CHEN HONGQING v. LIU YIU KEUNG STEPHEN AND OTHERS

HCA 1699/2019

[2021] HKCFI 440

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1699 OF 2019

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D E C I S I O N

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1.  I will in this Decision refer to the plaintiff as Chen HQ, and the existing defendants as D1 to D5 respectively.

2.  There are two Summonses before the Court:

 (a)     The Summons of the Intended Interveners (the “Employee Interveners”) dated 9 December 2020 (the “EI Summons”) to intervene in the proceedings herein and/or be joined as the defendants to this action; and

 (b)     The Summons of Jinan Industrial Development Investment Group Co., Ltd (“Jinan Group”) dated 16 March 2020 (the “Jinan Summons”) for:

 (i)     leave to be joined as a defendant to this action (§1);

 (ii)     should leave be so granted, consequential directions on the further conduct of the present action (§2);

 (iii)     leave to Jinan Group to file and serve the affirmation of Deng Xiaoning (exhibiting the draft affirmation of Hou Jianguo) filed on 16 March 2020 in opposition to Chen HQ’s summons of 4 October 2019 for an injunction (the “CHQ Injunction Summons”) (§3); and

 (iv)     consequential directions on the disposal of this Jinan Summons and the CHQ Injunction Summons (§4).

3.  Mr Paul Lam SC leading Mr Vincent Lung and Ms Astina Au appeared for Chen HQ.  Mr Jose Maurellet SC leading Mr Alexander Tang and Mr Kevin Lau appeared for the Employee Interveners.  They also act for D4 and D5.  Mr Anson Wong SC leading Mr Ross Li appeared for Jinan Group.

The EI Summons

4.  I deal with the EI Summons first.

5.  Mr Lam for Chen HQ does not oppose the same.

6.  D1 to D3 are neutral to the application.  They have sought and been granted leave to be excused from the present hearing.

7.  Jinan Group consents to the Employee Interveners being joined[1].

8.  I grant leave for the Employee Interveners to be joined as defendants to this action.  They will be assigned the appropriate defendant numbers.  I also, in terms of §2 of the EI Summons, direct that the Writ of Summons herein be amended accordingly, and that the Employee Interveners be at liberty to acknowledge service thereof.  The Rules of the High Court should be followed for the further conduct of the proceedings.

9.  I order that costs be in the cause, to be taxed if not agreed.  On the costs of the Employee Interveners, I allow a certificate only for 2 counsel.

The Jinan Summons

10.  This is another action involving the Shanshui Group of companies (the “CSC Group”).

11.  These matters have a complicated history.  For background I refer to G Lam J’s judgment in HCA 1661, 1766, 2191/2014 and HCA 623, 939, 1564/2015 (Consolidated) dated 31 January 2018[2] (the “Trust Actions”, and the “Trust Actions Judgment”) and G Lam J’s Decision in the Trust Actions also dated 31 January 2018 discharging the receivers appointed in those Actions[3](the “EY Receivers”, and “Trust Actions Discharge Decision”).  I refer also to my “Jurisdiction Decision” handed down on 30 August 2019 in HCA 2648/2017[4], and my Decision in the present action given on 31 October 2019 when the CHQ Injunction Summons first came before me[5].  Unless specified otherwise, I also use the same terms as used in those Judgments and Decisions.

12.  I recite below the core events so that this Decision may be read in context.

13.  On 25 September 2017, Chen HQ filed a summons for leave to be joined as an intervener or as an additional defendant to the Trust Actions.

14.  By his Decision of 10 November 2017, G Lam J refused that application.

15.  After that refusal, Chen HQ on 17 November 2017 commenced HCA 2648/2017 (“HCA 2648”).

16.  In February 2018, Jinan Group successfully applied to be joined in HCA 2648 as an additional defendant.  

17.  On 21 March 2018 and 26 April 2018, the SHDs and the Jinan Group respectively took out an application for jurisdiction challenge in HCA 2648.

