2, para. 33‑073 under the heading ‘Relationship Between Contract and Tort’ says that an injured employee is free to choose whether to frame his claim in contract or tort or both. Plender [The European Contracts Convention (2^nd ed)] says, at paras. 8-28 and 8-29:

‘ 8-29 … it is not clear whether the characterisation of an issue as falling within the Rome Convention would preclude the application of the Lex Fori that the plaintiff may formulate his action as suits him best in the case of concurrent liability. The better view is that it should not, since such a rule is essentially one of procedure and certainly not a conflict rule…

8-29   If the lex fori treats the facts of the case as disclosing a cause of action in both contract and tort the question whether the plaintiff may opt for whichever claim is more favourable to him should be simply treated as a domestic law question relating to concurrent claims which has nothing to do with conflict of laws.’ ”

Tuckey LJ also referred (at §35) to Coupland and in particular the passage quoted above from Robert Goff LJ’s judgment, stating:

“ This passage seems to echo precisely in a [private] international law context what Lord Goff was later to say in the context of the domestic law about concurrent claims in contract and tort in Henderson v Merrett and is, I think, binding on us. …”

119.  The same point was made in the Singaporean case of Rickshaw Investments Ltd v Nicolai Baron von Uexkull [2007] 1 SLR(R) 377.  There the appellants were the respondent’s employers, under an employment agreement governed by German law.  It was alleged that the employee committed wrongs in relation to certain Tang Dynasty artefacts salvaged in Indonesian waters.  The employers commenced an action in Singapore against the employee, framing its claim variously in conversion, breach of the equitable duty of confidentiality, breach of fiduciary duty and deceit, but not breach of contract, apparently in order to avoid the governing law provision.  The Singapore Court of Appeal held that this was not illegitimate, stating:

“ 47 With respect, however, absent bad faith on the part of the appellants, we see no reason why they should be denied the freedom of choice to frame their causes of action in the way they have. This has in fact been made clear in the case law. It is, for example, established law that the mere presence of a contractual relationship does not in itself preclude the existence of an independent duty of care in tort: see the leading House of Lords decision of Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 as well as the decision of this court in The Jian He [2000] 1 SLR 8 at [26]. Liability can exist concurrently in tort and contract, and provided that the latter does not expressly limit or exclude the former, a plaintiff is free to choose whichever is more advantageous to him: see Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384.

48 We are of the view that the appellants had the right to avail themselves of the cause of action that was most advantageous to them, inter alia, in the light of choice of law considerations. Given the way they were framed, their claims must be treated as claims in tort, and the fact that the respondent’s actions arose from his contract becomes irrelevant for the purposes of characterizing the issues involved. It is certainly the case that the respondent’s actions were carried out in the course of his employment and in the course of performing his contractual obligations. Indeed, his actions probably also constituted breaches of implied terms of the employment contract. However, even while this is true, his actions incurred tortious liability that existed independently of, and concurrently with, his contractual obligations and breaches thereof. In other words, although the allegedly tortious acts were committed in the course of the respondent’s employment in fact, the acts had a separate legal existence from his contractual obligations and breaches thereof. In this regard, we also note the following observations by Robert Goff LJ (as he then was) (and with whom both Oliver and Waller LJJ agreed) in the English Court of Appeal decision of Coupland v Arabian Gulf Oil Co [1983] 1 WLR 1136 at 1153 (significantly, Goff LJ was also to deliver the leading judgment (as Lord Goff of Chieveley) in Henderson v Merrett Syndicates Ltd:

‘ The plaintiff can advance his claim, as he wishes, either in contract or in tort; and no doubt he will, acting on advice, advance the claim on the basis which is most advantageous to him. It appears that he is likely to proceed primarily on the basis of his claim in tort [as opposed to contract], for reasons which I suspect are connected with the assessment of damages’.” (emphasis added)

At §49, the court specifically rejected the “bare proposition”

“ that litigants such as the appellants are ipso facto prevented from framing their respective causes of action the way they did (here, in tort) merely because by doing so, they would be avoiding the governing law provision.”

120.  On this approach, in the present case, where there was no express governing law clause in the contract, CMT is a fortiori entitled to elect which cause of action to pursue.

121.  In my view this unbroken line of authorities should be followed in Hong Kong.  Against all this the only material raised by the defendants is a suggestion in The Conflict of Laws in Hong Kong (Johnston, 3^rd ed by Harris), at §5.145, that where a tortious issue arises in connection with a contract, then the issue should ordinarily be regarded as determined by the law which governs the contract.  None of the above authorities is, however, discussed there, and the suggestion would appear to amount to rewriting the law so as to generalise the Red Sea exception[34] for application to cases not involving the double actionability rule and instead to all torts having some unspecified connection with a contract.  I do not accept that suggestion.

122.  The defendants submit that it is the legitimate expectation of the parties that their relationship is governed by the contract and the contract alone.  I am unable to accept this submission which seems to me contrary to the fundamental principle, now settled, that there is concurrent liability in contract and tort.  The defendants could have no legitimate expectation that if they were negligent, they could not also be held liable in tort.

123.  Mr Wong submits if there was no retainer, there would not be an investigation by Paul Weiss and there would not be any advice in the first place; therefore the alleged tort here could not exist independently of the contract.  I do not think this is the sense in which the court in Rickshaw referred to the tortious liability having an existence independently of the contractual obligations.  Rather, the court was referring to, as it seems to me, an existence independent of the contract as a legal construct, not independent of the events and circumstances that in fact existed after the contract was entered into.  In the present case, if there was no contract in law between Paul Weiss and CMT, for instance because it was an engagement taken up for no consideration, or because the Investigation was commissioned and paid for by a third party, a tortious duty of care could still independently arise because of the general principles on assumption of responsibility and proximity.

124.  The defendants rely on Tremendous Success Holdings Ltd v Sinosoft Technology Group Ltd (unrep, HCA 2345/2013, 11 July 2016), §§132‑133, but all that Deputy Judge Anita Yip SC said in those paragraphs, it seems to me, was that in the context of a claim for breach of fiduciary duty allegedly arising from a joint venture agreement, the trial of the issues in that case would involve studying closely the terms of the joint venture agreement.  This is not controversial.  A concurrent claim in tort may be affected by the contract, because the contractual provisions may, for example, have the effect of curtailing the scope or extent of the tortious duty of care.  Thus, if, for instance, a lawyer’s retainer to conduct an investigation into possible related‑party transactions provided that he need not conduct any personal interviews, then it would be difficult to see how it could be fair, just and reasonable to impose on him liability in tort for failing to conduct such interviews.  The fact that the contract provisions need to be looked at does not, however, affect the ordinary application of the choice of law principles in tort.  Equally, if the contract contains exclusion or limitation clauses, then clearly, as stated in Coupland, the contract would to that extent be relevant to the claim in tort.  It has not, however, been suggested that there is anything of the kind in the present case or any specific rule or provision of New York law relevant to the interpretation of the retainer.

125.  Instead, what the defendants wish to rely on is the in pari delicto doctrine in New York law (see §209 below).  As the expert evidence adduced by the defendants themselves makes clear, however, that doctrine is not a feature of the retainer or even contract law, but a common law doctrine of New York applicable not only to contract claims but also other claims, based upon the imputation of the fraud of the agents to the corporation as principal and applied strictly for policy reasons.  It is not a provision or incident of the contract to which the claim in tort is subject in the sense discussed in Coupland and Henderson. On the approach established by the authorities, there is nothing improper for the plaintiffs to elect to sue in tort and not in contract, even if the advantage they seek to derive from this is the avoidance of the application of the New York doctrine of in pari delicto.

F.     The law applicable to the tort

F1.    The proper approach

126.  As framed in their statement of claim, the plaintiffs’ cause of action against the defendants lies solely in tort.  This section deals with the question of what system of law governs the claim in tort, which may be a relevant factor in determining the appropriate forum under forum non conveniens principles.  In the present interlocutory context, the court cannot come to a final determination but assesses it practically in terms of the rubric of the “good arguable case”: VTB Capital plc v NutriTek International Corporation and others [2013] 2 AC 337, §199;[35] China Reliance Finance Co Ltd v China Three‑Gorge Economic Development Corporation, Guangdong Corporation & another (unrep, HCCL 9/2004, 15 September 2004), §37; and on appeal (unrep, CACV 296/2004, 25 May 2005), §6.

127.  The legal principle is well established: in a case where some of the relevant events took place in Hong Kong and some in a foreign jurisdiction (so‑called “double locality cases”[36]), the court should first, applying Hong Kong principles which involve a “substance” test, decide whether a tort has been committed within this jurisdiction.[37] As put by the English Court of Appeal in Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391 at 446D, the correct approach is as follows:

“ In our judgment, in double locality cases our courts should first consider whether, by reference exclusively to English law, it can properly be said that a tort has been committed within the jurisdiction of our courts. In answering this question, they should apply the now well‑familiar ‘substance’ test previously applied in such cases as Distillers Co (Biochemicals) Ltd v Thompson [1971] AC 458, Castree v E R Squibb & Sons Ltd [1980] 1 WLR 1248 and Cordoba Shipping Co Ltd v National State Bank, Elizabeth, New Jersey [1984] 2 Lloyd’s Rep 91. If on the application of this test they find that the tort was in substance committed in this country, they can thenceforth wholly disregard the rule in Chaplin v Boys; the fact that some of the relevant events occurred abroad will thenceforth have no bearing on the defendant’s liability in tort. On the other hand, if they find that the tort was in substance committed in some foreign country, they should apply the rule and impose liability in tort under English law only if both (a) the relevant events would have given rise to liability in tort in English law if they had all taken place in England and (b) the alleged tort would be actionable in the country where it was committed.”

This approach has been followed and adopted in Hong Kong: see Shanghai Reeferco Container Co Ltd v Waggonbau Elze GmbH & Co Besitz KG [2005] 2 HKLRD 711, §41; Hong Kong Exchanges and Clearing Ltd v Shi Hauifang [2019] HKCFI 1212, §67.  It follows, therefore, that in trying to find the law governing the tort, I should apply Hong Kong conflict of laws principles, rather than the “paramount interest” doctrine of New York law relating to the professional conduct of New York attorneys (see §201 below).

128.  In referring to the authorities, especially English authorities, which discuss the place of a tort or of commission of a tortious act, it seems to me one must be very careful, for there are at least six different possible legal contexts in which the question may arise and the relevant considerations in each of them may not be the same: (1) (a) whether the tort gateway as set out in the old rule 1(1)(h) of Order 11 is satisfied; (b) whether the tort gateway as set out in rule 1(1)(f) of the present Order 11[38] is satisfied; (2) whether English courts should assume jurisdiction having regard to Art 5(3) of the Lugano Convention (or Art 7(2) of the Recast Brussels Regulation); (3) what law governs the tort, either under (a) the common law test as explained in Metall und Rohstoff AG, or (b) ss 10‑12 of the (UK) Private International Law (Miscellaneous Provisions) Act 1995 which replaced the common law rule; and (4) which jurisdiction is the most appropriate forum for the trial of the action.

F2.    Relationship with governing law of the contract

129.  Relying on Trafigura Beheer BV v Kookmin Bank [2006] EWHC 1450 (Comm), §§103‑104, the defendants submit that the governing law of a contract is “highly important” when considering the governing law of a tort arising in that relationship.  However, that case was decided by reference to ss 10‑12 of the (UK) Private International Law (Miscellaneous Provisions) Act 1995, which abolished and did not reflect the common law of England or Hong Kong.[39]  Specifically, the judge considered that the law the parties had expressly or impliedly chosen to govern their pre‑existing contractual relationship fell within “factors relating to the parties” and “relating to … any of the events which constitute the tort or delict in question or to any of the circumstances or consequences of those events” within the meaning of s 12(2) of that Act.  In my respectful opinion, that case, as well as the first instance decision in VTB Capital plc v Nutritek International Corporation [2012] 2 BCLC 437, which the defendants refer to but which was also decided in the context of s 12 of the 1995 Act, have no relevance in the present context to these proceedings. 

130.  As a matter of principle, since the substance test is essentially a geographical test, I fail to see how a choice of law clause in a related contract is relevant in determining the place of the tort.  Support for this view may be found in Morin v Bonhams & Brooks Ltd[2003] EWHC 467 (Comm) at §31 (upheld on appeal [2003] EWCA Civ 1802), a case decided under the 1995 Act, where it was held that a choice of law clause in a related contract was irrelevant for the purpose of finding the governing law of the tort under s 11(2)(c) of the Act which refers to the law of the country in which the most significant elements of the events constituting the tort occurred — also a geographical test.[40]  One may also refer to Ennstone Building Products Ltd v Stanger Ltd, supra, where the English Court of Appeal, applying common law principles, determined the place of the tort and the law applicable thereto without regard to the law governing the contract (see §117 above).

131.  Further, it may be noted that in VTB Capital plc v Nutritek International Corporation, the UK Supreme Court, unanimously reversing the first instance judge and the Court of Appeal on this point, held that English law governed the tort in that case, because although the misrepresentations originated in Russia, they reached the claimant in London and were relied upon by the claimant there; the claimant sustained its loss by disposing of money in and from London.  As such, England was the place where the events constituting the tort occurred, within the meaning of s 11 of the (UK) Private International Law (Miscellaneous Provisions) Act 1995; the factors connecting the tort with Russia within the meaning of s 12 of that Act did not make it more appropriate for Russian law to apply instead: see [2013] UKSC 5, at §§7, 45, 100, 153, 210 and 240.  In particular, Lord Clarke of Stone‑cum‑Ebony specifically said he agreed with the Court of Appeal’s statement that “the most important elements of the facts constituting the tort of deceit are, by their intrinsic nature, the reliance on the misrepresentations by VTB and the loss suffered by VTB”.[41]

132.  In the present case, there is no choice of law clause in the Engagement Letter.  The defendants contend that nevertheless the proper law of the contract is New York law, and that the plaintiffs are estopped from arguing otherwise by reason of the US courts’ ruling in relation to PW LLP’s privilege objection over the disclosure of documents.  The plaintiffs submit that there is no estoppel, that it is far from clear what the proper law of the contract is, but that the question is irrelevant.

133.  For the reasons given above, I think that the question is irrelevant, and I do not propose to burden this already very long decision by entering into that topic, given that my conclusions would remain the same even assuming New York law was the law governing the contract.

F3.    Place of tort for negligent misstatements or advice

134.  On behalf of the plaintiffs, Mr Hollander submits that in determining where the tort occurred, the courts have in negligent misstatements or negligent advice claims consistently looked at where the advice was, or should have been, received and relied upon.  The courts have preferred the place of receipt and reliance over the place where the advice was prepared or sent from, if that was elsewhere.

135.  In Diamond v Bank of London and Montréal Ltd [1979] QB 333, a commodity broker in London issued a writ against a bank in Nassau, claiming damages for alleged misrepresentations in telex and telephone communications from the bank to the plaintiff relating to the availability of a large quantity of sugar for sale by certain American brokers to the plaintiff.  On the preliminary question whether the case came within RSC Order 11 rule 1(1)(h), which permitted service out of the jurisdiction if the action begun by the writ was “founded on a tort committed within the jurisdiction”, the English Court of Appeal found in favour of the plaintiff.  Lord Denning MR held at p 346E‑G:

“ The truth is that each tort has to be considered on its own to see where it is committed. …In the case of fraudulent misrepresentation it seems to me that the tort is committed at the place where the representation is received and acted upon; and not the place from which it was sent. Logically, it seems to me, the same applies to a negligent misrepresentation by telephone or by telex. It is committed where it is received and acted upon.”

136.  Diamond was applied in Cordoba Shipping Co Ltd v National State Bank, Elizabeth, New Jersey (The Albaforth) [1984] 2 Lloyd’s Rep 91, where negligent mis‑statements made in a telex sent from New Jersey to London were acted on in England.  The English Court of Appeal held that for the purpose of Order 11 rule 1(1)(h) the tort was committed in England.

137.  In FFSB Ltd (formerly known as Fortis Fund Services (Bahamas) Ltd) v Seward & Kissel LLP [2007] 5 LRC 224, a Bahamas investment fund, which had gone into liquidation, sued FFSB, the fund’s administrator, alleging breach of an administration agreement and statutory duties.  FFSB in turn obtained leave ex parte to serve a third party notice on Seward & Kissel LLP of New York, who were the fund’s attorneys, on the ground that they breached their duty to advise the fund and were liable to the fund in respect of the same damage, and therefore liable to contribute to any damages that FFSB had to pay.  The question before the Privy Council was whether such leave should have been given pursuant to para (h) of Order 11 of the applicable rules in the Bahamas, which provided that service out of the jurisdiction was permissible “if the action begun by the writ is founded on a tort committed within the jurisdiction”.  Lord Hoffmann, giving the advice of the Board, said:

“ 32. It seems to the Board to be at least arguable that in providing advice to Mr Rafter and drafting documents such as the Offer Memoranda and the promissory notes, S & K must have known that the purpose of such advice and documents was to be communicated to the Fund in the Bahamas for the Fund to use the documents and act upon the advice. In Distillers Co (Biochemicals) Ltd v Thompson [1971] AC 458, 469 the Judicial Committee held that a UK manufacturer which exported a drug to New South Wales but failed to include a warning of potential side effects committed a tort in New South Wales:

‘ The plaintiff is entitled to complain of the lack of such communication in New South Wales as negligence by the defendant in New South Wales causing injury to the plaintiff there.’

