FIRST LASER LTD. v. FUJIAN ENTERPRISES (HOLDINGS) CO. LTD. AND ANOTHER

HCA 4414/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4414 OF 2001

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J U D G M E N T

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The applications

1. There are two summonses (apart from the summons by the Defendant for leave to use the affirmations filed on 14 November 2002, which I have dealt with on 21 November 2002) before me,

(a) a summons issued by the Defendant on 16 October 2001 asking for the stay of all proceedings in this action on the ground of forum non conveniens ["the stay application"];

(b) a summons issued by the Plaintiff on 7 February 2002 seeking to restrain the Defendant from continuing or prosecuting Case No. 00043 of 2001 ["the PRC action"] in the Higher People's Court of Fujian Province ["the Fujian court"], People's Republic of China ["the anti-suit injunction"].

2. For reasons unknown to me, the applications were not heard earlier. By the time the matter came before me, the PRC action has been tried and judgment was pending. There have been attempts by the Plaintiff to seek a stay of the PRC action in the courts in the mainland. Those attempts failed and it was held by the Supreme People's Court on 22 July 2002 that the PRC action was properly within the jurisdiction of the Fujian court and there should not be any stay notwithstanding the present action being pending in Hong Kong. After that, the trial of the PRC action took place on 25 September 2002 and the lawyers for both parties took part in the trial.

3. In view of such developments, I enquired with Ms Eu SC (leading counsel for the Plaintiff) at the beginning of the hearing whether she still pursued with the application for the anti-suit injunction. She submitted that until judgment is delivered, the Defendants could seek a withdrawal of the PRC action and this is the relief sought by the Plaintiff.

The background

4. Before I deal with the applications, I need to say something about the background of the case and identify the disputes between the parties in this action. Of course, I am not going to decide the merits of the case at this stage. However, in order to resolve the present applications, the court has to apply the principles pertaining to these applications by reference to the issues in dispute raised in the action.

5. The Plaintiff is a company incorporated in Macau. Its shareholders are Mr Ngan In Leng ["Ngan"] and his wife. Ngan is a member of the Political Consultation Committee of Fujian Province and the Central Political Consultation Committee. He was born in Fujian and went to Macau in 1980's. He maintained contacts with the People's Government of Fujian Province ["the Fujian Government'] and had dealings with the government.

6. The 1st Defendant is a window company set up in Hong Kong by the Fujian Government. It carried on business activities in Hong Kong as well as mainland China. Ngan has been doing business with the 1st Defendant since 1992.

7. The 2nd Defendant is also a company incorporated in Hong Kong. It is a company beneficially and wholly owned by the Fujian Government. According to the Affirmation of Wang Jian Ying dated 11 October 2001 filed by the 2nd Defendant, it is a nominee of a working team of the Fujian Government in receiving payment from the 1st Defendant in respect of the sale proceed of a Fujian company called Fuzhou Casix Laser Inc. ["FCL"].

8. FCL was one of the two Fujian companies set up by the 1st Defendant in 1992 engaging in the research and production of optical fibre instruments and laser equipment. The other Fujian company is Fuzhou Casix Optronics Inc. ["FCO"].

9. Five agreements relating to FCL and FCO were entered into in December 1996. The Plaintiff's evidence suggested that all five agreements were made in Hong Kong but this is disputed by the Defendants (see Paragraphs 40 and 41 of the Third Affirmation of Yang Dong Cheng). The Plaintiff relied on three of them and the Defendants referred to the other two. The first one was an agreement dated 12 December 1996 made between the 1st Defendant and a family Macauese company of Ngan called Hang Wo Properties Investment & Management Company Limited ["the Hang Wo agreement"]. That agreement provided for the joint investment for production in Macau in the sum of US$20,000,000 based on the technology in laser and optical fibre possessed by the 1st Defendant. The scheme envisaged by the Hang Wo agreement was to transfer the shares of FCL and FCO to a company incorporated in Macau called Casix Optronic Enterprises Limited ["COM"]. The 1st Defendant would hold 49% whilst Hang Wo would hold 51% of COM. Hang Wo shall acquire that 51% by reference to a price to be agreed upon. Hang Wo would be responsible for the initial investment in the sum of US$10 million.

10. The second agreement was, on its face, an agreement made in Hong Kong on 12 December 1996 between the 1st Defendant and COM ["the COM agreement"]. On the face of it, it was a sale by the 1st Defendant to COM of the shares and assets of FCL and FCO. The price was US$6,250,000. COM was to assume the liabilities of FCL and FCO upon completion.

11. In these two agreements, there were clauses providing that on questions relating to intellectual property rights, they would be dealt with in accordance with international practice and the law of the place where the enterprise situated. Subject to that, there is no choice of law provision.

12. On 28 December 1996, the Plaintiff and the Defendant made another agreement ["the First Laser agreement"]. Again, on its face, it was an agreement made in Hong Kong. Although there were reference to the change in the composition of the boards of FCL and FCO in this agreement, the subject matter of the agreement was described as the investment by the 1st Defendant in Fuzhou in optronics ("在福州所投資的光電子項目"). The agreement provided for the 1st Defendant sale of 51% of such interest to the Plaintiff at the price of US$3,187,500. This price was arrived at by reference to the agreed valuation of the whole of the investment at US$6,250,000. Part of the production line would be moved to Macau but it was envisaged that production in Fuzhou would also be maintained. Payment was to be made within 3 months with the first instalment in the sum of $10,000,000 to be paid within 10 days. Regarding the changes in respect of the companies, the agreement provided for the same to be handled by lawyers in mainland China.

