ELITE CONSORTIUM LTD AND OTHERS v. YIM WAN POR AND OTHERS

HCA 66/2022

[2022] HKCFI 3303

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 66 OF 2022

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J U D G M E N T

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Introduction

1.  There is an application by the Defendants by summons dated 31 January 2022 for the following orders:

(1)  §§17-20 and §§42-46 and Relief (A) and (B) of the Plaintiffs’ Statement of Claim and other parts thereof in relation to their claim against the 1^st and the 2^nd Defendants arising from the 2017 Agreement be struck out.

(2)  Further and alternatively, the present action against all Defendants be stayed on the ground that there are two earlier and on-going parallel proceedings in the Guangzhou Intermediate People’s Court (“GZ Court”) of the People’s Republic of China which overlap with the Plaintiffs’ claim in the present action.

(3)  Further and alternatively, the present action be stayed in favour of the GZ Court on the ground of forum non conveniens.

2.  At the hearing, Mr Ko confirms to this court that his clients are no longer pursuing the striking out application under RHC O 18 r 19.

3.  As for the stay application under para 1(2) above, the legal basis of the application appears to be lis alibi pendens but strictly speaking it is not since the only remaining action in the GZ Court is GZ 2153 as defined below and that action is not between the same parties in the present action - none of the Defendants nor the 2^nd Plaintiff are parties to it. Nonetheless, some of the objections inherent in genuine cases of lis alibi pendens will still be available: Cheshire North & Fawcett, Private International Law (15^th ed) p 407.

4.  There used to be two earlier PRC proceedings said to be relevant to the present action viz:

(1)  (2021) 粵01民初1767號 (“GZ 1767”) commenced by the 3^rd Plaintiff in the GZ Court on 9 October 2021 against (1) the 1^st Defendant, (2) 2^nd Defendant and (3) 广州市培莘教育信息咨询有限公司 (“GZ Peishen”).

(2)  (2021) 粵01民初 2153號 (“GZ 2153”) commenced by GZ Peishen in the GZ Court on 9 November 2021 against the 1^st and the 3^rd Plaintiffs.

5.  On 9 February 2022, GZ 1767 was withdrawn upon the application of the 3^rd Plaintiff. Hence, what remains is GZ 2153.

6.  As for the stay application under para 1(3) above, this is a straightforward Spiliada type of application.

Background

7.  The following brief summary is taken largely from the Statement of Claim and the 1^st and 2^nd Affirmations of Wang Lu[1] (“Wang”, “Wang 1” and “Wang 2” respectively), a director of the Plaintiffs.

8.  The 1^st and the 2^nd Plaintiffs are private companies incorporated in Hong Kong in November 2006 and August 2007 respectively. The 3^rd Plaintiff is a wholly owned foreign enterprise incorporated in the PRC in March 2010. Both the 2^nd and the 3^rd Plaintiffs are wholly-owned subsidiaries of the 1^st Plaintiff.

9.  The 1^st Plaintiff is wholly owned by Swiss Education Group AG (“SEG AG”) since October 2014 when SEG AG acquired the entire shareholding of the 1^st Plaintiff from the 1^st and the 2^nd Defendants who were retained as directors to take charge of the management of Plaintiffs (“2014 Acquisition”). After the 2014 Acquisition, SEG AG became the sole shareholder of the 1^st Plaintiff while the 1^st and the 2^nd Defendants were the 1^st Plaintiff’s only directors.

10.  Since 2008, the Plaintiffs have been engaged as agents for SEG AG in the promotion of 5 hospitality and leisure management Universities (“Universities”) operated by it and recruitment of prospective students in Macau, Hong Kong and the PRC in return for payment of commission by SEG AG.

11.  All the Defendants are Hong Kong permanent residents. They were served in Hong Kong with the Writ herein as of right.

12.  The 1^st and 2^nd Defendants were the founding members and directors of the 1^st and the 2^nd Plaintiffs since their incorporation until their dismissal for misconduct on or about 28 July 2021 (“Dismissal”). The 1^st Defendant was the supervisor (监事) of the 3^rd Plaintiff since its incorporation up to 30 April 2014 and thereafter as its executive director and legal representative. The 2^nd Defendant was the executive director of the 3^rd Plaintiff since its incorporation up to 30 April 2014 and thereafter as its supervisor until the Dismissal.