33. Likewise in Diamond v Bank of London and Montreal Ltd [1979] 1 QB 333, 346 Lord Denning MR said: [the passage at §135 above was quoted].

34.     These principles appear to the Board to be equally applicable to the communication of negligent advice (or the failure to communicate proper advice) whether directly or through an intermediary like Mr Rafter.  The tort is committed where the advice was, or should have been, received and acted upon.  It is therefore arguable that the alleged tort was committed in the Bahamas.”

138.  It is true that Diamond, The Albaforth and FFSB were all decisions on a rule which is equivalent to the old rule 1(1)(f) in Hong Kong.  But the decisions are nevertheless on point in the present context for, as one can see, the language of that rule focuses on the place of commission of the tort, which is the touchstone under the common law rule set out in Metall und Rohstoff AG.  In fact, in discussing the “substance” test, the Court of Appeal in Metall und Rohstoff AG referred to the old Order 11 rule 1(1)(h) and the cases decided thereunder (see pp 440H‑443D), and said that in Diamond the court had in effect applied the substance test (p 442F) and also referred to The Albaforth as one of the previous cases in which the substance test had been applied (p 446D).  I therefore reject the defendants’ argument that these cases are irrelevant for being decisions under the old rule 1(1)(h).[42]

139.  In Ennstone Building Products Ltd v Stanger Ltd [2002] 1 WLR 3059, the claimant contracted with the defendant to investigate the staining of stone it had supplied for a building in Scotland.  The defendant carried out investigation and testing in Scotland and the results were sent to the claimant at its office in England. On the claimant’s subsequent action against the defendant, a preliminary question arose for trial as to, inter alia, what the law applicable to the tort was (because the claim might be time‑barred under the shorter limitation period in Scottish law).  The English Court of Appeal held, applying common law principles since the acts and omissions complained of pre‑dated the Private International Law (Miscellaneous Provisions) Act 1995:

“ 47. … The order dated 15 May 1995 from the claimant was for the carrying out of ‘investigation, testing and reports’ on the stone. Much of this work on the defendant’s side took place in Scotland. But the fundamental feature of what the defendant was to do was to advise on a solution to the problem of staining. All the investigating and testing was directed towards that end, so that the defendant could use its professional skill to tell the claimant how it could best cure the problem with the stonework. Moreover, the crucial breach of duty on the part of the defendant, on the facts as alleged, was its recommendation to use oxalic acid to clean the stone. That advice was ultimately contained in its report of 30 September 1995 sent to the claimant at its premises in County Durham. …

48.     Where the tort consists in essence of the giving of negligent advice, that tort is committed where the advice is received: see Diamond v Bank of London and Montreal [1979] QB 333, 346G.  On that basis I would regard the alleged tort in this case as having been committed in England, in which case English law would apply.”

140.  It will be noted that, to be actionable, not only must the negligent advice be communicated, it must also be acted upon by the plaintiff resulting in damage.  Damage is the gist of the cause of action of negligent misstatement: JSC BTA Bank v Ablyazov (No. 14) [2017] QB 853 (CA), at §86.  In Diamond, The Albaforth, FFSB and Ennstone, it is clear that damage was sustained at the place where the advice was received and acted upon.  In Metall und Rohstoff AG, at p 449C‑D, acts of inducing breach of contract were committed in New York but the Court of Appeal emphasised that the matter had to be looked at more broadly, taking account of the breaches induced and the resulting damage, which occurred in England.  The Court of Appeal concluded that the substance of the tort of inducing breach of contract was committed there.  Having said that, the place of damage is of course not determinative. The substance test has to be applied more broadly, looking back over the series of events constituting the tort and asking where in substance the cause of action arose.

141.  Counsel for the defendants rely upon a series of English cases which held that in the case of the tort of misstatement, the place “where the harmful event occurred” is the place where the misstatement originated: Domicrest Ltd v Swiss Bank Corporation [1999] QB 548, 567‑568; Alfred Dunhill Ltd v Diffusion Internationale de Maroquinerie de Prestige SARL & Ors [2001] CLC 949, 954-955; JSC BTA Bank v Ablyazov (No. 14) [2017] QB 853, 912‑913.[43]  These cases, however, all concern Art 5 of the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (2007),[44] which provides:

“ A person domiciled in a State bound by this Convention may, in another State bound by this Convention, be sued:

…

3. in matters relating to tort, delict or quasi‑delict, in the courts for the place where the harmful event occurred or may occur;

…”

142.  This EU regulation, which is to be given an autonomous interpretation independent of the national laws of member states including the common law,[45] has no application in Hong Kong.  Principles of common law are not relevant to the application of the autonomous concepts in article 5(3): JSC BTA Bank v Ablyazov (No. 14) [2017] QB 853, §86.  As such, I agree with the plaintiffs that, with respect, these cases are of little assistance to the question at hand.

F4.    Factual matters as regards the place of the tort and their significance

(a)     Events leading to the engagement of PW LLP

143.  The Anonymous Letter, which triggered the Investigation, was addressed to the Chairman of KPMG HK, CMT’s auditors, at his Hong Kong office.  Although the letter said the same information would be provided to the SEC and the Wall Street Journal, it does not seem anything came of this.  On about 10 February 2009, it was received by KPMG HK in Hong Kong.  On 12 February, Mr Zirien, the lead engagement partner for CMT’s audit, who was based in Hong Kong, emailed a copy of the Anonymous Letter to Mr Bruce in Hong Kong.  On 14 February, Mr Zirien emailed a copy to, among others, Simpson Thacher Bartlett LLP’s Hong Kong office (“STB”), CMT’s lawyers in Hong Kong.

144.  On 20 February, STB sent an email to all three members of the Audit Committee advising that they should engage independent legal counsel to undertake a formal special investigation of the allegations.  Despite initial resistance from Dr Crum to this suggestion, on the same day Mr Bruce, following STB’s advice, contacted the Hong Kong office of Freshfields about the possibility of their acting for the Audit Committee.  Over the next fortnight, Mr Bruce communicated with Freshfields on behalf of the Audit Committee on numerous occasions regarding the potential engagement.

145.  From the start it appears that Mr Bruce was the lead actor within the Audit Committee dealing with this matter.  This is hardly surprising given that he was the Chairman; is a chartered accountant with, at that time, over 40 years’ experience in the accounting profession; was the former Senior Partner of KPMG HK and former Chairman of KPMG Asia Pacific; had extensive corporate governance experience; had an office in Central, Hong Kong; and was (and still is) resident in Hong Kong where CMT maintained an office, had bank accounts and had retained numerous professional advisers.  Of the other members of the Audit Committee, Dr Li was a medical doctor based in Beijing and not a fluent user of English, and Dr Crum was a scientist based in the west coast of the United States.  Neither had an accounting background or presence in Hong Kong.  This is not to say they would simply “rubber stamp” what Mr Bruce proposed, but because of his experience and location there is no doubt that Mr Bruce played the leading and “hands‑on” role.  Dr Crum’s approach was reflected in the email he wrote to Mr Bruce on 4 March 2009 in response to his proposal to hold a conference with Freshfields about their engagement:

“ Iain, I am happy to follow your lead on this; having absolutely no experience in such matters my input would probably be of little value. Please don’t hold up anything — proceed at your own schedule and if I can be available, I will participate, but please don’t make specific efforts to accommodate me. I am happy to simply be kept informed.”

146.  On or about 4 March, Mr Bruce signed the engagement letter of Freshfields for and on behalf of the Audit Committee.  After only a short time, however, the Audit Committee resolved to terminate Freshfields’ retainer because of dissatisfaction over the disclosure of the Anonymous Letter to the SEC (despite the dissent of Mr Bruce and Dr Crum’s “utmost respect for [Mr Bruce’s] guidance in this area”).  Mr Bruce was entrusted with the task of finding a replacement.

147.  Mr Bruce duly contacted three US law firms (including Paul Weiss), all of which had offices in Hong Kong.  He made contact with Paul Weiss first as he was already aware of their Hong Kong office.  On or around 18 March, Mr Bruce contacted Mr Liu, a partner of both PW LLP and PW HK, and participated in a further telephone call later that day with Mr Liu (Beijing), Mr Ricciardi and Mr Kramer (New York).  Following this, Paul Weiss prepared an initial work plan which was further expanded on 27 March. 

148.  On 30 March, Mr Bruce recommended Paul Weiss to the other two members of the Audit Committee because, it appears, of the three candidates they had provided the most detailed work plan on a timely basis.  On 6 April, the Audit Committee resolved to appoint Paul Weiss as independent legal counsel to conduct the Investigation, and at the same time authorised Mr Bruce to make all appropriate arrangements for that purpose.  Thereafter it appears that all of Paul Weiss’ contacts were with Mr Bruce until the final meeting on 18 July 2009, there being no suggestion that the other two Audit Committee members had any involvement with Paul Weiss outside of the final meeting.

149.  Paul Weiss were informed by Mr Bruce by email on 7 April that they had been appointed, and commenced work on the Investigation.  Their appointment was notified to the SEC on 15 April.  As noted above, AlixPartners, who were headquartered in New York, were retained by PW LLP as forensic accountants.  The retainer letter, attaching general terms and conditions which expressly made the agreement subject to New York law, was signed by PW LLP and countersigned by Mr Bruce on around 21 April.[46]  PW LLP’s own Engagement Letter was dated 21 April 2009 and signed by Mr Ricciardi in New York and by Mr Bruce in Hong Kong.

(b)     Conduct of the Investigation

150.  On 1 May 2009, a draft investigation work plan was provided to Mr Bruce whose approval was sought for it to be supplied to the auditors, KPMG HK.  On 14 May, PW LLP sent a revised work plan to Mr Bruce which included amendments by KPMG HK (considered “reasonable” by PW LLP) suggesting, inter alia, conducting independent background checks to verify the identities of key shareholders of counterparties and reviewing original payment records to establish how and to whom the payments were made.

151.  In May and June 2009, the relevant partners of PW LLP travelled to Beijing to collect documents, conduct interviews and visit manufacturing facilities.  They also travelled to Hong Kong to collect documents from China Medical (Hong Kong) Ltd and conducted interviews of finance staff in Hong Kong.

152.  The defendants submit that the scope of the Investigation was determined in the United States and the analysis of the information gathered was conducted in the United States.  Thus it is said that PW LLP formulated its work plan and methodology and guidelines for first‑level research in the form of Document Review Instructions and a list of search terms, and analysed and evaluated the information obtained, all in the United States.  However, it should be noted that KPMG HK proposed revisions to the work plan that emphasised verification work on counterparties.  Further, as the plaintiffs submit on the basis of Ennstone (at §47, quoted in §139 above), the preparation and analysis were directed towards advising on the merits of the allegations in the Anonymous Letter and the crucial breach of duty was the provision of negligent advice.  The authorities make clear that it is where negligent advice was received and relied upon, not where it was prepared, that the tort is committed.  I refer also to §187 below where it can be seen that the majority of the work in the United States was done in Washington DC, not New York.

(c)     The plaintiffs’ principal complaints

153.  The plaintiffs’ pleaded case against Paul Weiss is, in short, that they failed to act with reasonable care, skill and diligence.  The allegations which are voluminous are grouped under four headings in the statement of claim, namely, failure adequately to investigate whether the FISH and SPR Transactions were related party transactions as alleged, failure adequately to investigate whether the consideration paid and to be paid pursuant to those transactions was grossly inflated as alleged, failure adequately to investigate certain specified unusual features,[47] and failure adequately to advise the plaintiffs.  The acts and failures pleaded in an overview section include:[48]

(1)     failing to take proper steps to independently satisfy themselves that the allegations in the Anonymous Letter were untrue;

(2)     failing to obtain, critically review, understand and scrutinise all relevant information and transactions independently;

(3)     relying exclusively or predominantly on representations by employees and officers of CMT including Mr Wu, Mr Tsang, Mr Zhu and Dr Chen;

(4)     reaching conclusions which were unreasonable on the evidence reviewed which ought to have been reviewed;

(5)     failing to advise that the allegations in the Anonymous Letter were true or likely to be true or could not be said to have no truth, and that no further payments should be made to Supreme Well at all or pending further investigations;

(6)     falsely reassuring that the FISH and SPR Transactions were arm’s length and legitimate transactions for value;

(7)     misstating to Mr Bruce in Hong Kong on about 1 July 2009, and to KPMG HK on 2 July 2009, that considerable progress had been made to establishing that there was no merit whatsoever in the allegations in the Anonymous Letter and that there was nothing out of the ordinary to report with respect to the FISH and SPR Transactions;

(8)     advising Mr Bruce on 2 July 2009 that Paul Weiss were convinced that SPR appeared to be a viable technology with a promising future;

(9)     misstating to Mr Bruce in Hong Kong and to the other members of the Audit Committee on 18 July 2009 to the effect that the allegations of fraudulent activities in the Anonymous Letter had no merit, and misstating the same matters to KPMG HK and SEC on 22 July 2009, and to PricewaterhouseCoopers Zhong Tian (“PwC”) — the incoming new auditors of CMT — on 3 August 2009.

154.  It seems to me fair to say that a very substantial part of the plaintiffs’ detailed allegations is that Paul Weiss failed to undertake reasonable independent enquiries in Hong Kong in circumstances where they knew or ought to have known that the parties to the FISH and SPR Transactions had substantial connections to Hong Kong.  The pleaded failures include:[49]

(1)     failing to contact or attempt to contact the beneficial owners of Supreme Well in Hong Kong (namely, Chong Kam Chu and Chan Kwan Yan, who were also directors of CytoTrend Biotech Engineering Ltd, the subsidiary of Supreme Well that transferred the FISH technology; and Ng Ka Yu, Ng Kei Yan and Tsoi Po Mat) or to verify their identities when Paul Weiss knew or ought to have known that some or all of those individuals were based in Hong Kong;

(2)     failing to contact or attempt to contact Peter Chong (the contact person for Supreme Well listed in the contract documentation) in Hong Kong to obtain contact details for the beneficial owners of Supreme Well when Paul Weiss knew or ought to have known that he was based in Hong Kong;

(3)     failing to visit the Hong Kong premises of CytoTrend Biotech Engineering Ltd when Paul Weiss knew or ought to have known, inter alia, that it had leased premises in Hong Kong at which it stored assets purchased pursuant to the FISH Transaction;

(4)     failing to interview individuals from the University of Hong Kong when Paul Weiss knew or ought to have known that those individuals were employees of or consultants to Supreme Well with respect to the FISH business;

(5)     failing to interview persons in Hong Kong who worked as professional advisers on the FISH and SPR Transactions, including key persons at the Hong Kong offices of (a) Morrison & Foerster, legal counsel for Supreme Well; (b) Credit Suisse, financial advisers to CMT in relation to the FISH Transaction; (c) PwC and BMI Appraisals Ltd, who prepared draft valuations in respect of the FISH Transaction; (d) Ernst & Young, who prepared a due diligence report in respect of the SPR Transaction; and (e) Deloitte & Touche, who prepared a valuation in respect of the SPR Transaction; and

(6)     failing to make enquiries at BOCHK in Hong Kong as to whether the payment of consideration for the FISH and SPR Transactions by multiple small instalments was due to requirements set by the bank as Mr Tsang told Paul Weiss.

(d)     The reporting phase

155.  The engagement of PW LLP and the Investigation culminated in certain advice rendered in July 2009.  On 1 July 2009, Mr Ricciardi, who was in the United States,[50] had a lengthy telephone conversation with Mr Bruce in which he informed Mr Bruce that considerable progress had been made to almost establishing that there was no merit whatsoever in the allegations in the Anonymous Letter and that there was nothing out of the ordinary to report with respect to the FISH and SPR Transactions.

156.  Mr Ricciardi says he did not know or recall where Mr Bruce was at that time.  However, he was aware that Mr Bruce lived in Hong Kong.  In making arrangements through email for the call, both of them referred to potential times in “HK time”.  Mr Bruce had also said that he would be undergoing a minor medical procedure on 30 June late afternoon, which seems to suggest that he was not travelling on 1 July morning.  It is therefore quite likely that Mr Bruce took the call in Hong Kong.

157.  On 2 July, PW LLP had a telephone conversation with KPMG HK in which they relayed their views to the latter, including that they were “convinced that SPR appears to be a viable technology with a promising future”.  By an email of that date, Mr Ricciardi, who was in the United States,[51] informed Mr Bruce, who again appears to have been in Hong Kong, of the conversation with KPMG HK, thereby also repeating Paul Weiss’ views to Mr Bruce.

158.  By an email dated 6 July, Mr Bruce informed Dr Crum and Dr Li of the advice he had received from Paul Weiss on 1 July.

