BAOYING CHINESE MEDICINE HOSPITAL v. MA HONGQI AND OTHERS

HCA 1295/2020

[2022] HKCFI 3816

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1295 OF 2020

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DECISION

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1.  The foreign plaintiff commenced the present action, naming a Hong Kong company and 3 other foreign individuals as defendants. On the basis of service on the Hong Kong company as the anchor defendant and the other 3 defendants as proper and necessary parties to the action, the plaintiff obtained leave to issue and to serve the concurrent writ on the foreign defendants out of jurisdiction. The 2^nd defendant came forward to dispute jurisdiction.

BACKGROUND

2.  For years before the present action, the parties concerned have been entangled in litigations both in the Mainland and Hong Kong.

3.  The plaintiff was and is a hospital at the Bao Ying County in Shanghai.  It was and is a joint venture between the Department of Health of Baoying County (“the Health Department”) and the 4^th defendant, which was the corporate vehicle of 12 individual Mainland investors.  The 1^st, the 2^nd and the 3^rd defendants and a Li Guozhu (“Li”) were amongst those investors.

4.  The investors entered into a co-operation agreement dated 27 May 2004 in Shanghai, which governs the legal relationship among the investors and the setting up of a Hong Kong corporate vehicle to enter into the joint venture with the Health Department (“the Cooperation Agreement”). Pursuant to that, Li caused the 4^th defendant to be set up in Hong Kong in June 2004.

5.  The 4^th defendant was intended to be a corporate vehicle to enter into the joint venture, and to take full advantage of the tax benefits and other incentives that the Mainland government was offering to Hong Kong investors at the material time.  It was not intended by the investors that the Hong Kong law shall apply to the directors cum shareholder relationship or the management of the company.  Nor was it intended that the articles of association of the company should bind them. The intention of the investors was that their cooperation would be based on the PRC law.

6.  The above explains the provisions in the Cooperation Agreement. These included clause 41 which provided that if upon registration, the 4^th defendant was required by the local registration requirements to adopt the local standardized articles of association, the articles of association adopted would only be used for registration purpose and did not represent the investors’ true intention of their co-operation, and that in the event of future legal dispute in the course of their co-operation, the Cooperation Agreement would be regarded as the foundation and standard for any legal interpretation.

7.  The above background aligns with the findings of the Hong Kong court in one of the related litigation in 2015, which will be referred to further below.

8.  Pursuant to the Cooperation Agreement, all the investors became directors and shareholders of the 4^th defendant. Each of the 1^st, the 2^nd, the 3^rd defendants and Li held 1/7^th of the shareholding.  It should be noted that such respective shareholdings in the 4^th defendant did not accord with the public record in Hong Kong. However, it is a matter of judicial findings in previous decisions binding the relevant shareholders in the present case that such apportionment of interest under the Cooperation Agreement was the agreed and correct one.

9.  Of the shareholders, Zhang Zheng (“Zhang”) became the chairman and the 1^st defendant the vice-chairman of the board of directors, while Li became the general manager responsible for the daily management and affairs of the company.

10.  Through the 4^th defendant, the investors entered into the joint venture agreement with the Health Department in November 2004 (“the Joint Venture Agreement”) for the operation of the plaintiff for a term of 20 years.  The Health Department and the 4^th defendant would respectively share 30% and 70% interest under the agreement.  The plaintiff would be governed by a management board, consisting of 5 members, 3 of which to be nominated by the 4^th defendant and 2 by the Health Department.  Li, Zhang and the 1^st defendant were nominated by the 4^th defendant.  Zhang also became the chairman of the management board and Li became the general administrator.

11.  Issues and incidents concerning Li and his handling of the funds of the plaintiff in 2009 gave rise to breakdown of mutual trust so that the 1^st, the 2^nd and the 3^rd defendants wanted their way out of the joint venture.  The 1^st, the 2^nd and the 3^rd defendants sold their interest to third parties, namely one Jiang Wensong (“Jiang”) and his nominees.

12.  In what was said to constitute a shareholders meeting of the 4^th defendant in Shanghai on 25 August 2009 (“the 25/8/2009 Meeting”), the transfers of equity and the use of a new company chop were approved.  In another shareholders’ meeting in Shanghai on 26 August 2009 (“the 26/8/2009 Meeting”), it was resolved, amongst other things, that the board of directors of the 4^th defendant would be replaced by, amongst other persons, Jiang, his 2 nominees, Zhang, the 1^st and the 2^nd defendants. Jiang also became the chairman of the board.

13.  The 4^th defendant under the new board also revoked the previous nominations to the management board of the plaintiff, and replaced them by Jiang and his nominees. Jiang was also nominated to be the general administrator in place of Li.  Jiang therefore took over the management of the plaintiff in September 2009.