18.  On 30 August 2019, this Court handed down the Jurisdiction Decision and ruled in favour of the jurisdiction challenge.  Chen HQ has subsequently sought leave to appeal against that decision. 

19.  On 13 September 2019 Chen HQ commenced the present action.  At that stage, D1 to D3 herein were the only defendants.  In the Indorsement of Claim, Chen HQ:

 (a)     refers to the CSI Shares and the Trust Actions (§1);

 (b)     pleads that the Employee Shareholders were successful in the Trust Actions;

 (c)     refers to the legal actions commenced by him against 2,258 of the Employee Shareholders (the “PRC Employee‑litigants”) before the Ruzhou People’s Court in Henan Province (the “Ruzhou Proceedings”).  He pleads:

“ … In such [Ruzhou Proceedings], [Chen HQ] as the purchaser sued the PRC Employee‑litigants as the vendors of 368,135 CSI Shares … (‘Subject Shares’) seeking a determination on the beneficial interests in the Subject Shares. The Ruzhou People’s Court entered judgments against the PRC Employee‑litigants holding that [Chen HQ] is entitled to the beneficial interest and ownership in the Subject Shares …”

 (d)     seeks:

 (i)     a declaration that D1 to D3 hold those CSI Shares on trust for him; and

 (ii)     an order that D1 to D3 do forthwith transfer those CSI Shares to him or to persons nominated by him.

20.  On 4 October 2019, Chen HQ took out the CHQ Injunction Summons.  He seeks thereby an injunction restraining D1 to D3 from dealing with the CSI Shares concerned.

21.  On 31 October 2019, the CHQ Injunction Summons first came before me.  Having heard leading counsel for parties, I refused Chen HC’s application for interim-interim relief.

22.  The substantial hearing of the CHQ Injunction Summons has subsequently been vacated due to the COVID‑19 pandemic.  I have ordered paper disposal instead.

23.  In the meantime, and as summarized by Mr Wong:

 (a)     Jinan Group claims to have acquired via a number of Sale and Purchase Agreements entered into in 2017 (“Jinan Group SPAs”) 264,664 CSI shares (approx 71.9%) of the shares in which Chen HQ seeks to obtain by way of this Action from 1,838 of the Employee Shareholders;

 (b)     In or around August 2018, Jinan Group commenced proceedings at the Tianqiao Court seeking performance of the Jinan Group SPAs against the relevant Employee Shareholders (the “Tianqiao Proceedings”).  So far, out of the 1,829 cases commenced before the Tianqiao Court, Jinan Group has obtained 1,657 judgments in its favour (“Tianqiao Judgments”);

 (c)     Since around November 2018, Chen HQ commenced proceedings at the Tianqiao Court seeking to set aside the Tianqiao Judgments on the basis that he was the alleged beneficial owner of the CSI Shares in question;

 (d)     Out of Chen HQ’s 1,413 set‑aside applications, 1,410 have been dismissed by the Tianqiao Court (“Tianqiao Set‑aside Decisions”).  Chen HQ has lodged an appeal in 1,404 cases to the Jinan Intermediate Court in Shandong.  So far, 897 appeals have been heard and dismissed by the Jinan Intermediate Court.  Out of such 897 dismissed appeals, Chen HQ has further applied to the Shandong Higher People’s Court to review 309 of the appeal decisions.

The applicable principles on joinder

24.  The Rules of the High Court that are relevant to this application are Order 15, rule 6(2)(b)(i) and (ii), that:

“ (2) Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application—

…

(b) order any of the following persons to be added as a party, namely—

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon[6], or

(ii)     any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.[7]”

25.  The wordings of Order 15, rule 6(2)(b) are wide.  I highlight the fact that Limb 1 refers to “all matters in dispute in the cause or matter”, and Limb 2 refers to “a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter”.