159.  On 18 July (HK time), a meeting was convened, which was conducted by telephone and video‑conference and attended by Mr Bruce (who had gone to Paul Weiss’ Chater Road office for the meeting), Dr Crum and Dr Li (whose locations are unknown) as members of the Audit Committee, Mr Ricciardi (in New York), Mr Loftus, Ms Ioffredo and Ms Kim (all in Washington DC) from PW LLP, and Mr Kelly (in California) and Mr Galiski (New York) from AlixPartners.  Paul Weiss gave advice to the effect that the allegations in the Anonymous Letter had no merit, that the “weight of evidence” was that the transactions were “legitimate” and that Paul Weiss’ conclusion was that they were not related party transactions. The meeting was also treated as a formal meeting of the Audit Committee (the minutes of which were drafted by Paul Weiss), which resolved at the end that “the allegations of the fraudulent activities contained in the anonymous letter had no merit”.

160.  On 21 July, PW LLP reported their findings to the SEC at a meeting in Washington DC.  On 22 July, PW LLP (with participants from New York and Washington DC) made an oral presentation by telephone to KPMG HK (with participants in both Hong Kong and Beijing), during which they made similar statements about their findings.  Mr Ricciardi reported that presentation by email to Mr Bruce immediately afterwards.  PW LLP (again from New York and Washington DC) made a similar oral presentation to PwC by telephone (with participants in Hong Kong and Beijing) on 3 August.  On 7 August, upon KPMG HK’s resignation, PwC became the auditors of CMT.

161.  The defendants stress that the advice was given from the United States.  The authorities are clear, however, that it is the place of receipt and reliance that is of significance in the present context.  In any event, there is no suggestion that Mr Ricciardi was giving advice from New York on 1 and 2 July.

(e)     Reliance alleged

162.  The plaintiffs claim that the Audit Committee relied upon the advice provided by Paul Weiss on 1, 2 and 18 July 2009.  It is said that the Audit Committee, in reliance, took no steps to stop the payments to the Supreme Well group on 3 July and 4 December 2009, freeze or recover payments made prior to 3 July, continue the Investigation, report to KPMG HK, PwC and the SEC that the allegations in the Anonymous Letter were or may have been true, and instead resolved on 18 July 2009 that the allegations had no merit. 

163.  As far as the alleged negligent misstatements on 1 and 2 July are concerned, it seems clear that Mr Bruce received and relied on them in Hong Kong, where he was present.  The advice was only relayed by him to Dr Crum and Dr Li on 6 July. The advice on 18 July 2009 was given simultaneously to all 3 members of the Audit Committee.  Mr Bruce, the Chairman and the representative responsible for liaising with Paul Weiss and attending to any actions arising as a consequence of their advice, was in Hong Kong, whereas the location of the other two is unknown.  Given the active and leading role played by Mr Bruce in the Audit Committee, it is likely that any necessary action following different advice would have been expected to be taken by him.  As such, whether or not the communications of advice on 1, 2 and 18 July are seen together as a single tort, or as a series of three separate but related torts, it seems to me that receipt and reliance substantially took place in Hong Kong.

(f)     Damage alleged

164.  The loss said to be suffered by the plaintiffs as a result of the alleged tortious breaches of duty falls into 3 categories.  First, there are the payments made to the Supreme Well group after 1 July 2009 totalling US$103.5m, of which:

(1)     US$21.75m was paid out of CMED Tech’s account at Standard Chartered Bank in Hong Kong on 3 July 2009 to Supreme Well’s account at BOCHK in Hong Kong; a further US$30m was paid in the Mainland;

(2)     US$20m was paid out of CMED Tech’s account at Standard Chartered Bank in Hong Kong on 4 December 2009 to Supreme Well’s account at Bank of East Asia in Hong Kong; a further US$31.75m was paid to Supreme Well in the Mainland.

A substantial part of the money paid out represented assets in Hong Kong which were allegedly lost as a result of the tort.  Certainly nothing was paid out from New York or indeed the United States.

165.  Secondly, the plaintiffs claim they lost the opportunity to freeze, trace, and recover assets in relation to payments, totalling US$418.3m, made to the Supreme Well group prior to 1 July 2009.  Of this total sum, US$313.75m was paid out of the plaintiffs’ bank accounts in Hong Kong between November 2006 and March 2009 to Supreme Well’s bank accounts in Hong Kong.

166.  The payments made in Hong Kong, both before and after 1 July 2009, in the aggregate sum of US$355.5m,[52] were all effected upon Mr Tsang’s written instructions to the banks in Hong Kong and by Mr Tsang in person in Hong Kong.  Almost all of these payments were deposited into Supreme Well’s bank accounts in Hong Kong and then transferred to bank accounts in the names of third parties in Hong Kong, many of whom had connections to Mr Wu and Mr Tsang.

167.  In his decision of 28 August 2014 re‑opening the winding‑up petition of CMT, Harris J made the following observations after reviewing the evidence on the fund flows, which I respectfully adopt:

“ 11. …As I have mentioned a total of US$355,500,000 was transferred to Supreme Well by December 2009 of which US$150,500,000 went into a Bank of East Asia account and US$205,000,000 went into a Bank of China account. …

12. …What can be readily seen is that by a series of transactions involving Hong Kong bank accounts opened in the name of companies incorporated in the British Virgin Islands, which were purportedly owned by persons who had some connection with the Company, all of which, other than Kam Hing Trading Co, had Mr. Tsang as one of the signatories, US$294,500,000 was transferred ultimately into accounts controlled by Mr. Wu or Mr. Tsang. The individual transactions all appear to have taken place physically in Hong Kong. …

14. There is now reason to think that a very large part of the Company’s assets has been misappropriated through a scheme operated in Hong Kong involving various persons who themselves are normally resident here (Mr. Tsang, Mr. Kwan and Mr. Chong Wing Hip) and using bank accounts in Hong Kong which were operated personally by Mr. Tsang in Hong Kong. … What is important is that the evidence demonstrates that something of great significance has occurred in Hong Kong so that it can fairly be concluded that not only does the Company have a substantial connection with this jurisdiction but that the connection is in a relevant way central to the liquidation of the Company. …

…

16.      In the present case the evidence that has come to light since July of last year makes it clear there are strong prima facie grounds for suspecting that a very significant part of the Company’s assets have been misappropriated in Hong Kong using a number of Hong Kong bank accounts operated by persons in Hong Kong.  It is now clear that there is a very strong connection between Hong Kong and the affairs of the Company and that the events that took place in Hong Kong are central to the liquidation both in the sense that they need to be investigated in order that liquidators can determine whether claims are available against third parties and also in order to determine whether offences have occurred.”

168.  In relation to the money paid out prior to July 2009, totalling US$418.3m, the recovery steps and actions which, it is said, the plaintiffs would have taken but lost the opportunity of taking as a result of Paul Weiss’ alleged breaches of duty, include: (i) tracing the plaintiffs’ funds into the bank accounts held by Supreme Well in Hong Kong and the Mainland and other bank accounts into which the plaintiffs’ money was thereafter paid; (ii) advising the relevant banks in Hong Kong and the Mainland about the stolen funds, thereby putting them on notice with respect to any further withdrawals from the relevant accounts; (iii) seeking urgent freezing orders in respect of the relevant accounts in Hong Kong and the Mainland; (iv) pursuing the account holders in Hong Kong and the Mainland to recover the money or damages; (v) pursuing recovery of assets purchased with the plaintiffs’ money; and (vi) such other means as the plaintiffs may be advised.[53]

169.  It seems to me that, at least in respect of the majority of the funds, which were paid out from Hong Kong accounts,[54] there is reason to think that these steps and actions would have been based in Hong Kong.  The key person to instruct and liaise with professionals to undertake such recovery actions would have been Mr Bruce.  The defendants submit that the misappropriated funds “apparently were not in Hong Kong at the time the opportunity was lost” and the loss of the chance to recover such assets therefore occurred outside Hong Kong: JSC BTA Bank v Ablyazov (No 14) at p 874 at §41 (Teare J) and p 909 at §70 (CA).  But in the absence of any evidence to support this conjecture, it is at least well arguable that the loss of the opportunity, as at July 2009, occurred in Hong Kong given that the funds were initially paid out into Hong Kong accounts controlled by Hong Kong‑connected persons.  The fund flows evidence suggests that even as late as December 2010, third parties’ Hong Kong accounts were still being used to receive various funds channelled from the plaintiffs.  Some of those accounts were only closed when CMT defaulted on the issued notes in December 2011.  In any event, there is no suggestion that any of the recovery actions would have been taken in New York.

170.  Thirdly, the plaintiffs claim that they received no consideration for the fees paid to Paul Weiss, AlixPartners and Jun He Law Offices totalling US$4.203m,[55] or alternatively lost the fees incurred or paid after 1 July 2009.  This is in the scheme of things a minor part of the plaintiffs’ claim.  Nevertheless the damage seems to me to have occurred in Hong Kong.  The invoices for the fees were issued to Mr Bruce in his capacity as Chairman of the Audit Committee and addressed to him in Hong Kong.  Payment was ordered from Hong Kong through BOCHK as the ordering bank using, presumably, the plaintiffs’ funds in their accounts with BOCHK.

171.  Referring to VTB Capital plc v Nutritek International Corporation [2013] UKSC 5, the defendants submit that the damage was not “substantively suffered” in Hong Kong, saying that the court should be concerned with the “economic impact truly felt by CMT”.  The reference to “ultimate economic impact”, which appeared in the first instance decision in that case ([2012] 2 BCLC 437 at §189), must be seen in its context.  There, the claimant bank, which was an English subsidiary of a Russian state‑owned bank, sued in deceit and conspiracy, alleging that it had been induced by the defendants’ misrepresentations to lend money to a Russian company, RAP, to enable RAP to purchase certain Russian dairy companies from the first defendant, a company incorporated in the BVI with operations in Russia, and controlled through the second and third defendants, being companies incorporated in the BVI and Russia respectively, and the fourth defendant, a businessman living in Russia.  The defendants argued that the claimant suffered no loss because in reliance on the misrepresentations, it entered into two agreements, the facility agreement and the participation agreement.  Under the facility agreement the claimant paid out some US$225m to RAP, but under the participation agreement it received exactly the same sum from VTB Moscow, a related group company.  Arnold J, at first instance, held that the claimant suffered an immediate and direct loss when it advanced the loans to RAP,[56] but said later, in the context of forum non conveniens considerations, that although the loss was sustained by the claimant in England, the ultimate economic impact fell in Russia.[57]  The reference to “ultimate economic impact” was therefore made in circumstances where the claimant was effectively indemnified for its loss.  The case is not, with respect, an authority suggesting that the court may or should, whether in considering the question of forum non conveniens or the place of commission of a tort, look behind the indisputable loss suffered by a corporate plaintiff, to see where the economic impact “ultimately” falls, such as upon its shareholders or creditors, or their shareholders or creditors in turn, ad infinitum. 

F5.    Conclusions on place and governing law of the tort

172.  In summary, the above examination shows that Mr Bruce was appointed in Hong Kong to instruct a firm of legal counsel on behalf of the Audit Committee.  Mr Bruce contacted, instructed and remained the principal point of contact with Paul Weiss from Hong Kong.  Paul Weiss’ alleged breaches of duty include the failure to take investigative steps which ought to have been taken in Hong Kong.  Paul Weiss first reported their findings to Mr Bruce alone in Hong Kong on 1 July 2009, then to KPMG HK (the auditors) and Mr Bruce in Hong Kong on 2 July, and thereafter to all 3 members of the Audit Committee, of whom Mr Bruce (who was still in Hong Kong) was the lead player, on 18 July.  Mr Bruce’s reliance on the advice probably took place in Hong Kong. 

173.  US$41.75m of the payments to Supreme Well made after 1 July 2009[58] was paid out from the plaintiffs’ bank accounts in Hong Kong.  US$313.75m of the payments to Supreme Well made prior to 1 July 2009[59] was paid out from the plaintiffs’ bank account in Hong Kong to Supreme Well’s accounts in Hong Kong, and as a result of the alleged negligent advice the plaintiffs lost the opportunity to take recovery actions for the prior payments which in the main would have been undertaken in Hong Kong with a view to recovery in Hong Kong.  The loss in relation to the professional fees paid after 1 July 2009 was also sustained in Hong Kong.

174.  It is not fortuitous that the key person on the plaintiffs’ side, Mr Bruce, was in Hong Kong. Mr Bruce lived (and still does) in Hong Kong.  CMT maintained an office in Hong Kong.  The majority of its cash assets were held in bank accounts in Hong Kong.  It had retained numerous professional advisers in Hong Kong including with respect to the two impugned transactions.  Its auditors were a Hong Kong firm, of which Mr Bruce was the former Senior Partner.

175.  I remind myself that the substance test for identifying the place of the tort is not to be applied mechanistically but with common sense and due regard for comity.  Standing back from the authorities, one finds here advice directed to Mr Bruce on 1 and 2 July 2009, who was in Hong Kong, as PW LLP probably knew, where he resided and from where he had been liaising with and receiving updates from PW LLP.  PW LLP had in their possession documents (including financial records and summaries and records of the payments pursuant to the FISH and SPR Transactions) from which, it is said, it was reasonably foreseeable that the plaintiffs would suffer damage in Hong Kong if PW LLP failed to meet the standard of care required.  The plaintiffs did sustain substantial damage in Hong Kong.

176.  Whether analysed as a single tort or a series of three separate but related torts each constituted by communication of advice on 1, 2 and 18 July respectively, I consider that the plaintiffs have established, at least on a good arguable case basis, that the tort was in substance committed in Hong Kong.  Applying the approach explained in Metall und Rohstoff, the relevant law that is applicable to the tort is Hong Kong law alone.

G.     The defendants’ application for stay

G1.    The principles

177.  On the basis that PW LLP has been validly served with both writs within the jurisdiction pursuant to Order 81, the application that arises for consideration is the defendants’ application for stay of the action on forum non conveniens grounds in favour of the New York State Supreme Court for New York County (Manhattan). 

178.  The principles applied by the Hong Kong courts to a stay application such as this are those adumbrated by Lord Goff in Spiliada Maritime Corporation v Cansulex Limited [1987] 1 AC 460.  The single question that needs 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, ie one in which the action may be tried more suitably for the interests of all the parties and the ends of justice.  For the purpose of analysis, this has been restated as a three‑stage inquiry in The Adhiguna Meranti (owners of cargo) v The Adhiguna Harapan (owners of ships) [1987] HKLR 904, 907 and The Lanka Muditha [1991] 1 HKLR 741, 744, as follows:

“ (I) 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 ...

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

(III)   If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II) ... 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, ... proof of this ... rests upon the applicant for the stay.”

This has been the established approach in Hong Kong.  In SPH v SA (2014) 17 HKCFAR 364 at §51, the Court of Final Appeal adopted a similar statement of the principles in the context of matrimonial cases.

179.  It is also well established that the proper approach is not just an exercise in loading up factors which connect with any particular jurisdiction in the abstract.  The court is required to focus on the appropriateness of a forum from the point of view of the trial of the action: Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250, 255B; New Link Consultants Ltd v Air China [2005] 2 HKC 260, §67.

180.  A number of factors will be discussed below, grouped into the following headings: (1) the law applicable to the tort claims; (2) the place of the tort; (3) the issues in the case; (4) the parties’ location and connection; (5) the location of likely witnesses; (6) the action against PW HK; and (7) related proceedings.

G2.    The law applicable to the tort claims

181.  The fact that the applicable law for the tort is Hong Kong law as concluded above is normally a factor in favour of Hong Kong as the appropriate forum, though the weight to be given to it depends on the particular case.  In my opinion, the governing law factor is of particular weight in this case since significant legal issues are likely to arise.  A prominent issue will be the legal consequence flowing from the presumed fraud of the former top management of CMT, where diametrically opposite conclusions may potentially be reached depending on whether the New York doctrine of in pari delicto or the Hong Kong law on ex turpi causa non oritur actio is applied.  There are also likely to be issues of causation and remoteness of damage, raising questions of mixed fact and law, especially having regard to the fact that the actions include a claim for the loss of the opportunity to take timely action for the recovery of sums already paid before the advice.

G3.    The place of the tort

182.  As I have concluded above, the alleged tort was in substance one that was committed in Hong Kong.  In The Albaforth, supra, Robert Goff LJ said (at p 96):

“ If the substance of an alleged tort is committed within a certain jurisdiction, it is not easy to imagine what other facts could displace the conclusion that the Courts of that jurisdiction are the natural forum”.

183.  The Albaforth line of cases embodies, as a practical level, an inductive statement based on the experience of the court dealing with what Lord Steyn called in Berezovsky v Michaels [2000] 1 WLR 1004, 1014 the “bread and butter issue of the weight of evidence”.  The dictum should not be treated as a determinative factor, but rather as a “useful rule of thumb or prima facie starting point”[60] or “weighty factor”[61].  Ma CJHC (as he then was) said in The Peng Yan [2009] 1 HKLRD 144 at §27:

“ 26. I believe the underlying reason for The Albaforth principle is that, often in tortious claims, there are one or more elements that have a real connection with the place of the commission of the alleged tort. Thus, for example, where the extent of loss and damage (a requisite element to be proved in all tortious claims) in a particular location is an important issue, the place of the tort must be an important factor in determining the appropriateness of any given forum. Distillers Co (Biochemicals) Ltd. v Laura Ann Thompson [1971] AC 458, an authority referred in The Albaforth, was a case involving the use of Thalidomide in Australia. Delivering the judgment of the Privy Council, Lord Pearson said at 468D:

‘ The defendant has no major grievance if he is sued in the country where most of the ingredients of the cause of action against him took place.’

