ZHOU YI QIN v. PONG TAK SEN

HCA 66/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 66 OF 2011

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BETWEEN

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DECISION

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1.  This is an application by the defendant to stay the proceedings on the ground of forum non conveniens.

BACKGROUND

2.  In this action, the plaintiff claims against the defendant for breach of an investment agreement made between the plaintiff, the defendant and one方碧蘭 (transliterated as “Fong Bik Lan”) (“Madam Fong”) in September 2003 (“the Investment Agreement”).  The total amount of damages claimed by the plaintiff is RMB¥8,075,956.28.

3.  According to the Statement of Claim, the plaintiff, the defendant and Madam Fong, in a meeting in a hotel in Guangxi in or about September 2003 (“the Guangxi Meeting”), agreed to invest in 3 joint-venture projects in the Mainland, including one known as  北海合晶房地產開發有限公司 (Bei Hai He Jing Real Estate Development Limited) (“the Company”).  During the said meeting, the defendant produced an alleged agreement entered into between a Mainland real estate company and the Company regarding the sale and purchase of a part of an incomplete residential development known as銀灘花園 (“Silver Beach Garden”) together with the incidental development rights at the price of RMB¥5,800,000 (“the Residential Development”).  The defendant further told the others in the meeting that the Company could earn a profit of at least 500% within a short period of time.  After the discussion, the plaintiff and Madam Fong agreed to invest, in their personal capacity, in the Residential Development in the respective sums of RMB¥2,000,000 and RMB¥1,000,000.

4.  The parties further agreed that the investment would take the form of two loan agreements, one made between the plaintiff and the defendant and the other one made between Madam Fong and the defendant, and the profit from the said investment should be expressed and regarded as interest on the loan.  The rate of the said profit return was also agreed at 100% per annum (“the Profit Return”).

5.  It is the plaintiff’s case that, for such purpose, a written agreement dated 11 October 2003 (“the Written Agreement”) was entered into between the Company and 周恩琼 (Madam Zhou En Qiong) (“Madam Zhou”), the plaintiff’s daughter, in the city of Chengdu.  The Written Agreement provided that Madam Zhou, who was in fact acting as agent for the plaintiff, should lend to the Company, which was in fact acting as agent for the defendant, the sum of RMB¥2,000,000 for the defendant’s short-term capital needs for a period of 6 months from 11 October 2003 to 10 April 2004.  The Written Agreement also provided for some kind of security for the loan or investment provided by the plaintiff.  Madam Fong also entered into similar agreement with the defendant.

6.  The plaintiff remitted the sum of RMB¥2,000,000 to the defendant pursuant to the Investment Agreement and the Written Agreement.  In breach of these agreements, the defendant did not provide the security to the plaintiff nor repay the sum of RMB¥3,000,000 (inclusive of principal in the sum of RMB¥2,000,000 and interest or Profit Return in the sum of RMB¥1,000,000) to the plaintiff.  It was later agreed between the parties, in particular in two meetings in Shenzhen, that, as part of the repayment under the Investment Agreement or the Written Agreement, the defendant would pay the capital investment for the plaintiff in respect of another joint-venture project in the Mainland.  Despite that, the defendant still refused to repay the plaintiff the outstanding balance of the investment fund.  In addition to the agreed Profit Return, the plaintiff is now suing the defendant for the sum of RMB¥8,075,956.28.

7.  According to the 1^st affirmation of the defendant, the main grounds of defence can be listed out as follows:

(i)    the defendant denies that any binding agreement was made in the Guangxi Meeting;

(ii)   the Written Agreement is nothing more than a loan agreement made between Madam Zhou and the Company for the provision of fund for use in the Residential Development and the plaintiff is only dressing up the loan agreement as an investment agreement;

(iii)  the borrower of the loan was the Company and not the defendant; and

(iv)   in any event, the Company has repaid the principal and part of the interest under the Written Agreement and the Company had not agreed to pay the interest or Profit Return at 100% per annum after the due date of 10 April 2004.

8.  Based on such dispute between the parties, the defendant claims that the People’s Intermediate Court of the City of Beihai in the Mainland (“the Beihai Court”) is the more appropriate forum for the adjudication of the claim.

THE 3-STAGES TEST FOR FORUM NON CONVENIENS APPLICATION

9.  According to the well-established principles originated from the case of Spiliada Martime Corp v Cansulex Ltd [1987] AC 460 and summarised in Halsbury’s Laws of Hong Kong, vol 5(1A), 2011 Reissue, §90.0991 (see also: Johnston, The Conflicts of Laws in Hong Kong, §3.059), in determining a forum non conveniens application, the court will view the issue in three separate stages:

(i)                The first issue of whether it has been shown by the defendant that Hong Kong is not only not the natural and appropriate forum for the trial but there is another available forum which is clearly and distinctly more appropriate than Hong Kong.  The emphasis is upon “appropriate” rather than “convenient” because this is not simply a matter of practical convenience.  Several relevant factors for deciding upon the natural and appropriate forum for the action have been identified by the courts:

(a) the law governing the transaction;

(b) the place where the parties reside or carry on business;

(c) the cost of the trial;

(d) the convenience of witnesses;

(e) the place where the transaction giving rise to the litigation occurred;

(f) the relative ease of execution; and

(g) the avoidance of a multiplicity of actions.