26.  Relying on Securities and Futures Commission v Mo Shau Wah [2018] HKCFI 596 at §§20-21 and Man Whi Chung v Man Ping Nam [2003] 1 HKC 549 at §§14-22 and the authorities cited therein, Mr Wong submits, which I accept, that:

 (a)     A liberal approach should be given to this rule so as to ensure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect to any of those matters is avoided[8];

 (b)     Under Limb 1, a party might be added if his rights against or liabilities to any party to the action in respect of the subject matter of the action will be directly affected by any order which may be made in the action[9];

 (c)     Specifically, under Order 15 rule 6(2)(b)(ii), the intervener is required to show that he has some interest which in some way directly related to the subject matter of the action.  A mere commercial interest in its outcome, divorced from the subject matter of the action is not enough[10];

 (d)     Whilst some interest which in some way directly related to the subject matter of the action is necessary, the existence of a cause of action between the intervener and one of the parties is not a necessary perquisite for the purpose of joinder[11];

 (e)     Even where the interest in the subject matter alleged by the intervener is doubtful, the court is nevertheless prepared to exercise its discretion to allow the joinder so that the alleged interest could be properly tested at trial[12].

27.  Mr Lam does not dispute those principles.  Any difference between him and Mr Wong is more a matter of emphasis than substance.  What Mr Lam highlights is that whilst the Court will not at the joinder stage engage itself in a scrutiny of merits or an adjudication of facts, it does not mean that the Court would take an intervener’s assertion of sufficiency of interest at face value and ignore any obvious legal impediments to its claim.  He further submits that it will disallow a joinder application if it is “plain and obvious” that there can be no claim between the original parties and the party proposed to be joined.  He relies by way of illustration on Yeung Pui Ying Anna v Day & Chan (a firm) & Ors, unrep, CACV 67/2010, 20 July 2010, wherein the Court of Appeal, having approached the matter “as though it had been an application to strike out”, held that the plaintiff’s application to join the 2^nd defendant should be refused as the plaintiff’s intended claim against him had been time‑barred.

28.  Mr Lam’s submissions are in my view not controversial.  It stands to reason that the Court will not exercise its discretion in favour of joinder if it is plain and obvious that the joinder of the proposed intervener would be pointless and futile.  This is not unlike the approach which the Court adopts when approaching an application for amendment of pleadings.

29.  I apply the above when considering the Jinan Summons.

Mr Wong’s submissions in summary

30.  Mr Wong’s submissions may be summarized as follows:

 (a)     by reason of the Jinan Group SPAs, Jinan Group has legitimate interest in the subject matter of this action, namely, the CSI Shares which Chen HQ seeks to obtain by way of this action (Limb 2);

 (b)     given that Chen HQ and Jinan Group are asserting competing claims over the CSI Shares in question, Jinan Group’s presence in this Action is necessary for purposes of resolving the disputes between Chen HQ and Jinan Group effectually (Limb 1);

 (c)     as a matter of reality, Jinan Group is the only party that is in a position to protect its own interest in this Action.  The other defendants’ interests do not necessarily and/or completely align with those of Jinan Group;

 (d)     in the light of the above, as a matter of natural justice, Jinan Group should be allowed to participate in and be heard on CHQ Injunction Summons;

 (e)     no prejudice will be caused to Chen HQ even if Jinan Group is joined and allowed to be heard on the CHQ Injunction Summons; and

 (f)     In the premises, Jinan Group should be allowed to be joined as an additional defendant in this Action and that consequential directions be given for, inter alia, the disposal of CHQ Injunction Summons.

Mr Lam’s submissions in summary

31.  In the course of the hearing, Mr Lam helpfully reduced his submissions to two main points (the second one being his fallback position), that:

 (a)     Jinan Group should not be allowed to be joint as it does not have sufficient interest in the subject matter of the present action, ie the judgments that Chen HQ has obtained in the Ruzhou Proceedings (the “Ruzhou Judgments”).  He submits that Jinan Group is not only not a party to those proceedings, they in fact took a deliberate decision not to take part in those proceedings;

 (b)     The Ruzhou Proceedings and the Tianqiao Proceedings have resulted in two sets of inconsistent Judgments.  According to the evidence filed on behalf of Jinan Group, the Henan Higher People’s Court and the Shandong Higher People’s Court have made a joint report in June 2020 to the enforcement department of the Supreme People’s Court (“SPC”) for guidance.  Pending such guidance, which has not been available, Jinan should be not allowed to be joined, and the Jinan Summons should be adjourned.