The factual issues in that case involved the warnings that had been given by the manufacturers of the drug in New South Wales and the extent of the use of Thalidomide there.

27. Other examples where the location of the tort is important from the point of view of the trial of the action include misrepresentation claims where the alleged misrepresentation is acted upon in a particular country: see The Albaforth itself; Diamond v Bank of London and Montreal Ltd [1979] QB 333.

28. It is therefore important when applying The Albaforth principle in the context of forum non conveniens applications, to examine just how close a connection there really exists with any given forum. In some cases, the place of the commission of the tort may be decisive; in others, perhaps not weighty at all. The underlying principle to be firmly borne in mind is the basic test in Spiliada and Adhiguna Meranti. The place of the commission of the tort may in some cases be quite fortuitous and may provide no more than a convenient starting point or prima facie position. The court is required to look into more substantial factors in the application of the basic test. The present case involved a collision where, quite often, there is no obvious or natural forum: see Spiliada at 477C‑D.” (emphasis added)

G4.    The issues in the case

184.  The first component of the plaintiffs’ cause of action is the duty of care owed by Paul Weiss to them.  The concurrent existence of a tortious duty of care alongside contractual duties under the retainer is an incidence of Hong Kong law, which, as discussed above, recognises a plaintiff’s right to sue in either contract or tort or in both.

185.  The scope of Paul Weiss’ tortious duties is a matter governed by Hong Kong law and closely connected with the scope of the Investigation.  The Investigation has, in my view, a strong Hong Kong connection: see section F4 above.  It was triggered by an anonymous complaint received in Hong Kong by the plaintiffs’ Hong Kong auditors.  Paul Weiss were contacted and then retained and instructed by Mr Bruce from Hong Kong.  The Investigation was about transactions which occurred in Hong Kong and the Mainland.  The findings were first communicated to Mr Bruce in Hong Kong.  Paul Weiss’ invoices were addressed to and paid from Hong Kong.  It is alleged that it was reasonably foreseeable to Paul Weiss that the advice would be relied upon in Hong Kong and that, if Paul Weiss failed to meet the standard of care required, the plaintiffs would suffer damage in Hong Kong, where the majority of their cash assets were held and where their treasury function was primarily carried out.[62]

186.  The core members of PW LLP’s team were Mr Ricciardi (based in New York), and Mr Loftus and Ms Ioffredo (both of whom were based in Washington DC).  Mr Ricciardi was responsible for sending regular updates to Mr Bruce, recording the overall strategy and his oversight of the Investigation.  Mr Loftus was responsible, among other things, for assisting Mr Ricciardi with determining the scope and conduct of the Investigation, reporting to the SEC and formulating search terms for document review work.  Ms Ioffredo supervised and coordinated the first‑level document review and was the point of contact for any particular issues.

187.  The defendants say that their work was mainly carried out in the United States.  In terms of the hours billed, this is correct, as shown in the table below:

Location of Paul Weiss fee earners	Total hours billed from April to July 2009	Percentage
Washington DC	1822 hours	47.54%
New York	983 hours	25.67%
Beijing	694 hours	18.11%
Hong Kong	333 hours[63]	8.68%[64]
Total	3832 hours	100%

188.  It can be seen that the time spent by staff in Washington DC by far exceeded that in New York.  In fact, the two principal partners who worked on the Investigation, Mr Loftus and Ms Ioffredo, were both based in Washington DC rather than New York. This is one of the examples of the defendants’ tendency in this case to conflate United States and New York connections.  To carry weight a connecting factor has to be to the specific jurisdiction in question: Saab v Saudi American Bank [1999] 1 WLR 1861, 1882C.  Moreover, it seems that much of the hours billed in the United States were for review of the documents collected, an exercise that could be carried out anywhere and did not therefore have a strong location “flavour”.

189.  The defendants contend that the purpose of the Investigation was to deal with United States legal and regulatory issues.  As to this:

(1)     While liaising with and allaying any concerns the SEC might have was one of the purposes of engaging PW LLP as independent legal counsel to conduct the Investigation, I do not think it was the sole purpose.  The Anonymous Letter alleged “fraudulent activities” and suggested that CMT had “grossly inflated the price of its acquisitions and channelled cash from investors to company insiders’ pockets through off‑shore entities and related parties”.  These activities took place in Hong Kong and the Mainland.  The Engagement Letter stated that PW LLP was retained as counsel in connection with an “internal investigation of related party transactions”.

(2)     According to PW LLP’s own preliminary work plan (of 27 March 2009), the objective was to determine whether there was any truth to the allegations.  If there was, that would mean a massive fraud had been perpetrated on CMT siphoning off virtually its entire capital.  It was clearly important for the company, especially those within it who were independent of the management, as well as for the auditors, to ascertain whether there was a fraud.  The company, its independent directors and auditors had their own duties to discharge under ordinary company law principles.

(3)     This was recognised in PW LLP’s preliminary work plan which stated:

“ We propose to conduct an investigation that is sufficient in scope to enable the company to assess whether there is any evidentiary basis supporting these allegations. It is also important that the Company undertake and complete a sufficient review of these allegations in order to satisfy its obligations with respect to its shareholders, auditors and the SEC.”

(4)     The defendants submit that CMT’s Audit Committee was established pursuant to the requirements of NASDAQ listing rules, and that it was obliged under United States legal rules to investigate the matters raised by the Anonymous Letter.  Section 301 of the (US) Sarbanes‑Oxley Act of 2002 and the SEC’s administrative rules made pursuant thereto provide that an audit committee of a United States listed issuer is responsible for, among other matters, handling complaints including the anonymous submission of concerns relating to questionable accounting matters, and require issuers to confer authority on their audit committees to engage independent counsel to carry out their duties.  However, audit committee is a widespread practice, not a creature found exclusively under US law or in US listed issuers.  Nor is it suggested that the functions, powers and duties of CMT’s Audit Committee were fundamentally different in nature from those of an audit committee of a company listed elsewhere.

(5)     The preliminary work plan stated that the goal was to perform an investigation the scope of which would “satisfy the Company’s auditors and the SEC staff” (emphasis added).  As stated in PW LLP’s subsequent work plan, the scope of the Investigation was “to determine whether there exist[ed] any evidence to support any of the allegations made in the anonymous letter”.  Interim reports were to be provided to “the Audit Committee, the Company’s Auditors, and interested government authorities” (emphasis added).

(6)     The defendants submit that as auditors of a NASDAQ listed company, KPMG HK also acted under US legal requirements, specifically its obligation under s 10A of the (US) Securities Exchange Act of 1934 to determine whether any illegal acts had been committed and to ensure that the Audit Committee was adequately informed about the matter.  This does not mean, however, that KPMG HK was acting only within the context of US law.  Both as a matter of common law and no doubt Cayman Islands company law, it had its own duties and functions to perform as auditors of CMT.

(7)     The defendants submit that PW LLP was retained because of its expertise in dealing with the SEC.  The evidence suggests that because of the SEC dimension, there was indeed a preference for a law firm that had US connections and capabilities.  The first firm retained, however, was a Hong Kong firm, Freshfields, albeit it had an associated firm in New York (and Freshfields’ retainer was expressly subject to Hong Kong law). The three candidates for replacing Freshfields all had offices[65] in Hong Kong (and two had offices in Beijing and one in Shanghai) — a fact Mr Bruce specifically mentioned to the other members of the Audit Committee.  His reasons for recommending PW LLP were apparently that it had responded with a detailed plan on a timely basis and could commit to a tight timeframe for the Investigation.

(8)     PW LLP’s engagement was not one to advise on some recondite or complex point of United States law or SEC rules, but to carry out an investigation essentially of a factual nature — to see if there was evidence to support the allegations in the Anonymous Letter.

(9)     While a purpose for engaging PW LLP was related to the need to liaise with the SEC, it is difficult to see how and there is no evidence that this dimension narrowed down the scope of the Investigation in any material way.  Nor is it being suggested that the standard of care and skill required for an internal investigation into related party transactions is lower where the need for the investigation was triggered by s 301 of the Sarbanes‑Oxley Act.

(10)     Although CMT was regulated by the SEC, it was the SEC home office in Washington DC to which the matter had been assigned because, as Mr Ricciardi told Mr Bruce in an email of 16 April 2009, “[t]he matter has no connection to New York.  Matters with no nexus to any US region are supposed to be assigned to the home office.”  Of the three core team members (see §186 above), it was Mr Loftus who was responsible for liaising with the SEC and he was based in Washington DC.  The findings of the Investigation were reported by PW LLP to the SEC on 22 July 2009 at a meeting in Washington DC attended by all three partners involved.[66]  Thus the SEC dimension does not actually connect the matter to the forum advocated by the defendants, namely, New York.

190.  The defendants also place some emphasis on the involvement of AlixPartners in the Investigation.  To assess this point I turn first to the statement of claim which sets out a factual account of what was done in the conduct of the Investigation, including that (in relation to AlixPartners):[67]

(1)     documents were collected by Paul Weiss and AlixPartners’ staff in Beijing and Hong Kong;

(2)     Paul Weiss instructed AlixPartners to process the data collected and extract data to an electronic review platform;

(3)     AlixPartners reviewed the payments made under the FISH and SPR Transactions, and reported with supporting tables, inter alia, that the payments were made in multiple smaller increments;

(4)     Paul Weiss engaged AlixPartners to review two of the nine valuations obtained by CMT relating to the FISH and SPR technologies. AlixPartners was not asked to provide an opinion regarding the reasonableness or accuracy of the assumptions, analysis or conclusions contained in the subject valuations, and was not asked to value the FISH and SPR technologies; and

(5)     Paul Weiss engaged AlixPartners to conduct an independent forensic analysis of laptop computers and external USB drives assigned to Mr Tsang and Mr Feng Zhu (CMT’s Vice President for Business Development and Investor Relationship) to identify any activity related to deleted files, Internet use, data transfer and deleted emails. AlixPartners’ report summarised the results and recommended further in‑depth forensic analysis be undertaken.

191.  While AlixPartners was retained and worked as forensic accountant in the Investigation, there is no allegation of negligence against it.  An allegation that AlixPartners’ knowledge and actions are to be attributed to PW LLP and that PW LLP is vicariously liable for the actions and conduct of AlixPartners[68] — a plea which might be said to be of questionable validity anyway given that AlixPartners was an independent contractor — has since been abandoned.  The plaintiffs’ case, in broad terms, is that nothing obtained from AlixPartners should have given Paul Weiss comfort in relation to its alleged failures.  The main allegations that are made against Paul Weiss which touch on AlixPartners are that:

(1)     Paul Weiss only engaged AlixPartners to provide a limited review of two of the nine valuations relating to the FISH and SPR technologies,[69] and did not provide the BMI valuation to AlixPartners to review.[70]

(2)     Paul Weiss knew, partly from the summary of payments pursuant to the FISH and SPR Transactions prepared by AlixPartners, that the plaintiffs’ cash assets were held in bank accounts in Hong Kong and that CMT’s treasury function was primarily carried out in Hong Kong.[71]

(3)     Paul Weiss failed to instruct AlixPartners to conduct further in-depth forensic analysis despite the report and recommendation of AlixPartners following its analysis of Mr Tsang’s and Mr Zhu’s computer equipment.[72]

(4)     Paul Weiss knew from an email from AlixPartners to Ms Ioffredo of 25 April 2009 that the plaintiffs’ documents had not been preserved in an acceptable manner and that thereby the integrity of the Investigation would be compromised.[73]

(5)     Paul Weiss knew of the unusual and suspicious fact, partly from an update of 16 June 2009 provided by AlixPartners, that certain payments to the Supreme Well group pursuant to the FISH and SPR Transactions were made in multiple small increments.[74]

192.  Thus analysed, I do not think that the AlixPartners dimension would involve an examination and determination of whether AlixPartners breached their duties in any respects.  The focus, instead, is that given what Paul Weiss had and knew (including from the work of AlixPartners), whether Paul Weiss breached its duties.

193.  In contrast, and importantly, a large part of the allegations of negligence levelled against Paul Weiss concern what the plaintiffs say they ought to have done but failed to do.  These omissions are predominantly about enquiries and investigative steps in Hong Kong, which were obviously not reflected in the billing records.  Some of these alleged failures have been mentioned in section F4(c) above.[75]  The defendants say that those allegations largely comprise steps that could not have been expected of PW LLP which did not possess coercive powers to obtain information.  A significant aspect of the case therefore relates to whether these enquiries could have been undertaken, how they might have been conducted, whether Paul Weiss could reasonably have been expected to undertake them in Hong Kong, what these enquiries if undertaken would have revealed, and what steps such revelations would or should have led Paul Weiss to take.  These issues are, in my view, closely related to the principal place where the omissions occurred, namely, Hong Kong.

194.  The tort involved the communication to Mr Bruce in Hong Kong, and subsequently to the entire Audit Committee, of allegedly defective advice resulting from the Investigation, the reliance on that advice, and the loss said to flow from the negligent misstatement and advice.  I have already explained in section F4 above why I consider that these events primarily and substantially took place in Hong Kong.  The issues of receipt of advice, reliance and loss are in my view closely related to Hong Kong.

195.  In particular, the claim for loss of the opportunity to take recovery action in respect of the payments made prior to 1 July 2009 raises the question of what steps could have been taken (which, as discussed in section F4(f) above, primarily involve actions in Hong Kong), what steps would have been taken by the plaintiffs (which, it seems to me, would be likely to have been led by Mr Bruce from Hong Kong with professional assistance in Hong Kong and the Mainland), what results these steps could have produced and what prospects the plaintiffs would have had for obtaining those results.  It seems to me plain that these are issues that are most suitably dealt with by the courts of that locality, ie Hong Kong.

196.  The defendants have indicated that they are likely to raise illegality as a defence, which I understand to refer to the fact that the misappropriation of assets had been committed by the senior management of the plaintiffs themselves.  This defence, under Hong Kong law, falls to be analysed by reference to the doctrine of ex turpi causa non oritur actio, the proper application of which is not entirely straightforward and which would be best left to be dealt with by a Hong Kong court.

197.  Other specific defences that have been indicated include contributory negligence and failure to mitigate, both of which seem to me to concern the conduct of the plaintiffs, acting through their human agents, who were principally Mr Wu, Mr Tsang and Mr Bruce.  Mr Wu was based in the Mainland; Mr Tsang and Mr Bruce were both Hong Kong residents.  Much of their relevant conduct occurred in Hong Kong, and much of what it might be said they should have done would also have been based in Hong Kong.

G5.    The parties’ location and connection

198.  Prior to its collapse, CMT operated from (1) premises in Beijing, and (2) a Hong Kong office in Allied Kajima Building, Wan Chai, which provided administrative services to the group; was the base for employees responsible for finance, accounting and investor relations; and conducted a substantial portion of its non‑Mainland‑focused activities including liaising with investors and instructing professional advisers such as accountants, lawyers and bankers.  Two of CMT’s directors, Mr Tsang and Mr Bruce, were resident in Hong Kong.  Five board meetings were held in Hong Kong between November 2005 and August 2011, although the majority appear to have been held in Beijing (with participants from Hong Kong by conference call).  Although CMT’s shares (in the form of ADS) were traded on NASDAQ, it did not have any office in New York or anywhere in the United States.  CMT’s auditors were KPMG HK.  As stated above, the plaintiffs maintained a number of accounts with at least two banks in Hong Kong, namely BOCHK and Standard Chartered Bank, which held the majority of the plaintiffs’ cash assets, and were used to pay Supreme Well as well as the operating costs of the group.  CMT also engaged a number of professional advisers in Hong Kong, including law firms Morrison & Foerster and STB, and in particular engaged valuers based in Hong Kong for providing valuations in relation to the FISH and SPR Transactions.

199.  CMT was first put into liquidation in July 2012 in the Cayman Islands, its place of incorporation, and Mr Borrelli, a Hong Kong‑based insolvency practitioner, has been a JOL from the outset.  It was put into provisional liquidation in Hong Kong in November 2012, and although that was set aside in September 2013 (see §26 above), CMT was eventually ordered to be wound up in Hong Kong on 1 September 2014.  Mr Borrelli and Ms Yuen, both residents of Hong Kong, have been acting as the liquidators for the Hong Kong winding‑up since their appointment on 5 February 2015.  According to Mr Borrelli, the administration of the winding up of CMT has been carried out by him and his staff in Hong Kong, in consultation with the Cayman Islands liquidators, namely, Mr Krys, and subsequently Ms MacInnis, and Ms Wood.

200.  As for the defendants, PW LLP was and is domiciled, headquartered and registered as a limited liability partnership (“LLP”), in New York.  But PW LLP, according to its own letterhead, had an office in Hong Kong.  There is no dispute that PW HK carries on business in Hong Kong out of that office.  I have concluded in section D above that there is a good arguable case that PW LLP also carried on business in Hong Kong from there but even if that is incorrect, the facts showing the connection between PW LLP and Hong Kong remain. PW LLP had 3 partners who were also partners of PW HK, namely, Mr Lange, Ms Chan and Mr Liu.  Since 2016 there have been 2 additional common partners.