13. I now refer to the two agreements relied on by the Defendants. Both were dated 12 December 1996 and were in respect of the entire shareholding in FCO. Both agreements were made between COM and two companies which claimed to be the owners of FCO, namely Casix Limited and a Fujian company called 福建科星技術發展公司. These two companies were, according to the 1st Defendant, wholly owned subsidiaries of the 1st Defendant. I shall call these the FCO agreements. In one of these agreements, the price was stated to be US$3,125,000. On the other hand, in the other agreement, the price was not stated but it merely referred to the registered capital of FCO was US$1,510,000.

The Plaintiff's case

14. The Plaintiff's case is that the First Laser agreement superseded the two earlier agreements. The subject matter of the sale, as pleaded in Paragraph 10 of the Statement of Claim, was 51% of the shares in FCL and FCO. The Plaintiff contended that the transaction is governed by Hong Kong law.

15. Payment was made in Hong Kong by two cheques, each in $10 million. The first payment was by a cheque drawn by COM dated 31 December 1996 whilst the second payment was by a cheque drawn by the Plaintiff dated 30 April 1997. The receipts issued by the 1st Defendant were made in favour of the Plaintiff. The balance of the purchase price, according to the Plaintiff, was satisfied by treating a capital investment in the sum of $4,640,000 by the Plaintiff in COM as investment by the 1st Defendant. This was acknowledged, according to the Plaintiff, by the 1st Defendant in a memorandum dated 13 March 1998 ["the 1998 Memorandum"].

16. In the 1998 Memorandum, it was recorded that due to the fact that the registered capital of FCL had not been fully injected into the company, the shares of FCL were still held by the 1st Defendant whilst COM held 100% of FCO. The intended arrangement was that when the problems were solved, the 1st Defendant and the Plaintiff would respectively hold 49% and 51% in FCL and COM.

17. The Plaintiff's case is that by 13 March 1998, the purchase price had been paid in full in respect of the 51% interest in FCL and FCO. It is claimed that the Plaintiff became the beneficial owner of the 51% interest in FCL.

18. Further, according to the Plaintiff, in July 1997 the Plaintiff invested a total of US$410,000 and RMB 1,000,000 into a project undertaken by FCL. The Plaintiff said the development of that project greatly enhanced the value of the shares of FCL in the subsequent sale to a company called JDS Uniphase China Holdings Company ["JSD"].

19. By an agreement dated 29 February 2000, the 1st Defendant sold the entire shareholding of FCL to JSD at the price of US$60,000,000. Since that sale included the alleged 51% interest in FCL beneficially owned by the Plaintiff, the Plaintiff is suing in this action for tracing inquiry and account out of the said US$60,000,000 attributable to the Plaintiff's interest in FCL. This is the primary claim of the Plaintiff. Ms Eu, in her skeleton submission of 26 November 2002 and oral arguments, submitted that the claim is a proprietary claim in contract, stemming from the concept that there is a constructive trust over the subject matter of sale in respect of a specifically enforceable contract. She relied on Foskett v McKeown [2000] 3 All ER 97 as to the tracing of equitable proprietary interest when original trust assets were converted into other properties. She emphasized that the present claim is being advanced against the immediate party to the contract (the 1st Defendant) and its nominee, the 2nd Defendant. She said that the Plaintiff is not making any claims against any bona fide purchaser for value without notice.

20. The alternative claim of the Plaintiff is based on restitution, unjust enrichment and mistake. The factual foundation for this claim is that when the payments were made, the Plaintiff mistakenly thought that it was paying for the shares in both FCL and FCO pursuant to the First Laser agreement. If the First Laser agreement turned out to be void or invalid or unenforceable, the Plaintiff said that the 1st Defendant had been unjustly enriched and the Plaintiff should be entitled to relief by way of restitution. The Plaintiff contended that it was also entitled to tracing in respect of the claim in restitution and relied on Chase Manhattan Bank v Israel-British Bank (London) Ltd [1981] 1 Ch 105.

The Defendants' case

21. No Defence has been filed in this action because the Defendants are trying to stay the action. The defence case was summarized in Paragraph 7 of the Affirmation of Guo Jin Ran. The Defendants denied that the person who signed the agreements had the authority to do so on behalf of the 1st Defendant. It is said that the board of the 1st Defendant had never approved of those agreements. This is a separate point from the want of approval from the Fujian Government regarding those agreements. The latter was elaborated by Mr Yang in his first affirmation at Paragraphs 5 and 8. It is alleged that by reason of the fact that the 1st Defendant is a window company for the Fujian Government, the directors of the 1st Defendant were nominated by the Fujian Government and their conducts of the affairs of the 1st Defendant have to be approved by the Fujian Government before making decisions on important matters including disposal of major assets. By reason of the background of Ngan, the Defendants said that he was, or ought to be, aware of this curtailment in the general authority of the management of the 1st Defendant. The Defendants also hinted at irregular dealings between the person who allegedly signed the agreements for the 1st Defendant, Kong Fanli ["Kong"] and Ngan. Kong was dismissed by the 1st Defendant in 1998 and there is evidence that he was employed as the Chief Executive Officer of Bao Shing (Group) Company Limited, a company of Ngan, from April 1999 to March 2001.

