CHINA SHANSHUI CEMENT GROUP LTD AND OTHERS v. MI JINGTIAN AND OTHERS

HCA 762/2017

[2018] HKCFI 1553

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 762 OF 2017

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D E C I S I O N

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A. THE APPLICATIONS

1.  There are before me the following summonses:

(1)  Ps’ summons dated 19 May 2017 seeking to strike out parts of D2’s 1^st and 2^nd affirmations (“Ps’ 1^st Strike Out Summons”);

(2)  Ps’ summons dated 8 February 2018 seeking to strike out parts of D2’s 4^th affirmation (“Ps’ 2^nd Strike Out Summons”);

(3)  D2’s summons dated 23 November 2017 seeking to set aside the leave granted to Ps to issue and serve a concurrent writ of summons on Ds and service on D2, discharge of the injunction orders made by Wilson Chan J on 11 and 27 April 2017, and a stay of the present proceedings on the grounds of forum non conveniens and lis alibi pendens;

(4)  D1, D3 to D5’s summons dated 14 February 2018 seeking the same relief as D2’s aforesaid summons of 23 November 2017 (the two summons collectively “Ds’ Summonses”); and

(5)  Ps’ summons dated 18 April 2017 to continue the injunction order made by Wilson Chan J on 11 April 2017 until trial or further order (“Ps’ Summons”).

2.  On 11 April 2018, just two clear days prior to the hearing, Ps issued a further summons seeking leave to re-amend the Amended Statement of Claim (“Ps’ Re-Amendment Summons”).  Ds objected to this summons being dealt with at the hearing.

B.   THE BACKGROUND

3.  P1 is a company incorporated in the Cayman Islands, registered under the Companies Ordinance as a non-Hong Kong company, and listed on the Stock Exchange of Hong Kong (“SEHK”), although trading in its shares has been suspended since April 2015 as the public float of the shares fell below the 25% required by the Listing Rules. The principal business of P1 and its subsidiaries (“the Group”) is the production, distribution and supply of cement and cement-related construction products.  It wholly owns P2.

4.  P2 is a company incorporated in Hong Kong.  It wholly owns P3.

5.  P3 is a private company incorporated in mainland PRC.  It holds various other operational subsidiaries on the mainland.

6.  It is common ground that P1 and P2 are holding companies, and that P3 is important, as it holds the subsidiaries which own the vast majority of the Group’s fixed assets and generates about 99% of the Group’s revenues.

7.  P3 has operations at the Group’s industrial plant at Shanshui Industrial Park in Jinan (“the Jinan Plant”). 

8.  The current dispute forms part of the ongoing struggle for control of the Group.

B1.   The appointment of Receivers in the Trust Action

9.  One of the major shareholders of P1 is China Shanshui Investment Company Limited (“CSI”).  CSI holds 25.09% of the issued shares in P1.  The shares in CSI in turn were held as to 81.74% by Zhang Caikui (“Zhang Senior”), for himself and as trustee for a number of employees of P3 and its subsidiaries. In 2015, a dispute arose between Zhang Senior and some of the employees.  Some 2,600 employees commenced an action in Hong Kong against Zhang Senior in HCA 1661/2014 and other related actions, seeking to have their shares transferred into their own names or the names of nominees (“the Trust Action”).

10.  In May 2015, G Lam J appointed three accountants, Stephen Liu, David Yen and Sammy Koo, as receivers for the shares in CSI held by the employees (“the Receivers”) pending trial of the Trust Action.  The Receivers were discharged on 31 January 2018 when G Lam J gave judgment in the Trust Action.

B2.   Control of P1 and P3

11.  In his judgment of 17 June 2015 [1] in the Trust Action at [18], G Lam J had directed that the Receivers should not seek to alter the composition of the board of directors of P1 without further directions of the Court.  G Lam J stated that the Court’s primary concern in appointing the Receivers was to protect and preserve the trust assets including their value, and not to achieve a complete change of management of the listed company P1.  They were there to hold the ring, and not to act for one of the parties.

12.  Subsequently, Tianrui Group Company Limited (“Tianrui”), a 28.16% shareholder in P1, proposed the removal of all but one of the directors of P1 (including Zhang Senior and his son) and to appoint seven new directors.  In her judgment of 23 July 2015 in the Trust Action, Au-Yeung J declined to give directions to the Receivers to vote at P1’s EGM so as to fundamentally change the composition of P1’s board of directors.

13.  On 14 October 2015, Zhang Senior made amendments to the articles of association of P3 and then registered these with the Jinan office of the Administration of Industry and Commerce.  The amendment effectively made it impossible for P2, as shareholder of P3, to remove P3’s directors, which included Zhang Senior and his son.

14.  On 2 December 2015, Stephen Liu of the Receivers was appointed as a director of P1.  Ds say that this was upon Tianrui’s nomination. It is Ds’ case that since that time, P1’s board has been controlled by the Receivers and Tianrui in that it consists only of the Receivers and nominees appointed by Tianrui, with no nominees representing the other major shareholders of P1.

15.  On 3 December 2015, P2 passed a resolution to appoint new directors to P3, replacing Zhang Senior and his associates.  Nine new directors were appointed, including D1 to D5.

16.  On 8 and 13 January 2016, the Court ordered Zhang Senior and his son to execute corrective amendments to the articles of association of P3.  P2 subsequently tried, but failed, to register the Court’s amendments with the Jinan office of the Administration of Industry and Commerce.  Eventually, on 20 April 2016, the Registrar of the High Court executed the corrective amendments.  Ds say that the corrective amendments are not valid as they were not registered with the local office of the Ministry of Commerce.

17.  On 1 June 2016, Stephen Liu became chairman of P1.

B3.   The parties’ dispute

18.  It is Ds’ case that since that time, the Receivers no longer “held the ring” but instead began to actively manage P1.  Ds further allege that the Receivers were acting together with Tianrui to achieve Tianrui’s plans, which were detrimental to the interests of CSI and hence the interests of P3’s employees who own shares in CSI.

(1)  In particular, Ds say that P1’s board, controlled by Tianrui and the Receivers, sought to cause P1 to issue shares, which would have diluted CSI’s stake in P1.

(2)  Ds further complain that on 15 December 2016, Tianrui caused P3 to enter into an Investment Framework Agreement with China Cinda Asset Management Company Ltd (“Cinda”) and Tianrui, whereby Cinda agreed to grant a RMB 8 billion facility to P3, secured over the assets of P3, with Tianrui as guarantor (“the Cinda Agreement”).  Ds were concerned that if P3’s and its subsidiaries’ shares were to be pledged as security for the loan, all the assets of the Group would be at risk in the event of a default.  They were also concerned that the assets of P3, valued at some RMB 29.9 billion, were being pledged to secure a loan of only RMB 8 billion, and that the interest rate being charged was higher than the usual rate paid to P3’s bankers.

19.  Ds objected to the Cinda Agreement and refused to execute the pledge documents in favour of Cinda or to amend P3’s articles as required by the Cinda Agreement.

20.  Ds say that P1’s board, controlled by Tianrui and the Receivers, thereupon sought to remove them from the board of P3.

(1)  On 20 December 2016, P1 and P3 passed resolutions to suspend D1 as director and deputy general manager of P3.

(2)  On 9 and 12 January 2017, P1 and P2 passed board resolutions to remove D1 as director and deputy general manager of P3.

(3)  On 13 March 2017, P2 passed a board resolution to dismiss D2 to D5 from all their positions within P3 and to appoint Stephen Liu and David Yen (of the Receivers) and two others as directors of P3.

21.  For their part, Ps say that due to misconduct of the former boardof P1 (controlled by the Zhangs), the Group had been incurring a substantial loss since 2015 and by early 2017, the Group’s liquidity problems had worsened.  In order to resolve the Group’s debt defaults and other liquidity problems:

(1)  in around September 2016, P1’s new board had entered into discussions with Cinda for an injection of capital into P3.  Subsequently, P3 and Cinda entered into the Cinda Agreement; and

(2)  on around 12 September 2016, P1’s new board had announced their intention to restore the public float for P1’s shares to the minimum level required by the SEHK through proposals that would involve a share placement.

22.  Ps say that Ds were aware that even if the Group was able to fully utilise the credit facilities under the Cinda Agreement, the Group would still have an unresolved liquidity problem.

23.  Ps say that it was against that background that P1 and P2 passed resolutions on 10 January 2017 (“the 1^st Shareholders’ Instruction”) that:

(1)  P3’s directors and senior management would receive their annual salary after completion of P1’s annual audit of the Group’s consolidated 2016 accounts and the publication of P1’s 2016 annual report; and

(2)  P3’s board and senior management would not receive any bonus without P1’s prior approval.

24.  On 18 January 2017, P1 and P2 further instructed P3’s board (including Ds) that all administrative expenditure had to be approved by Li Heping and Yang Yongzheng (also directors of P3) (“the 2^nd Shareholders’ Instruction”).

25.  Ps say that Ds defied the 1^st and 2^nd Shareholders’ Instructions in that, inter alia:

(1)  at an unlawfully convened board meeting of P3 on 22 January 2017, Ds purported to pass resolutions approving the payment of bonuses for the year ended 2016 totalling RMB 132 million to P3’s employees, including a bonus of RMB 21.9 million to bepaid to the senior management (which included Ds themselves);

(2)  on 17 January 2017, Ds caused P3 to pay RMB 10 million to Jinan Shanshui Lixin Investment Development Company Limited (“Jinan Lixin”), a company in which Zhang Senior was the controlling shareholder and the only director, legal representative general manager, and in which D1, D3 to D5 were also shareholders;

(3)  on 13 May 2017, with knowledge of Ps’ Statement of Claim in these proceedings and the interlocutory injunction of 11 April 2017 restraining Ds from removing any funds of P3, Ds wrongfully caused P3 to pay a further RMB 16.62 million to Jinan Lixin.

26.  Ps then complain that at an event on 14 December 2016 hosted by P3, D1 and D4 disclosed confidential information relating to P3, which also constituted “inside” information within the meaning of section 307A of the Securities and Futures Ordinance (Cap 571).  The information relatedto P3’s alleged profitability and liquidity.  Present at the event were members of the press, including from the Hong Kong newspaper Wen Wei Po.  The unlawful disclosures were then republished in an article in the Wen Wei Po on 15 December 2016 (“the Wen Wei Po Article”).  Thereafter, the SEHK wrote to P1 making enquiries in relation to the unauthorised disclosures.

27.  A further complaint by Ps is that Ds defied P1’s instruction, given in letters of 20 December 2016 to P3’s directors (“the 3^rd Shareholders’ Instruction”), that D1 was not to be permitted to enter P3’s headquarters in the Jinan Plant. Ps say (inter alia) that on or about 20 December 2016, Ds instructed P3’s employees to prevent David Yen and certain personnel of P1, P2 and P3 from entering the Jinan Plant, certain of P3’s staff not to come to work, and its security officers to prevent the Group’s auditors KPMG from entering the Jinan Plant.

28.  Ps also complain that on 8 April 2017, when Stephen Liu and David Yen sought to recover possession of the Jinan Plant, they were forcibly held against their will by a crowd organised by D1, and that they were unable to leave until the Jinan Police went to their assistance.

29.  The next matter of which Ps complain is that Ds defied P1’s and P2’s instruction, given on 13 January 2017 (“the 4^th Shareholders’ Instruction”), and that Ds should comply with the board resolutions of P1 and P2 of 9 and 12 January 2017 whereby D1 was removed from his position as director and deputy general manager of P3 (and divested of all offices, functions and responsibilities in P3 and its subsidiaries). In relation to this complaint, Ps say (inter alia) that D1 continued to purport to act as P3’s director and general manager and D2 to D5 permitted and encouraged him to so.

30.  The last matter (for present purposes) of which Ps complain is that Ds have defied P1’s and P2’s instruction (“the 5^th Shareholders’ Instruction”) that Ds should comply with the board resolutions of P1 and P2 of 13 March 2017 whereby D2 to D5 were removed from their positions as directors and employees of P3.  It is said that Ds have refused to step down and have continued to purport to act as directors and employees of P3. 