14.  Li reacted by causing a general meeting of the 4^th defendant in Hong Kong in September 2009 to resolve to appoint another director.  He also commenced action HCA 2023/2009 in Hong Kong (“the 2023/2009 Action”) against, among others, the defendants herein as well as Jiang and his nominees.  On 29 September 2009, Li obtained an ex parte injunction to restrain the 4^th defendant from implementing the resolutions of the 25/8/2009 Meeting and the 26/8/2009 Meeting mentioned above.  At the inter partes hearing, the 4^th defendant, which was under the control of Li, indicated intention not to contest the proceedings while the other Mainland defendants were absent.  In the circumstances, the injunction was continued.

15.  In December 2009, Li further lodged a Form D2A with the Companies Registry stating that the 1^st, the 2^nd and the 3^rd defendants had ceased to be directors of the 4^th defendant on 15 December 2009.

16.  Notwithstanding all those that happened in Hong Kong caused by Li mentioned above, Jiang stayed as the general administrator of the plaintiff. That said, application was made for the discharge of the injunction in the 2023/2009 Action.  On 23 March 2010, the late Deputy Judge Carlson discharged the interim injunction against Jiang (“the 23/3/2010 Decision”).  Application for leave to appeal the decision was subsequently refused on 7 September 2010 (“the 7/9/2010 Judgment”).

17.  As a result of the discharge of the injunction against him, Jiang managed to stay on as the general administrator of the plaintiff. However, that only lasted until September 2011 as mentioned below.

18.  Years later, in October 2013, the defendants herein and some other investors applied for the striking out of the 2023/2009 Action (and the consequential discharge of the interim injunction against them).  On 5 May 2014, this was resolved by consent.  The counter-application at the same time for judgment against the 4^th defendant was also dismissed (“the 5/5/2014 Decision”).

19.  On 30 December 2014, Li commenced HCMP 3353/2014 by way of petition on the ground that the defendants herein have conducted the affairs of the 4^th defendant in a manner unfairly prejudicial to him.  He sought to buy out their shares in the 4^th defendant and claimed damages (“the 3353/2014 Action”).  The defendants herein sought to stay the action, but was dismissed by Hon G Lam J (as he then was) on 13 November 2015 (“the 13/11/2015 Decision”).  The relevance of that decision will be discussed below.

20.  The 3353/2014 Action proceeded to trial.  After trial, Hon G Lam J handed down the judgment on 26 April 2018 (“the 26/4/2018 Judgment”).  His Lordship, amongst others, ruled that the resolutions passed at the 25/8/2009 Meeting and the 26/8/2009 Meeting mentioned above constituted unfair prejudice to Li.  Amongst others, the following orders were made:

(1)  order that Li do buy out the defendants’ shares in the 4^th defendant at a price to be determined by valuation on the full prospects of the joint venture business as a going concern;

(2)  declaration that 1^st, the 2^nd and the 3^rd defendants were each entitled to 1/7^th interest in the shareholding of the 4^th defendant;

(3)  order that the 4^th defendant do issue and allot 1,000 shares ranking pari passu with the existing shares to each of the defendants;

(4)  order that the transfer of 100 shares of the 4^th defendant from Li to his nominee be set aside and that the appointment of his nominee as a director of the 4^th defendant was invalid.

21.  Li’s subsequent attempts to appeal against the 26/4/2018 Judgment failed.

22.  Besides Hong Kong, the dispute between Li and the other investors mentioned above has also given rise to parallel and protracted litigations in the Mainland since 2010.

23.  The 1^st defendant has commenced legal proceedings in Jiangsu Province against Li in respect of shareholders cum directors meeting held on 6 August 2009.  The action was dismissed by the Intermediate People’s Court on 20 December 2011 (“the 20/12/2011 Decision”).  Subsequent appeal was dismissed in 2012.

24.  Li has commenced legal proceedings in Jiangsu Province against Jiang and the defendants herein to challenge the 26/8/2009 Meeting.  On 20 December 2013, the Intermediate People’s Court found that the transfers of shares by the defendants to Jiang were void as they interfered with the pre-emption right of Li under the Cooperation Agreement.  Appeals from such decisions were dismissed on 19 June 2014 (“the 19/6/2014 Decisions”).

25.  The 1^st defendant has commenced legal proceedings in Jiangxi Province against, amongst other parties, Li and the 4^th defendant to invalidate the transfer of shares in the 4^th defendant by Li.  The action was dismissed on 15 January 2015.