22. The Defendants accepted that monies had been paid by the Plaintiff. However, it is denied that they were paid pursuant to the First Laser agreement. The Defendants said that the monies were paid pursuant to the FCO agreements. The shares of FCO had been duly transferred to COM and COM is owned by two companies of Ngan, namely Hang Wo and a BVI company called Jenwings Holdings Limited. Mr Chan told this court that the Defendants are willing to refund the money back to the Plaintiff if the Plaintiff procures the transfer of the shares of FCO back to the 1st Defendant.

23. The Defendants said by way of contrast, the shares in FCL had never been transferred to the Plaintiff in accordance with PRC law. The Defendant also alleged that the Plaintiff and Ngan had not taken part in the management of FCL as opposed to FCO. Ngan and her daughter were not validly appointed as directors of FCL as alleged by the Plaintiff. The Defendants said that FCL had been managed solely by the 1st Defendant until the transfer to JDS.

24. The Defendants contended that the 1998 Memorandum was a forged document. In respect of all the dealings between the Plaintiff and the 1st Defendants relevant to the present action, the Defendants said that they are all governed by PRC law.

25. The Defendants said that there was no concept of "trust" under PRC law. In any event, it is contended that Hong Kong law should not sanction the trust argument of the Plaintiff because to do so would be encouraging breach of PRC law and circumvention of important public policy.

The issues

26. As far as it is possible to identify the issues which may arise at the trial at this early stage, for the purpose of the present applications, by reference to the contentions of the parties, I would broadly pinpoint the following as major issues which the court will have to resolve,

(a) whether the payments by the Plaintiff were made pursuant to the First Laser agreement or the FCO agreements;

(b) whether the person who signed the First Laser agreement on behalf of the 1st Defendant had either actual or ostensible authority to bind the 1st Defendant;

(c) whether there was a requirement of prior approval from Fujian Government before a transaction could be binding on the 1st Defendant and whether Ngan was aware of such requirement. This could be an aspect of (b) or it could be considered independently;

(d) whether the First Laser agreement, even if it were concluded with the proper authority of the 1st Defendant, conferred any beneficial interest on the Plaintiff regarding the FCL shares and if not, what are the legal effects of the same;

(e) if the First Laser agreement was not binding on the 1st Defendant or for some other reasons held to be invalid or unenforceable, whether the Plaintiff could claim any restitutionary relief on the ground of mistake or otherwise;

(f) whether the Plaintiff can rely on tracing to claim an interest in the proceed of sale under the JSD agreement.

There are of course other issues that could be regarded as subsidiary to those major issues. For example, whether the 1998 Memorandum is a forgery, whether the Plaintiff or Ngan took part in the management of FCL, the circumstances under which these agreements came to be concluded, Kong's relationship with Ngan, the alleged admissions by the 1st Defendant in various settlement negotiation meetings, the position of the 2nd Defendant, the investment by the Plaintiff in the 1997 project. I do not propose to list out exhaustively all the disputes between the parties as I do not find this necessary nor profitable for the present purpose. Some of these are factual disputes and some are mixed question of facts and laws.

27. It seems to me that evidence in respect of PRC law would be required even if the transactions were governed by Hong Kong law. As pointed out above, Ms Eu's primary case is based on constructive trust stemming a right to specific performance under the First Laser agreement. However, one must not forget that the First Laser agreement was in respect of the sale and purchase of shares of PRC companies, viz. FCL and FCO. I do not think a Hong Kong court could ignore the PRC law with regard to the transfer of such shares in deciding whether specific performance could be granted in respect of the First Laser agreement. If such shares could not be lawfully transferred or the requisite approval could not be procured under PRC law, it is unlikely that a court in Hong Kong would grant specific performance in respect of the First Laser agreement. It is not clear to me whether there would be any dispute between the parties on PRC law governing the transfer of shares of FCL and FCO.

The applicable law

28. Mr Chan submitted that the issues in the present action should be decided by reference to PRC law. He characterized the primary claim of the Plaintiff as a proprietary claim and the crucial issue is whether the Plaintiff has any title in the 51% shareholding of FCL. By reference to Macmillan Inc. v Bishopsgate Investment [1996] 1 WLR 387 and Re Harvard Securities Limited [1997] 2 BCLC 369, he contended that the applicable law is lex situs, i.e. the place where the share register was situated which is usually the place of incorporation. This points to PRC law.

29. As regards the alternative claim, Mr Chan invited this court to applied Rule 200 in Dicey & Morris on Conflict of Laws, 13th Edn., p.1485 which provides,

"(1) The obligation to restore the benefit of an enrichment obtained at another person's expense is governed by the proper law of the obligation.

(2) The proper law of the obligation is determined as follows:

If the obligation arises in connection with a contract, its proper law is the law applicable to the contract;

...

If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs."