The evidential burden of showing a more appropriate forum lies upon the defendant/applicant for the stay.  The purpose is to identify the forum “with which the action has the most real and substantial connection”.  Failure by the defendant/applicant at this stage means that the stay will be refused.

(ii) If the defendant/applicant succeeds in satisfying the court that there is a more appropriate available forum for the action, the second issue is whether a trial in this other jurisdiction would deprive the plaintiff of any “legitimate personal or juridical advantages”. The evidential burden here rests upon the plaintiff.

(iii) If the answer to the second question is affirmative, the court has to balance the advantages of (i) against the disadvantages of (ii).  Deprivation of one or more personal or juridical advantages for the plaintiff will not necessarily be fatal to the defendant/applicant provided that the court is satisfied that, notwithstanding such loss, substantial justice will be done in the other available appropriate forum.  The court must be objective and proof of this, which can fairly be called the ultimate burden of persuasion, rests upon the defendant/applicant for the stay.  By these means he established 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.

(i)      Stage I

10.  I start with the Stage I inquiry.  In my judgment, all the facts in the present case indicate that the Beihai Court is clearly and distinctly the more appropriate forum for the adjudication of the plaintiff’s claim, with which the action has the most real and substantial connection.

11.  Firstly, the underlying purpose and the transaction under the Investment Agreement and the Written Agreement are indisputably related to an investment made by the Company in the Residential Development situated in Beihai.

12.  Secondly, the relevant agreements were allegedly negotiated and made in the Mainland: the Investment Agreement was negotiated and made partly in the Guangxi Meeting, whilst the Written Agreement, written in simplified Chinese and couched in terms usually found in Mainland contracts, was signed in Chengdu.

13.  Thirdly, performance of the relevant agreements, including the payments and repayments under the agreements, was done in the Mainland through Mainland banks in Renminbi currency.

14.  Fourthly, the Written Agreement provides for the transfer of certain real properties by the Company to Madam Zhou as security for the loan or investment.  These real properties are all situated in Silver Beach Garden in Beihai.

15.  Fifthly, the discussions relating to the repayment of the loan or return of the investment fund were all conducted in the Mainland, in particular in the two meetings in Shenzhen.

16.  Sixthly, all the parties to the relevant agreements reside or operate in the Mainland: the Company is a business entity incorporated in the Mainland and it is not disputed that the plaintiff, the defendant, Madam Fong and Madam Zhou are all ordinarily resident in the Mainland.

17.  Seventhly, it is clear that the relevant agreements are governed by the law in the Mainland.  In the absence of governing law clause in the contract which is the case here, the general rule is that a Hong Kong court will regard the contract as governed by “the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connexion” (see: Johnston, supra, §§5.004-5.010). Based on the factors mentioned in the preceding paragraphs, it is clear that the relevant agreements are to be governed by the law in the Mainland.

18.  Eighthly, it is the plaintiff’s case that Madam Fong was also in breach of the Investment Agreement made between the parties. Madam Fong is a Mainland resident and so there is no basis for the plaintiff to commence legal proceedings against her in Hong Kong.  In the case that the plaintiff lodges a claim against Madam Fong in the Mainland, it would certainly be more appropriate for all the relevant disputes to be resolved in the Mainland to avoid multiplicity of proceedings.

19.  Ninthly, the witnesses in the present case are all ordinarily resident in the Mainland and it would be more convenient for them to testify in the Mainland court.  This is certainly not a decisive factor, as Mainland residents can now easily come to Hong Kong to testify before the court.   Further, in Stage I of the test, the emphasis is upon the appropriate forum rather than the convenient forum.  Yet this is a factor leaning in favour of the conclusion that the Mainland court is clearly and distinctly the more appropriate forum for the adjudication of the dispute.

20.  On the contrary, the only “Hong Kong element” of the case is that the defendant holds a Hong Kong identity card.  However, the evidence shows that:

(i) the defendant was born in Beihai and has been carrying on most of his business in the cities of Nanning and Beihai and not in Hong Kong;

(ii) for the past 18 years, the defendant has resided in Beihai and treated Beihei as his home and the defendant only occasionally returns to Hong Kong for 3 to 5 days a month on average;

(iii) the defendant owns substantial assets such as real properties and other investments in Beihai and other Mainland cities totalling around RMB¥50,000,000 in value, far more substantial than the defendant’s assets in Hong Kong; and

(iv) the defendant has been appointed to various public bodies in the Mainland, including the Beihai city branch of the Chinese People’s Political Consultative Conference and the Guangxi Hakka Chamber of Commerce.

21.  Taking into account the background of the present dispute, which also relates to the investment in different joint-venture projects in the Mainland, there is certainly some degree of truth in the defendant’s allegations about his ties with the Mainland.