13.  The 1^st Defendant was at the material time the sole shareholder and director of a company called Loxy Hotels and Resorts Limited (“Loxy Hotels”) while the 1^st and the 2^nd Defendants were also the founders of the “Imperial (皇玥)” group of companies in 2017 which operated a business of selling mooncakes and Chinese pastries under the brand name of “Imperial (皇玥)” (“Imperial Group”).

14.  The 3^rd Defendant is the mother of the 1^st Defendant and a director of the 2^nd Plaintiff until 31 October 2013. The 4^th Defendant is and was at all material times a business associate of the 1^st and the 2^nd Defendants.

15.  GZ Peishen was established by the 1^st and the 2^nd Defendants and was ultimately beneficially owned and controlled by the two of them. The 1^st and the 2^nd Defendants were said to be de facto directors of GZ Peishen with powers to approve all important matters concerning its management and operation. Through arranging their relatives and associates to act as nominee shareholders or officers on record, the 1^st and the 2^nd Defendants concealed the true ownership and management in GZ Peishen.

16.  On 6 February 2014, the 1^st and the 2^nd Defendants caused the 1^st Plaintiff to enter into a Letter of Agreement with GZ Peishen[2] (“2014 Agreement”). Under the 2014 Agreement, GZ Peishen shall act as a non-exclusive representative in the Mainland China for the promotion, advertisement and prospective student referral in relation to education programs offered by the Universities from February 2014 to December 2019 at an agreed fee.

17.  On 1 January 2015, the 2^nd Defendant, on behalf of the 1^st Plaintiff, signed and issued a supplemental notice to GZ Peishen (“2014 Supplemental Notice”) in supplement to the 2014 Agreement by providing for the payment of additional bonus of RMB2,000 per student to GZ Peishen.

18.  On 15 April 2017, the 1^st and the 2^nd Defendants caused the 1^st and the 3^rd Plaintiffs to enter into a further Letter of Agreement with GZ Peishen[3] (“2017 Agreement”) for similar if not exactly identical work as the 2014 Agreement but for a much longer period ie 10 years compared to 5 years under the 2014 Agreement notwithstanding the 2014 Agreement had not expired. It should be noted that Art 14 of the 2017 Agreement stipulates the following governing law and jurisdiction clause as follows:

“ARTICLE 14. DISPUTE SETTLEMENT

This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of People’s Republic of China, regardless of the laws that might otherwise govern under applicable principle of conflicts of law thereof. Any dispute arising out of or in connection with this Agreement shall be settled through friendly consultation between the two parties. If the consultation fails, both parties agree to file a lawsuit in the people’s court of Tianhe District[4].”

19.  On 24 July 2017, the 2^nd Defendant, on behalf of the 1^st and the 3^rd Plaintiffs, signed and issued a supplemental notice to GZ Peishen (“2017 Supplemental Notice”) in supplement to the 2017 Agreement, thereby providing additional financial incentives to GZ Peishen.

20.  On 6 September 2021, the 3^rd Plaintiff issued a written notice to GZ Peishen to terminate the 2017 Agreement.

21.  On 9 November 2021, GZ Peishen commenced a separate action GZ 2153 against the 1^st and 3^rd Plaintiffs, claiming that the termination of the said 2017 Agreement was wrongful and seeking damages of RMB40,076,601.

The Plaintiffs’ allegations and claims against the Defendants

22.  According to Mr Chow’s skeleton submissions, the Plaintiffs’ case is that, as directors, the 1^st and the 2^nd Defendants have committed serious breaches of fiduciary duties and have misappropriated significant sums from the Plaintiffs as follows.

23.  First, through the use of the 1^st Defendant’s relatives as nominees, the 1^st and the 2^nd Defendants secretly established and operated GZ Peishen and concealed from the Plaintiffs and SEG AG their relationship with and interest in it. Thus, the 1^st and the 2^nd Defendants had failed to adequately disclose all relevant information concerning the conflict of interest arising from their relationship with and interest in GZ Peishen.