30. In the application of that rule, Mr Chan submitted that the alternative claim of the Plaintiff falls within Rule 200(2)(a). Para. 34-019 of Dicey & Morris described the situations where a claim of restitution arises in connection with a contract. This includes cases where a party seeks to recover money paid pursuant to an ineffective contract. Mr Chan said the proper law of the contract in the present case is PRC law.

31. On the other hand, Ms Eu argued that the proper law of the contract is Hong Kong law. She relied on the fact that the contract was made in Hong Kong, the 1st Defendant is a Hong Kong company with its center of management in Hong Kong. The monies were paid in Hong Kong in Hong Kong currency although the purchase price was expressed in US dollars. She also referred to evidence by Ngan that he understood the 1st Defendant to be unwilling to have PRC law as governing law.

32. Based on the submission that Hong Kong law was the proper law of contract, Ms Eu argued that the primary claim of trust must also be governed by Hong Kong law. She said legal title to the shares is irrelevant and this action is not about dispute in title. With respect, as explained in Paragraph 27 above, even if I were to agree that the proper law of contract was Hong Kong law, I do not think it follows that PRC law is not relevant. Neither can I disregard the cases cited by Mr Chan just because we are not dealing with questions relating to legal title. Whilst Macmillan Inc. v Bishopsgate Investment [1996] 1 WLR 387 is a case about priority in legal title over shares, Re Harvard Securities Limited [1997] 2 BCLC 369 is a case on equitable interest in shares. I also see no justification for confining the application of these cases to disputes between third parties, viz. disputes other than those between immediate parties to the contract.

33. Different issues in a case may have to be resolved by reference to different systems of law. In Macmillan Inc. v Bishopsgate Investment [1996] 1 WLR 387 Staughton LJ said at p. 399B to D,

"Mr Oliver went so far as to submit that, once one determined the law which governs the cause of action, that same system governed all issues which arise in the suit. That cannot be right.... I would regard it as plain that the rules of conflict of laws must be directed at the particular issue of law which is in dispute, rather than at the cause of action which the plaintiff relied on. We should translate lex causae as the law applicable to the issue, rather than the suit."

To the same effect, Aldous LJ said at p. 418A to B.

"I agree with the judge when he said, 'In order to ascertain the applicable law under English conflict of laws, it is not sufficient to characterize the nature of the claim: it is necessary to identify the question at issue'. Any claim, whether it be a claim that can be characterized as restitutionary or otherwise, may involve a number of issues which may have to be decided according to different systems of law. Thus it is necessary for the court to look at each issue and to decide the appropriate law to apply to the resolution of that dispute."

34. Although this point has been raised by Mr Chan in his submissions, counsel have not analysed the applicable law by reference to individual issues. Rather, as summarized above, they broadly argued on the applicable law by reference to the two causes of action of the Plaintiff. Bearing in mind that the applicable law is only one factor to be considered and the time constraint of the hearing before me, it would not be right for me to make any criticism against such an approach. However, because of such approach being adopted, I am not in a position to make a final ruling as to the applicable law in respect of each individual issue identified by me in Paragraph 26 above.

35. At the hearing, I have raised the possibility that this court could not reach a final conclusion on the applicable law in the context of the present application. Counsel accepted that this is possible given the uncertainty as to how the litigation would develop. In the circumstances, unless I can be satisfied on the basis of the material before me that the resolution of all the issues must be resolved by reference to one system of law, I shall not attach too much weight on this factor in the balancing process in the determination of the present applications. After all, evidence as to foreign law can be adduced if the court shall eventually conclude, after proper arguments on the matter, that a particular issue is to be decided by reference to foreign law. It has not been suggested before me that there are complicated issues of PRC law which this court will find it too difficult to grapple with.

36. In my judgment, this court cannot at this stage completely rule out the possibility that Hong Kong law would be relevant in the determination of at least some of issues raised. By way of example, issues (b) and (c) identified in Paragraph 26 concern the formation of contract and it has to be determined by the proper law of contract (see Cheshire & North's Private International Law, 11th Edn., p. 471-476). Although Ms Eu has advanced arguments to contend that the proper law of contract is Hong Kong law, Mr Chan argued otherwise. I think the strongest point relied on by Mr Chan is that the subject matters of the contract were shares in PRC companies. However, I cannot brush aside the evidence of Ngan that the 1st Defendant did not wish to apply PRC law to the contract. This fact, as well as the fact that the contract was made in Hong Kong, are disputed by the Defendants. Whether there is any implied choice of Hong Kong law as law of the contract has not been argued before me. I do not feel able to conclude at this stage that the proper law of contract must be PRC law.

37. Moreover, the payment being made in Hong Kong in Hong Kong currency, it seems to me that it is at least arguable that Hong Kong law should be applied in the determination of issue (a). I do not know whether there are any conflicts between Hong Kong law and PRC law pertaining to that issue as parties have not addressed me on the same.

38. Mr Chan submitted that the overriding issue must be whether the Plaintiff could assert any beneficial interest in respect of the FCL shares and according to the authorities cited by him, this must be governed by PRC law. I am prepared to assume, without actually deciding, that this is correct. However, this does not dispose of the action completely. There is still the alternative claim based on restitution. If the proper law of contract is Hong Kong law, the restitution claim would also be governed by Hong Kong law in accordance with Rule 200(2)(a) in Dicey & Morris.