31.  In summary, Ds’ response to Ps’ complaints is that:

(1)  the payment of the 2016 bonuses was approved by the entire board of P3 at meetings in November 2016, December 2016 and January 2017.  The 1^st Shareholders’ Instruction was not made in good faith but was intended to disrupt P3’s operations;

(2)  P3’s payment of RMB 10 million [2] to Jinan Lixin was a legitimate partial repayment of a debt owed to Jinan Lixin and recorded in P1’s audited financial statements;

(3)  the disclosure of the alleged confidential information had been approved by the entire board of P3;

(4)  the alleged refusal to allow KPMG personnel into the Jinan Plant was a misunderstanding which was rectified on the subsequent day;

(5)  the purported removal of Ds from their positions within P3 was for ulterior motives and unlawful, and the allegations now made against them were false.

B4.  These proceedings

32.  On 29 March 2017, Ps issued a writ against Ds (“the Writ”), complaining in the Statement of Claim (“SOC”) of the matters set out in section B3 above and claiming (inter alia) that Ds were liable:

(1)  to account to P3 as constructive trustees for misapplied funds; 

(2)  to P3 for equitable damages or restitution for breach of fiduciary duty;

(3)  to P1 and P2 for damages for unlawful conspiracy to injure the interests of P1 and P2.

33.  Ps sought:

(1)  for P3, an injunction to restrain Ds from holding themselves out as being directors, officers or employees of P3, entering upon premises belonging to P3 including the Jinan Plant, removing from P3’s premises funds and items belonging to P3, and soliciting or enticing P3’s officers and employees to assist them in undertaking the foregoing;

(2)  for P3, an account of all property of P3 which Ds had misapplied and delivery up of amounts due to P3;

(3)  for P3, equitable damages or restitution;

(4)  for P1 and P2, damages;

(5)  for P1 and P2, a declaration of indemnity from Ds for loss or expense incurred by P1 arising from any of his actions that had caused P1 or the Group to breach the requirements of the Securities and Futures Ordinance or the SEHK’s Listing Rules.

34.  On 11 April 2017, having heard Ps on an ex parte basis, Wilson Chan J granted an injunction against Ds, restricting them from (inter alia) holding themselves out as directors or officers of P3, entering upon P3’s premises and removing from P3’s premises funds, chattels and other items; and a Mareva injunction against D1 and D3 to D5 (collectively “the Injunction Order”).  The Injunction Order was varied by order of 21 April 2017 and continued by order of 31 May 2017.

35.  On 19 April 2017, by the 2^nd Affirmation of Yen Ching Wai David (“Yen II”), Ps applied for leave to issue and serve a concurrent Writ [3] out of the jurisdiction.  Yen II was subsequently supplemented by the 4^th affidavit of Yen Ching Wai David of 6 June 2017 (“Yen IV”).  Leave was granted by Master M Wong on 19 June 2017.  Service was subsequently effected on D2 on 1 September 2017.  Ps applied for leave for substituted service in respect of D1, D3, D4 and D5; this was granted by Master S Lo on 22 November 2017; and substituted service was subsequently effected.

36.  On 29 December 2017, Ps amended their SOC (“ASOC”).

C.   PS’ 1^ST STRIKE OUT SUMMONS

37.  Ps only pursue [4] paragraph 2 of Ps’ 1^st Strike Out Summons, which seeks to strike out certain paragraphs in D2’s 2^nd affirmation dated 10 May 2017 (“Chen II”).

38.  Mr Barlow SC (appearing with Mr David Chen for Ps) was content to simply rely on the matters in his skeleton in support of this summons.

C1.   Chen II paragraphs 14 and 18

39.  Ps seek to strike out Chen II paragraphs 14 and 18 on the grounds of irrelevance, saying that they concern earlier fund-raising exercises of P1.

40.  Paragraphs 26 to 33 of the SOC plead the liquidity problems of the Group and efforts to resolve this, including the Cinda Agreement and a proposal to restore the public float for P1’s shares in September 2016.  These matters are addressed in Chen II paragraphs 14 and 18.

41.  It is Ps’ case that it was in the light of these matters that the 1^st and 2^nd Shareholders’ Instructions were given, and it is their complaint that Ds defied these instructions: see 1^st Affidavit of Yen Ching Wai David dated 11 April 2017 (“Yen I”) at paragraphs 18 to 24.  This complaint forms part of the basis for seeking a continuation of the Injunction Order.

42.  It therefore cannot be said that Chen II paragraphs 14 and 18 are irrelevant to the dispute between the parties.

C2.   Chen II paragraphs 19, 22, 24

43.  Ps seek to strike out Chen II paragraphs 19, 22 and 24 on the grounds that they contain scandalous and offensive allegations against the Receivers, claiming that they sought to strip out P3’s assets, and inadmissible statements of opinion.

44.  Ps rely on Chan Woon Fui v Chan Wing Suen & ors, unreported, HCCW 350/2004, 11 July 2005, a decision of Barma J (as he then was).  The relevant principles are set out at [4]:

“ (1) Scandalous has the same meaning in Order 41 rule 6 as it does in Order 18 rule 19 dealing with the striking out of pleadings. Thus, degrading, indecent and offensive charges made in an affidavit will be regarded as scandalous if they are irrelevant or inadmissible in evidence to prove any material allegation in the petition (see e.g. Cashin v Cradock (1877) 3 Ch 376; Christie v Christie (1873) LR 8 Ch App 499, in the context of striking out a pleading);

(2) Matters which are material will not generally be struck out even if they are offensive, although where unnecessary detail is given, that may be susceptible to being struck out (see e.g. Blake v Albion Assurance Society (1846) 45 LJCP 663, also in the context of striking out of pleadings).

(3) Irrelevant matter may be struck out even if not scandalous (Re J (An Infant) [1960] 1 All ER 603).

(4) It is wrong to include argumentative material in affidavits and such material may be struck out (see e.g. Deak v Deak Perera Far East Limited [1991] 1 HKLR 551).

(5) The court may take one of three approaches to an affidavit in which there is scandalous, irrelevant or oppressive matter:-

(a) It may decline to strike the matter out, on the basis that it is capable of excluding such material from its mind when deciding the issues which arise for decision; or

(b) It may think it appropriate to strike out some or all of the material complained of; or

(c)   It may, in an extreme case, order the entire affidavit to be taken off the court file.”

45.  The paragraphs complained of set out Ds’ complaints of the Receivers’ and Tianrui’s conduct in removing Ds as directors of P3 and appointment of others to P3’s board.  They rely on this conduct in support of their allegation that the Receivers (and Tianrui) were seeking to (inter alia) strip out P3’s assets. These are matters which are prima facie relevant to the question of whether Ds have committed the misconduct complained of in the SOC and whether Ps have shown a good arguable case or serious issue to be tried.  They are not gratuitous comments: cf. comments struck out in Chan Woon Fui at [18].

46.  Furthermore, Chen II paragraphs 14 to 18 set out the basis for Ds’ complaints about the Receivers’ and Tianrui’s conduct—including Ds’ concerns about the Cinda Agreement and the effect which placements proposed by P1 would have had on the shareholding in P1.

C3.   Chen II paragraphs 26 (first sentence), 27, 37

47.  Ps seek to strike out Chen II paragraphs 26 (first sentence), 27 and 37 on the grounds that they contain inadmissible statements of opinion.  Those paragraphs contain Ds’ complaints that there was no good reason to remove D1 from his position in P3, and that the Receivers are intent on making false allegations to the public.  However, these paragraphs effectively set out Ds’ inferences of fact based on the matters set out in paragraph 25 (that the holding of the event on 14 December 2016 was in fact authorised by P3 and the information given thereat was correct) and 36 (that P1 issued a misleading public announcement on 27 April 2017 regarding the events of 8 April 2017 at the Jinan Plant, as demonstrated by video clips of the event).

C4.   Conclusion on Ps’ 1^st Strike Out Summons

48.  I therefore do not accept that Ps have made out a basis for striking out the parts of Chen II complained of.

D.   PS’ 2^ND STRIKE OUT SUMMONS

49.  Ps’ 2^nd Strike Out Summons seeks to strike out certain paragraphs in D2’s 4^th affirmation dated 9 January 2018 (“Chen IV”). Again, Mr Barlow SC was content to simply rely on the matters in his skeleton in support of this summons.

D1.   Chen IV paragraphs 5(6) to 5(9)

50.  Ps seek to strike out Chen IV paragraphs 5(6) to 5(9) on the grounds that they contain inadmissible statements of argumentative opinion.

51.  The contents of these paragraphs, similarly to Chen II paragraphs 19, 22 and 24, contain complaints regarding the Receivers’ and Tianrui’s conduct, in support of Ds’ allegation that the Receivers (and Tianrui) were seeking to (inter alia) strip out P3’s assets and that the removal of Ds was therefore unlawful.  They are relevant to the issues between the parties.  The factual basis relied on is set out in Chen IV paragraphs 5(6) to 5(9), culminating in the (alleged) inference of fact set out in paragraph 5(9) that Ds were removed for an ulterior motive, and are therefore unlawful.

D2.   Chen IV paragraphs 6(1), 6(3) to 6(7)

52.  Ps seek to strike out Chen IV paragraphs 6(1) and 6(3) to 6(7) on the grounds that D2 brazenly purports to speak on behalf of P3 in these paragraphs, in contravention of the Injunction Order which restrains him from holding himself out as a director of Ps.

53.  In those paragraphs, D2 summarises Ds’ answers to the allegations made by Ps in these proceedings.  For example, in response to the complaint of disclosure of confidential information at the event of 14 December 2016, D2 says that the event had received prior approval by P3.

54.  In setting out Ds’ answers to the allegations, D2 is not purporting to speak on behalf of P3, but simply setting out Ds’ version of the facts.

D3.   Chen IV paragraphs 6(7), 12, 13

55.  Ps seek to strike these paragraphs out on the grounds that they advance argumentative opinions that Ps did not have the power to remove Ds from P3.

56.  As noted above, the parties dispute which set of articles of association govern P3.  Ds say that Zhang Senior’s son remained the legal representative of P3 (citing PRC legal advice in support).  They further saythat P1 and P2 did not have power to terminate Ds’ contracts of employment with P3.

57.  The paragraphs complained of by Ps are simply a summary of Ds’ case on this issue, referring to a number of facts relied on in support (such as the status of proceedings on the mainland PRC, PRC legal advice, Ps’ acts and Ds’ acts).  Ps have also complained that Ds’ case is illogical, but the correctness of Ds’ argument does not arise for my determination.

D4.   Conclusion on Ps’ 2^nd Strike Out Summons

58.  I therefore do not accept that Ps have made out a basis for striking out the parts of Chen IV complained of.

E.   DS’ SUMMONSES

59.  Whilst Ds’ Summonses were taken out after Ps’ Summons, it would be more appropriate to first consider Ds’ application to set aside the leave granted to Ps to issue and serve a concurrent writ of summons on Ds, before going on to consider Ps’ application to continue the Injunction Order, since such leave is necessary for the continuation of the Injunction Order.

E1.   The principles regarding leave to serve a writ out of the jurisdiction, and setting aside such leave

60.  The parties are in agreement as to the principles which apply when a plaintiff seeks leave to serve a writ out of the jurisdiction under Order 11, rule 1 of the Rules of the High Court.  The plaintiff must demonstrate that:

(1)  there is a good arguable case that his claims fall within one of the “gateways” under Order 11, rule 1(1);

(2)  there is a serious issue to be tried as regards the merits of the plaintiff’s case;

(3)  Hong Kong is the forum conveniens for the trial of the action.[5]

See Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454 at [29], per Cheung JA.

61.  However, Ps say that on an application to set aside leave, the burden is on Ds to show that Ps’ case does not satisfy the O.11 requirements.  Ds disagree, saying that the burden remains on Ps, citing Tremendous Success Holdings Ltd & others v Sinosoft Technology Group Ltd & others, unreported, HCA 2345, 1613 and 2423/2013, 11 July 2016, at [16] to [17], per Deputy High Court Judge Anita Yip SC.