26.  In September 2013, the defendants herein commenced legal proceedings in Shanghai against Li and Zhang in respect of their shareholdings in the 4^th defendant.  On 17 July 2014, the Mainland court ruled that the 1^st, the 2^nd and the 3^rd defendants were each owner of 1/7 interest in the equity of the 4^th defendant regardless of the different public record of the Companies Registry in Hong Kong.  The repeated appeals and applications for reviews by Li and Zhang against such decision between 2015 and 2017 were all dismissed.

27.  At one point, there were also criminal proceedings against the 1^st defendant relating to alleged false documents in connection of the transfers of shares in the 4^th defendant, and forged company chop.  The 1^st defendant was convicted on 27 December 2011 but the conviction was eventually overturned in 2016.

THE PRESENT ACTION

28.  By writ issued on 4 August 2020, the plaintiff now under the control of Li commenced the present action.  The general indorsement of claim says that:

(1)  The 1^st, the 2^nd and the 3^rd defendants are and were at all material times investors in the plaintiff through the 4^th defendant, and had for periods in control of the plaintiff through the 4^th defendant;

(2)  Since about August 2009, they had wrongfully and/or unlawfully conspired together by way of invalid and/or unenforceable board and/or shareholders resolutions to, amongst other things, (i) appoint Jiang as a director of the 4^th defendant and/or the head/dean of the plaintiff, (ii) allow and/or withhold from taking reasonable steps to prevent Jiang from mismanaging the plaintiff, committing wrongful acts against the plaintiff and/or misappropriating the plaintiff’s assets, and/or (iii) withhold from taking reasonable steps to remedy and/or reverse the losses caused to the plaintiff;

(3)  By reason of the wrongful conducts, omissions and/or conspiracy on the part of the 1^st, the 2^nd, the 3^rd and the 4^th defendants, the plaintiff has suffered loss and damage excess of RMB20 million; and

(4)  The plaintiff claims damages.

29.  The statement of claim filed on 4 September 2020 repeats the above allegations, and adds that:

(1)  Jiang acted in breach of his common law, equitable, fiduciary and/or trustee-like duties to the plaintiff and/or wrongfully mismanaged the plaintiff and/or misappropriated the plaintiff’s assets;

(2)  The defendants had the means, ability and/or power to take reasonable steps to prevent Jiang from mismanaging the plaintiff, committing wrongful acts against the plaintiff and/or misappropriating the plaintiff’s assets, but they withheld from taking reasonable steps to remedy and/or reverse the losses caused to the plaintiff;

(3)  The 1^st defendant’s criminal conviction in the Mainland in 2011 is relied upon as evidence of the alleged conspiracy;

(4)  The plaintiff is entitled to sue the 4^th defendant as of right whereas the 1^st, the 2^nd and the 3^rd defendants were the necessary and proper parties to the present action.

30.  A few things to note.

31.  First, the present action was commenced by the plaintiff at the time when Li was, and still is, the head/dean/general administrator of the plaintiff.  He was (according to public record in Hong Kong) and is also in control of the 4^th defendant.

32.  Second, whilst the claim is based on alleged misconduct of Jiang when he was on the management board of the plaintiff, Jiang was not named as a defendant.

33.  Third, on the same basis, the allegations concerned the conduct of Jiang when he was on the management board of the plaintiff.  That, as mentioned above but not pleaded by the plaintiff, was during the period between September 2009 and September 2011.  Jiang ceased to be the general administrator after then.

THE APPLICATION UNDER O11, RULES OF THE HIGH COURT, CAP 4A (“RHC”)

34.  Those acting for the plaintiff first applied to the master ex parte for leave to issue and to serve the concurrent writ pursuant to O11, r1(1)(f) of the RHC on the basis that the claim is founded on tort and the damage was sustained or resulted from an act committed within the jurisdiction.  In view of the above background, the contention that the alleged damage was sustained or resulted from an act committed within the jurisdiction is questionable.  This is so, even if one is considering the resolutions of the 4^th defendant to approve the transfer of shares to Jiang and to put Jiang in his then position, as all those took place out of jurisdiction.  This will be discussed further below.

35.  Anyway, in response to the master’s requisition, those acting for the plaintiff subsequently changed to rely on r1(1)(c) instead, on the basis that the writ was served on the 4^th defendant within the jurisdiction while the other defendants are necessary and proper parties to the action.

36.  In response to the master’s further requisition, those acting for the plaintiff explained that there is between the plaintiff and the 4^th defendant a real issue which the plaintiff may reasonably ask the court to try.  As to forum conveniens, the plaintiff claimed that all the other defendants have connections with Hong Kong, and would frequently come to Hong Kong to handle their businesses here.  On this basis, they deposed to their belief that Hong Kong is the convenient forum for this action.