201.  The defendants submit that the courts in New York have long recognised that the State has a substantial interest in regulating the professional conduct of attorneys licensed and practising in New York.  As Mr Levine has explained, whose opinion is not contradicted by Mr Rich in this respect, this is reflected in New York decisions based on its conflict of laws rules that focus on the “paramount interest” of competing jurisdictions in having their respective bodies of law govern a given dispute.  As to this:

(1)     One can readily understand that a jurisdiction has a particular interest over the professional conduct and ethics of its lawyers. But the plaintiffs’ claims do not relate to professional misconduct or ethics as those concepts are understood in Hong Kong; they are not even based on any advice on New York law or procedure alleged to be erroneous and negligently given.  Rather, they simply concern allegations of breaches of a duty at common law to act with reasonable skill, care and diligence in the conduct of the Investigation and in advising whether there was evidence to support the allegations in the Anonymous Letter.

(2)     Hong Kong does not as a jurisdiction assert any particular interest in negligence suits against lawyers qualified to practise in Hong Kong.  Lawyers are not given any special privilege under Hong Kong’s conflict of laws rules to be entitled to be sued in their “home” jurisdiction.  They are regarded as similar to other professionals and subject to the same laws and legal principles.

(3)     One must also not forget the interests of the plaintiffs who were prima facie victims of a tort in substance committed in Hong Kong with substantial damage suffered in Hong Kong.

(4)     In all the circumstances, with great respect, I do not regard the principle of comity of nations requires that much weight should be given to this factor so as to render New York clearly and distinctly a more appropriate forum.

G6.    The location of likely witnesses

202.  Not surprisingly at this stage the precise list of witnesses is not available.  Those connected with CMT or the FISH and SPR Transactions include Mr Bruce, plainly a key witness, who resides in Hong Kong.  Dr Crum appears still to be based in the west coast of the United States and Dr Li in Beijing.  There are also former employees of the CMT group based in Hong Kong, Hong Kong‑based professionals involved in the due diligence and valuations for the FISH and SPR Transactions, Hong Kong‑based individuals from KPMG HK and PwC, and Hong Kong‑based persons related to Supreme Well and Peter Chong, their nominated representative.  There are likely to be other potential witnesses who are in the Mainland.

203.  On the defence side, Mr Ricciardi, Mr Kramer, and Mr Loftus (who is no longer with PW LLP) are based in New York, Ms Ioffredo in Washington DC, and Mr Liu in Beijing.  The representatives of AlixPartners who worked on the Investigation are likely to be based in New York or elsewhere in the United States. Personnel of the SEC, if witnesses at all, are likely to be based in the United States (probably Washington DC).

204.  The weight to be placed on the convenience of witnesses, especially those who are well travelled professionals, is in my view limited.  Further, there are mechanisms (eg letters rogatory) for taking evidence in the United States and Hong Kong respectively for use in legal proceedings in the other jurisdiction.  Overall, I take the view that the location of witnesses is not a weighty factor one way or the other in the present case.

G7.    The action against PW HK

205.  As to PW HK, who is and was indisputably carrying on business in Hong Kong (with the majority of their partners resident in Hong Kong) and who, on the plaintiffs’ case, did work in Hong Kong in connection with the Investigation, it is difficult to see why a claim against it in tort governed by Hong Kong law, brought in Hong Kong as of right, should be stayed in favour of New York.  On this basis, the plaintiffs submit that, if the actions were stayed as against PW LLP, it would lead to the undesirable situation of having two parallel actions in two different jurisdictions in relation to the same facts: Tai‑Ao Aluminium (Taishan) Co Ltd v Maze Aluminium Engineering Co Ltd & another (unrep, HCA 1916/2005, 17 February 2006), §23.  I do not, however, place weight on this, since the claim against PW HK is likely to be a subsidiary one.

G8.    Related proceedings

206.  The defendants submit that there has been extensive litigation between the JOLs and PW LLP in the United States in relation to PW LLP’s retainer.  However, the issues arising from the privilege objection were limited.  They were dealt with by the Bankruptcy Court which is a federal court, applying federal law, whereas the defendants’ nominated forum is the State Supreme Court of New York.

207.  In contrast, there have been numerous actions brought in the High Court of Hong Kong relating to CMT. As at 31 May 2018, the date of Mr Borrelli’s affidavit, the Liquidators had commenced 15 actions here relating to or arising out of the FISH and SPR Transactions, including substantive claims against the former directors and management of CMT, the former auditors and bankers of CMT, and the valuers of the technologies.  I do not think, however, that there is sufficient information for this court to be satisfied that this amounts to something close to the “Cambridgeshire factor” referred to in Spiliada at p 485E (where a court has acquired a special expertise relevant to the resolution of a particularly complex dispute), and I therefore place no weight on the existence of other proceedings either in the United States or in Hong Kong.

G9.    Juridical advantages

208.  On the footing that, at least on a good arguable case basis, Hong Kong law is the applicable law to the tort, it seems to me that to stay proceedings in Hong Kong would deprive the plaintiffs of legitimate juridical advantages. 

209.  The evidence of Mr Levine, adduced by the defendants, suggests that a New York court, because of the State’s interest in regulating the conduct of its attorneys, would apply New York substantive law in a negligence suit brought in New York against Paul Weiss.  New York law contains the doctrine of in pari delicto. According to this doctrine, a company, who was a wrongdoer, cannot bring an action for recovery against a third party based on alleged liability with respect to the wrongdoing, and this applies to preclude also suits brought by liquidators of a company that has subsequently gone into liquidation.  This is said to serve important public policy purposes: “First, denying judicial relief to an admitted wrongdoer deters illegality.  Second, in pari delicto avoids entangling courts in disputes between wrongdoers”.  According to Mr Levine, “New York courts routinely apply in pari delicto to dismiss cases brought by innocent representatives, such as bankruptcy trustees or liquidators, of corporate entities that previously were fraudulently managed”.  The Court of Appeals of New York emphasised in Kirschner v KPMG LLP 15 NY 3d 446 (2010) that the doctrine is so strong that the defence applies even in difficult cases and should not be weakened by exceptions.  The one relevant exception, known as the “adverse interest exception”, is applied only in the very narrowest of circumstances, where the agent “totally abandoned his principal’s interests” and acted “entirely for his own or another’s purposes”.  Mr Levine opines, based on the materials he has seen including the statement of claim herein, that a New York court applying New York law would conclude that the plaintiffs’ claims in these actions are precluded by the in pari delicto doctrine.  The plaintiffs’ expert on New York law, Mr Rich, has not disagreed with this opinion.

210.  In other words, if the case is tried in the New York courts, the plaintiffs will be deprived of the application of Hong Kong conflict of laws rules, which, as I have concluded, would be likely to lead to Hong Kong law being found to be the applicable law.  This is a benefit the plaintiffs are entitled legitimately to claim: Irish Shipping Ltd v Commercial Union Assurance Co plc [1991] 2 QB 206, 229E‑230A; Stonebridge Underwriting Ltd v Ontario Municipal Insurance Exchange [2010] 2 CLC 349, §33.

211.  It follows also that the application of New York law as the substantive law would further expose the plaintiffs to the seemingly insuperable in pari delicto defence. Staying the action would therefore mean requiring the plaintiffs, who have brought the actions against the defendants in Hong Kong as of right (in my view), to litigate in a jurisdiction where their claims would, on the undisputed evidence, be doomed to failure.  Both on principle and on the authorities this is a “powerful indicator” against granting a stay: Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd [2011] 1 WLR 2575, §143; The President Polk (unrep, HCAJ 311/1991, 12 May 1992).

212.  Conversely, the defendants state that they intend to rely at trial on the New York law defence of in pari delicto.  However, if I am correct in concluding that Hong Kong law governs the plaintiffs’ claims in tort, then that foreign law defence is irrelevant.  As the English Court of Appeal stated in Metall und Rohstoff at pp 446G-447A:

“ Whether as a matter of justice, comity or public policy, we see no reason why our courts should necessarily have to allow a person who does abroad something which is directed against persons in this country, or is foreseeably likely to injure persons in this country, to claim exemption from liability in tort under English law by reference to the laws of the country where some or all of his acts were performed. In such circumstances it may be by no means unreasonable to expect the doer to have some regard to the laws of this country as well as the laws of the place of the act. For example, on hypothetical facts otherwise similar to those alleged by the plaintiffs in Diamond v. Bank of London and Montreal Ltd [1979] QB 333 or Cordoba Shipping Co Ltd v National State Bank, Elizabeth, New Jersey [1984] 2 Lloyd’s Rep 91, we would see no reason in principle why a defendant should be able to avoid liability under the English law of tort merely by showing his conduct would have exposed him to no liability in tort under Bahamian law or the law of New Jersey (as the case might be).”

213.  In Distillers Co (Biochemicals) Ltd v Laura Anne Thompson [1971] AC 458, Lord Pearson said at p 467D:

“ The defendant has no major grievance if he is sued in the country where most of the ingredients of the cause of action against him took place”.

214.  In The Albaforth, supra, Robert Goff LJ also said (at p 96):

“ where it is held a Court has jurisdiction on the basis that an alleged tort has been committed within the jurisdiction of the Court, the test which has been satisfied in order to reach that conclusion is one founded on the basis that the Court, so having jurisdiction, is the most appropriate Court to try the claim, where it is manifestly just and reasonable that the defendant should answer for his wrongdoing”.

G10.  Conclusion

215.  Of the above matters, it seems to me the applicable law, the place of the tort and the connection of the issues with Hong Kong attract significant weight.  Having regard to all the circumstances, I consider that the defendants have failed to show that Hong Kong is not the natural and appropriate forum for the actions, or that New York is a clearly or distinctly more appropriate forum.  There are in addition highly important legitimate juridical advantages of which the plaintiffs would be deprived if the actions in Hong Kong were stayed.  For these reasons, the defendants’ summons for stay should be dismissed.

H.     Leave to serve out

H1.    The requirements

216.  If, contrary to my conclusion in section D above, there is no good arguable case that PW LLP was carrying on business in Hong Kong, then it could not be served without leave pursuant to Order 81 and was not validly served in March 2016 and October 2017 respectively.  It would be necessary for the plaintiffs to obtain leave to serve the writs out of the jurisdiction on PW LLP.

217.  In order to obtain leave, the plaintiffs have to satisfy three requirements.  First, they must show that there is a serious issue to be tried on the merits in the claim against PW LLP.  Secondly, they must satisfy the court that there is a good arguable case that their claim against PW LLP falls within one or more of the “gateways” in RHC Order 11 rule 1(1).  Thirdly, they must show that in all the circumstances Hong Kong is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.  This last requirement is effectively the obverse of what the defendants have to show for their stay application on the grounds of forum non conveniens.

H2.    Serious issue to be tried

218.  The only point raised by PW LLP in relation to serious issue to be tried on the merits is limitation of action.  This is not relevant to CMT’s action for the CMT Writ was issued within time.[76] CMED Tech’s action was, however, brought only on 14 December 2016, which is prima facie more than 6 years after the cause of action accrued.

219.  The plaintiffs submit that the earliest date on which they had the knowledge required for bringing the action against PW LLP was 10 November 2015, being the date of the first production by PW LLP of the documents previously withheld on the grounds of privilege, and that the limitation period was 3 years from that date by virtue of s 31 of the Limitation Ordinance.[77] The issue here is when CMED Tech had the requisite knowledge. 

220.  The defendants submit that the court is concerned with knowledge relating to damage and not to the defendant’s liability, citing Kensland Realty Ltd (in compulsory liquidation) v Tai Tang & Chong (2008) 11 HKCFAR 237, §73.  They argue that the knowledge of the Audit Committee and of the JOLs is attributable to the plaintiffs.  By end of 2012 if not before, the JOLs knew that the FISH and SPR Transactions involved fraudulent misappropriations by Mr Wu.  A protective writ was issued against CMT’s directors and Supreme Well on 1 August 2013.  It is said that the JOLs also knew, by June 2013, the scope of PW LLP’s retainer, the advice rendered and the steps taken, and had reached the view that the conclusions of PW LLP in the Investigation were inaccurate. 

221.  In riposte, the plaintiffs argue that by virtue of s 31(1)(a) and (5)(b), the relevant knowledge is not only knowledge of the damage but includes knowledge that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence.  The plaintiff need not have knowledge of the full‑blown pleaded facts or omissions, but knowledge of the facts constituting “the essence of the complaint of negligence” distilled from such pleading — “knowledge of all the facts which are essential to the complaint which is eventually formulated as his negligence claim”: Kensland, §§88, 105, 106, 108.  Thus, for example, referring to the facts of Dobbie v Medway Health Authority [1994] 1 WLR 1234, where the plaintiff complained her surgeon wrongly performed a mastectomy of her left breast, Ribeiro PJ considered that the relevant knowledge included not only removal of the breast, but also that it had not in fact contained a cancerous growth and that there had been no diagnostic examination before its removal (see §114).  In the present case, the plaintiffs contend that they did not have knowledge of the acts and omissions of the defendants constituting the essence of their complaint of negligence.  They rely on the judgment of the English Court of Appeal in Hallam‑Eames v Merrett Syndicates Ltd [1995] CLC 173 where it was said that the act or omission of which the plaintiff must have knowledge must be that which is causally relevant for the purposes of an allegation of negligence, and submit that they also required knowledge of the circumstances surrounding the advice to ascertain its causative relevance. 

222.  At this stage the prospects of CMED Tech’s case can only be investigated to an extent limited by the inherent nature of the exercise.  The standard of “serious issue to be tried” is a relatively low threshold.  There is no serious issue if CMED Tech’s prospects lack reality but otherwise it is irrelevant whether the court thinks that its chances of success are 90% or 20%: Alfred Dunhill Ltd v Sunoptic SA [1979] FSR 337 at 373.  On a full investigation the defendants may well turn out to be correct, but based on the limited materials at this stage, I do not think that CMED Tech’s argument is so hopeless as to fail to give rise to a serious issue to be tried.  Its claim is in any event very much a secondary one alternative to CMT’s claim in relation to which there is no dispute that there are serious issues to be tried.  The application of s 31 to a case of economic loss allegedly caused by lawyers’ negligence is by no means straightforward (see Kensland, §29, per Chan PJ).  Furthermore, as Ribeiro PJ said in Kensland at §141, where a plaintiff’s reliance on s 31 is sought to be challenged in advance of the trial, this should generally be by trial of a preliminary issue so that all relevant evidence can be adduced and tested.

H3.    Order 11 gateway — rule 1(1)(f)

223.  The plaintiffs rely on the tort gateway under Order 11 rule 1(1)(f) and the necessary and proper party gateway under rule 1(1)(c).  Order 11 rule 1(1)(f) provides that service of a writ out of the jurisdiction is permissible with leave if:

“ (f) the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction”.

224.  There are two alternative limbs in rule 1(1)(f), one focussing on where the damage was sustained and the other on where the act from which the damage resulted was committed.  It is sufficient if either of these occurred within the jurisdiction.

225.  The rule was amended to its present form from the old rule 1(1)(h) (see §135 above).  The equivalent English rule was amended further to drop the definite article before “damage”, to reflect the holding in Metall und Rohstoff AG (at p 437D) that it was enough if some significant damage had been sustained within the jurisdiction.  Whilst that amendment has not been made in Hong Kong, there is no doubt that our rule is to be interpreted in the same way as stated in Metall und Rohstoff AG: see Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454, §33.

226.  Likewise, as far as the “act” limb is concerned, it is not required for all the acts to have been committed within the jurisdiction.  In Metall und Rohstoff (at 437F), it was held that the court should look at the tort alleged in a common sense way and ask whether damage has resulted from “substantial and efficacious acts committed within the jurisdiction (whether or not other substantial and efficacious acts have been committed elsewhere)”.

227.  For the reasons already set out in section F4(f) above, the “damage” limb is, in my view, plainly satisfied, at any rate to the standard of a good arguable case.  As to the defendants’ argument for looking at the “ultimate economic impact”, I have already explained above why the argument is unsound in the present case.  In any event, even in VTB Capital plc, the case relied upon by the defendants, it was common ground that damage had been sustained in England for the purpose of the rule for giving permission to serve out of the jurisdiction.[78] In Ferromin Ltd v Nittetsu Shoji Co Ltd (unrep, HCCL 41/1998, 29 January 1999), p 24, it was also recognised that the plaintiff there sustained damage within the jurisdiction when its account was debited by its bank in Hong Kong after the bank paid out on letters of credit against documents presented by the defendant.

228.  It is therefore unnecessary to deal with the “act” limb of rule 1(1)(f).  It is also unnecessary to enter into the debate whether the line of cases of Domicrest Ltd v Swiss Bank Corporation [1999] QB 548, JSC BTA Bank v Ablyazov (No 14) [2017] QB 853 and Alfred Dunhill Ltd v Diffusion Internationale de Maroquinerie de Prestige SARL [2001] CLC 949, relied on by the defendants, are useful in the interpretation of the “act” limb in rule 1(1)(f).[79]

H4.    Order 11 gateway — rule 1(1)(c)

229.  The defendants contend that there is no real issue between the plaintiffs and PW HK which they may reasonably ask the court to try (using the language of Order 11 rule 4(1)(d)), and that therefore the “necessary or proper party” gateway under rule 1(1)(c) does not apply and the action against PW HK should be stayed. 