39. Even if it were eventually resolved that the proper law of the contract is PRC law, thus the restitution claim is also governed by PRC law, it still does not mean that all the issues pertaining to the restitution claim would be governed by PRC law, see Macmillan Inc. v Bishopsgate Investment [1996] 1 WLR 387. Assuming that the Plaintiff could establish a claim of restitution under PRC law, whether such claim could support a claim of constructive trust against the Defendants could be governed by Hong Kong law. It would depend on the examination of the nature of the obligation of the 1st Defendant owed to the Plaintiff under the law of restitution in PRC, see Chadwick J in Arab Monetary Fund v Hashim, unreported, cited and approved by Nourse LJ in Kuwait Oil Tanker v Al Bader [2000] 2 All ER (Comm) 271 at p. 338-9. One would also need to look into the circumstances under which funds were transferred from the 1st Defendant to the 2nd Defendant. Again, this took place in Hong Kong and is probably governed by Hong Kong law.

40. I note that in his written reply, Mr Chan submitted that as a matter of law, in the context of the restitution claim, the Plaintiff cannot rely on tracing in the absence of any pre-existing fiduciary relationship between the Plaintiff and the 1st Defendant. He relied on the observations made by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at p. 714C to F and p. 707E to 709. I do not think I could decide in the context of these applications whether the Plaintiff has a sustainable claim in tracing arising from restitution. Firstly, on the material before me, I cannot rule out the possibility that the Plaintiff can show that there was a fiduciary relationship between the parties as quasi-partners when the monies were paid. Secondly, if the restitution claim were held to be governed by PRC law, there is simply no evidence before me as to the nature of the obligation of the 1st Defendant to enable me to assess whether the same amount to an obligation of a fiduciary nature.

41. On the whole, adopting the approach stated in Paragraph 35 above, I am not satisfied that the applicable law element favours the Fujian court as a more appropriate forum than the court in Hong Kong. It may well be that evidence of foreign law will be required whether the action is tried in Hong Kong or Fujian.

The PRC action

42. In the PRC action, the 1st Defendant sought declaratory relief from the Fujian court concerning the validity of the Hang Wo agreement, the COM agreement and the First Laser agreement. The Plaintiff is a party to that action. It does not raise any counterclaim in the PRC action. Hence, even if the Plaintiff succeeds in the action, it would not get any relief which it seeks in the Hong Kong action. Mr Chan fairly accepted that the PRC action only deals with some of the issues raised in the Hong Kong action. Of the major issues outlined in Paragraph 26 above, only issues (b) and (c) were dealt with in the PRC action. In fact, as regards issue (c), I do not think the PRC action would make findings on the knowledge of Ngan. He therefore accepted that he could only rely on the doctrine of lis alibi pendens to a limited extent. His main argument is that the Plaintiff should commence fresh proceedings in Fujian to pursue its claims.

43. Ms Eu submitted that since there is no identity of subject matter, this is not a true lis alibi pendens situation. She referred to the decision of Sakhrani J in Intel Corporation v Via Technologies Inc, HCA 4265 of 2001, 30 July 2002.

44. In my judgment, although there are some overlaps in the issues that the courts have to decide in the two sets of proceedings, the scope of the PRC action is obviously much narrower than the Hong Kong action. The Supreme People's Court also recognized that the cases were different in the judgment of 22 July 2002. I hold that this case is in the same category as Intel Corporation and Ho Siu Pui v Yue Sheng Finance Limited, HCA 3060 of 2001, Kwan J, 27 August 2002.

45. That being so, the existence of the PRC action and the element of comity would only have bearing in the stay application to a very limited extent in the overall balancing exercise. I do not think Intel Corporation laid down any new principles. The applicable law on the stay application can be derived from Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460 to which I now turn.

The stay application

46. Hunter JA in The Adhiguna Meranti [1987] HKLR 904 at 907E to 908B summarized the proper approach laid down in Spiliada by way of a three-stage test. This has always been followed by the courts in Hong Kong. The three stages are as follows,

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

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

(III) If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II), Abidin Daver per Lord Brandon at p. 419. Deprivation of one or more personal or juridical advantages will not necessarily be fatal to the applicant provided that the court is satisfied that notwithstanding such loss 'substantial justice will be done in the available appropriate forum'. The court must try to be objective. Proof of this, which can fairly be called the ultimate burden of persuasion, rests upon the applicant for the stay. By these means he establishes that on balance the other forum is more suitable 'for the interests of all the parties and the ends of justice'. This may be another way of saying that the plaintiff's choice of forum has been shown to be so inappropriate as to deserve the pejorative description of 'forum shopping' and to be restrained accordingly, cp. Lord Reid in The Atlantic Star [1974] AC 436."

47. Ms Eu submitted that in the application of this test, the court should also bear in mind that in the present case jurisdiction in Hong Kong is evoked by the Plaintiff as of right. She referred to Intel Corporation and the Court of Appeal's decision in LG Electronics v Bank of Taiwan, CACV 3153 of 2001, 2 May 2002. In my judgment, those were instances where the courts applied what Lord Goff said in Spiliada at p. 476F:

"The question being whether there is some other forum which is the appropriate forum for the trial of the action, it is pertinent to ask whether the fact that the plaintiff has, ex hypothesi, founded jurisdiction as of right in accordance with the law of this country, of itself gives the plaintiff an advantage in the sense that the English court will not likely disturb jurisdiction so established."