37.  One can assume that it was on the above basis that the master granted leave.

THE PRESENT APPLICATION

38.  In view of its current control, that there has been no acknowledgment of service from the 4^th defendant in these proceedings is not surprising.  The 2^nd defendant acknowledged service of the writ but disputes the jurisdiction of the Hong Kong court. Hence his application by summons filed on 21 May 2021 pursuant to O12, r8 of the RHC.

39.  By his summons, the 2^nd defendant seeks:

(1)  an order setting aside the concurrent writ and/or the service of the writ (O12, r8(1)(a)); and/or

(2)  an order declaring that the writ has not been duly served on the 2^nd defendant (O12, r8(1)(b); and/or

(3)  the discharge of the order giving leave to serve the writ on the 2^nd defendant out of the jurisdiction (O12, r8(1)(c)); and/or

(4)  a declaration that in the circumstances of the case the court has no jurisdiction over the 2^nd defendant in respect of the subject-matter of the claim or the relief or remedy sought herein (O12, r8(1)(g)); and/or

(5)  an order staying the present proceedings (O12, r8(1)(ga)).

40.  The basis of the 2^nd defendant’s application are as follows:

(a)  For the purpose of O11, r1(1)(c), there is no live issue between the plaintiff and the 4^th defendant, the 4^th defendant being merely a “jurisdictional Trojan horse”.

(b)  The plaintiff does not have a reasonable case against the 4^th defendant to try in Hong Kong, and to do otherwise would allow the tail to wag the dog.

(c)  Hong Kong is not the natural and appropriate forum to try this action.  All relevant connecting factors and the centre of gravity of the alleged unlawful conspiracy point to 中華人民共和國江蘇省寶應縣人民法院 (People’s Court of Bao Ying County, Jiangsu Province, PRC) as the appropriate forum for trial of such allegations.  It is not reasonable for the plaintiff to ask the Hong Kong Court to try the issues against the 4^th defendant.

(d)  The plaintiff’s case against the 2^nd defendant, whilst verging on an abuse of legal process, is devoid of any merits and doomed to fail.  The 2^nd defendant is not a proper party for service out.

(e)  The plaintiff has failed to satisfy the court on forum conveniens issues at the ex parte leave stage.

(f)  In the ex parte application before the master, there were serious, deliberate and material non-disclosures so that the leave ought to be set aside with indemnity costs.

41.  The 2^nd defendant also relies on O12, r8(2) and seeks a declaration that in any event the court should not exercise any jurisdiction it may have over him, considering that the same would not be in the best interests and convenience of the parties and witnesses in the proceedings.  The proceedings should also be stayed for such consideration.

42.  Just because it seems that point is being taken by the plaintiff about the ambit of the application, this court makes clear for the avoidance of doubt that order will be made in the present application only insofar as this concerns the 2^nd defendant.

THE PRINCIPLES

43.  The following principles should be undisputed:

(1)  The application pursuant to O12, r8 is decided on the affidavit evidence of the parties as at the time of the challenge hearing.

(2)  In reviewing the exercise of the discretion to grant leave to serve out, the court is entitled to take into account the chequered history of proceedings.

(3)  The issue is whether on the whole of the evidence: (a) the plaintiff, who retains the onus, has shown that as at the time of the original application, it had a good arguable case that the application was within a gateway; and (b) in the court’s discretion Hong Kong is not the appropriate forum or the order ought not to have been made or stand, or the writ or notice was wrongly issued or the service is irregular, so that on these or other grounds the order, writ or service ought to be set aside.

(4)  The question is generally to be determined as at the date of the original application.  However, the court considers all evidence filed up to the hearing, not just that of the plaintiff at the ex parte application.  Subsequent events may also shed light on considerations that were relevant at the time.

(5)  The onus to establish a good arguable case on jurisdiction and a serious issue to be tried on the merits as well as satisfy the court on forum conveniens issues remains on the plaintiff at the inter partes stage.  There is no obligation on the defendant to demonstrate the absence of such a case or make out a case of forum non conveniens.  The hearing is de novo. The fact that leave was granted to the applicant in the first place is largely irrelevant at this point.

See Hong Kong Civil Procedure 2022 (Vol 1) (“HKCP”) at §11/4/72.

44.  The court has emphasised that the extraordinary nature of the O11 jurisdiction calls for a strict approach to the construction of the jurisdictional gateways and the duty of full and frank disclosure at the ex parte application for leave: see Kayden Ltd. v. S.F.C. (2010) 13 HKCFAR 696 at §§35–39.

O12, R8(1) – NO JURISDICTION

45.  The plaintiff took the jurisdictional gateway under O11, r1(1)(c), namely the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto.  The person served in the jurisdiction is the 4^th defendant, and the other defendants, including the 2^nd defendant, are said to be the necessary and proper parties to the action.