22.  Apart from the defendant’s Hong Kong permanent residency status, it is clear that the defendant is, as a matter of fact, ordinarily resident and settled in, and closely connected to, the Mainland but not Hong Kong.  In such circumstances, the holding of a Hong Kong permanent identity card per se cannot be a relevant consideration (see: Johnson, supra, §3.056).

23.  Ms Wong, counsel for the plaintiff, submits that the defendant does have connection with Hong Kong, including the facts that:

(i) the defendant had set up a company known as “Power Champ” in Hong Kong;

(ii) the defendant owns at least one real property in Hong Kong; and

(iii) one of the payments under the Investment Agreement was made by the defendant on behalf of the plaintiff through the defendant’s company in Hong Kong.

24.  Despite these observations, the overwhelming evidence shows that the defendant is ordinarily resident and closely connected to the Mainland but not Hong Kong.  Hence, the defendant’s limited connection with Hong Kong should not disturb the conclusion that the Mainland court is the more appropriate forum.

25.  According to the defendant’s Mainland legal expert, there is no impediment for the plaintiff to commence the present action in the Mainland and the most appropriate court for the adjudication of the dispute is the Beihai Court.  Based on the factors mentioned above, although jurisdiction has been founded in Hong Kong court as of right, I accept that the Beihai Court is clearly and distinctly the more appropriate forum for the purpose of Stage I of the test.

(ii) Stage II

26.  In Stage II, the plaintiff bears the burden to adduce “positive and cogent” evidence to substantiate any personal or juridical disadvantages to him should the present action be tried in the Mainland instead of Hong Kong.

27.  Ms Wong does not wish to make any submission about the Stage II of the test.  Despite such acknowledgment of the plaintiff’s weakness in this part of the case, the plaintiff’s Mainland legal expert (“the plaintiff’s Expert”) seems to suggest that there are 4 potential disadvantages to the plaintiff by having the case be tried in the Mainland:

(i) the plaintiff’s claim may be time-barred in the Mainland;

(ii) the Company’s operating licence has been revoked in the Mainland;

(iii) the Mainland courts would decide cases according to political reality and not in accordance with the legitimate interests of the parties; and

(iv) the plaintiff may have difficulty in serving the claim and in enforcing the judgment in the Mainland.

28.  According to the plaintiff’s Expert, the limitation period for civil claims in the Mainland is two years and so the defendant would be able to rely on the defence of limitation in respect of a claim by Madam Zhou.  There is some confusion in the expert evidence as to whether such defence is available to defend a claim by the plaintiff and not Madam Zhou, but both experts agree that, like the position under Hong Kong law, the Mainland courts would not entertain such defence unless it is expressly invoked by the defendant.

29.  Assuming that the defence of limitation is available to the defendant in the Mainland, the defendant has agreed to provide an undertaking that he will waive the right to rely on such defence if the plaintiff is pursing the claim in the Mainland.  In New Link Consultants Ltd v Air China [2005] HKC 260 and Peregrine Fixed Income Ltd v JP Morgan Chase Bank [2005] 2 HKC 374, such kind of undertaking had been held to be relevant and accepted by the courts in granting a stay on the ground of forum non conveniens.  As the defendant has agreed to provide similar undertaking to the court, even if the defence of limitation is available to the defendant, the plaintiff will not suffer any personal or juridical disadvantage by having the case be tried in the Mainland.

30.  Regarding the revocation of the operation licence of the Company, it is clearly a non-issue as the plaintiff was only suing the defendant and not the Company in this particular action.

31.  According to the plaintiff’s Expert, the Mainland courts would decide cases according to political reality and not in accordance with the legitimate interests of the parties, and so it would be difficult for the plaintiff to sue the defendant successfully in the Mainland.  As I see it, there is simply no evidence or basis to support such serious allegation levelled against the Mainland courts.  Furthermore, as observed by Poon DHCJ (as he then was)  in the case of New Link Consultants Ltd v Air China, supra, at pp 288I-289A, the Hong Kong court should not adjudicate upon or compare the quality of justice available in a foreign court.  Hence, in my judgment, the defendant has failed to discharge the burden of proving such alleged disadvantage.

32.  The final alleged disadvantage relates to the difficulty in serving the claim and in enforcing the judgment in the Mainland.   However, the undisputed evidence in the present case shows that the defendant is an ordinarily resident in Beihai and holds substantial assets in the Mainland.  Without further supporting evidence, it is very difficult for me to understand the basis of the plaintiff’s complaint about the difficulty in the service of the claim and in enforcing the judgment in the Mainland.

33.  Based on the aforesaid, the plaintiff has not successfully demonstrated that he will be deprived of any personal or juridical advantage if the action is to be litigated in the Mainland courts, in particular in the Beihai Court.  That being the case, it is not necessary for me to go further to Stage III.

CONCLUSION

34.  For the above reasons, the forum non conveniens application succeeds.  I therefore order that, subject to the defendant’s undertaking to submit to the jurisdiction of the Beihai Court and not to raise the defence of limitation, the action against the defendant be stayed.  Both parties agree that costs should follow the event, and so I order that the costs of the application be to the defendant.