Discussion

32.  The fundamental difference between Mr Wong and Mr Lam when approaching the Jinan Summons is their characterization of the nature of the present action:

 (a)     Mr Wong’s focus is upon the Subject Shares.  He points to the prayer in the Writ.  Chen HQ is seeking a declaration that D1 to D3 hold the Subject Shares on trust for him.  But Jinan Group has a competing and rival claim over a substantial percentage of the Subject Shares.  Any interest which Jinan Group has in those Shares will be directly affected by the order and remedy which Chen HQ is seeking;

 (b)     Mr Lam on the other hand focuses upon the Ruzhou Judgments.  He characterizes the present action as an enforcement action to enforce the Ruzhou Judgments.  He regards the Ruzhou Judgments as the subject matters of the present action.  He then submits that as Jinan Group is not a party to those proceedings, and has deliberately made a decision not to participate in the Ruzhou Proceedings, it does not have any interest in those subject matters to enable it to be joined as a party.

33.  On the characterization of the present action, I do not accept Mr Lam’s submissions.  The Ruzhou Judgments are the basis on which Chen HQ is seeking the declaration that D1 to D3 have been holding the Subject Shares on trust for him.  Whilst that is so, he is ultimately seeking to get hold of the Subject Shares.  In my view, it is unrealistic and unduly technical to stop at the Ruzhou Judgments and call them the subject matters or the “cause or matter” of the present action.

34.  Characterizing the Ruzhou Judgments as the subject matter or the “cause or matter” leads to some very strained arguments.  In developing his submissions, Mr Lam relies very heavily on what he described as Jinan Group’s deliberate decision not to participate in the Ruzhou Proceedings.  He submits that that point goes to the issue as to whether Jinan Group has sufficient interest to be joined, as opposed to the exercise of any residual discretion which this Court may otherwise have[13]. Mr Lam further submits, upon my invitation for clarification, that if that point is taken out of the equation (eg by assuming that Jinan Group in fact had had no knowledge of the Ruzhou Proceedings), he would not be able to make good his objection.  But in my view, Jinan Group either has or does not have sufficient interest to be joined.  That issue should not be dependent upon Jinan Group’s knowledge of the Ruzhou Proceedings or the reasons for its decision not to participate[14].

35.  Characterizing the Ruzhou Judgments as the subject matter or the “cause or matter” leads further to some very technical legal arguments which are in my view, and with respect, hardly necessary.  At §43 of his written submissions, Mr Lam submits that Jinan Group’s reliance on the Tianqiao Proceedings and Tianqiao Judgments raises the important legal question as to how the Hong Kong Courts should approach two inconsistent foreign judgments.  He then refers the Court to Showlag v Mansour [1995] 1 AC 431.  It was a case from the Judicial Committee of the Privy Council on how the Courts should approach two conflicting decisions from two different sovereign states (namely England and Egypt in that case).  Mr Lam submits that primarily on res judicata considerations, the Privy Council held that the earlier of the conflicting judgments should be recognised.  Mr Lam then further develops (a) the point that the Showlag principle is subject to the exception of estoppel, and (b) the issue as to whether Jinan Group can invoke and rely on the doctrine of “cross‑estoppel”[15].

36.  To start with, there are practical difficulties in applying the Showlag principle to the present case.  Potentially, the Court will be concerned with quite a number of Ruzhou Judgments and Tianqiao Judgments.  It is not a straightforward case of looking at the dates of only two judgments.

37.  Secondly, Showlag concerned conflicting judgments from two sovereign states.  I have reservations as to whether it has application to the facts of this case, which involve conflicting decisions from two local People’s Courts both in the Mainland.