46.  Whether leave under this gateway should be granted involves a 3-stage enquiry:

(1)  Stage 1: Establishing (a) genuine proceedings (a “lis”) are properly commenced and pending within the jurisdiction against another anchor defendant (in this case, the 4^th defendant); and (b) such proceedings against the anchor defendant involve a real issue to try.

(2)  Stage 2: Determining whether the proposed defendants (in this case, the 1^st, the 2^nd and the 3^rd defendants) are necessary or proper parties thereto.

(3)  Stage 3: Determining whether it is appropriate to permit the claim against the defendants to proceed in the court here in terms of forum non conveniens.

See HKCP 2022 at §11/1/274.

Stage 1

47.  This is to examine the basis and merit of the pleaded cause against the anchor defendant.

48.  The court may refuse leave if it appears that the defendant has been named and served solely with a view to establishing jurisdiction against another defendant, ie a “jurisdictional Trojan horse”. If the anchor defendant is a company incorporated in Hong Kong, the anchor defendant must not be a nominal defendant, and against it there must be a genuine claim for substantive relief.

49.  The pleaded cause must be supported by evidence which establishes a factual basis which meets the merits test.  It is not sufficient to plead allegations which if true would establish a claim.  There must be evidence which establishes a sufficiently arguable case that the allegations are correct.

50.  In the present case, the claim against the 4^th defendant is premised on the tort of conspiracy, of which the 4^th defendant was an alleged co-conspirator.  One needs to scrutinise how the 4^th defendant is said to have conspired with the other defendants.  Essentially, it must be demonstrated that it shared a common objective with the other defendants which was to its knowledge to be achieved by unlawful means with the intention to injure the plaintiff.  Foresight of damage to the plaintiff was not the same as intention to injure, though inference may be drawn.

51.  In the present case, the contention is that the 4^th defendant as an entity separate from the other defendants as its directors/shareholders conspired with its directors/shareholders to cause damage to the plaintiff.  As far as the requisite intention of the 4^th defendant is concerned, this could only be understood in terms of that of the alter ego of the company, namely its directors or exactly the other defendants.  The fallacy of the plaintiff’s argument reveals by itself.

52.  Imputing knowledge of the 1^st, the 2^nd and the 3^rd defendants as directors into the 4^th defendant is one thing.  Thus describing the 4^th defendant as itself an entity possessing the same intention as a conspirator separately from the directors as co-conspirators is another.  The latter of the scenarios is, in my view, artificial in the circumstances of this case.

53.  It may be contended that the 1^st, the 2^nd and the 3^rd defendants are liable for conspiracy against the plaintiff and that the 4^th defendant being their corporate vehicle through which they pursued such alleged conspiracy may be a necessary party in that any order to be obtained may have to bind it.  As such, and in substance, the 1^st, the 2^nd and the 3^rd defendants should have been the anchor defendants while the 4^th defendant a necessary party to the present action.

54.  The nominal position of the 4^th defendant in the similar allegations made by Li against the other defendants in previous legal action has been observed.  In dismissing Li’s counter-application for a final (declaratory) judgment against the 4^th defendant and post-judgment injunction in the 2023/2009 Action mentioned above, Wilson Chan DHCJ (as he then was) said in the 5/5/2014 Decision (at §7):

“(1) [The 4^th defendant] is very much a nominal defendant in this action. No cause of action is pleaded against [the 4^th defendant] in the Statement of Claim. The real fight is between [Li] and the said Defendants over the control of [the 4^th defendant].

(2) [Li] is the majority shareholder and in control of [the 4^th defendant]. Not surprisingly, [the 4^th defendant] has not contested this action.

(3) There are ongoing legal proceedings in the People’s Republic of China between [Li] and the said Defendants regarding the validity of the company resolutions of [the 4^th defendant], the subject matter of the declaration sought.  This makes it wholly inappropriate for this court to make any binding and final declaration of right, even if it only relates to [the 4^th defendant] …”

55.  The formulation in the present action of an apparent claim against the 4^th defendant does not change the same reality for the present purpose.

56.  Even assuming that there may be an issue as to whether the 4^th defendant could be liable a co-conspirator, and thus be the anchor defendant for the purpose of considering the jurisdictional gateway under O11, r1(1)(c), the pleaded claim is up against the limitation defence open to the 4^th defendant and actually all the defendants.

57.  A clear case of a limitation defence will eliminate any serious issue to be tried, and leave to serve out should be set aside: see R Leslie Deak v. Deak Perera Far East Ltd [1991] 1 HKLR 551 at 555E-F. In Timmerton Co Inc v Equity Trustee Ltd [2015] 1 HKLRD 247 at §28.

58.  Section 4(1)(a) of the Limitation Ordinance, Cap 347 provides that no claim founded on tort may be brought more than 6 years after the date on which the cause of action accrued.  In the case of tort of conspiracy by unlawful means, the cause of action accrues when damage results.