62.  I agree with Ds that the burden remains on Ps: Tremendous Success Holdings Ltd at [16] to [17].  Leave to serve a writ out of the jurisdiction is, in the first instance, granted on an ex parte basis.  A defendant who applies to set aside leave under Order 12, rule 8(1) is not treated as having submitted to the jurisdiction.  At the hearing of such an application, the grant of leave is reconsidered afresh: Hong Kong Civil Procedure 2018, note 11/1/2.

63.  On the question of whether there is a serious issue to be tried regarding the merits of the plaintiff’s case:

(1)  the issue is whether the affidavit evidence discloses a case against the defendant which merits consideration at trial; whether the claim would survive an application to strike out;

(2)  however, a defendant is entitled to keep his powder dry and simply put the plaintiff to proof of his case.  The onus is on the plaintiff to show that there is a serious issue to be tried, not on the defendant to show that there is a real prospect of successfully defending it.

See Tremendous Success Holdings Ltd at [15(1)], [16(1)], [17].

64.  On the question of whether there is a good arguable case that the claim falls within one of the “gateways”:

(1)  it is sufficient for the plaintiff to show a “strong case for argument”, and it is not necessary for the Court to be able to reach even a tentative conclusion that the plaintiff is probably right.  The standard is less onerous than the balance of probabilities required in a civil trial;

(2)  put another way, the issue is whether one side has “much the better of the argument” than the other on the point;

(3)   where there are disputes of fact, the question of whether there is a good arguable case is to be decided primarily by reference to the plaintiff’s evidence, rather than by attempting to resolve the dispute on affidavit, although the Court will weigh the arguments on both sides;

(4)  where there are disputes of law, only where the dispute is a succinct one of law would it be appropriate to resolve the same at the Order 11 stage.  Where complex issues of law are involved, it may not be appropriate to deal with them at the Order 11 stage.

See Tremendous Success Holdings Ltd at [15(3)], [16(3)], [17].

65.  I also note that a plaintiff must in general show a good arguable case that each of his claims falls within one or more gateways; it is not permissible to litigate any cause of action which does not fall within the gateway.  Where one claim falls within Order 11 but not another, the Court can grant leave as to part only; where leave has been given ex parte to serve out of the jurisdiction a writ that contains claims lying outside Order 11, rule 1(1), the court can to that extent set aside the leave in part.  See 張才奎所託管中國山水投資有限公司股份相關員工 (the Trust Action), 13 May 2015, supra, at [67] per Godfrey Lam J.

66.  On the question of forum:

(1)  the plaintiff has to satisfy the Court that in all the circumstances, Hong Kong is clearly or distinctly the appropriate forum in which the case could most suitably be tried for the interests of all the parties and for the ends of justice: the Spiliada question. See Tremendous Success Holdings Ltd at [15(2)], [17], [105(2)];

(2)  in The Adhiguna Meranti [1987] HKLR 904, the Court of Appeal developed a three-stage test to answer the Spiliada question.  See Tremendous Success Holdings Ltd at [105(3)]. As summarised by Cheung JA in DGC v SLC (née C) [2005] 3HKC 293, that test is as follows (in the context of an application for stay of Hong Kong proceedings for forum non conveniens, where the burden is on the defendant rather than the plaintiff):

(a)  the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (“appropriate” meaning the forum which has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong.  Failure by the applicant to establish these two matters at this stage is fatal;

(b)  if the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong;

(c)  if the plaintiff is able to establish this, the court will have to balance 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;

(3)  the appropriate forum is one with which the action has the most real and substantial connection.  This includes not only factors affecting convenience and expense (such as availability of witnesses) but also other factors such as the law governing the relevant transaction and the place where the parties respectively reside and carry on business.  Whilst modern commercial transactions usually entail multiple jurisdictional aspects, some of these aspects may feature only as the backdrop to the case, and may have little if any, substantial relevance to the issues that may be required to be canvassed at the trial.  The Court does not simply load up factors which point to any particular jurisdiction but focusses on the appropriateness of a forum from the point of view of the trial of the action.  See Dynasty Line Ltd at [58], [59];

(4)  the existence of related proceedings in another jurisdiction is one of the factors to take into account.  The proceedings must relate to the same matter, although the causes of action do not need to be identical.  Where proceedings are already pending in a foreign court, in order to be permitted to proceed with proceedings in the jurisdiction the plaintiff will have to show by cogent evidence some personal or juridical advantage that would only be available in the jurisdiction.  The fact that the foreign proceedings would or might continue even if the Hong Kong proceedings were to continue is relevant because it leads to both double expenditure and the spectre of inconsistent outcomes.  See Hong Kong Civil Procedure 2018, notes 11/1/12, 12A, 12B.

67.  Mr Barlow SC also submitted that the application to set aside leave to serve out is to be decided “on all the materials currently before this Court”—including applications for amendment to pleadings—citing Seaconsar Far East Ltd v Bank Markazi [1994] 1 AC 438 at 452C–D.  However, what Lord Goff said there was that:

“ … the court will consider, on an application to set aside leave so given [to serve a writ out of the jurisdiction], affidavit evidence on the part of the defendant, and will take such evidence into account when deciding whether or not to exercise its discretion in favour of the plaintiff. But the court cannot resolve disputed questions of fact on affidavit evidence; and it is consistent with the statement of the law by Lord Davey that if, at the end of the day, there remains a substantial question of fact or law or both,arising on the facts disclosed by the affidavits, which the plaintiff bona fide desires to try, the court should, as a rule, allow the service of the writ. If this approach is correct, the standard of proof in respect of the cause of action can broadly be stated to be whether, on the affidavit evidence before the court, there is a serious question to be tried.”

68.  What Lord Goff was addressing was the strength of the merits of the case which the plaintiff has to establish under Order 11 (see 449D), and he held that the plaintiff had to show that, on the evidence, there was a serious question to be tried.  I do not agree that Lord Goff was suggesting that on this (or any other) question, the Court should have regard to intended amendments to pleadings.  Indeed, in Seaconsar, the defendant did not dispute the “gateways” relied on and the only issue was whether the plaintiff had established a sufficiently strong case on the merits of its claim.  In other words, the House of Lords was not addressing the issue of whether it should take into account claims not already included in the writ.

69.  I would also note that an application for leave to issue a writ for service out of the jurisdiction ought to be made with great care and looked at strictly.  If a plaintiff relies on a particular pleaded legal basis fora gateway, he cannot thereafter justify his application under that gateway on another legal basis.  See Kayden Ltd v Securities and Futures Commission (2010) 13 HKCFAR 696 at [35] to [39].[6]

70.  In the present case, the amendments in the ASOC were not made until after leave to serve out was granted.  However, Mr Simon Westbrook SC, appearing with Ms Cherry Xu for Ds, was content to proceedon the basis of the ASOC, drawing the line only at the RASOC.  As will be seen below, Mr Barlow sought to rely on the RASOC to invoke gateway (c).

E2.   Gateway (b)

71.  Order 11, rule 1(1)(b) provides that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ, an injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of a failure to do or the doing of that thing).

72.  The pleaded case and evidence are as follows.  In the ASOC, P3 claims an injunction to restrain Ds from (a) holding themselves out as being directors, officers or employees of P3, (b) entering upon premises belonging to P3 including the Jinan Plant, (c) removing from P3’s premises funds and items belonging to P3, and (d) soliciting or enticing P3’s officers and employees to assist them in undertaking the foregoing.  Yen II paragraph 7(1) relied on that part of the injunction restraining Ds from holding out as directors, officers or employees of P3 as falling within gateway (b).  Yen IV paragraph 8 relied on an affirmation of D2 in the Trust Action and an affirmation of D1 in HCA 1103/2017 (D1’s action for defamation against Stephen Liu and P1) (“the Defamation Action”) to say that there has been such holding out in Hong Kong.

E2.1   Relevant principles regarding gateway (b)

73.  It was common ground that even where proceedings may technically fall within gateway (b), the discretion to grant leave will not be exercised unless the plaintiff shows that (1) the injunction is a genuine part of the substantive relief sought and has not been claimed merely to bring the case within the rule, and (2) there is reasonable prospect of an injunction being granted: Hong Kong Civil Procedure 2018, note 11/1/15.

E2.2   The parties’ submissions

74.  Mr Westbrook submitted that the main part of the injunction (that is, (b), (c) and (d) above) sought related to actions which could only be done on the mainland PRC.  They therefore fell outside Order 11, rule 1(1)(b) as this gateway does not apply where the order sought requires a thing to be done abroad: Kayden, supra, at [30] to [31].

75.  As regards the injunction to restrain Ds from holding themselves out as directors, officers or employees of P3, Mr Westbrook submitted that there was no pleading of Ds ever having done so in Hong Kong, or any evidence that Ds sought to do so.

(1)   There was no allegation of such holding out in Hong Kong in Yen II (the affidavit in support of the application for leave to serve out).

(2)   It was only after this was pointed out by Ds (at the hearing on 31 May 2017) that in Yen IV, Ps alleged in paragraph 8 that such holding out had taken place.  Ps relied on the facts that in an affirmation of 13 April 2017 in the Trust Action, D2 claimed to be a “manager” of Shanshui Industrial Park; and that in an affirmation of 18 May 2017 in the Defamation Action, D1 claimed to have “at all material times served as a director of [P3]”, and to be P3’s “Deputy Chairman, director, General Manager and member of the Party Committee”.  Mr Westbrooksays that these did not amount to a “holding out” in Hong Kong, and were simply descriptions of the deponents’ occupations as required by Order 41, rule 1.

(3)   In any event, there was no real purpose in restraining Ds from describing themselves in such a manner in affidavits used in litigation.

(4)   This part of the injunction was therefore simply a device by which P3 was seeking to get gateway (b) to apply, and thereby obtain the whole of the injunctive relief sought.  P3 was in fact concerned with acts being carried out on the mainland, not acts in Hong Kong.[7]

76.  Ds argued that P3 had therefore failed to establish a good arguable case that its claim for an injunction came within gateway (b).

77.  Mr Barlow submitted that there could be no doubt that Ds had been removed from all offices within P3, given the resolutions of P1 and P2’s boards on 9 and 12 January 2017 to remove D1 from his positions within P3, and the resolution of P2’s board on 13 March 2017 to remove the other Ds as directors and dismiss them as employees.  There could not be any dispute over which set of articles of association of P3 were the correct ones, given (inter alia) Au-Yeung J’s decision in HCA 2880/2015 of 15 January 2016 ordering the Zhangs to execute corrective amendments to the articles and the Court’s execution of the amendments on the Zhangs’ behalf upon their failure to do so.  Accordingly, given the strength of its case, P3 had at least reasonable prospects of obtaining a permanent injunction.

78.  Mr Barlow did not dispute the principle in Kayden.  He submitted, however, that the injunction sought was not limited to restrainingconduct on the mainland PRC, but also conduct in Hong Kong.  Furthermore, the Group has office premises in Hong Kong, and the Group’s employees are allowed to enter into Group premises.

79.  Mr Barlow further submitted that the injunction sought by P3 was critical as Ds continued (despite the Injunction Order) to falsely hold themselves out as being P3’s officers.  He relied on:

(1)   D1’s affirmation in the Defamation Action of 18 May 2017 (made after the Injunction Order was granted) saying that D1’s description of himself as P3’s Deputy Chairman, director,General Manager and Party Committee member went far beyond the requirement of Order 41, rule 1; and

(2)   a claim that over the period from April to August 2017, Ds have repeatedly falsely held themselves out as being P3’s officers on various occasions.