48. In United Phosphorus Limited v China Merchants Shipping & Enterprises, CACV 244 of 1988, 11 February 2000, Keith JA considered weight the court could attach to the fact that the plaintiff sue the defendant in Hong Kong as of right,

"Lord Goff himself recognised that distinctions can be drawn even between plaintiffs who have the right to sue in a particular jurisdiction. Lord Goff gave the example at p. 477F of the case where "the connection of the defendant with the English forum is a fragile one (for example, if he is served with proceedings during a short visit to this country)". That is to be contrasted with corporate defendants, such as the defendant in the present case, who are incorporated in Hong Kong and who hold themselves out as doing business in Hong Kong. In such cases, it is not inconsistent with Lord Goff's statement of principle for the court to give modest weighting to the plaintiff's right to sue in Hong Kong. To apply what Lord Goff said to the Hong Kong context, the more fragile the defendant's connection with Hong Kong, the easier it should be for the defendant to prove that there is another clearly more appropriate forum for the trial than Hong Kong."

49. The availability of an alternative forum is a prerequisite to the court's exercise of discretion in entertaining an application for stay (see S Megga Telecommunications Ltd v Etowaru Co. [1995] 2 HKC 761; Rambas Marketing Co. Ltd v Chow Kam Fai David [2001] 3 HKC 250). In the present case, the Defendants undertook to this court that the Defendants would submit to the jurisdiction of the Fujian court if the Plaintiff commenced fresh proceedings there.

50. With these principles in mind, I now turn to matters relied on by the Defendants to submit that a stay should be granted. The first stage is to consider whether not only Hong Kong is not the natural or appropriate forum for the trial, but also that there is another available forum which is clearly and distinctly more appropriate than Hong Kong.

51. The Defendants have set out the relevant factors in the Affirmation of Guo Jin Ran and the Third Affirmation of Yang Dong Cheng. I have considered each and every one of them. Some of those are rather peripheral, e.g. documents being in simplified Chinese and being located in Fujian, witnesses speak Putonghua, costs and expenses. The more significant factors are the whereabouts of witnesses, governing law and the PRC action.

52. I have dealt with the question of applicable law and the PRC action in earlier sections. With regard to languages and documents in simplified Chinese, I must say these factors, at the most, only have bearing on practical convenience. Judges in Hong Kong, either with or without the assistance of interpreters, are well equipped and qualified to try cases with these elements. In respect of documents, Mr Chan highlighted the fact that some documents are kept by regulatory authority in mainland China or by FCL and FCO. As far as the FCO agreements are concerned, I am not satisfied that it is essential to produce the original of the same at the trial. My understanding is that the Plaintiff did not dispute that these agreements had been signed. The Plaintiff said that the circumstances under which these agreements were signed were set out in the 1998 Memorandum and looking at the matter as a whole, the actual bargain between the parties were set out in the First Laser agreement. Regarding documents of FCL and FCO, I am not satisfied on the evidence before me that the Defendants were not in a position to produce at least copies of the relevant documents if the trial is to take place in Hong Kong. On the relevance of those documents, Mr Chan has only managed to show to me that they would be relevant to the question whether the Plaintiff took part in the management of FCL. Bearing in mind the major issues in the present action, I am not satisfied that on that particular issue it would be helpful to produce voluminous documents concerning the day-to-day operation of FCL. I also note that the Defendants were able to produce some documents of FCL and FCO as exhibits to affirmations filed in this action.

53. As regards witnesses, Mr Yang went into a lot of details in his Third Affirmation to identify the witnesses relevant to some of the issues and their whereabouts. In respect of the main issues, the key witnesses seem to me to be Ngan and Kong. Ngan will no doubt give evidence for the Plaintiff if the trial were to take place in Hong Kong. In respect of Kong, the Defendants were unable to locate him (see Paragraph 19 of the Third Affirmation of Yang) so it makes no difference whether the trial is in Hong Kong or in Fuijian. In respect of other witnesses who were directors of the 1st Defendant at the material time and some other witnesses, some are unwilling to come to Hong Kong and some are imprisoned in the mainland. Mr Yang explained why some of these witnesses would be willing to give evidence in Fujian but not in Hong Kong in Paragraph 21 of his Third Affirmation. Three reasons were given by him: unfamiliar with legal system in Hong Kong, troubles in term of getting permission to come, need of special approval from the government. I do not think these are insuperable difficulties. Ultimately, it is a matter of will and if their evidence were really important for the Defendants, I fail to see why the Defendants could not make the necessary arrangement for these witnesses. As Ms Eu pointed out, there is always a possible option of taking evidence in mainland for the Hong Kong action.

54. I also harbour serious reservations as to whether all the witnesses identified by Mr Yang could give material evidence. As pointed out by me, the role played by the Plaintiff or Ngan in the management of FCL was only a subsidiary issue. In respect of the major issues, most of the evidence is embodied in the documents. Further, it seems to me the major plank of the defence case would be expert evidence on PRC law and regulations and the relationship between Ngan and Kong. To some extent, the former would probably be clarified by the time this action come on for trial by the judgment in the PRC action, in respect of which, for reasons given below, I am not minded to restrain the 1st Defendant from proceeding. I note that on the material available, some of the witnesses referred to by Mr Yang, if all of them were called at the trial, would only give evidence overlapping with each other and their evidence were only of marginal relevance.