59.  The writ herein was issued on 4 August 2020. Any claim accruing prior to 5 August 2014 will have been time barred.  The plaintiff’s claim is for damages as a result of the alleged tort of conspiracy in the form of the defendants causing and allowing Jiang to be the head/dean/general administrator of the plaintiff.  Jiang was in such position in September 2009.  In September 2011, he was taken over by the local government, which controlled the plaintiff until the formal reinstatement of Li in January 2014.   The alleged damage was what Jiang did during such term of his position in and control of the plaintiff.

60.  The plea in respect of the alleged loss of over RMB20 million is not particularised in the writ or the statement of claim.  However, there does not exist any basis for expecting that such loss accrued only on or after 5 August 2014.  The allegations and documentary evidence available certainly do not suggest that.  To the extent that the pleaded claim also refers to conduct on the part of Jiang during the period between around 2005 and 2017 whereby damage was caused to the plaintiff, this could not align with the period during which Jiang was in a position to do so, ie September 2009 to September 2011, pursuant to the alleged conspiracy of the defendants.  Nor do the allegations and evidence come near to possible suggestion of any delay in knowledge about the damage on the part of the plaintiff, particularly in view of the history including the litigations involving Li who is now in control of the plaintiff.  On the issue of limitation, counsel for the plaintiff fairly acknowledged during the hearing the weakness of his client.

61.  This court therefore agrees with the 2^nd defendant that there could not be any genuine live issue between the plaintiff and the 4^th defendant as the anchor defendant for the purpose of the jurisdictional gateway under O11, r1(1)(c).  The 4^th defendant is what may be said to be a “jurisdictional Trojan horse”.  Such could be so deployed by the plaintiff, as Li is effectively in control of both the plaintiff and the 4^th defendant.

62.  Part two of stage one of the test involves the question that even assuming that there is such an issue between the plaintiff and the 4^th defendant, whether it is reasonable for the court to try the issue.  The 2^nd defendant answers in the negative.  I agree.

63.  First, it is obvious that the major defendants are the 1^st, the 2^nd and the 3^rd defendants while the 4^th defendant was merely the corporate vehicle through which they transacted to enable Jiang to gain control over the plaintiff at the relevant time.  For the purpose of the jurisdictional gateway, characterising the 4^th defendant, which was really a minor player, as the anchor defendant, while the other foreign defendants were the main protagonists, would effectively be allowing the tail to wag the dog.

64.  Second, the defendants have a strong case of forum non conveniens.

65.  The claim for tort of conspiracy entails the proof of (a) the identity and location of the co-conspirators; (b) the locations where the alleged agreements or combinations were formed; (c) the nature and locations of the concerted acts or means; and (d) the locations where the plaintiff suffered losses.  Where these elements point to a particular location, that will be considered as the prima facie appropriate forum for trial of the claim.  The consideration of these elements applies to a case involving a company, so that the mere place of incorporation does not dictate the answer as to whether such location is the appropriate forum for trying the dispute.

66.  It should be abundantly clear that all relevant connecting factors in the dispute point to Bao Ying Court as the appropriate forum for trial of this action.  The plaintiff, through Li, must be aware of that before commencing the present action.

67.  In the 23/3/2010 Decision, DHCJ Carlson said (at §22):

“In this discretionary jurisdiction, I propose to discharge the effects of the injunction against [Jiang] for this reason alone but additionally, I also propose to discharge it because it seems to me that the proper place to litigate this dispute is before the appropriate court at Bao Ying. Everything that has happened in this case happened there. The hospital is there. The parties are there and the law governing the dispute is there. These individual defendants should be pursued in those courts and not in this one. The court at Bao Ying is best placed to decide what PRC law says about these various transactions and how best to apply the appropriate remedies.”

68.  In the 13/11/2015 Decision, Hon G Lam J referred to the citation of the above in the course of the hearing before him, and remarked (at §12) that he was not surprised that it was relied on by the respondents, the same defendants in the present case.  His Lordship indeed shared the observations of DHCJ Carlson, and said (at §18):

“So far as the connecting factors with the trial of the dispute are concerned, it seems to me plain that they favour the Mainland courts as a forum. All the individuals concerned are Mainland residents. The Cooperation Agreement was entered into in the Mainland and is plainly a contract governed by PRC law albeit not necessarily the PRC Company Law. The company [the 4^th defendant] was merely the formal vehicle through which the investment was conducted, with no real business activity in Hong Kong. The business of the company [the 4^th defendant] has been the operation of the hospital. The hospital is in Bao Ying County. It is a partnership with the Health Bureau of Bao Ying County [the Health Department] governed by a joint venture agreement entered into in the Mainland and governed by PRC law. The agreements dated around 1 August 2009 for the transfer of other investors’ shares to the petitioner were governed by PRC law. The acts and events complained of in the petition took place for the most part in the Mainland.”