E2.3   Discussion

80.  Ds say that there is no good arguable case that gateway (b) applies.

81.  In relation to the part of the injunction sought to restrain Ds from entering onto premises “belonging to [P3]”,[8] or removing items from such premises, P3 has not put forward evidence showing that any premises in Hong Kong belong to it.  Insofar as there are premises owned by some other entity in the Group, P3 has not explained the basis of its standing to sue to restrain Ds from entering onto those premises (or removing items from such premises).  I therefore agree with Mr Westbrook that this part of the injunction sought relates to actions which could only be done on the mainland PRC.  Whilst Mr Barlow argued that the injunction sought did not purport to regulate only acts on the mainland, it cannot be said that there is a reasonable prospect that the Court will grant an injunction at P3’s behest to prohibit entry onto premises in Hong Kong which do not belong to P3, or to prohibit removal of items from such premises.  In this regard, it is noteworthy that in Yen II at paragraph 7(1), no reliance was placed on these parts of the injunction in seeking leave to serve out.

82.  In relation to the part of the injunction sought to restrain Ds from holding themselves out as directors, officers or employees of P3, these are of course actions which can be done both on the mainland PRC and in Hong Kong.  The question is therefore whether there is a reasonable prospect that the Court will grant an injunction to restrain such holding out in Hong Kong.  In this regard, Mr Barlow submitted that there was such a prospect given Ds’ continued holding out despite the grant of the initial Injunction Order in April 2017.

83.  However:

(1)   I do not consider that D1’s affirmation in the Defamation Action of 18 May 2017 amounts to a “holding out” as a director, officer or employee of P3.  In paragraph 4 of the affirmation, D1’s description of himself as a director was stated to be “subject to the disputes referred to below”.  In paragraphs 17 to 19, he referred to his removal as director and termination of his employment, but he made it clear that he did not accept the validity of these acts.  Reading his affirmation in context, D1 was simply describing the events which had happened as the relevant background to his action for defamation.  He further acknowledged that his positions in P3 were in contention.

(2)   Similarly, in D2’s affirmation of 13 April 2017 in the Trust Action, D2 was simply giving his job description and address as “Manager, of Shanshui Industrial Park, Gushan Town …” in the introductory paragraph, but not seeking to “hold out” as a director, officer, or employee of P3.  Rather, he was seeking to make an affirmation on behalf of various employees of P3 who were plaintiffs in the Trust Action.

(3)   No particulars have been given of the other alleged instances ofholding out from April to August 2017 relied on in Mr Barlow’s skeleton.  There is no evidence that there was any attempt at such holding out in Hong Kong.

84.  In any event, even if D1’s self-description in his affirmation in the Defamation Action amounted to a “holding out”, I agree with Mr Westbrook that there would not be any real purpose in restraining such acts. The Court, to which such affirmations are addressed, would be aware of the contentions over D1’s status; there is no risk that the Court would be misled in this regard.  The Court is not a third party which will potentially enter into a transaction with P3 (cf. P3’s argument on Ps’ Summons for continuation of the Injunction Order that damages would not be an adequate remedy because (for example) unknowing third parties may enter into contracts with Ds believing that they represent P3).  Similarly, for D2’s self-description in his affirmation in the Trust Action, D2 was setting out evidence relating to issues in the Trust Action; he was not seeking to persuade the Court that he held any particular office within P3.

85.  At trial, even if P3 establishes that Ds were removed from their positions, it would still need to go on to establish that there is a sufficient risk that Ds will hold themselves out in Hong Kong as P3’s directors, officers or employees, so as to render it just in all the circumstances that a permanent injunction should be granted to prevent Ds from so holding out.  I am not satisfied that P3 has established on the current evidence that there is a reasonable prospect of obtaining the injunction sought.

86.  In relation to the last part of the injunction prayed for in the ASOC, which seeks to restrain Ds from soliciting the assistance of P3’s officers and employees, this is ancillary to the earlier three parts of the injunction sought.  The prospects of obtaining an injunction stand or fall with the prospects of obtaining the earlier parts of the injunction.

87.  Thus irrespective of the relative merits of the parties’ argument as to whether or not Ds have been removed from their positions within P3, I am not satisfied that P3 has demonstrated reasonable prospects of an injunction being granted.

E2.4   Conclusion on Gateway (b)

88.  I therefore conclude that in respect of its claim for an injunction, P3 has failed to demonstrate a good arguable case on gateway (b).

E3.   Gateway (f) 

89.  Order 11, rule 1(1)(f) provides that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ, the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction.

90.  The pleaded case and evidence are as follows.  In paragraph 50 of the ASOC, P1 and P2 claim damages for loss suffered through Ds’ conspiracy to injure P1 and P2 by unlawful means. Yen II paragraph 7(2) explained that P1 and P2 rely on two matters for the purpose of gateway (f): (1) Ds’ actions led to publication of the Wen Wei Po Article and the disclosure of confidential information in Hong Kong, which in turn prompted the SEHK to make enquiries with P1; (2) Ds’ actions undermined P1’s and P2’s shareholder’s rights as the direct and indirect sole owners of P3.  Yen IV paragraphs 10 to 11 said that Ds’ conspiracy jeopardised P1’s listing status, and undermined P1 and P2’s ability to raise funds.

E3.1   Relevant principles regarding gateway (f)

91.  The following principles were not in contention.

92.  To bring himself within gateway (f), a plaintiff must establish either that damage was sustained in Hong Kong, or that the damage resulted from acts committed in Hong Kong.

93.  In considering whether damage was sustained in Hong Kong, it is sufficient if some significant damage was sustained here: Dynasty Line Ltd, supra, at [33], per Cheung JA.

94.  If a plaintiff relies on acts committed within the jurisdiction in order to bring himself within gateway (f), he must show that those acts were committed by the alleged tortfeasor: ABCI v Banque Franco-Tunisienne and others [2003] 2 Ll Rep 146 at [35].

E3.2   The parties’ submissions

95.  Mr Westbrook submitted that:[9]

(1)   P1 and P2 failed to show that damage was sustained in Hong Kong, so that gateway (f) did not apply.  It was a bare assertion that P1 or P2 had sustained damage in Hong Kong—there was no evidence of any damage.  In particular, in relation to the publication of the Wen Wei Po Article, P1 and P2 had not explained what damage they had suffered as a result.  Any jeopardy to P1’s listing status was due to the insufficient public float;

(2)   P1 and P2 failed to show that any damage resulted from acts committed by Ds in Hong Kong, so that gateway (f) did not apply for this reason also.The publication of the Wen Wei Po Article was not an act committed by Ds;

(3)   in any event, any loss suffered by P1 and P2 was purely reflective of P3’s loss and was therefore irrecoverable by P1 and P2.  There was therefore no serious issue to be tried on this claim.

96.  Mr Barlow submitted that:

(1)  Ds’ conspiracy to usurp control of P3’s assets and businesses undermined P1 and P2’s rights as shareholders to have their appointed board manage P3, which, together with the unauthorised release of confidential [10] information about the Group, had prompted the SEHK to make enquiries of P1 by a letter of 26 April 2017, expressly referring to the possibility of delisting P1.  Mr Barlow further referred to an announcement made by P1 dated 27 October 2017 which referred to a letter from the SEHK of 23 October 2017, notifying P1 of its intention to commence procedures to cancel its listing.  Ds’ conspiracy had therefore jeopardised P1’s listing status, which was a valuable asset belonging to P1.  The expenses incurred by P1 and P2 to respond to SEHK’s queries also constituted damage suffered within the jurisdiction.

(2)  Ds’ conspiracy had also undermined P1’s ability to raise funds, as banks were wary of funding or investing in a listed company which was unable to exert actual control over its pivotal operating subsidiary.

E3.3   Discussion

E3.3.1   Damage within the jurisdiction

(a)   Wen Wei Po Article

97.  The episode relating to the Wen Wei Po Article can be shortly dealt with.  P1 and P2 have not put forward any evidence that the Wen Wei Po Article caused them any damage in Hong Kong.

(b)   Potential delisting of P1

98.  P1 and P2 rely more on damage arising from the potential delisting of P1.  The letter from the SEHK of 26 April 2017 referred to the SEHK’s concern as to “whether the Company [P1] is able to meet the Rule 13.24 requirement, which requires the Company to have a sufficient level of operations or assets of sufficient value to warrant its continued listing.”  However, it then went on to refer to concerns as to how P1 would be able to present a set of financial statements which provided a true and fair view of its affairs, in the light of the “Illegal Occupation, Unauthorised Payment and Internal Control Breaches” which left it unclear whether P3 was still under P1’s control.  This was presumably a reference to at least some of the matters complained of by Ps in these proceedings (such as the non-observance of the 3^rd Shareholders’ Instruction relating to the Jinan Plant).

99.  P1’s announcement of 27 October 2017 stated that the “Illegal Occupation” had prevented P1’s board from obtaining access to the accounting books and records of P3 and ensuring that they were properly maintained for the financial year of 2016.  This was one of the matters to which the SEHK had had regard in deciding to issue its letter of 23 October 2017 to P1, notifying it of the SEHK’s intention to commence delisting procedures.

100.  It therefore appears that the threat of delisting of P1 was not solely due to the insufficient public float of P1.

101.  It is not disputed that a company’s listing status is a valuable asset: Re China Solar Energy Holdings Ltd (No 2) [2018] 2 HKLRD 338 at [37] to [39].

102.  The possibility of the delisting, the need to take steps to counter this possibility, and the expenses incurred in doing so, all constitute damage to P1 in Hong Kong.

103.  Bearing in mind that on the issue of whether a good arguable case has been shown that the claim falls within gateway (f), it is sufficient for P1 to show a strong case for argument, and that I do not need to reach even a tentative conclusion that P1 is right, I would hold that P1 has shown a good arguable case that it has suffered damage within the jurisdiction and that gateway (f) applies for P1’s claim in conspiracy to injure by unlawful means.

104.  The same cannot be said for P2, however.  P2 has not shown why the possibility of P1’s delisting would also amount to damage to P2.

(c)   Diminished ability to raise funds

105.  As for the complaint that P1 had suffered a diminished ability to raise funds, this allegation was not pleaded in the ASOC.  Ps propose to add the complaint to the ASOC by paragraph 40A of the proposed re-amendments. 

106.  In any event, no real evidence has been put forward in support of this alleged damage.  Mr Barlow referred to the 3^rd affidavit of Yen Ching Wai David dated 19 May 2017 (“Yen III”) at paragraphs 47 and 52, but the first simply asserts that Ds’ conduct was causing ongoing financial distress to the Group, and the second refers to the reluctance of P1’s shareholders ACC and CNBM to provide finance in various ways.  Mr Barlow also referred to Yen IV at paragraph 11, but again this simply contains an assertion that Ds’ conduct undermined P1’s and P2’s ability to raise funds, without particulars. He finally referred to the 7^th Affidavit of Yen Ching Wai David dated 8 February 2018 [11] (“Yen VII”) paragraph 17, which asserted that Ds’ acts had poisoned P1’s prospects of raising capital, again without particulars.

107.  Mr Barlow also referred to P1’s two proposals for placement of new shares.  However, it does not appear that the reason why they did not proceed had anything to do with the misconduct of Ds complained of.  According to Chen II at paragraph 14(5), the first attempt at the placement was abandoned by the Receivers after a decision of G Lam J on 16 February 2017 directed them to adjourn P1’s EGM to ascertain the wishes of P3’s employees (who, it is said, objected to the placement), or to vote against the placement if such wishes could not be ascertained.  It is also said that the second attempt at the placement was on practically identical terms to the first, save that the long stop date was fixed for a later date.  Yen III at paragraph 52, responding to these points, simply said that the proposed placement “met with resistance by ACC and CNBM”.

108.  I would therefore not accept that P1’s and P2’s complaint about a diminished ability to raise funds would be sufficient to amount to a good arguable case that they have suffered damage within the jurisdiction for the purpose of gateway (f).