230.  Since I have concluded that Order 81 is applicable and, that, alternatively, leave to serve out may be granted pursuant to the “tort” gateway in Order 11 rule 1(1)(f), it is unnecessary to deal with this contention.  There is no separate application to strike out the claim against PW HK under Order 18 rule 19.

231.  I would add, nevertheless, that the defendants’ submission that PW HK were not a party to the Engagement Letter and thus owed no duties of care to the plaintiffs is a non sequitur.  A duty of care may arise in tort from a voluntary assumption of responsibility or a relationship of proximity, as established by numerous authorities such as Hedley Byrne which have long been a part of Hong Kong law: see eg Gill Gurbux Singh v Dah Sing Insurance Services Ltd (2016) 19 HKCFAR 454.  As already recorded in section D above, the defendants themselves assert that it was PW HK which did the work in Hong Kong for the Investigation.  Given that the plaintiffs’ allegations cover omissions by Paul Weiss, and it is unclear at this stage whether PW LLP or PW HK should be said to be responsible for the omissions, it would in my view be premature to conclude finally that the case against PW HK should be stayed.

H5.    Appropriate forum

232.  As explained above, this raises the same question as in the defendants’ stay application based on forum non conveniens, with the difference that, in the context of Order 11, the burden lies on the plaintiffs to show that in all the circumstances, Hong Kong is clearly or distinctly the appropriate forum for the trial of the dispute and the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.  Having regard to all the circumstances including in particular the matters discussed in section G above, I consider that the plaintiffs have discharged that burden.

H6.    Conclusion

233.  Accordingly, I am satisfied that this is in principle a proper case in which to grant leave under Order 11 for the writs to be served out of the jurisdiction on PW LLP.  Whether or not leave should be granted as part of the curative orders sought by the plaintiffs is discussed in the next section.

I.     Curative orders

I1.     Scope of the orders sought

234.  If Order 81 does not apply to PW LLP and leave to serve out is required, then the plaintiffs seek a number of curative orders, in the alternative, to achieve service of the proceedings on PW LLP:

(1)     First, the plaintiffs seek leave to serve out on PW LLP.

(2)     Secondly, they seek either:

(a)     a declaration that service of the CMT Writ on 18 March 2016 on Ms Chan and of the CMED Tech Writ on 31 October 2017 on both Ms Chan and Mr Lange was good and sufficient service on PW LLP. This is premised on leave to serve out being granted on a retrospective basis; or

(b)     an order extending the validity of the writs to a date which is, say, a month from now, for the purpose of effecting service on PW LLP as a firm in the United States.

These two alternatives are both premised on it being permissible to name PW LLP as a firm on the writs and to serve the writs as such despite Order 81 has no application.

(3)     Alternatively, if PW LLP cannot be named as a firm on the writs, then the plaintiffs seek an order that (a) the writs be amended by adding the partners of PW LLP as at 1 July 2009 as defendants; (b) the validity of the writs be extended to a date which is, say, 3 months from now, for the purpose of effecting service on the individual partners; (c) to the extent necessary, leave to serve the named partners out of the jurisdiction.

235.  I shall first deal with three topics before coming to the application for these curative orders:

(1)     the proper approach to the grant of retrospective leave to serve out of the jurisdiction;

(2)     the proper approach to extension of the validity of the writs; and

(3)     the way in which PW LLP may be named and sued in the writs on the basis that Order 81 is inapplicable.

I2.     Retrospective leave to serve out

236.  It is not disputed that the court has power to grant retrospective leave.  The route for the exercise of that power is Order 2 rule 1.  That rule provides that the failure to comply with the requirements of the rules shall be treated as an irregularity not nullifying the proceedings, and that the court has a discretion to set aside the proceedings in whole or in part or to exercise its powers to allow amendments and to make such order dealing with the proceedings as it thinks fit.[80]

237.  In Leal v Dunlop Bio‑Processes International Ltd [1984] 1 WLR 874, the plaintiff issued a writ a week before expiry of the limitation period without obtaining leave under Order 6 rule 7 to issue a writ to be served out of the jurisdiction.  The day before the writ expired, the plaintiff served the writ on the defendants in Jersey without obtaining leave under Order 11 rule 1 for service out of the jurisdiction.  Upon the defendant’s application to set aside service, the plaintiff applied for renewal of the writ and for leave to serve out.  The English Court of Appeal held, disagreeing with the judge below, that the power did exist under RSC Order 2 rule 1(2)[81] for the court to make good the service of the writ by retroactively granting leave to issue a writ and serve it out of jurisdiction (see pp 881F, 882G, 884H).

238.  Whether or not the power should be exercised is a separate matter.  In Leal, the court said that the discretion to rectify should not be exercised unless there are “exceptional circumstances”. This was based on the assumption that “exceptional circumstances” had to be shown for an extension of the validity of a writ after the limitation period had expired,[82] which had since been held to be wrong by the House of Lords in Kleinwort Benson Ltd v Barbrak Ltd & Others; The Myrto (No 3) [1987] AC 597, 619E.  Following Kleinwort Benson, the test for exercising the power under Order 2 rule 1(2) was changed by the English Court of Appeal in Golden Ocean Assurance Limited v Martin [1990] 2 Lloyd’s Rep 215 to one of “good cause” or “good reason”, which has since been the applicable test in England: Kuwait Oil Tanker Co SAK v Al Bader [1997] 1 WLR 1410, 1419G.  In Hong Kong, the same requirement of good reason or good cause applies: Tan Kah Eng v Tan Eng Khiam [2012] 1 HKLRD 329, at §§39 & 40.[83]

I3.     Extension of validity of the Writ

239.  The defendants submit that it is not permissible to retrospectively extend the validity of the writs because the application for extension was made in May 2018, more than 2 years after the CMT writ expired in March 2016. 

240.  The defendants submit that under Order 6 rule 8 the court only has power to extend the validity of a writ for a period not exceeding 12 months on any one application.  This is correct but is only part of the picture.  The power undoubtedly exists under Order 2 rule 1 (and possibly Order 3 rule 5) to extend time, if necessary for more than 12 months, to enable the writ to be served in a case such as the present: see Leal pp 879D & 884G; Bank of China (Hong Kong) Ltd v Chen Jianren [2009] 3 HKLRD 163, §14; Boocock v Hilton International Co [1993] 1 WLR 1065; Tan Kah Eng, §36.

I4.     How should PW LLP or their partners be named and served

(a)     The proper approach

241.  Where PW LLP is sued in Hong Kong and Order 81 applies, it may be sued in the firm name.  Equally, there is no dispute that, if PW LLP is sued in New York, it would be proper to name the firm on the writ and that is how it would have been done in proceedings brought in New York.  The issue is whether PW LLP can be so named in proceedings in Hong Kong notwithstanding that Order 81 is inapplicable.  The plaintiffs say it can; the defendants take the opposite view.

242.  Both sides have relied on Oxnard Financing SA v Rahn & Others [1998] 1 WLR 1465.  There the plaintiff brought an action in England against a Swiss banking partnership for the balance of the price due in November 1988 under a contract claimed to have been made for the sale of shares.  The writ, issued on 2 August 1994, named four individuals as defendants, giving the address of the firm of Rahn & Bodmer in Zurich and making it clear that the claim was made against them as members of the firm.  In June 1995 the defendants applied to set aside service of the writ. The plaintiff counter‑applied for leave to amend, if necessary, to describe the defendants as Rahn & Bodmer.  The evidence on Swiss law was that Rahn & Bodmer was a general partnership.  It was not a corporation, but the general partnership was in certain respects an entity distinct from the individual partners.  It could make contracts in its name; it could sue or be sued in its name; it could own property.  Although the partners were liable for the debts of the firm, a partner could only be sued under limited circumstances, such as where debt enforcement proceedings against the partnership had proved unsuccessful.  In contrast with the present case, the defendants in that case argued that the firm Rahn & Bodmer could and could only correctly have been sued in its own name in the English courts.  After reviewing the case law, Mummery LJ said (at p 1473E‑F):

“ These cases demonstrate that it is possible for a foreign entity body to be recognised in the English courts for the purposes of suing or being sued, even though neither a natural person nor a corporation in what [the defendants’ counsel] describes as ‘the technical sense.’ ”

But the court did not actually have to decide whether it was legally permissible to sue Rahn & Bodmer in England in its own name, because the issue was whether it was a permissible method to sue Rahn & Bodmer in England by naming as defendants the individual partners in that capacity. On that question, Mummery LJ stated (at p 1476A‑C):

“ In brief, the legal position on this narrow point of procedure is clear. There are three questions to be answered: (1) Who is the proper defendant? Answer: Rahn & Bodmer, the party to the alleged contract on which the claim is based. (2) What is Rahn & Bodmer? That is a question for Swiss law. Agreed answer: a general partnership enjoying a degree of legal personality which enables it to enter into a contract in its own name, but which is not a corporation. (3) How should Rahn & Bodmer be described in proceedings against it in England? This is a question for English law as the lex fori. The plaintiffs have always intended to pursue the bank, Rahn & Bodmer. Answer: there is a choice; it may be described and sued either by reference to the individual partners in their capacity as partners in the firm, or, on the basis of the evidence given in this case, by reference to the entity Rahn & Bodmer — a situation envisaged by Phillimore LJ in the Von Hellfeld case. As there is a choice, a failure to follow the latter course does not invalidate the adoption of the former course.”

243.  Sir John Vinelott, agreeing with the judgment of Mummery LJ, said (p 1477C):

“ It is said that the more recent cases show that the courts take a more liberal approach when distinguishing entities which can be a party to proceedings. That may be so, but these cases do not provide any authority for the proposition that an entity of the kind in question can only be sued in the proper name of the corporation.”

244.  Nourse LJ also agreed, stating that even where it was possible to sue a foreign body as a separate entity, it did not mean that it must be sued as such and that the members could not be sued.

245.  Rowan Companies Inc v Lambert Eggink Offshore Transport Consultants VOF [1998] CLC 1574 is another example of the modern approach where a foreign entity, namely a Dutch partnership of a specific (VOF) type, albeit not a corporation and having no general separate legal personality, was nevertheless found to have, under Dutch law, attributes showing sufficient legal existence to be able to be sued in England in its own name as a matter of English procedural law.

246.  LLPs have different status and attributes in different jurisdictions, even among different states in the United States.  It is necessary to examine the evidence of New York law on the status of an LLP. 

(b)     The attributes of a New York LLP

247.  This court has the benefit of the evidence (by affidavit) of two distinguished American jurists: Mr Howard A. Levine for the defendants and Mr Bruce A. Rich for the plaintiffs.  There is considerable common ground between them as regards the legal rules relating to LLPs and their specific consequences, though they disagree on the general characterisation of LLPs.

248.  In this regard, I place little reliance on general statements as to whether an LLP is more similar to a corporation than to a partnership as a matter of New York law.  A New York LLP seems to be a hybrid entity, and partakes of the qualities of both general partnerships and corporations.  Very broadly speaking, the impression one gets is that the internal aspects of an LLP are regulated by rules applicable to partnerships generally, but when it comes to external relations and rights and liabilities, there are very significant differences with general partnerships.  It seems to me more to the point for present purposes to focus on the specific attributes of an LLP and the incidents of its status under New York law, and then to assess, from the point of view of Hong Kong law as the lex fori, the impact on how an LLP may or should be sued.

249.  Mr Rich has identified nine “entity characteristics” of an LLP under New York law.  Mr Levine does not disagree with most of them but points out that six are shared with general partnerships. 

250.  The first feature is specific to LLPs, namely, that an LLP is a creature of statute, formed through registration. 

(1)     The legislation providing for LLP was introduced in New York in 1994.  It allows a pre‑existing general partnership to convert to an LLP but it also allows professionals directly to form an LLP.

(2)     Whereas a general partnership may be formed simply by agreement at common law, the formation of an LLP requires a registration process under New York Partnership Law § 121‑1500.  The prospective LLP must file a certificate of registration with the New York Department of State.  The partnership is registered as an LLP at the time of the payment of the fee and the filing of a complete registration.  Its name must henceforth include specified words or abbreviations such as “LLP”.  The LLP must, within a specified time, publish a notice of its formation in newspapers or risk suspension of its authority to carry on business.

(3)     Where a general partnership is converted to an LLP, it maintains its tax identification number, tax classification, partners and employees, books and records, and financial information as a continuation of the same entity, albeit with a new name.  In this sense it is the “same entity” as before.  While § 121‑1500(d) states that a registered LLP is “for all purposes the same entity that existed before the registration”, a very similar provision exists in New York’s Limited Liability Company Law § 1007(a) which provides that a partnership or limited partnership that has been converted to an LLC (limited liability company) is “for all purposes the same entity that existed before the conversion”.

(4)     As such, the suggestion that an LLP is a sub‑category of general partnership has been rejected.  Instead, according to a US bankruptcy court, “the universe of types of partner in New York, consists of general partners, limited partners, and partners in a registered limited liability partnership”.[84]

251.  Secondly, an LLP has liability separate from its individual partners.  In particular, partners of an LLP are not liable for the debts, obligations or liabilities of the LLP or each other.  It is this feature which underlies the name of “limited liability partnership”.

(1)     The central provision is § 26(b) of the New York Partnership Law which provides:

“ no partner of a partnership which is a registered limited liability partnership is liable or accountable, directly or indirectly (including by way of indemnification, contribution or otherwise), for any debts, obligations or liabilities of, or chargeable to, the registered limited liability partnership or each other, whether arising in tort, contract or otherwise, which are incurred, created or assumed by such partnership while such partnership is a registered limited liability partnership, solely by reason of being such a partner or acting (or omitting to act) in such capacity …”

(2)     This is subject to the provision in § 26(c) which provides that partners, employees and agents of an LLP are personally liable for negligent or wrongful act or misconduct committed by them or by any person under their direct supervision and control while rendering professional services on behalf of the LLP.  There is a further exception in § 26(d) which provides that all or specified partners of an LLP may be liable in their capacity as partners for all or specified liabilities of the LLP if this is agreed to by a majority of the partners, which has to be shown in the certificate of registration.  There is no such agreement in relation to PW LLP.

(3)     The corollary of this exemption of liability is that partners of an LLP cannot meaningfully be said to be agents of one another, whose acts bind one another.  This seems to me to represent a fundamental departure from one of the ordinary incidents of partnership law whereby every partner is an agent of his partners (and the firm) for the purpose of the business of the partnership, and the relevant acts of every partner bind his partners (and the firm).[85]

(4)     On this basis, it is common ground that a partner of PW LLP who was not directly involved in any alleged negligence and did not supervise or control such acts, cannot, under New York law, be held liable for the alleged negligence or any liability of PW LLP resulting therefrom.  Liability for such negligence would only be properly imputed to the LLP itself, or to the partners directly involved in, supervising, or controlling such acts.

(5)     The scope of the “liability shield” accorded to partners of an LLP in New York is the same as that accorded to shareholders of a professional corporation or members of a professional LLC.  The type of personal liability provided for in § 26(c) applies not only to partners but also to employees and agents, and is found across all types of limited liability entity.[86]

(6)     An LLP and a partner who is personally liable under § 26(c) appear to be treated as separate entities.  Thus it has been held that a case could proceed against an allegedly negligent partner who was not individually named in a release of liability in favour of the LLP only.[87]  An action may be brought naming as defendants both an LLP and a partner alleged to have committed or supervised wrongdoing and therefore personally liable under § 26(c).[88] However, an action brought against any other partner named as defendant will be removed in the absence of any alleged personal wrongdoing.[89]

(7)     Even where § 26(c) applies, it only makes the partners personally, not jointly or severally, liable for the act in question; “it does not add a partner’s assets to the pool of partnership assets to be used to pay off the partnership’s debts”: In re Dewey & LeBoeuf LLP, 518 BR 766 at 777 (Bankr SDNY 2014).

(8)     This feature seems to me to be a fundamental difference between an LLP and a general partnership and, presumably, the whole point why general partnerships seek to convert to LLPs in the first place.  In a case of a general partnership, partners have joint and several liability for the wrongful acts or omissions of any partner: Partnership Law § 24.  An action naming the firm as a defendant is thus considered to be equivalent to an action naming all the partners individually as partners carrying on business in the firm name.  In the case of an LLP, however, while the firm as such is vicariously liable for the acts of the responsible partner, thus enabling the plaintiff to sue the LLP, the other partners are not jointly liable and cannot be separately sued as defendants.

252.  Thirdly, an LLP can own property in its own name.  Provisions that apply to LLPs, general partnerships and limited partnerships alike make clear that property brought into the partnership stock or subsequently acquired on account of the partnership or with partnership funds is partnership property.  Real estate may be acquired and conveyed in the partnership name. 

253.  Fourthly, judgment against a partner does not affect the LLP or its property. 

(1)     Partnership property of an LLP or a general partnership is not subject to attachment or levy by a judgment creditor of an individual partner.  Partnership Law § 51.2(c) provides that a partner’s right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership.  What a partner’s judgment creditor may do instead is to charge that partner’s interest in the partnership, namely, his share of the profits and surplus, which is regarded as the partner’s personal property: see Partnership Law §§ 52 & 54.