69.  The 4^th defendant is a Hong Kong company.  However, it has no business other than serving as the corporate vehicle through which the investors entered into the joint venture with the Health Department for the operation of the hospital.  Whilst the alleged tort of conspiracy took the form of the 1^st, the 2^nd and the 3^rd defendant causing the 4^th defendant to resolve to approve their transfer of shares to, amongst others, Jiang and to enable Jiang to gain control over the operation of the hospital, and thus his alleged wrongful conduct causing damage to the hospital, it should be noted that the impeached shareholders’ meetings of the defendants were held out of jurisdiction, and the impeached resolutions were not even registered by the 4^th defendant in Hong Kong.  In other words, the core conduct of the defendants as co-conspirators did not take place in Hong Kong.  Nor was the alleged tort of conspiracy.

70.  It should be noted that Hon G Lam J in the 13/11/2015 Decision refused to stay the proceedings in the 3353/2014 Action mainly because of the considerations of juridical advantage and the forum which would afford the Li, as the petitioner, substantial justice to deal with the prospective relationship between the investors in the light of the relief that he sought.  The relief sought by Li in the petition (ie compulsory buy-out) would not be available if the proceedings had to take place in the Mainland court, and substantial justice would not be served if the proceedings here were stayed.

71.  Insofar as it is necessary, the 2^nd defendant has adduced and relies on the expert evidence on the PRC law supporting that the People’s Court of Bao Ying County, Jiangsu Province had a real and the closest connection with the issues of the pleaded claim of the plaintiff for damages in the present action, and that the court there has jurisdiction to grant remedies to the plaintiff similar to those that it now seeks from the court here.

72.  In the circumstances, it is not reasonable to ask the court here to try the issue, if any, between the plaintiff and the 4^th defendant arising out of the pleaded claim in the present action.  The answer to part two of the stage one of the test is against the plaintiff.

Stage 2

73.  For the gateway under O11, r1(1)(c), it is also necessary to satisfy the court that the case is a proper one for service out.  Jurisdictional requirements must be satisfied on a good arguable case basis: see Inchcape JDH Limited v Baltrans Exhibition & Removal Limited & Another [1997] 1 HKLRD 1278 at 1288C-D & G.

74.  Insofar as the 2^nd defendant is concerned, the above discussion on the merit of the plaintiff’s pleaded claim against the 1^st, the 2^nd and the 3^rd defendants refers.  Further, Hon G Lam J in the 26/4/2018 Judgment also said:

“75. The petitioner [Li] refers to the evidence that while Jiang was in charge of the Hospital [the plaintiff], 54 medical doctors and staff members left its employment due to their dissatisfaction with Jiang’s management, and that the Hospital [the plaintiff] incurred a loss of RMB10.88 million between September 2009 and July 2011. (The petitioner [Li] also referred to the fact that Jiang was prosecuted for misappropriating a sum of RMB130,100 from the Hospital [the plaintiff], but he has since been acquitted.)

76. I am, however, unable to accept the petitioner [Li]’s contention that the respondents [the 1^st, the 2^nd and the 3^rd defendants] should be fixed with responsibility for Jiang’s acts of mismanagement or misconduct. The evidence shows that in some respects, the respondents [the 1^st, the 2^nd and the 3^rd defendants] were acting as Jiang’s agents, not the reverse. They did not have control over Jiang, nor did they procure Jiang to act in the way he did whilst in management of the Hospital [the plaintiff]. It is true that but for their assistance, Jiang would not have been able to become involved in the Hospital [the plaintiff], but that is far from a sufficient basis to attach to them liability for the acts of Jiang. In any event, there is no sufficient evidence that the allegations of “mismanagement” went beyond differences in management style and opinion to amount to unfairly prejudicial conduct.”

75.  The answer to stage two of the test is not in the plaintiff’s favour either.

Stage 3

76.  As discussed, it is abundantly clear that Hong Kong is not the natural and appropriate forum whereas 中華人民共和國江蘇省寶應縣人民法院 (People’s Court of Bao Ying County, Jiangsu Province, PRC) is clearly and distinctly the more appropriate forum to try the plaintiff’s pleaded claim in the present action.  On forum non conveniens, the above discussion refers.

77.  The plaintiff fails stage three of the test as well.

Material non-disclosure

78.  The plaintiff is also criticised for material non-disclosure, which as mentioned, was of significance when it applied and obtained ex parte leave.