E3.3.2   Damage resulting from acts of tortfeasors within jurisdiction

109.  The Wen Wei Po Article, whilst published in Hong Kong, was not published by Ds.  Indeed, none of the matters complained of in the ASOC in paragraphs 33 to 48 were acts committed by Ds in Hong Kong.  Yen IV invited the Court to infer that Ds intended the Hong Kong press to report the confidential information divulged at the event of 14 December 2016, given that Ds invited members of the Hong Kong press to attend.  However, it is not suggested that the Wen Wei Po reporter was an agent of Ds such that the report can be said to be an act of Ds.  Nor is it said that Ds’ act of inviting the Hong Kong press was an act which took place in Hong Kong.

110.  P1 and P2 therefore cannot point to any acts within the jurisdiction which enable them to bring themselves within gateway (f).

E3.3.3   Reflective loss

111.  Insofar as P1 and P2’s alleged loss consists of an undermining of their rights as shareholders (as complained of in Yen II paragraph 7(2)(b)), this is at best loss which is reflective of loss suffered by P3, which is not recoverable: Landune International Ltd v Cheung Chung Leung [2006] 1 HKLRD 39 at [19].  Whether or not P1 and P2 have an independent cause of action against Ds is not determinative (and in any event it has not been suggested that P3 could not join the claim for conspiracy to injure by unlawful means).  The question is whether P1 and P2’s loss would be madegood if P3 recovered from D: see Landune at [29], [30].  Any undermining of P1 and P2’s rights as shareholders would presumably be reflected in a diminution in value of P3’s shares, which would be made good if P3 obtained redress against Ds.  I would therefore accept Ds’ submission that P1 and P2 have demonstrated no serious issue to be tried in respect of this aspect of the claim.

112.  However, in relation to the potential delisting of P1 arising in part as a result of Ds’ actions, this is a loss which P1 would suffer independently of P3, and for which P3 cannot claim against Ds.  Ds do not suggest that this loss would also constitute reflective loss; rather, they say that the alleged loss is not established on the evidence, a matter which I have addressed above.

E3.4   Conclusion on Gateway (f)

113.  I therefore conclude that P1, but not P2, has demonstrated a serious issue to be tried and a good arguable case on gateway (f) in respect of its claim against Ds for conspiracy to use unlawful means to injure it.

E4.   Gateway (p)

114.  Order 11, rule 1(1)(p) provides that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ, the claim is brought for money had and received or for an account or other relief against the defendant as constructive trustee, and the defendant’s alleged liability arises out of acts committed, whether by him or otherwise, within the jurisdiction.

115.  In paragraphs 36(4) and 36(5) of the ASOC, there is a plea that in January 2017, Ds caused P3 to pay RMB 10 million to Jinan Lixin in repayment of a loan (the genuineness of which is challenged) and that in May 2017, Ds caused P3 to pay to Jinan Lixin a further RMB 16.62 million.  It is said that both payments were for collateral purposes unrelated to P3’s businesses or other interests.  In paragraph 49 of the ASOC, P3 claimed that Ds are liable to account to it as a constructive trustee for the funds which they have misapplied, and should pay equitable damages or make restitution.  It was further pleaded in paragraph 49A that Ds caused Jinan Lixin to pay RMB12.7 million to Stephenson Harwood in Hong Kong from February to June 2017 in payment of legal fees.

116.  In Yen II, it was said that gateway (p) applied as Ds had breached their fiduciary duties by disclosing confidential information of P3 and causing its publication.  In Yen IV, the claim to applicability of gateway (p) was instead put on the basis that Ds were liable to account to Ps, in particular P3, as constructive trustees.  The pleaded claim for liability to account as constructive trustee is confined to P3 and I will limit my consideration to P3 (as indeed Mr Barlow’s skeleton did).

117.  At the hearing, Mr Barlow clarified that for the purpose of gateway (p), he only relied on the claim that a substantial amount of P3’s funds had been misapplied by Ds, and that such funds had been paid to Messrs Stephenson Harwood in Hong Kong.

E4.1   Relevant principles regarding gateway (p)

118.  It is not disputed that in order for gateway (p) to apply, the alleged liability must arise out of substantial and efficacious acts committed within the jurisdiction: Dynasty Line, supra, at [37] per Cheung JA.

E4.2   The parties’ submissions

119.  Mr Westbrook submitted that P3 had failed to show a good arguable case that gateway (p) applied:

(1)   the alleged misappropriation and misapplication of P3’s funds took place on the mainland and not in Hong Kong.  The cause of action would have been complete when the alleged misappropriated funds were paid to Jinan Lixin on the mainland; and

(2)   as regards funds allegedly received by Stephenson Harwood, whilst the latter might be said to be constructive trustees of such funds, Ds were not constructive trustees of the funds.

120.  Mr Barlow submitted that payment of the misappropriated funds had been made to Stephenson Harwood in Hong Kong, which was thereby constituted a constructive trustee, and that this was the case irrespective of whether the re-amendments to the ASOC were allowed so as to add Stephenson Harwood as a defendant in the proceedings.

E4.3   Discussion

121.  Both leading counsel referred to material [12] relating to payments made by P3 to Jinan Lixin and by Jinan Lixin to Stephenson Harwood.  Given that Ds do not suggest that there is no serious issue to be tried on thisclaim, it is not necessary for me to say much about this material save to note that it is not disputed that some payments were made by P3 to Jinan Lixin and by Jinan Lixin to Stephenson Harwood (not necessarily in the amounts alleged in the ASOC), and that Ds say that they were legitimate payments.

122.  Mr Barlow also alleged that Stephenson Harwood was aware that they were being paid with funds which had originated from P3 and that they were not entitled to receive such funds.  Mr Westbrook relied on Carl Zeiss Stiftung v Herbert Smith & Co & anor (No 2) [1969] 2 Ch 276 for the proposition that a solicitor was not to be imputed with knowledge of a trust merely because a claim had been made against his client.[13]  Again, this is not a dispute which I can or should resolve at this stage.

123.  For present purposes, I will assume in P3’s favour that Stephenson Harwood knew that they were being paid with funds misappliedin breach of trust.[14]  But whilst this might make Stephenson Harwood liable to P3 as a constructive trustee, this is a separate claim to the one brought by P3 against Ds, alleging them to be constructive trustees.  (Indeed, this separate claim forms the basis for Ps’ application to re-amend the ASOC to add Stephenson Harwood as a defendant.) P3’s claim against Ds as constructive trustees is based on Ds having caused P3 to make payments to Jinan Lixin for collateral purposes unrelated to P3’s businesses or other interests.  It is not suggested that Ds did so in Hong Kong.  Accordingly, Ds’ liability does not arise out of “acts committed” in Hong Kong as required under Order 11, rule 1(1)(p).

124.  Mr Barlow accepted that for payments made to Stephenson Harwood, the constructive trustee in question was Stephenson Harwood, notDs.  However, he argued that there was no reason why I should not consider the matter on the basis that leave to re-amend the ASOC had been given and Stephenson Harwood added as a defendant, retrospectively validating the leave to serve the Writ out of the jurisdiction.  For the reasons I set out below, I do not consider it appropriate to proceed on this basis.  In any event, even if Stephenson Harwood were added as a defendant and retrospective leave to serve the Writ out of the jurisdiction were given, this would not change the fact that P3’s claim against Ds as constructive trustee does not arise out of acts committed in Hong Kong.

E4.4   Conclusion on Gateway (p)

125.  I therefore conclude that P3 has not shown a good arguable case on gateway (p) in respect of its claim against Ds as constructive trustees.

E5.   Gateway (c)

126.  Order 11, rule 1(1)(c) provides that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ, 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.

127.  Ps applied to re-amend the ASOC just two clear days before the hearing, seeking to add Jinan Lixin as D6 and Stephenson Harwood as D7.  P3 claimed that Jinan Lixin and Stephenson Harwood were liable to account to it as constructive trustees for funds of P3 which were transferred to them.

128.  The way in which gateway (c) was sought to be invoked was as follows.  Mr Barlow submitted that the Court was likely to allow the re-amendments to the ASOC.  Once leave had been granted and Stephenson Harwood had been served in Hong Kong, then Ps would be entitled to invoke an additional gateway—gateway (c)—to justify service of the Writ out of the jurisdiction on D1 to D5.  Since there could be service out on D1 to D5 via this gateway, the Court should retrospectively validate the existing service on Ds via this gateway.

E5.1   The parties’ submissions

129.  In support of his approach, Mr Barlow cited Abela & ors v Baadarani & anor [2013] 1 WLR 2043, Kuwait Oil Tanker Co SAK & anor v Al Bader & ors [1997] 1 WLR 1410, Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd & ors [2007] 4 HKC 372 at [17] to [19] and Brink’s Mat Ltd v Elcombe & ors [1988] 1 WLR 1350 at 1357E–G.  He submitted that these showed that:

(1)   the Courts should not have to consider the subject of leave to serve a writ out of the jurisdiction more than once.  If the Court could see that the issue of leave to serve out might arise again on another occasion it could deal with the matter all in one go;

(2)   retrospective validation of service out can be given where there is good reason to do so.  Good reason includes the Court being able to avoid having to consider service out more than once, lack of prejudice to the defendant, and the desirability of all defendants being tried in the same jurisdiction, and these were the good reasons which the Court relied on in Kuwait Oil to retrospectively validate service of a writ out of the jurisdiction;

(3)   the pragmatic course that would serve the interests of the efficient conduct of litigation in an appropriate forum would be to decline to set aside the existing service.

130.  Mr Barlow further submitted that no prejudice would be caused to Ds if gateway (c) were to be considered now.

131.  Mr Westbrook submitted that:

(1)   gateway (c) was not yet open to Ps, since Stephenson Harwoodwas still not yet a party and still had not been served.  Ps wereseeking validation which was both retrospective and prospective at the same time;

(2)   the action against Stephenson Harwood was liable to be struck out, given that Stephenson Harwood was not to be imputed with knowledge of a trust merely because a claim had been made against its clients that there was such a trust (Carl Zeiss Stiftung, supra).

(3)   Kuwait Oil Tanker, the main authority relied on by Mr Barlow, was a case on very different facts, the service on the local defendant having taken place on the same day as leave was granted for service on the overseas defendant under gateway (c), albeit only after such leave was granted.  Here, the reliance on gateway (c) was indicated only shortly before the inter partes hearing,without the filing of an affirmation in support.

E5.2   Discussion

132.  As I have earlier noted, an application for leave to issue a writ for service out of the jurisdiction ought to be made with great care and looked at strictly.  The Court of Final Appeal held in Kayden that if a plaintiff relies on a particular pleaded legal basis for a gateway, he cannot thereafter justify his application under that gateway on another legal basis.  Similarly, if a plaintiff invokes one particular gateway at the ex parte stage, the Court should scrutinise carefully a subsequent claim to justify the grant of leave through another gateway.

133.  It is true that in Kuwait Oil Tanker, the English Court of Appeal held that an error made in obtaining leave to serve a defendant out of the jurisdiction could be cured by the retrospective validation of service which had been effected on him.  What happened in that case was that a writ was issued against three proposed defendants.  Only the first defendant residedin the jurisdiction.  On 21 July 1994, the plaintiffs were granted leave under the English Rules of the Supreme Court Order 11, rule 1(1)(c) [15] to serve the third defendant outside the jurisdiction but at the time, none of the other defendants had been served yet; it was only later that day that the first defendant was served in England.  Some days later, the third defendant was served in Australia pursuant to the leave purportedly granted under gateway (c).  The third defendant applied to set aside the leave on the grounds that the requirements of Order 11, rule 1(1)(c) had not been met, as no other defendant had been served at the time when leave was granted.  The plaintiffs then applied for retroactive leave under RSC Order 2, rule 1 and Order 11, rule 1(1)(c) to serve the third defendant outside the jurisdiction, the leave to take effect on 22 July 1994,[16] with service of the writ to be dispensed with.

134.  The judge at first instance held that the original grant of leave to serve out under gateway (c) had not been valid, but granted the order sought by the plaintiffs.