55. That said, I acknowledge that the witness factor is slightly in favour of the Defendants. Whether this tilts the balance to show that the Fujian court is a forum distinctly more appropriate than the court in Hong Kong is, however, another matter. There have been cases where despite most witnesses were abroad, an application for stay was unsuccessful (see United Phosphorus Limited v China Merchants Shipping & Enterprises, CACV 244 of 1988, 11 February 2000; Rambas Marketing Co. Ltd v Chow Kam Fai David [2001] 3 HKC 250).

56. Mr Chan laid emphasis on the element of comity. In my judgment, given the limited scope of overlapping between this action and the PRC action, this concern is more apparent than real. If the Defendants were correct that the PRC law should govern the aspects of the dispute touched upon in the PRC action, this court will no doubt accept the judgment of the PRC action as evidence of PRC law on those aspects. In this connection, I regard the proper approach in resolving disputes about foreign law as set out in the judgment of the English Court of Appeal in MCC Proceeds Inc. v Bishopsgate Investment Trust [1999] CLC 417 at 421 to 424. At p. 424 [23], the Court of Appeal summarised the function of an expert witness on foreign law as follows,

"(1) to inform the court of the relevant contents of the foreign law; identifying statutes or other legislation and explaining where necessary the foreign court's approach to their construction;

(2) to identify judgments or other authorities, explaining what status they have as sources of the foreign law; and

(3) where there is no authority directly in point, to assist the English judge in making a finding as to what the court's ruling would be if the issue was to arise for decision there." (my emphasis)

Hence, in the present circumstances, the existence of the PRC action could be complimentary instead of being incongruent to the continuation of this action in Hong Kong.

57. Balanced against the factors relied on by the Defendants, the Plaintiff pointed to the fact that the Defendants are Hong Kong companies. Their registered offices and businesses are in Hong Kong. The action was commenced against the Defendants in Hong Kong as of right. Moreover, Ngan is not a resident of Fujian and the Plaintiff is a company in Macau. Although it is disputed, the Plaintiff's case is that these agreements were made in Hong Kong and the payments were made in Hong Kong. The other company involved, COM, is also a Macau company. Proceeds of JDS sale were transferred from the 1st Defendant to the 2nd Defendant in Hong Kong.

58. View thus, it is not possible to suggest that Hong Kong is not the appropriate forum and I am not satisfied that the Fujian court is a distinctly more appropriate forum for the resolution of all the disputes between the Plaintiff and the Defendants raised in this action. On the whole, it seems to me that this is just another dispute with cross-border elements regarding which more than one court could be the natural forum.

59. It follows that the Defendants cannot cross the hurdle at Stage I under the test of The Adhiguna Meranti. It is unnecessary for me to consider Stages II and III. Therefore, the stay application fails.

The anti-suit injunction

60. The applicable principles are set out in Societe Aerospatiale v Lee Kui Jak [1987] 1 AC 871 and Airbus Industrie v Patel [1999] 1 AC 119. Mr Chan helpfully produced to this court an extract of relevant dictum from the recent authorities on this topic. In the circumstances of the present case, I do not find it necessary for me to review all those authorities. I would confine myself to the following citations. In Airbus Industrie v Patel [1999] 1 AC 119 at p. 133, Lord Goff said,

"The broad principle underlying the jurisdiction is that it is to be exercised when the ends of justice require it. Generally speaking, this may occur when the foreign proceedings are vexatious or oppressive ... But, as was stressed in the Aerospatiale case ..., in exercising the jurisdiction regard must be had to comity, and so the jurisdiction is one which must be exercised with caution ..."

61. In Amchem Products Inc. v Workers' Compensation Board (1993) 102 DLR (4th) 96 at p. 120-1, a decision of the Supreme Court of Canada, Sopinka J said,

"The result of the application of these principles is that when a foreign court assumes jurisdiction on a basis that generally conforms to our rule of private international law relating to the forum non conveniens, that decision will be respected and a Canadian court will not purport to make the decision for the foreign court. The policy of our courts with respect to comity demands no less. If, however, a foreign court assumes jurisdiction on a basis that is inconsistent with our rules of private international law and an injustice results to a litigant or "would-be" litigant in our courts, then the assumption of jurisdiction is inequitable and the party invoking the foreign jurisdiction can be restrained."

To similar effect is the judgment of Lord Goff in Aerospatiale at p. 895E-G and Neill LJ in EI Dupont v Agnew [1988] 2 Ll Rep 240 at p. 249. In the latter case, Neill LJ concluded,

"... where there is a difference of view between the English court and the foreign court as to which is the natural forum, the English court will not arrogate to itself by the grant of an injunction the power to resolve that dispute."

62. In Turner v Grovit [2002] 1 WLR 107, Lord Hobhouse distinguished between applicants who had a contractual right to litigate in a particular forum and those who did not have that right. For the latter, His Lordship said at p. 120 Para. 29,

"Therefore, to summarise, the essential features which made it proper, under English law, for the [court to grant an anti-suit injunction in favour of those who did not have contractual right to litigate in England] are:

(a) the applicant is a party to existing legal proceedings in this country;

(b) the defendants have in bad faith commenced and propose to prosecute proceedings against the applicant in another jurisdiction for the purpose of frustrating or obstructing the proceedings in this country;

(c) the court considers that it is necessary in order to protect the legitimate interest of the applicant in the English proceedings to grant the applicant a restraining order against the defendants."