38.  Further, as submitted by Mr Wong, Showlag related to two judgments between the same parties.  But in the present case, Chen HQ chose not to sue Jinan Group in the Ruzhou Proceedings.  Mr Lam is in effect submitting that because Jinan Group chose not to apply to be joined in the Ruzhou Proceedings, it has somehow become disentitled to being joined in the present action.  That is quite an extension of the Showlag principle which is, as submitted by Mr Wong, not supported by authority.

39.  All these are potentially complicated matter which takes this case out of those “plain and obvious” ones which may justify a scrutiny of merits or an adjudication of facts at this stage.

40.  But most importantly, I am not satisfied that those legal principles and considerations are engaged.  They are only perceived to be engaged upon Mr Lam’s characterization of the Ruzhou Judgments as the subject matter or “cause or matter”.

41.  In any event, even if the Ruzhou Judgments may technically be regarded as the subject matter or “cause or matter”, one should not lose sight of the wide wordings under Limb 1 and Limb 2.  The main considerations are to “ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon” (Limb 1), and whether there “may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter” (Limb 2). Focusing only upon the “cause or matter” is in my view not justified, and is contrary to the liberal approach which should be given to both Limbs.

42.  Further, as the authorities discussed above clearly suggest, for an intervener to be joined, there does not even need to exist a cause of action between him and the existing parties.  It is sufficient if his rights against or liabilities to any party to the action in respect of the subject matter of the action will be directly affected by any order which may be made in the action.

43.  In the present case, given the Jinan Group SPAs, the Tianqiao Judgments, and the rival and competing claims Jinan Group as in respect of the Subject Shares, I am of the view that Jinan Group has clearly made out a case for it to be joined.

44.  For completeness, I mention that Mr Lam refers this Court to the reasons given by G Lam J for refusing Chen HQ’s application to be joined in the Trust Actions, and submits that for similar reasons, Jinan Group should not be permitted to be joined.  I accept Mr Wong’s submissions in this regard that the 2 applications are very different.  In Chen HQ’s case, his interests in the Trust Actions were contingent upon G Lam J’s findings in the Trust Actions.  In the present case, Jinan Group’s alleged interests in the Subject Shares are not.  Further, the application for joinder was made by Chen HQ at a very late, shortly before the trial of the Trust Actions was due to commence.  This is not the case here.

45.  In respect of Mr Lam’s fallback position, I note that there is no guarantee that the SPC will give the guidance sought, and if so when.  I see no basis to adjourn the Jinan Summons pending such an uncertain event.  I accept Mr Wong’s submission in this regard that for case‑management reasons, it is much more desirable to adjudicate on the Jinan Summons first, allow the joinder sought should this Court so rule, and consider a disjoinder should there be a change of circumstances in the future. 

Conclusion and disposition

46.  For the reasons set out above, I allow the Jinan Summons.  I make the following Orders:

 (a)     Leave be granted to Jinan Group to be joined as a defendant.  Again an appropriate defendant number can be assigned to it;

 (b)     Order in terms of §2 of the Jinan Summons, with the necessary change relating to the defendant number to be assigned.  Jinan Group is at liberty to acknowledge service of the Writ within 7 days thereof.  The Rules of the High Court are to be followed for the further conduct of the proceedings;

 (c)     Order in terms of §3 of the Jinan Summons;

 (d)     Jinan Group do file its written submissions in opposition to CHQ Injunction Summons within 14 days after service of such documents on Jinan Group as per(b) above;

 (e)     Chen HQ do have leave to file his written submissions in reply within 14 days thereafter;

 (f)     The CHQ Injunction Summons be substantively determined by way of paper disposal.

47.  In so far as costs are concerned, Jinan Group at §5 of the Jinan Summons seeks an order that the costs of and occasioned by this application be reserved.  I make a costs order nisi to that effect.  Any party who seeks any variation is given liberty to write in, in which case I will give directions on the further conduct of the matter.