135.  Staughton LJ, with whom the other members of the Court agreed, held that the Court could retrospectively validate leave purported to be granted under Order 11, rule 1 when the requirements for granting leave had not been satisfied, but that this required great care and caution, and should only be done for good cause or good reason. See 1417H, 1419G.  In that case, the first instance judge had taken the view that there were special circumstances which justified the validation (see 1419H to 1420A): (a) the bona fide, minor and excusable nature of the plaintiffs’ mistake,[17] (b) the absence of prejudice to the third defendant, (c) the fact that the mistake could easily have been cured (at least prior to the validity of the writ expiring), (d) the fact that the plaintiffs had earlier given notice of their intention to cure the mistake under Order 2, (e) the fact that the plaintiffs’ failure to issue any concurrent writ of summons was only minor inadvertence at a time of negotiations between the parties, (f) the fact that it was admitted that, subject to jurisdiction, the case was a proper one for service out of the jurisdiction, (g) the fact that it was desirable that the action should be heard against all three defendants in the same jurisdiction.  In the circumstances, no fault could be found with the judge’s exercise of discretion.

136.  It seems to me that Kuwait Oil Tanker addresses the circumstances in which an irregularity in obtaining leave to serve a writ out of the jurisdiction may be cured.  It does not suggest that a plaintiff can retrospectively justify the grant of leave to serve a defendant out of the jurisdiction on a legal basis different to the one originally relied on.

137.  Mr Barlow has not suggested, and I do not consider, that what Ps are arguing for amounts to an application to cure an irregularity.  What the plaintiffs in Kuwait Oil Tanker sought to do was to obtain leave, retrospectively, for service of a writ in identical form to that which had already been served on the third defendant pursuant to leave which, as it transpired, had wrongly been granted by mistake, and where it was accepted that had the leave been sought and granted a few hours later, it could and would have been properly granted.  The plaintiffs in that case had all along relied on gateway (c), and were not seeking to use it to retrospectively justify leave granted on some other basis.  What Ps are seeking to do in the present case is to ask the Court to grant leave to re-amend the ASOC in substantial terms, treat Stephenson Harwood as having been served with the RASOC, and then retrospectively validate the leave granted to Ps to serve D1 to D5 out of the jurisdiction under the new gateway (c), even though the conditions under gateway (c) as at the date of the hearing before me had not yet been fulfilled.[18]

138.  In any event, even if what Ps seek to do could be described as an “irregularity”, the reasons put forward would not constitute good reasons for curing it.  Avoiding a separate application to consider the merits of service out under gateway (c) does not justify treating the application as having been properly made when it has not.  It cannot be said that Ds would suffer no prejudice: they have not had the opportunity of filing evidence to oppose service under gateway (c); Mr Westbrook also submitted that the action against Stephenson Harwood was liable to be struck out and if it was indeed struck out, then Ds would have suffered prejudice in having been served on the basis that Stephenson Harwood was a party to the proceedings.  As to the desirability of trying all defendants in the same jurisdiction, this cannot justify the shortcut approach which Ps seek to take.

139.  The other cases cited by Mr Barlow do not support his argument of retrospective validation via a new gateway.

140.  The issue in Abela was not whether a plaintiff, having relied on one gateway to obtain ex parte leave to serve a defendant out of the jurisdiction, was entitled to rely on a different gateway at the inter partes stage.  The issue was whether the claimants, who had been granted permission to serve a defendant out of the jurisdiction, had validly effected such service.  See [1] to [2].  The claimants had attempted a number of different ways to effect service, unsuccessfully.  They therefore sought an order under CPR rule 6.15(2) that the steps already taken to bring the claim form to the notice of the defendant constituted good service.  The Supreme Court held that (in the circumstances of that case) such an order could be made retrospectively to validate the claimants’ actions as constituting good service on the defendant.  Abela is therefore not authority for the proposition that a plaintiff can rely on a different gateway at the inter partes stage to retrospectively justify leave to serve a defendant out of the jurisdiction, granted earlier under a different gateway.

141.  Lord Sumption’s observation at [53] “The decision is generally a pragmatic one in the interests of the efficient conduct of litigation in an appropriate forum” does not provide such authority either.  He was simply observing that the jurisdiction to serve a defendant out of the jurisdiction should perhaps no longer be described as “exorbitant”, and that when deciding whether to grant permission for such service, the Court would seek to make a pragmatic decision in the interests of the efficient conduct of litigation in an appropriate forum.  In the present case, the course proposed by Ps is not so much one of pragmatism but one of bypassing the rules of court.

142.  Mr Barlow relied on Pacific Electric Wire & Cable Co Ltd at [17] to [19], where Rogers VP observed that where an order for service out was discharged for material non-disclosure of facts, the plaintiff might nevertheless renew his application in the light of the facts subsequently disclosed.  In that case, the plaintiff was not seeking retrospective validation of leave earlier granted, or the grant of leave pursuant to a different gateway.  In my view, the decision is not authority which supports Mr Barlow’s proposed course of retrospectively validating the grant of leave to serve out on a legal basis different to that originally relied on.

143.  Finally, Mr Barlow relied on Ralph Gibson LJ’s observation in Brink’s Mat Ltd at 1357E–G that the court has a discretion, notwithstanding material non-disclosure which justifies or requires the immediate discharge of an ex parte injunction, to continue the order nevertheless, or to make a new order on terms.  In that case, Ralph Gibson LJ had no doubt that even if the innocently non-disclosed material had been before the judge hearing the ex parte application, he would have granted the order on the same terms that he did (in other words, the non-disclosure was in fact immaterial); accordingly, he allowed the plaintiff’s appeal against discharge of the injunction.  In my view, whilst it may be that the Court has the jurisdiction to continue the ex parte order granting leave to serve out, on a new basis, it would not be a right exercise of discretion to do so, in the light of the matters at paragraphs 137 and 138 above.

E5.3   Conclusion on gateway (c)

144.  Thus, notwithstanding that I will be granting leave to re-amend the ASOC as explained below, I do not accept that Ps are entitled to rely on gateway (c) to retrospectively validate leave granted to serve the Writ out of the jurisdiction on Ds (to the extent that such leave is set aside).

E6.   Is Hong Kong clearly or distinctly the appropriate forum?

145.  As earlier noted, Ps also have to establish that Hong Kong is clearly or distinctly the appropriate forum for the trial of the action.  In considering this issue, it is necessary to have regard to what issues arise for determination at trial.  The main issues would appear to be as follows.

(1)   Whether, as pleaded in the ASOC, Ds were in breach of their fiduciary duties to P3 when they did (inter alia) the following:

(a)   D1 and D4 procured P3 to host the event of 14 December 2016, at which they disclosed confidential information, which was subsequently published in the Wen Wei Po Article;

(b)   Ds procured P3 to make a payment of RMB 10 million on 17 January 2017, and a further payment of RMB 16.62 million on 13 May 2017, to Jinan Lixin for collateral purposes, payments of bonuses of RMB 132 million to P3’s employees, including a payment of RMB 21.9 million to senior management (including themselves);

(c)   Ds obstructed P3’s employees and KPMG’s personnel from entering the Jinan Plant on 20 December 2016, asked certain employees of P3 not to go to work, and met employees of P3 on 21 December 2016 and made various untrue claims to them.

Ds say that whilst much of this was ostensibly relied on [19] to remove them,[20] these were false allegations which disguised the ulterior motives for their removal.

(2)   Whether, by the aforesaid conduct, Ds had engaged in conspiracy to injure by unlawful means.

E6.1   Ps’ submissions

146.  Mr Barlow submitted that the Hong Kong courts are clearly or distinctly the most appropriate forum for the trial of this action:

(1)   the factual matrix of the action arose principally from Ds’ disobedience of the five Shareholders’ Instructions, which were shareholders’ resolutions passed by P1 (a Hong Kong listed entity), and P2 (a Hong Kong company);

(2)   whilst some acts were committed in the PRC, others were committed here;

(3)   whilst Ds and the various potential witnesses for the trial as identified in Chen IV are based on the mainland PRC, little weight should be attached to this factor given the convenience of travel and the use of video-conferencing, and the lack of evidence that any witnesses will face difficulties in travelling to Hong Kong or giving evidence by video-conferencing.  Also, the factor is negated by the fact that there are witnesses in Hong Kong;

(4)   whilst some documents are in Chinese, Chinese is an official language and there are many judges who would be able to read and understand them;

(5)   one of the principal issues which will arise at trial is the quantification of loss suffered by P1 as a result of inability to raise funds in Hong Kong, and, potentially, the loss of its listing status, a matter which the Hong Kong Court could better assess than the PRC Court;

(6)   P3 has “embraced” the jurisdiction of the Hong Kong courts;

(7)   Ds have also “embraced” the jurisdiction of the Hong Kong courts when it suits them, for example as plaintiffs in the Trust Action and in the Defamation Action commenced by D1 against Stephen Liu and P1;

(8)   there is no identity of parties or relief claimed in the proceedings commenced against Ds in Shandong; and

(9)   D1, D3 and D5 have assets within the jurisdiction and the Mareva Order is a legitimate juridical advantage to Ps.

E6.2   Ds’ submissions

147.  Mr Westbrook submitted that the Hong Kong courts are not clearly or distinctly the most appropriate forum, which should instead be the courts of Shandong:

(1)   Ps’ case had no connection with Hong Kong at all, and the onlyreal and substantial connection was with Jinan on the mainland, given that P3 was a mainland company;

(2)   the acts complained of were all committed on the mainland;

(3)   Ds were all PRC citizens resident on the mainland;

(4)   almost all of the key witnesses were based on the mainland;

(5)   almost all of the documents were in Chinese;

(6)   any loss was suffered by P3 on the mainland;

(7)   all company law and other issues were governed by PRC law; and

(8)   P3 had already commenced parallel proceedings in the Shandong High People’s Court in respect of the same causes ofaction and seeking largely the same relief against, inter alios, Ds (“the Shandong Proceedings”).  Ps admitted that the Shandong Proceedings substantially overlap with this action and it would be oppressive to have two parallel sets of proceedings.

E6.3   Discussion

E6.3.1   Factual matrix; documents; witnesses

148.  Ps have framed the ASOC such that the conduct they complain of is said to be a “disobedience of shareholders’ instructions”, and the shareholders in question are a company listed on the SEHK and a Hong Kong company. However, this does not make Hong Kong the clearly or distinctly appropriate forum for trial of the action.  The issues which the Court will have to deal with are not (for example) whether or not the resolutions were made or instructions were given.  Ps’ real complaints concern Ds’ conduct in disclosing information which is said to be confidential, in procuring P3 to make payments to Jinan Lixin and bonus payments to P3’s employees; and in “hijacking” the Jinan Plant.  In other words, the trial will be concerned with scrutiny of conduct on the mainland PRC, carried out by individuals who are PRC citizens living and working in the PRC, in relation to a PRC company.

149.  It was said that there was also misconduct committed in Hong Kong.

(1)   Mr Barlow referred first to the publication of the Wen Wei Po Article in Hong Kong.  However, it is difficult to see how this fact indicates that Hong Kong is clearly and distinctly the appropriate forum.  There is (for example) no dispute that the article was published. Whilst it is said that the article contains confidential information, the point of contention between the parties is whether the information was indeed confidential, which will fall to be assessed by reference to evidence as to what was disclosed by D1 and D4 at the meeting (in the mainland) on 14 December 2016, whether this amounted to confidential information of P3, and whether it was (as Ds claim) authorised to be disclosed.

(2)   Mr Barlow referred also to Stephenson Harwood’s receipt of funds said to have been misappropriated from P3.  Again, it is difficult to see how this fact indicates that Hong Kong is clearly and distinctly the appropriate forum.  What Ps challenge is the validity of Ds’ acts in causing P3 to transfer the funds in the first place to Jinan Lixin, which in turn transferred the funds to Stephenson Harwood.

150.  Returning to the acts which took place on the mainland PRC of which Ps complain, the parties dispute the facts relating to these issues, so that evidence will need to be given about them at trial.  The court trying the action will have to resolve factual issues such as whether information which was confidential to P3, a PRC company with operations in the mainland, was disclosed, and/or authorised to be disclosed; the basis upon which P3 caused payments to be made to Jinan Lixin; and what in fact happened at the Jinan Plant on 20 December 2016.  These matters have little, if any, connection with Hong Kong, let alone “real” or “substantial” connection.