(2)     Conversely, it may be noted that a judgment against the partnership, where the individual partners were never named or served with the process, could not be enforced against the partners individually.[90]

254.  The fifth characteristic is not common ground.  Mr Rich opines that to recover against an LLP, a plaintiff must sue the LLP itself.  Mr Levine, in contrast, considers that an LLP may be sued by naming all of its partners, in such capacities, as defendants.  For the following reasons I accept Mr Rich’s view that suing an LLP in the firm name is not only an expedient procedural option, but a necessary means in order to recover against the partnership property itself.

(1)     As explained above, partners who were not directly involved in, supervised, or controlled the acts in question cannot properly be sued.  Unlike the case of a general partnership, therefore, it would not be permissible for a plaintiff to commence proceedings naming all the partners of an LLP as defendants, which include partners other than those with personal liability under Partnership Law § 26(c).

(2)     Mr Levine considers that naming all the partners of an LLP in their capacities as partners of the firm, with service of process on each, results in jurisdiction over the firm, but the statutory provisions on LLP would confine liability to the firm itself and those partners who committed or supervised actionable conduct.  The difficulty I have with this is that it seems to suggest a plaintiff should include as defendants all the non‑liable partners, only for the action as against them to be summarily dismissed upon interlocutory motions such as those filed in Edlinger v US; Salazar v Sacco & Fillas LLP; Regency Found v Robson referred to in §251(6) above.

(3)     If one or more individual partners are sued instead of the LLP, the partnership property would be immune from execution of the judgment: see §253 above.

(4)     Neither expert can find a single case since the introduction of LLP in New York in 1994 where a claim against an LLP was brought in the manner suggested by the defendants here, namely, by naming not the firm but all its partners individually as defendants.  Instead, the practice in New York is invariably to name the LLP itself as a defendant as well as any other partner alleged to have committed or supervised wrongdoing.

(5)     Mr Levine’s reasoning is that CPLR[91] § 1025, which states that two or more persons conducting business as a partnership may sue or be sued in the partnership name, is permissive, not mandatory.  It does not abrogate the common law rule that permits suit by or against a partnership by naming the individual partners.  The common law rule, however, seems to be based on the view that general partnerships are simply the aggregate of their partners, the firm name being a mere expression, with all the partners acting both as principals and as agents for one another and having joint and several liability for the acts and omissions of one another.  Thus in the case of a general partnership, the personal assets of all the partners are liable to execution of judgment if the partnership assets are insufficient, provided they have been named and served in the proceedings.  But the classic position of general partnership does not apply to an LLP in fundamental respects: (a) LLP partners are only personally liable for the wrongful acts they committed or supervised, not for the acts of other partners; in other words they cannot fully be said to be “agents” for one another, though they are clearly “agents” for the LLP which is liable for the acts of the partners; (b) LLP partners who are not personally liable may not be sued for their partners’ acts and, if named as defendants, may have the action summarily dismissed as against them; (c) judgment against an LLP may only be executed against the partnership property and not the personal property of individual partners (unless judgment has been obtained against an individual partner who is personally liable).

(6)     The distinction of an LLP from general partnerships in this respect is illustrated in the bankruptcy context.  It has been held by the US Bankruptcy Court, with reference to the nature of an LLP under New York law, that in determining whether a New York LLP is “insolvent”, 11 USCS § 101(32)(B)(ii) did not apply because it evaluated insolvency by looking at, not only partnership property, but also the net value of each “general partner’s non‑partnership property”, but partners of a New York LLP were not “general partners”.[92]  The underlying rationale seems to be that, unlike a general partnership, the non‑partnership assets of the partners[93] of an LLP are beyond the reach of the LLP’s creditors, so that it would be illogical to take them into account in assessing the solvency of an LLP.

255.  Sixthly, service of process on an LLP may be effected by delivery to the New York Secretary of State or a designated agent.  The certificate of registration of an LLP has to designate the Secretary of State as agent of the partnership upon whom process against it may be served.  Service on the LLP is complete once process has been delivered to the Secretary of State.  In addition, an LLP may appoint a registered agent for service.[94] In this respect an LLP is akin to a corporation and an LLC, which may also be served via the Secretary of State or registered agent, and unlike general partnerships which cannot be served in such manner.

256.  Seventhly, an LLP is treated as a separate entity for jurisdictional purposes.  The New York courts treat the question of whether they have jurisdiction over a partner as a separate and distinct question from whether they have jurisdiction over the LLP.  Thus in a malpractice suit brought against an Illinois LLP law firm and one of its partners as co‑defendants, a New York court held that there was jurisdiction over the LLP but not the partner who worked out of the LLP’s Washington DC office.[95]

257.  Eighthly, an LLP has certain separate rights from its partners during litigation.  Thus a partner of a partnership, which was not a small family partnership, cannot rely on the privilege against self‑incrimination to avoid producing the firm’s records which are in his possession in a representative capacity, even if those records might incriminate him personally.[96] Similarly, an accounting firm LLP was found to have a claim of attorney‑client privilege that was separate and distinct from the privilege of its individual partners.[97]

258.  Ninthly, an LLP is treated as a corporation for certain purposes of the Bankruptcy Code.  In In re Dewey & LeBoeuf LLP, 518 BR 766 (Bankr SDNY 2014), the trustee appointed for an insolvent New York law firm LLP brought proceedings seeking to claw back compensation paid to the firm’s former partners during its alleged pre‑petition insolvency, pursuant to Bankruptcy Code § 548(b), which applied only to “partnership debtors”.  The issue was whether the firm, a registered LLP under New York law, was a partnership or a corporation[98] for the purpose of § 548(b).  The court concluded that the firm should be treated as a corporation given the extensive protective shield of its partners from liability.

(c)     How may PW LLP be sued and named in Hong Kong

259.  It can be seen that a New York LLP is a hybrid.  It is not like a general Hong Kong partnership.  It is not merely a name representing the aggregate of the partners.  The partners are not agents for one another because they are only liable for the wrongful acts they committed or supervised; they are however agents of the firm because the LLP is liable for the acts of any of them.  An LLP may contract in its own name, and acquire and hold property in its own name.  It may sue in its own name.  It may be sued in its own name, either on its own or together with those partners who are personally liable under Partnership Law § 26(c).  The partners who are not personally liable may not be sued.  A judgment against the LLP may not be executed against the personal property of individual partners. A judgment against a partner who is personally liable may not be executed against the LLP’s property.  In litigation and in certain other legal contexts, an LLP is treated as a separate entity from its partners.  It may not have complete separate legal personality like a corporation, but it seems to me to have a separate legal existence for the purposes of suit.

260.  Applying the modern approach illustrated by Oxnard Financing SA v Rahn & Others to the facts here, I have no doubt that as a matter of Hong Kong law as the lex fori, it ought to be held that it is permissible for PW LLP to be sued in these actions as an entity in its own name.  To require the plaintiff to run the gauntlet of naming as a defendant and serving each and every partner of PW LLP, when that would never be done in New York litigation, is, as submitted by Mr Hollander, far‑fetched.  It would also immediately raise the spectre of (a) a spate of applications by all the partners except those who are alleged to be directly involved in the Investigation (and the statement of claim names only a few, viz, Mr Ricciardi, Mr Kramer, Mr Liu, Mr Loftus and Ms Ioffredo), to strike out the action as against them, based on the provisions of the Partnership Law of New York; (b) the plaintiffs not being able to execute any judgment obtained eventually (if at all) against the partnership property of PW LLP but only against the personal assets of a very small subset of the partners.

I5.     Service

261.  It does not seem to be in dispute that if the plaintiffs are entitled to sue PW LLP in the firm name, then it is permissible for PW LLP to be served with the writ by personal service on any one of its partners, as provided by New York law.  This may have the result that with leave to serve out, the writ can in fact be served on the firm by service on a partner who is physically within the jurisdiction: see Afro Continental Nigeria Ltd v Meridian Shipping Co SA [1982] 2 Lloyd’s Rep 241, 247.

262.  The question that has been raised is, if the plaintiffs are required to name each and every partner of PW LLP individually as a defendant, how the writ is to be served. PW LLP’s final position is that they do not insist that each of the partners has to be served individually; and that the partners can be served in accordance with New York law or the plaintiffs may apply for substituted service.  I do not propose to deal with this question, on which the evidence of New York law is not entirely clear, no doubt because in practice this is never done in New York in the case of an LLP.

I6.     Discussion of the plaintiffs’ applications

263.  Coming back to the plaintiffs’ application for curative orders, it is well established that the discretion to remedy an irregularity should be exercised with caution where service out of the jurisdiction is concerned and any prejudice that may be caused to the defendant is a material consideration: Bank of China (Hong Kong) Ltd v Chow Tat Wah (HCA 11324/1999, 26 February 2002), §17.

264.  First, in my view there is sufficient good reason for the court’s discretion to cure the irregularity to be engaged, both in granting leave to serve out and in effectively extending the validity of the writ.

(1)     This is not a case where a plaintiff failed to serve the writ at all within the period of its validity (as in Bernstein v Jackson [1982] 1 WLR 1082, a case discussed in Leal); nor is it a case in which a plaintiff purported to serve a writ out of the jurisdiction without obtaining leave of the court (as in Leal).  This is instead a case where the plaintiff (a) concluded that the defendant was carrying on business as a partnership within the jurisdiction and could therefore be served by service on a partner within the jurisdiction; and (b) actually served the writ within the period of its validity[99] on such a partner.  This has remained the plaintiffs’ primary position.

(2)     Although the CMT Writ, when first issued, stated PW LLP’s New York address only, it was expressly stated therein that CMT had as yet made no decision whether or not it would pursue the claims, which was subject to ongoing investigations by the JOLs and the Liquidators.  It is plausible that the question of service was only focussed upon and a decision made much later, when the proceedings were to be taken further.

(3)     While the plaintiffs were mistaken in thinking that Order 81 was applicable to PW LLP (being the assumption in the present context), I accept, as the Liquidators have credibly stated on oath, that they had a “genuine belief” that PW LLP was carrying on business in Hong Kong and were “genuinely mistaken” in relying upon that primary position and that it was not a knowingly unjustified attempt to circumvent the requirements of Order 11.  The defendants have submitted that the plaintiffs deliberately attempted to circumvent Order 11.  But this pre‑supposes that (1) the plaintiffs in fact had no belief at all that PW LLP was carrying on business here; (2) they nevertheless decided to serve them here without obtaining leave; and (3) they considered this would give themselves a tactical advantage.  In my view this is not a likely scenario, and is not one I am prepared to infer against the direct sworn evidence of the Liquidators to the contrary.

(4)     For my part, having regard to the reasons for my conclusions in section D above, I would venture to suggest that there are good reasons for thinking that PW LLP was carrying on business in Hong Kong, and that therefore it is not necessary to obtain leave to serve out under Order 11.

(5)     Further, much of what contributed to the Liquidators’ belief had originated from PW LLP.  As explained above, PW LLP appears to have held itself out as carrying on business in Hong Kong.

265.  Secondly, the discretion thus being engaged, I need to consider whether in all the circumstances it should be exercised in favour of rectifying the irregularities.  Obviously this is on the premise, as I have concluded in section H above, that the case is itself a proper one for service out of the jurisdiction.

266.  CMT has been the victim of a substantial fraud perpetrated primarily in Hong Kong to misappropriate its assets and is now massively insolvent.  The only remaining assets are its causes of action against the fraudsters and third parties including PW LLP.  A decision not to cure any irregularities would jeopardise the plaintiffs’ ability to pursue a claim against PW LLP for over US$100m.

267.  PW LLP complain that if the validity of the writs is extended, they would be deprived of a limitation defence.  I need first to set out certain relevant events:

(1)     Shortly after their appointment, in September 2012 the JOLs sought documents and information relating to CMT from Paul Weiss.

(2)     When Paul Weiss refused to produce the documents sought, the JOLs had to embark, in November 2012, upon a lengthy US court process to obtain the documents via a subpoena issued by the US Bankruptcy Court on 25 January 2013.

(3)     In response to that subpoena, Paul Weiss refused to produce documents recording the manner in which they had conducted the Investigation, the findings of the Investigation or any advice given to CMT in connection with the Investigation, on the grounds of privilege.  The US litigation that ensued over the privilege objection took nearly 3 years before it was finally resolved in favour of the JOLs on 30 September 2015.

(4)     Meanwhile, on 19 March 2015, less than 6 years after Paul Weiss were engaged for the Investigation, the CMT Writ was issued to preserve and protect claims in light of the possible limitation period.

(5)     Pursuant to the US court judgment dismissing the privilege objection, Paul Weiss produced in several tranches the 1,711 documents that had previously been withheld: 996 documents between 10 and 20 November 2015 and 715 documents between 1 and 8 April 2016.  AlixPartners also produced 590 documents on 9 November 2015 and a further 660 documents in August 2016 and March 2017.

(6)     The Liquidators stated that, based on the documents obtained in November 2015, they formed the view that it would be appropriate to serve the writ on Paul Weiss but not on AlixPartners.

268.  On the issue of limitation defence, first, it is not suggested that there is any limitation defence as at the date when the CMT writ was issued (19 March 2015).  Secondly, there is a prima facie limitation point in relation to the CMED Tech writ which was issued on 14 December 2016 (see section H2 above), but any limitation defence open to PW LLP at the date of the original service of that writ will remain open to PW LLP.  Thirdly, on the present assumption, the service of the writs on PW LLP on 18 March 2016 and 31 October 2017 was not valid.  Those writs had now expired.  A new writ to be issued now would face limitation problems.  In this sense PW LLP has the benefit of a limitation defence which would be taken away by a renewal of the writs for service.

269.  As explained in section H2 above, the plaintiffs contend that, by virtue of s 31 of the Limitation Ordinance, the limitation period is 3 years from 10 November 2015, which had not expired when its curative summonses were filed (31 May 2018).  The argument on s 31 is, however, in my view, not so clear as to justify a conclusion in favour of the plaintiffs for present purposes, and the prudent course is not to place weight on this answer to the limitation defence.

270.  It is relevant to note that this is not a case where the plaintiffs have for no good reason sat on their claims and left things to the last minute.  The JOLs sought documents and information from Paul Weiss that were required for a proper consideration of the conduct of the Investigation but, for over 3 years between 2012 and 2015, they had had to engage in litigation over the privilege objection which was eventually rejected by the US court.  I do not suggest that there was anything improper for Paul Weiss to raise that objection, but the time taken for the plaintiffs eventually to institute their actions and have them served has to be seen in context.

271.  The defendants submit that the irregular issuance of the writs against PW LLP in Hong Kong was an attempt to avoid the application of the in pari delicto doctrine under New York law. This is difficult to follow.  The service of PW LLP in Hong Kong only avoided an application for leave to serve out.  The same question of proper forum (albeit with a different burden of proof) would arise upon PW LLP’s application for stay. 

272.  There is a suggestion that there was uncertainty as to which partners of PW LLP were being sued.  It seems however from the available materials that it was clear to all that it was PW LLP as a partnership that was being sued, and therefore that the target for satisfaction of any judgment obtained is the partnership property.  The complaint in my view rings hollow when PW LLP were being named and sued in exactly the same way in which they would invariably be sued in New York and in which they would have been sued if the plaintiffs had, as PW LLP contends they should have, brought suit in New York. 

I7.     Conclusion on the plaintiffs’ applications

273.  It boils down to this.  The plaintiffs had a prima facie claim against PW LLP for negligent advice causing loss of over US$100m.  They were entitled to opt to sue in tort, which was committed in substance in Hong Kong and governed by Hong Kong law and for the trial of which Hong Kong is the most appropriate forum.  Accordingly, if they had applied for leave to serve out under Order 11, they would have obtained it.  Based on materials mostly emanating from PW LLP, they concluded that PW LLP, albeit a New York firm, was carrying on business in Hong Kong — a conclusion which turned out to be mistaken but which was to my mind excusable and not plainly wrong.  On that basis they served the writs, within the original period of validity, on PW LLP in Hong Kong, in the same manner in which PW LPP could and would have been served if leave to serve out had been obtained.  Notwithstanding that the writs had now expired and a new writ would be time‑barred, in these exceptional circumstances I consider that the discretion ought to be exercised in the plaintiffs’ favour.

274.  Accordingly, if it had been necessary, I would have made the relevant curative orders.  In terms of the precise mechanism, it seems that the simplest approach would be: (a) retrospectively granting leave to serve the writs on PW LLP out of the jurisdiction, and (b) declaring that the writs had been served on PW LLP on 18 March 2016 and 31 October 2017 respectively.

J.     Defendants’ application to set aside order of 17 March 2016

275.  The defendants apply for the setting aside of the order made by Master Hui on 17 March 2016 extending the validity of the CMT Writ for 14 days (from 19 March 2016) on the ground of material non‑disclosure.  It is important to note that the extension was sought not for effecting service out of the jurisdiction, but consistently with the plaintiffs’ stance, for effecting service on Mr Lange, Ms Chan or Mr Liu in Hong Kong, in light of the difficulties encountered and anticipated in serving them personally on or before 18 March 2016.  The order sought for substituted service was not granted by the Master.