79.  The principle is trite.  The court expects to be informed of all the facts relevant to the weighing process in an ex parte application.  The duty extends to all matters within the plaintiff ’s knowledge and any additional facts which it expects that the court may be interested in knowing, and it is not sufficient disclosure by including the material in an exhibit without actually drawing the court’s attention to it.  This would certainly be so, if the court raises questions or seeks specific assistance.  In the present case, as mentioned, the master did raise requisitions more than once.

80.  The 2^nd defendant complains that the plaintiff’s non-disclosure was material and misleading to the master.  The plaintiff knew but failed to disclose material facts to the master, including that (i) the litigation history between Li and the defendants, including the court’s observations as expressed in the 23/3/2010 Decision, the 5/5/2014 Decision and the 13/11/2015 Decision mentioned above, which would have had direct bearing on the master’s consideration of whether the jurisdictional gateway under O11, r1(1)(c) was satisfied; (ii) the relevant resolutions of the 4^th defendants which enabled Jiang to become in a position in the plaintiff to commit the alleged wrongful conduct against the plaintiff were not passed or registered in Hong Kong; (iii) the exact timing of Li’s reinstatement as the head/dean/general administrator of the plaintiff; (iv) Li was at the material time and is the majority shareholder and in control of the 4^th defendant according to the public record in Hong Kong; (v) the pleaded claim for damages for the alleged tort of conspiracy is time-barred.

81.  As mentioned, the plaintiff specifically pleaded the criminal conviction of the 1^st defendant in the Mainland, which it relies on as evidence of the alleged wrongful conduct of the defendants.  The fact was that the 1^st defendant’s conviction was overturned as a result of the review decision dated 3 August 2016.  About that, Li claims no knowledge prior to the same being revealed by the 2^nd defendant in the present application in 2021.  The reason given was that such review and decision in the Mainland was generally withheld from the third parties.

82.  However, the plaintiff and Li were very much the concerned parties and alleged victims of the fraud for which the 1^st defendant came to be charged and convicted.  They were the key parties interested in the protracted and related litigations in the Mainland.  The claim of no news about such relevant development is on balance, if not inherently, unconvincing.

83.  It is submitted that the non-disclosures were material.  I agree.

84.  As such, the ex parte leave to issue and to serve the concurrent writ is liable to be set aside.  The 2^nd defendant has established his entitlement to relief sought under O12, r8(1).

O12, R8(2) – SHOULD NOT EXERCISE JURISDICTION

85.  O12, r8 (2)(a) of RHC enables a defendant to apply to the court for a declaration that in the circumstances of the case the court in any event should not exercise its jurisdiction which it may have over the defendant.  The considerations would include whether it is in the best interest and convenience of the parties and witnesses that the proceedings should be conducted in another court (r8(2A)(a)).

86.  For the reasons discussed above, and insofar as it is necessary, I would come to the view that the court here should not exercise its jurisdiction over the pleaded claim in the present action.

87.  For stay on the ground of forum non conveniens under r8(2)(b), the question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action, ie in which the action may be tried more suitably for the interests of all the parties and the end of justice: see SPH v SA (2014) 17 HKCFAR 364 at §51.

88.  This is a three-stage process.

89.  First, the applicant for the stay has to establish that Hong Kong is not the natural and appropriate forum but there is another available forum which is clearly or distinctly more appropriate than Hong Kong.

90.  Second, if the applicant manages to establish the elements of stage one, it would be for the resisting plaintiff to show by evidence that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

91.  Third, it is only if the plaintiff manages to satisfy the second stage of the process in his favour that the court will have to engage in the exercise of balancing the advantages of the alternative forum with the disadvantages that the plaintiff may suffer.  Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.

92.  The above discussion refers.  I also endorse the observation of Hon G Lam J in the 13/11/2015 Decision in the 3353/2014 Decision in the circumstances of this case as cited above.  Insofar as it is necessary, the evidence of the PRC law expert adduced by the 2^nd defendant, which I accept, assists in confirming my view that even assuming that the ex parte leave is not liable to be set aside, there are all the reasons for staying the proceedings in the present action for the same to be fought out in the Mainland court.

CONCLUSION

93.  I find that the concurrent writ and its service on the 2^nd defendant is liable to be set aside, and is hereby set aside.  I grant an order in terms of §1 of the 2^nd defendant’s summons pursuant to O12, r8(1).  Alternatively, if the court somehow has jurisdiction over the 2^nd defendant, I would in any event grant an order in terms of §2 of the summons pursuant to O12, r8(2).

94.  Following the event, I make a nisi order that the plaintiff shall pay the 2^nd defendant’s costs of and occasioned by this action, including the costs before the master and present application as well as any costs reserved.  Such costs, if not agreed, shall be taxed on an indemnity basis.  In the absence of application to vary within 14 days, the nisi costs order will become absolute without further order of the court.