151.  Mr Barlow accepts that Ds and other potential witnesses identified in Chen IV are based on the mainland PRC but says that little weight should be attached to this factor given the convenience of travel and the possibility of video-conferencing; in any event this point is negated by the fact that there are witnesses in Hong Kong.  It is said in Yen VII that there will be at least six Hong Kong witnesses.

(1)   Only three of these are named: Stephen Liu, David Yen, Keith Ho.

(2)   It is not suggested that any of the witnesses (named or unnamed) have particular personal knowledge of the three matters complained about as the breaches of fiduciary duty to P3 (release of confidential information on 14 December 2016, procurement of payments to Jinan Lixin and senior managementof P3, and “hijacking” of the Jinan Plant on 20 December 2016).  Indeed, in relation to the “hijacking” of the Jinan Plant on 20 December 2016, the information given in Yen I is hearsay information from P3’s employees, who are presumably based in Shandong.

152.  Li Heping, a witness based in the PRC, is separately named as a witness who “prefers” to give his evidence in Hong Kong.

(1)   According to his affirmation of 19 May 2017 (“Li”), he did not attend the event of 14 December 2016.  He did not attend the meeting at which payment of bonuses to P3’s employees was approved.  He does not claim knowledge of payments to Jinan Lixin.  He does say that he made phone calls in relation to the alleged obstruction of KPMG’s personnel from the Jinan Plant on 21 December 2016 but his knowledge of the events was again based on hearsay from a member of KPMG’s staff (who is not named as an intended witness).

(2)   In any event, no reason is given for Li Heping’s “preference” of giving evidence in Hong Kong.  It is therefore not possible to assess whether the basis for the preference is a good reason for holding the trial in Hong Kong.  The bare assertion of this “preference” cannot constitute a basis for saying that Hong Kong is the more appropriate forum for the trial.

153.  Tian Tai Law Firm, which has given expert evidence regarding PRC legal issues, is also said to “prefer” to give evidence in Hong Kong.  No actual expert witness is named.  No reason is given as to why a PRC lawyer would prefer to give evidence about PRC law in a Hong Kong court.  Even assuming for present purposes that the “preference” was expressed by the author of the expert opinion exhibited in Li, I do not consider that this bare assertion can constitute a basis for saying that Hong Kong is the more appropriate forum for the trial.

154.  The location of witnesses is therefore not a factor in support of a trial in Hong Kong.  At most, it is a neutral factor.

155.  As regards documents, the fact that many of them are in Chinese, that Chinese is an official language of the Hong Kong courts and that many Hong Kong judges understand Chinese does not point to Hong Kong being the appropriate forum any more than they point to Shandong being the appropriate forum.  Again, at most, this is a neutral factor.

E6.3.2   Quantification of P1’s damage

156.  Mr Barlow submitted that one of the principal issues arising at trial is the quantification of loss suffered by P1 as a result of (1) its inability to raise funds in the jurisdiction and (2) the potential loss of its SEHK listing status.  In the event that the former point does arise at trial,[21] it is possible that this may be a matter which the Hong Kong Court would be better placed to assess, although this will depend on the nature of the loss said to have been suffered.  In the event that the latter point arises at trial,[22] I agree that it would be a matter which the Hong Kong Court would be better placed to assess, although the Hong Kong Court’s advantage would in truth be limited to the situation where it is necessary to assess the loss upon actual delisting of P1; insofar as there is loss due to (for example) the incurring of expenses on resisting delisting, this is an issue of quantification which the PRC Court could equally carry out.  In any event, all of these are matters which will arise, if at all, only at the stage of assessing quantum.

E6.3.3   “Embracing” the jurisdiction of the Hong Kong courts

157.  It is said that P3 has “embraced” the jurisdiction of the Hong Kong courts.  However, the fact that a plaintiff selects a particular jurisdiction in which to commence proceedings does not make that jurisdiction the appropriate forum for the trial of the plaintiff’s claim.

158.  It is also said that Ds have “embraced” the jurisdiction of the Hong Kong courts in that they have commenced other actions in Hong Kong, such as the Trust Action and the Defamation Action against Stephen Liu and P1.  However, the fact that a litigant considers Hong Kong to be the appropriate forum for the commencement of certain proceedings does not necessarily mean that Hong Kong thereby becomes the appropriate forum for proceedings commenced against him.  Mr Barlow did not suggest that there was any commonality of issues between these two sets of proceedings and the present such as to indicate that the fact that these actions were commenced in Hong Kong leads to the conclusion that Hong Kong is the appropriate forum for the present action.

E6.3.4   Applicable law

159.  Mr Westbrook submitted that PRC law would apply generally in the determination of legal issues arising in the action.  Presumably, for example, the questions of what fiduciary duties Ds owed to P3, a PRC company, would be a matter of PRC law.

160.  Mr Barlow did not suggest otherwise.

161.  This factor would indicate that Hong Kong is not the appropriate forum for the trial of the action.

E6.3.5   Shandong Proceedings

162.  P3 commenced the Shandong Proceedings in the Shandong High People’s Court in April 2017 (shortly after the issue of the Writ in these proceedings).

(1)   The first to fifth defendants in the Shandong Proceedings were the same as Ds, with an additional sixth defendant (Liu Xianliang, who was apparently appointed as a “supervisor” of P3 at the same time as Ds were appointed directors).  P2 was named as a “third party”.

(2)   The statement of claim in the Shandong Proceedings complained of the disclosure of confidential information at the 14 December 2016 event; the barring of entry of P2’s board members from entering onto P3’s premises on 20 December 2016 and continuing unlawful occupation of the premises; the unlawful payments of bonuses by P3; and the refusal of Ds to accept the termination of their offices.

(3)   P3 claimed that the six defendants were acting in breach of the Company Law of the People’s Republic of China, in breach of the Memorandum and Articles of Association of P3, and in breach of their duties as directors and members of senior management, causing P3 to suffer loss.

(4)   P3 sought orders that: (1) D1 immediately carry out P2’s resolution of 12 January 2017 to reconstitute P3’s board (whereby D1 was dismissed) and to hand over his work to the new board nominated by P2, (2) D2 to D5 and Liu Xianliang immediately carry out P2’s resolution of 13 March 2017 to reconstitute P3’s board (whereby D2 to D5 were dismissed) and to hand over their work to the new board nominated by P2,(3) Ds and Liu Xianliang compensate RMB 130 million to P3 for their breaches of duty of loyalty and diligence.

163.  The defendants in the Shandong Proceedings challenged the jurisdiction of the Shandong High People’s Court, arguing that the matter should be tried by the Changqing District People’s Court in Shandong.  In June 2017, the Shandong High People’s Court ruled that the matter should bereferred to the Shandong Intermediate Court.  Both parties appealed against this decision.  According to Yen VII, in December 2017, the Supreme People’s Court reversed the decision, so that the Shandong Proceedings will proceed in the Shandong High People’s Court.

164.  The Shandong Proceedings again indicate that Hong Kong is not the appropriate forum for the trial of the present action.

(1)   There is very substantial overlap of the subject matter between the two actions, which comprise claims concerning events which took place in the PRC, arising out of the conduct of PRC citizens vis-à-vis P3, a PRC company.

(2)   There was no suggestion by P3 in the Shandong Proceedings that Hong Kong is the appropriate forum for the trial of its claim.  As for the defendants in those proceedings, whilst they challenged the jurisdiction of the Shandong High People’s Court, this was not on the basis that Hong Kong was the more appropriate forum, but that another court in Shandong should hear the matter.

(3)   If the present action in Hong Kong were to proceed, there would duplication of expenditure, and a risk of inconsistency in outcomes.

165.  Ps accept that the Shandong Proceedings overlap with the claims in the present proceedings.  As far as P3 is concerned, the only difference relied on in Yen VII is that the Shandong Proceedings do not include P3’s cause of action arising from Ds’ dissipation of funds to Jinan Lixin and subsequently to Stephenson Harwood, and it is said that the Hong Kong Court is the more appropriate court to try this cause of action given that Stephenson Harwood is a Hong Kong entity.

166.  I have already indicated above that I do not consider it appropriate to deal with Ds’ Summonses on the assumption that gateway (c) has been satisfied.  In any event, even if I were wrong about that, I do not agree that the mere fact that Stephenson Harwood is a Hong Kong entity means that it would be more appropriate to try not only the claim against it but also all the other Ds (and the proposed D6 Jinan Lixin) in Hong Kong.  The alleged unlawful actions leading to the making of the payments— which are the focus of the dispute between the parties—all took place on the mainland.  Moreover, Ps have not suggested that Stephenson Harwood could not be added as a defendant to the Shandong Proceedings.

167.  Mr Barlow submitted that there is no identity of parties between the Shandong Proceedings and the present action: P1 and P2 are not party to the Shandong Proceedings so that any decision therein would not bind them; and Liu Xianliang was not a party to the present action.  He did not, however, suggest that P1 and P2 could not be made party to the Shandong Proceedings (indeed I note that P2 was named as a “third party”).  In any event, if P3 was successful in the Shandong Proceedings, P1 and P2 would presumably not need to be “bound”.  As to Liu Xianliang, the fact that he isan additional defendant in the Shandong Proceedings is surely an advantage of the Shandong Proceedings from Ps’ point of view, rather than a reason why Hong Kong is the appropriate forum.

168.  Mr Barlow also submitted that there is no identity of relief claimed. However, it would appear that the relief sought is very similar in nature insofar as it is sought to prevent Ds further acting as P3’s directors, officers or employees, and for damages for misappropriated or misapplied funds.  It has not been suggested that any other relief sought in the present action (such as misapplication of funds through payment to Jinan Lixin, in addition to misapplication through payment of bonuses) could not also be sought in the Shandong Proceedings.[23]

169.  Mr Barlow further submitted that the Mareva injunction provided a legitimate juridical advantage to Ps as D1, D3 and D5 had assets in the jurisdiction. However, there is no suggestion that similar or comparable relief could not have been obtained in the PRC.  In any event, injunctive relief may be granted by the Hong Kong Court in support of proceedings in a foreign jurisdiction, so that the existence of proceedings within the jurisdiction is not necessary to provide the juridical advantage of injunctive relief.

E6.3.6   Other issues arising in the action

170.  In the course of submissions, counsel also made reference to the following issues, related to the main issues, as arising in the present action: (1) which set of articles of association of P3 is valid, (2) whether David Yen and Stephen Liu had authority to commence proceedings on P3’s behalf, and (3) whether the contracts of employment between P3 and D1, D2, D3 and D5 have been terminated.  Both Ps and Ds have filed opinions from PRC legal experts on these issues.

(1)   I have some difficulty following the logic of Ds’ position on the first two issues, which involves the premise that the directors of P3 appointed on 3 December 2015 was invalid, given that Ds themselves were amongst the directors so appointed.

(2)   The third issue turns on the genuineness and effect of contractsof employment exhibited in Chen II.  Ps say that the contracts were forged.  They also rely on a decision from the People’s Court of Haidian District, Beijing, in which the court recognised that Li Heping had replaced Zhang Senior’s son as P3’s legal representative even though his appointment had not been registered with Government authorities.  It is said that as Li had confirmed the removal of Ds from their offices within P3, this had put the termination beyond doubt.  In any event, Ds’ remedy for wrongful dismissal was to refer the matter to the Jinan Municipal Bureau of Human Resources and Social Security.

171.  I have not placed much weight on these issues in the consideration of the question of which forum is the appropriate one given that they do not appear to be the main issues in dispute.  In any event, given that they involve questions of PRC law, I consider that they would not provide any support for Hong Kong being the appropriate forum for the trial of the action.

E6.3.7   Deprivation of legitimate personal or juridical advantage if action tried other than in Hong Kong 

172.  In the light of my conclusions above, the question of whether Ps would be deprived of a legitimate personal or juridical advantage if their claims were to be tried outside Hong Kong does not, strictly speaking, arise.