276.  In my opinion, Mr Hollander is correct in submitting that the application is moot, because the CMT Writ was served on Ms Chan, a partner of both PW LLP and PW HK, on 18 March 2016, within its original period of validity.  Whether service on Mr Lange on 22 March 2016 is valid is immaterial.  It follows that CMT did not eventually have to rely on the order extending the validity.  The corollary is that whether or not the order is set aside has no impact whatsoever on the validity of the service on PW LLP and is analytically irrelevant to the argument on that question. 

277.  The defendants submit that any failure to disclose material matters in the context of the application made on 17 March 2016 for a two‑week extension would be “highly relevant” to the question whether the court’s discretion should be exercised in the plaintiffs’ favour to cure the irregularities (section I above).  On my primary conclusions, this point does not arise.  In any event, I consider that, if the court is otherwise satisfied that there are irregularities which can and ought to be cured, it would not be right to refuse the remedy simply because of non‑disclosure in relation to a very different and limited application and thereby effectively to deny the plaintiffs any opportunity of recovery of their very substantial losses from these defendants.  As Rogers VP said in Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd (unrep, CACV 396, 370 & 371/2006, 31 July 2007) at §§13, 16 & 17, to do so would not be a matter of protection of the court’s own process or preventing a party from retaining an advantage, but would be “a punishment which even Draco might have considered excessive for a transgression of the requirement to make full disclosure”.  For these reasons I decline to entertain the application to set aside.

K.     Conclusions and Disposition

278.  In summary, I have come to the conclusion that:

(1)     There is a good arguable case that PW LLP was carrying on business in Hong Kong and could therefore be sued and served as a firm in Hong Kong pursuant to Order 81.  The writs were properly served on PW LLP by being served on a partner in Hong Kong before their expiry.

(2)     The plaintiffs were entitled to elect to sue the defendants in tort and not in contract.  The tort alleged was one that was in substance committed in Hong Kong.  As such, liability of the defendants for the tort is to be determined by reference to Hong Kong law.

(3)     The defendants have failed to show that Hong Kong is not the natural and appropriate forum for the trial of the actions or that New York is clearly or distinctly a more appropriate forum. 

(4)     It is therefore unnecessary to make any curative order pursuant to the plaintiffs’ summonses.  If it had been necessary, retrospective leave to serve out would be granted in the exceptional circumstances of the present case so that the writs would be deemed to have been validly served on PW LLP.  PW LLP had sufficient separate existence from its partners under New York for it to be sued and served in its own name in these actions.

279.  For the foregoing reasons:

(1)     PW LLP’s application to set aside service of the writs on it and the defendants’ application for stay should be dismissed. No order is made on the defendants’ application to set aside the order of 17 March 2016.

(2)     No order need be made on the plaintiffs’ summonses for curative orders.

280.  There will be an order nisi that the defendants do pay the plaintiffs the costs of the defendants’ summonses and the plaintiffs’ summonses with a certificate for two counsel, except that there will be no order as to costs in respect of the defendants’ application to set aside the order of 17 March 2016.

[1] PW LLP is a limited liability partnership registered in New York and PW HK was (until 2017) an ordinary partnership in Hong Kong.  For convenience, they will each be referred to in this decision in the singular, as the parties have done in their submissions.  The nature and status of a New York limited liability partnership is addressed in section I4(b) below.

[2] Harris J held that the first two core requirements were satisfied.  The statement in the headnote of the report at [2014] 2 HKLRD 997 at holding (4) that “none of the three core requirements was met”, is incorrect.

[3] Which were handed down on 9 April 2014.

[4] Mr Borrelli’s 1^st affidavit §40.

[5] Further, at the hearing, Mr Hollander on behalf of the plaintiffs withdrew paras 89 and 90 of the statement of claim and para 24.1 of schedule 2 thereto, which allege that the actions and knowledge of AlixPartners were attributable to Paul Weiss and that Paul Weiss was vicariously liable for the actions and conduct of AlixPartners.

[6] See statement of claim §51.

[7] The summons refers to the date of 21 April 2009 which is the date of the Engagement Letter but Mr Hollander confirmed at the hearing that the date should be 1 July 2009 instead, as the earliest possible date of accrual of the cause of action in tort.

[8] Order IX, rule 6, which provided: “Where persons are sued as partners in the name of their firm, the writ shall be served either upon any one or more of the partners, or at the principal place within the jurisdiction of the business of the partnership, upon any person having at the time of service the control or management of the partnership business there; and, subject to these rules, such surface shall be deemed good service upon the firm”.

[9] See Russell v Cambefort (1889) 23 QBD 526; Western National Bank of the City of New York v Perez, Triana & Co [1891] 1 QB 304; Heinemann & Co v S B Hale & Co [1891] 2 QB 83.

[10] The decision of the Divisional Court in Grant v Anderson [1892] 1 QB 108 relied upon by the defendants was disapproved of by the English Court of Appeal in Worcester and should in my view not be followed.

[11] In Brownlie, Lady Hale stated at §33 that she agreed that the correct test was “a good arguable case” and glosses should be avoided, but she did not read Lord Sumption’s explication in §7 as glossing the test.

[12] Actavis Group HF is a decision based on England’s Civil Procedure Rules rule 6.9 which provides that in the case of a defendant which is a company or corporation not incorporated or registered in England and Wales, a claim form must be served on it at “[a]ny place within the jurisdiction where the corporation carries on its activities; or any place of business of the company within the jurisdiction”.  The English Court of Appeal nevertheless dealt with the issue on the basis of the pre‑CPR authorities including Adams.

[13] A case concerning whether the defendant bank had “a place of business established by the company in Great Britain” so that the writ could be served there pursuant to ss 406 and 412 of the Companies Act 1948.

[14] The firm was only registered as a limited liability partnership in 2003 but the same name is used here for consistency.

[15] For completeness it may be noted that PW HK themselves converted to LLP status under Hong Kong legislation with effect from 1 November 2017 but nothing turns on this for present purposes.

[16] It appears from the legal notice in PW LLP’s website that the London office is the office of another limited liability partnership with the same name established in the State of Delaware, but the position is not entirely clear and there is no further explanation in the evidence.

[17] The Legal Notice section of the website states: “This site contains general information about Paul, Weiss, Rifkind, Wharton & Garrison LLP”, without mentioning the separate firm of PW HK.

[18] Between March 2015 and October 2017.

[19] Between 2011 and 2018.

[20] At para 22(b).

[21] Mr Baughman’s first affidavit, para 39.

[22] Upheld on appeal: Actavis Group HF v Eli Lilly & Co [2013] RPC 37.

[23] Subsequent amendments are not reflected in the quotation below.

[24] The firm was only registered as a limited liability partnership in New York in 2003 but the same name is used here for consistency.

[25] Being also the name of PW LLP before they became a limited liability partnership in 2003.

[26] As far as the cessation of practice of the registered foreign firm of PW LLP on 30 June 1998 is concerned, in that letter the Law Society asked for a further declaration form and a final accountant’s report, but there is no dispute that the cessation was in substance approved.

[27] “(e) the action as one brought … To enforce, rescind, dissolve, and null or otherwise affect a contract or to recover damages or for relief for or in respect of the breach of a contract (i) made within the jurisdiction or … (iii) by its terms or by implication to be governed by English law”.

[28] It may be noted that earlier, in Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384, Oliver J had carried out a careful analysis in depth of the question of concurrent claims in contract and in tort.

[29] Hedley Byrne v Heller & Partners Ltd [1964] AC 465.

[30] Ma CJ, Bokhary, Chan and Ribeiro PJJ agreed with the judgment of Lord Neuberger of Abbotsbury NPJ.

[31] See Henderson v Merrett Syndicates Ltd, p 184D.

[32] In addition to contract.

[33] Arden LJ agreed with Tuckey LJ except on one point which is not relevant here; Newman J agreed with the judgment of Tuckey LJ.

[34] See Red Sea Insurance Co Ltd v Bouygues SA & Others [1995] 1 AC 190.

[35] per Lord Clarke, who dissented in the result but not on this point.

[36] Metall und Rohstoff AG, at p 444G.

[37] Dealing with the question of whether the cause of action “arose within the jurisdiction” for the purposes of s 18(4)(a) of the Common Law Procedure Act of New South Wales so as to give the court jurisdiction to entertain the action, the Privy Council held in Distillers Co (Biochemicals) Ltd v Laura Ann Thompson [1971] AC 458 at 468E that “[t]he right approach is, when the tort is complete, to look back over the series of events constituting it and ask the question, where in substance did this cause of action arise?”.

[38] Now found in England in Ground 9 of paragraph 3.1(9) of CPR PD 6B ‘Claims in Tort’.

[39] Section 10 of the 1995 Act abolishes the common law rules; section 12 brings in the concept of a comparison of the significance of factors “connecting” the tort with different jurisdictions.

[40] Whether the choice of law clause might be relevant as a connecting factor under s 12 was left open in that case.

[41] See §200.  Lord Clarke dissented in the ultimate question of whether permission to serve out should be granted, but the Court was unanimous on the question of the governing law of the tort.

[42] See also Staughton J’s first instance judgment in Armagas Ltd v Mundogas SA [1985] 1 Lloyd’s Rep 1 at 24, from which the Court of Appeal derived support in Metall und Rohstoff AG (see p 446B).

[43] Affirmed on appeal - see JSC BTA Bank v Khrapunov [2018] UKSC 19.

[44] The earlier version was given effect to in England by s 3A of the Civil Jurisdiction and Judgment Act 1982, added into the Act of 1982 by s 1(1) of the Civil Jurisdiction and Judgment Act 1991.  The provision is now contained in Art 7(2) of the Recast Brussels I Regulation (Regulation (EU) 1215/2012).

[45] Case C-364/93, Antonio Marinari v Lloyds Bank plc and Zubaidi Trading Company [1995] ECR‑I 2719.

[46] It appears that the engagement was made with PW LLP for the purpose of preserving United States work‑product protection.

[47] Set out in schedule 2 to the statement of claim.

[48] See para 135 of the statement of claim.

[49] See para 88 of Mr Borrelli’s 1^st Affidavit and para 104 of the statement of claim.

[50] Mr Ricciardi did not say where he was in the United States.

[51] Again, Mr Ricciardi did not say where he was in the United States.

[52] US$313.75m before and US$41.75m after 1 July 2009.

[53] See statement of claim, para 177.

[54] US$313.75m out of US$418.3m.

[55] This appears to be claimed on a restitutionary basis and therefore not directly relevant to the present point.

[56] §160. This holding was upheld by the Court of Appeal and the Supreme Court.

[57] §189.

[58] Totalling US$103.5m.

[59] Totalling US$418.3m.

[60] VTB Capital plc (UKSC) at §18.

[61] Berezovsky v Michaels[2000] 1 WLR 1004, 1014.

[62] See paras 95 & 96 of the statement of claim.

[63] 435 hours if Mr Liu, partner of both PW LLP and PW HK, is included.

[64] 11.37% if Mr Liu is included.

[65] It is unclear, in the case of the other two firms, whether the Hong Kong offices were separate Hong Kong partnerships or simply branch offices of the US partnerships.

[66] Mr Ricciardi, Mr Loftus and Ms Ioffredo.

[67] Para 109 of the statement of claim.

[68] Paras 89-90 of the statement of claim.

[69] Para 168.2(b) of the statement of claim.

[70] Para 35 of schedule 2 to the statement of claim.

[71] Para 10.3 of schedule 1 to the statement of claim.

[72] Para 12 of schedule 2 to the statement of claim.

[73] Para 14 of schedule 2 to the statement of claim.

[74] Para 24 of schedule 2 to the statement of claim.

[75] See, in particular, section E.2 of the statement of claim.

[76] The question of extension of the validity of the writ will be separately dealt with below.

[77] As an alternative, the Liquidators contend that the relevant date is 24 December 2013, when the Bank of East Asia provided the documents which showed for the first time that Mr Tsang was a signatory to Supreme Well’s bank accounts which was a “game‑changer” and led to the second application for a winding‑up order in Hong Kong.

[78] See [2013] UKSC 5, §5.  The English rule is now contained in paragraph 3.1(9)(a) of Practice Direction 6B, supplementing Section IV of CPR Part 6.

[79] These cases are concerned with the phrase “the place where the harmful event occurred” in art 5(3) of the 1998 Lugano Convention (and its predecessor the 1968 Brussels Convention) which dealt with the exercise of jurisdiction as between different Member States of the European Union.  In a series of first instance English decisions, it was doubted whether EU law should affect the ambit of the rules for service out in a non‑EU case (i.e. Order 11 rule 1(1)(f) or Practice Direction 6B CPR, para 3.1(9)(a)).  In Brownlie v Four Seasons Holdings Inc [2017] UKSC 80 at §48, Baronness Hale, with whom Lord Wilson and Lord Clarke agreed, expressed a similar opinion.  In her Ladyship’s view, there was “no reason to think that those who framed the RSC and CPR intended them precisely to mirror the interpretation later given to the Brussels Convention”, and that later European decisions “do not override the language of the Rules in non-EU cases” and “are of no help in construing the Rules” (§50).  See also per Lord Wilson (at §61).

[80] Order 2 rule 1(2) provides: “Subject to paragraph (3), the Court may, on the ground that there has been such failure as is mentioned in paragraph (1), and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings or any document, judgment or order therein or exercise its powers under these rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit”.

[81] Which was in the same terms as Hong Kong’s RHC Order 2 rule 1(2).

[82] Golden Ocean Assurance Limited v Martin [1990] 2 Lloyd’s Rep 215, 226.

[83] In Bank of China (Hong Kong) Ltd v Regal Link Investment Ltd [2009] 3 HKLRD 203, in setting aside the lower court’s orders for dispensing with service of the writs, Yuen JA referred to Leal including the passages suggesting that the court would not exercise its discretion under Order 2 rule 1 in such a case except in exceptional circumstances.  It does not appear, however, that the court actually had to decide the threshold for the exercise of discretion and in particular whether exceptional circumstances need be shown; nor does it appear that Golden Ocean Assurance Limited v Martin was cited to the court.  It may also be noted that in Grand Pacific Equity Ltd v RSH Sports (HK) Ltd & Others [2006] 4 HKLRD 617, Yuen JA had followed Kleinwort Benson and applied the “good reason” test for extending the validity of the writ under Order 6 rule 8(2).  In Tan Kah Eng v Tan Eng Khiam, at first instance, Bharwaney J said: “… I incline to the view that a good reason or a good cause is required to explain the failure to obtain leave to serve out of the jurisdiction or the failure to serve the writ during its original period of validity and that it is not necessary to show an exceptional case or the presence of exceptional circumstances.”  Sakhrani J, sitting in the Court of Appeal, agreed with Bharwaney J, noting that “the House of Lords’ decision in Kleinworth Benson Ltd, which was not mentioned in Bank of China (Hong Kong) Ltd v Regal Link Investment Ltd, has been followed by the Court of Appeal in Chow Ching Man and Others v Sun Wah Ornament Manufactory Ltd and Others [1996] 2 HKLR 338 and Grand Pacific Equity Ltd v RSH Sports (HK) Ltd and Others [2006] 4 HKLRD 617”.

[84] In re Promedicus Health Group LLP, 416 BR 389 (Bkuptcy WDNY 2009).

[85] See, for example, s 7 of Hong Kong’s Partnership Ordinance (Cap 38) which is based on s 5 of the (English) Partnership Act 1890.

[86] Haire v Bonelli, 57 AD 3d 1354 (3d Dept 2008); Schuman v Gallet, Dreyer & Berkey LLP, 180 Misc 2d 485 at 489 (Sup Ct, NY County 1999).

[87] Schuman v Gallet, Dreyer & Berkey LLP, 180 Misc 2d 485 at 489 (Sup Ct, NY County 1999).

[88] Regency Found v Robson, 14 Misc 3d 1209A (Sup Ct, NY County 2006), where the action was brought against, among others, both Mr Robson and the firm Robson & Miller LLP.

[89] Edlinger v US, 2010 WL 1485951 (NDNY 2010); Salazar v Sacco & Fillas LLP, 114 AD 3d 745 (2d Dept 2014); Regency Found v Robson, supra.

[90] Tally v 885 Real Estate Associates, 11 AD 3d 242 (1^st Dept 2004).

[91] Civil Practice Law and Rules.

[92] In re Promedicus Health Group LLP, 416 BR 389 (Bkuptcy WDNY 2009).

[93] Except the partners who committed or supervised the wrongful acts and are therefore personally liable.

[94] Partnership Law §§ 121-1500(a)(I)(4) & (5) & 121-1505.

[95] Runberg Inc v McDermott, Will & Emery LLP, 2015 NY Slip Op 30739(U) (Sup Ct, NY County 2015).

[96] In re Nassau County Grand Jury (Doe Law Firm) 4 NY 3d 665 (3d Dept 2005) — a general partnership case.

[97] United States v Daugerdas, 757 F Supp 2d 364 (SDNY 2010).

[98] The Bankruptcy Code defined a “corporation” to include a “partnership association organised under a law that makes only the capital subscribed responsible for the debts of such association”.

[99] Although they had also applied for and obtained a 14‑day extension to enable service to be effected, which in the event they did not need.