63. Ms Eu contended that the commencement and continuation of the PRC action by the 1st Defendant are oppressive. She referred to the fact that the PRC action was only commenced after the Plaintiff started the action in Hong Kong and the Defendants took out a summons for the stay of the Hong Kong action. She also highlighted the difficulties the Plaintiff might encounter with regard to the concept of trust under PRC law. She referred to the difference between Hong Kong law and PRC law in respect of the questions of authority and lack of approval from Fujian government. All these, she said, pointed to the conclusion that the PRC action was brought for the dominant and calculated purpose of depriving the Plaintiff of its claims under Hong Kong law. To support her contention, she relied on the decision of the High Court of Australia in CSR Ltd v Cigna Insurance Australia (1997) 189 CLR 345 at 401,

"Proceedings which are brought for the dominant purpose of preventing another party from pursuing remedies available in the courts of another country and not available in this country are "seriously and unfairly ... prejudicial [and] damaging". They are, thus, oppressive ..."

64. The burden is on the Plaintiff to satisfy this court that an anti-suit injunction should be granted. Ms Eu's submission was, in my view, based on two underlying premises,

(a) the claim of the Plaintiff based on trust should be governed by Hong Kong law;

(b) the PRC action would frustrate the Plaintiff's action in Hong Kong.

65. On (b), I have already held that the action in Hong Kong should not be stayed. On (a), as discussed above, I do not think I can come to a final conclusion on the applicable law in respect of each and every relevant issue. In other words, I am not satisfied, on the material available, that all issues in the primary claim of the Plaintiff must be governed by Hong Kong law. On the contrary, as presently advised, I am more inclined (though I still maintain an open mind if this matter shall come back to me later) to the view that at least in respect of some of the issues, they should be governed by PRC law, see discussions in the above section on applicable law.

66. Balanced against that, as I have said in the section dealing with the stay application, there are factors suggesting that the Fujian court could be at least as much a natural forum as the Hong Kong court in dealing with the disputes between the parties. My view is that neither forum can be said to be distinctly more appropriate than the other. Of course, the PRC action is much narrower in scope and I have considered the stay application by reference to the trial of the issues raised in the Hong Kong action instead of the PRC action. Whether the Fujian court would be the appropriate forum for the trial of the PRC action has been litigated in the mainland with the participation of the Plaintiff to the highest court there and the Supreme People's Court has adjudicated on the matter. As Mr Chan pointed out, the approach adopted by the Supreme People's Court in deciding the matter was very much akin to our concept of forum non conveniens. The dicta of Sopinka J cited in Paragraph 61 above is relevant.

67. I have also taken into account of the fact that the trial of the PRC action has taken place and the Plaintiff also took part in it. By comparison, the action in Hong Kong is only at its early stage. I am not aware of a case where anti-suit injunction has been granted in these circumstances and Ms Eu, despite her diligence and that of her juniors, has not been able to refer me to any. The progress of the proceedings in the foreign court must be a relevant factor. I should record that there is no suggestion by the Plaintiff that the proceedings in the Fujian court have been conducted unfairly against it.

68. Moreover, as pointed out in Paragraph 56 above, the PRC action could be complimentary to the Hong Kong action.

69. On the whole I am not satisfied that the PRC action was brought for the dominant purpose of preventing the Plaintiff from pursuing its claims in the Hong Kong action or frustrating the same. Notwithstanding the timing of the commencement of the PRC action, I am of the view that it was quite legitimate for the 1st Defendant to take the view the Fujian court was an appropriate forum and try to have the issues raised in the PRC action to be litigated there. Nor am I satisfied that it is necessary to grant an anti-suit injunction to protect the legitimate interest of the Plaintiff in the Hong Kong action. In short, I am not convinced that it is oppressive for the 1st Defendant to commence or continue with the PRC action and I do not think the ends of justice require an anti-suit injunction to be granted.

70. As observed by Le Pichon JA in Asha Harkishin Premisingh v Harkishin Isarsingh Premsingh, CACV 845 of 2000,

"... the fact that the courts of country X have concluded that country X was the natural forum, does not entitle it on that ground alone to restrain a party from proceeding in the foreign court. It would be inconsistent with comity."

71. For these reasons, the application for anti-suit injunction must be dismissed.

Results

72. Hence, both summonses are dismissed. Mr Chan indicated that parties may be able to agree on directions as to further conduct of the case. I therefore leave that to the parties and their able lawyers. As regards costs, taking into account of the arguments of the parties at the hearing before me, I think the time spent on the preparation of each summons would roughly be the same and the two summonses are inter-related. In the circumstances, I shall make an order nisi that each party shall bear its own costs regarding these two summonses.

73. Lastly, I wish to thank counsel for their assistance. Although the hearing took more than the original time allocated to the matter, having regard to the complexity of the matters involved, counsel for both sides have been very concise and effective in the presentation of their case. They have contributed considerably to the prompt disposal of the hearing.