173.  In any event, as explained above, I do not consider that Ps succeed in establishing that a trial of their claims in the PRC would deprive them of a legitimate juridical advantage (that is, the Mareva injunction).

E6.3.8   Conclusion on appropriate forum

174.  I therefore conclude that Ps fail to establish that Hong Kong is clearly or distinctly the appropriate forum to try Ps’ claims.

175.  On the contrary, and insofar as it is necessary for me to decide this, the PRC courts are clearly or distinctly the appropriate forum to try the claims.  The events complained of all happened in the PRC.  The dispute centres around whether Ds, who are PRC citizens residing in the PRC, were validly dismissed from P3, a PRC company with operations on the mainland; and about whether Ds acted in breach of their duties as directors and employees of P3, which duties are governed by PRC law.Proceedings have already been commenced in Shandong by P3 in relation to these matters, which overlap substantially with the present action.  There has been no suggestion in those proceedings by any party that Hong Kong is the more appropriate forum.

176.  The only real “Hong Kong factor” that Ps can point to is that if P1 should be successful in its claims, and specifically, be found to have suffered either (1) loss due to delisting (which delisting has not as yet happened) or (2) loss due to inability to raise funds in Hong Kong, then the matter of quantification of damage might be something which the Hong Kongcourts would be better placed to assess than the PRC courts.  However, this would be limited to the scenario where P1 is successful on its claims and it suffers loss arising from these specific matters.  Looked at in the context of all the other factors, it does not lead to the conclusion that Hong Kong is the forum with “the most real and substantial connection with the action”.

E7.   Application for stay of proceedings on grounds of forum non conveniens and lis alibi pendens

177.  Ds’ application for stay of the proceedings on the grounds of forum non conveniens is redundant given that Ds would bear the burden of proof on that application.

178.  Ds’ application for stay of proceedings on the grounds of lis alibi pendens is also redundant, since a parallel proceeding in another jurisdiction is only one of the factors to be taken into account on the issue of forum non conveniens: China Construction Bank (Asia) Corp Ltd v Shanghai Pudong Development Bank Co Ltd, unreported, CACV 14/2016, 3 February 2017, per Cheung JA at [5.2].

E8.   Conclusions regarding leave to serve out

179.  In the light of my conclusions in sections E1 to E8, the leave granted to Ps to serve the Writ outside the jurisdiction should be set aside.

180.  The orders for substituted service on D1, D3, D4 and D5 should also be set aside: see 張才奎所託管中國山水投資有限公司股份相關員工 (the Trust Action), 13 May 2015, supra, at [45] per Godfrey Lam J.

181.  It further follows that the Injunction Order should be discharged.

E9.   Failure to obtain leave prior to Injunction Order; material non-disclosure

182.  Ds separately argued that as Ps had neither applied for, nor obtained, leave to serve the Writ out of the jurisdiction before the grant of the Injunction Order, the latter was a nullity, or at least irregular and ought not to be cured.  It was further submitted that as this point, together with Ds’ arguments as to the inapplicability of Order 11, had not been drawn to the Court’s attention at the ex parte application, the Injunction Order should be discharged on the grounds of material non-disclosure.

183.  The general rule is that the jurisdiction of the Court over persons is territorial and restricted to those upon whom its process can be served within the jurisdiction, with the exceptions provided for under Order 11: The Siskina [1979] AC 210 at 254F.  In Bank of China (Hong Kong) Ltd vRegal Link Investment Ltd [2009] 3 HKLRD 203 at [33], Yuen JA observed that:

“ The rules of court are clear that to make a person outside the jurisdiction amenable to the court of Hong Kong, leave to issue a writ for service out is required under O.6 r.7, and leave to serve that writ out is required under O.11 r.1.”

184.  Whilst it may be the case that failure to obtain leave is an irregularity which is capable of being cured under Order 2, rule 1, the Court will not lightly exercise its discretion to do so: see Bank of China (Hong Kong) Ltd, supra, at [37], citing Leal v Dunlop Bio-Processes International Ltd [1984] 1 WLR 874; Kuwait Oil Tanker, supra.

185.  Mr Barlow pointed out that at the ex parte hearing of 11 April 2017 when Ps applied for and obtained the Injunction Order, paragraph 28 of their skeleton argument had referred to the fact that leave to serve out had not yet been obtained.  (Paragraph 29 also referred to the existence of parallel proceedings in Shandong.)  Furthermore, David Yen had also stated in Yen I that he had instructed Ps’ solicitors to commence the process of seeking orders for service out.

186.  However, no reference was made to the significance or relevance of these matters, in particular, namely, whether Ds could in fact be made amenable to the Court’s jurisdiction in the first place, pursuant to the gateways relied on by Ps under Order 11; and even if they could, whether it was appropriate for the Court to make the Injunction Order at a time when Ds were not yet amenable to the Court’s jurisdiction.

187.  Thus the Court came to determine the application for the Injunction Order without having its attention drawn to potential substantial defences which Ds could reasonably have been expected to take had they been present at the ex parte hearing.[24]

188.  The non-disclosure was material.  If leave to serve Ds out of the jurisdiction could not be obtained, the Court would have no jurisdiction over Ds, including jurisdiction to order an injunction against them.  Even if it could be said that the failure to obtain leave to serve out was a mere irregularity which could be cured, the point was not drawn to the Court’s attention so that it could have considered whether it wished to make the Injunction Order in such circumstances.

189.  Mr Barlow argued that the need for the Injunction Order was urgent and the application could not be left for the “weeks” that it takes to obtain leave to serve out.  However, at best, this was a submission to be made to the Court hearing the ex parte application to enable it to decide whether such reasons justified the grant of the Injunction Order despite the aforesaid potential defences upon which Ds could reasonably rely.

190.  Mr Barlow also submitted that this point had been argued at the hearing on 31 May 2017.  However, as I understand it, substantive argument was to be heard by me as part of Ds’ Summonses.

191.  I would therefore discharge the Injunction Order on this ground also.  The issue of a regrant does not arise in the light of my conclusion above that the leave to serve the Writ outside the jurisdiction should be set aside.

F.   PS’ SUMMONS

192.  My conclusions in section E above are also sufficient to disposeof Ps’ Summons.  However, in case this matter goes further and I am wrong in my conclusions on leave to serve the Writ out of the jurisdiction, I will proceed to deal briefly with Ps’ application to continue the Injunction Order.

F1.   The principles applicable to the grant of an interlocutory injunction and a Mareva injunction

193.  There was no dispute that on P3’s application for the continuation of the interlocutory injunction prohibiting Ds from (inter alia) holding themselves out as directors, officers and employees of P3 (“the Holding Out Injunction”), P3 would need to show:

(1)   a serious issue to be tried on the merits;

(2)   that damages would not be an adequate substitutionary remedy; and

(3)   that pending trial, the balance of convenience favoured the continuation of the injunction.

194.  There was no dispute that on Ps’ application for the continuation of the Mareva injunction against D1, D3, D4 and D5 (“the Mareva Ds”), Ps would need to show:

(1)   a good arguable case on the substantive issues;

(2)   that the Mareva Ds have assets within the jurisdiction; and

(3)   that there is a real risk of dissipation of assets which would defeat Ps’ judgment.

F2.   The Holding Out Injunction

195.  I approach the question of continuation of the Holding Out Injunction on the premise that, contrary to my conclusions above, P3 should have leave [25] to serve Ds under Order 11, rule 1(1)(b), so that the scope of the injunction against Ds to be considered would not be confined only to acts in Hong Kong.  See Re J (a child) [2014] EMLR 7 at [54] to [55], and paragraph 74 above.  That being the case, the considerations earlier raised relating to the absence of premises belonging to P3 in Hong Kong, or the absence of evidence of holding out in Hong Kong, do not arise.  Ds do not suggest that P3 does not have premises on the mainland PRC or that they did not hold themselves out as representatives of P3 on the mainland PRC.

196.  Ds do not suggest that there would be no serious issue to be tried,or that damages would be an adequate remedy for P3.  They would resist the continuation of the Holding Out Injunction on the basis that it would be difficult to supervise, as it is almost entirely directed at restraining the conduct of PRC citizens, who live and work in the PRC, from doing various things in the PRC.

197.  However, what would be sought at this stage is an interlocutory injunction, which would be for a finite period pending trial, so that supervision, if any, would not be ongoing indefinitely. It would no doubt come to P3’s attention if during this period Ds sought to hold themselves out as directors, officers and employees of P3, or if Ds sought to enter P3’s premises and remove items belonging to P3, so that practically, compliance should be capable of being monitored.

198.  Thus if I had not set aside leave to serve the Writ on Ds out of the jurisdiction, I would have considered that the balance of convenience would have lain in favour of a continuation [26]of the Holding Out Injunction until trial.

F3.   The Mareva injunction

199.  Ds say that P1 and P2 have not made out a good arguable case given that their claim is for reflective loss.  However, they do not suggest that P3 has not made out a good arguable case in respect of its claim that its assets have been misapplied or misappropriated.  There is no suggestion that the Mareva ought to have been granted on different terms (or not at all) if it was sought only by P3.

200.  It is also suggested that Ps have demonstrated a low standard of commercial and professional morality in making false allegations in their evidence.  I am not in a position to make any findings in this regard.  In any event, this point does not negate Ps’ submissions as regards the risk of dissipation.  Given the nature of the allegations against Ds (that they have misapplied and misappropriated P3’s funds) and the acceptance that there is at least a good arguable case in this regard, P3 would be able to meet the requirement of showing a risk of dissipation of assets.  There is no challenge to the assertion that the Mareva Ds have substantial assets in Hong Kong.

201.  Thus if I had not set aside leave to serve the Writ on Ds out of the jurisdiction, I would have considered it appropriate to continue [27] the Mareva injunction against the Mareva Ds until trial.

G.   PS’ RE-AMENDMENT SUMMONS

202.  Mr Westbrook submitted that the application to re-amend the Statement of Claim was made late in the day, especially given that Ps had known long ago of payments made to Stephenson Harwood, and that the summons should be adjourned to a date when the putative parties could be heard.

203.  Mr Westbrook further submitted that the intended action, at least as against Stephenson Harwood, would be doomed to fail, relying on Carl Zeiss Stiftung (supra) as referred to above.

204.  However, as Mr Westbrook accepts, the putative defendants do not have a right to be heard in opposition to the intended amendments.  As to whether or not Carl Zeiss Stiftung would avail Stephenson Harwood on an application to strike out, this is not something I can determine at this stage.

205.  I will therefore give leave to Ps to re-amend the Statement of Claim, adding Jinan Lixin and Stephenson Harwood as defendants.

H.   ORDERS

206.  Accordingly, I make the following orders:

(1)   Ps’ 1^st Strike Out Summons be dismissed;

(2)   Ps’ 2^nd Strike Out Summons be dismissed;

(3)   the leave granted by Master M Wong on 19 June 2017 to Ps to serve the Writ out of the jurisdiction be set aside;

(4)   the leave granted by Master S Lo on 22 November 2017 for substituted service on D1, D3, D4 and D5 be set aside;

(5)   service of the concurrent Writ on Ds be set aside;

(6)   the Injunction Order be discharged;

(7)   Ps’ Summons be dismissed;

(8)   Jinan Lixin and Stephenson Harwood be added as the 6^th and 7^th defendants in this action;

(9)   Ps have leave to re-amend the Writ and SOC in the manner shown in the draft annexed to Ps’ Re-Amendment Summons;

(10)   Service of the re-amended Writ including the RASOC on D1 to D5 be dispensed with.

207.  I further make a costs order nisi that Ps do pay Ds the costs of all six summonses (as listed in paragraphs 1 and 2 above) with a certificate for two counsel.  Whilst Ps were successful on Ps’ Re-Amendment Summons, the costs involved in resisting were relatively minor: the summons was issued so late in the day it was not addressed in the various affidavits before the Court, and it was not the principal focus of the parties’ submissions before me.