24.  Second, the 1^st and the 2^nd Defendants had procured the 1^st and the 3^rd Plaintiffs to enter into the 2014 and 2017 Agreements with GZ Peishen where it acted as a sub-agent for the 1^st and the 3^rd Plaintiffs for recruitment of students at unreasonably high commission rates.

25.  Third, the 2014 Supplemental Notice, the 2017 Agreement and the 2017 Supplemental Notice were entered into for improper purposes of benefiting GZ Peishen and the 1^st and the 2^nd Defendants, without proper commercial justification and not in the best interests of the Plaintiffs.

26.  In respect of the 2014 Agreement, in 2015 and 2016, the 1^st and the 2^nd Defendants caused the 1^st Plaintiff to pay over HK$11 million to the 2^nd Defendant in Hong Kong in settlement of commission payable to GZ Peishen under the 2014 Agreement (“2014 Agreement Commission Claim”). In respect of the 2017 Agreement, from March 2017 to May 2021, the 1^st or the 2^nd Defendant caused the 1^st Plaintiff to pay over HK$30 million to the 2^nd to the 4^th Defendants in Hong Kong in settlement of commission payable to GZ Peishen under the 2017 Agreement (“2017 Agreement Commission Claim”).

27.  Further, the Plaintiffs also claim against the 2^nd to 4^th Defendants for unjust enrichment in relation to the 2017 Agreement Commission Claim. As for the 3^rd and the 4^th Defendants, the Plaintiffs’ claims against them is also for knowing receipt and dishonest assistance of the 1^st or the 2^nd Defendant’s breaches of fiduciary duties in relation to the 2017 Agreement Commission Claim.

28.  Lastly, the Plaintiffs claim against the 1^st and/or the 2^nd Defendant from 2018 to 2021 for having caused them to make various unjustified payments to GZ Peishen, to incur improper expenses which are irrelevant to the Plaintiffs’ business and to make payments to benefit the businesses owned by the 1^st or the 2^nd Defendant viz the Imperial Group and Loxy Hotels for over HK$4 million (“Miscellaneous Claims”).

GZ 2153

29.  As stated ealier, GZ 2153 was commenced by GZ Peishen in the GZ Court on 9 November 2021 against the 1^st and the 3^rd Plaintiffs. According to the 2^nd affirmation of the 1^st Defendant (“Yim 1”), GZ Peishen’s claim is for damages in the sum of over RMB40 million for the wrongful termination of the 2017 Agreement. The 2 issues which are said to overlap with the present action are (i) whether the 1^st and the 3^rd Plaintiffs were entitled to terminate the 2017 Agreement, and (ii) whether the terms of the 2017 Agreement were fair and reasonable to the 1^st and 3^rd Plaintiffs.

30.  In Mr Ko’s skeleton submissions and in the Defence filed by the 1^st and the 3^rd Plaintiffs in GZ 2153 (“GZ 2153 Defence”), it is pleaded that the 1^st and the 3^rd Defendants had not disclosed their involvement with GZ Peishen, and alleged that the 2017 Agreement is void and should be terminated. The GZ 2153 Defence also raises an issue as to whether the terms of the 2017 Agreement were commercially justifiable, fair and reasonable.

31.  In Mr Ko’s skeleton submissions and in the Counterclaim filed by the 1^st and 3^rd Plaintiffs in GZ 2153, it is pleaded that GZ Peishen’s claim is not supported by any facts and law and the 1^st and the 3^rd Plaintiffs have incurred expenses eg lawyers’ fee and translation fees, which should be borne by GZ Peishan.

32.  There is no dispute that the 2017 Agreement has been terminated by notice issued by the 3^rd Plaintiff.

Deliberation

33.  The principles governing applications for a stay on forum non conveniens grounds are not in dispute and have been restated by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364 at [51] as follows:

“ 51. We adopt the re-statement of the principles … in DGC v SLC (née C) [2005] 3 HKC 293, 297-298, applying Spiliada Maritime Corporation v. Cansulex Limited [1987] 1 AC 460, 477 and Louvet v. Louvet [1990] 1 HKLR 670, 674-675:

‘1. The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

2. In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum 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.

3. 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.

4. 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.’”

34.  Where jurisdiction is founded in the Hong Kong Court as of right, the party seeking the stay has to establish that there is another available forum which is clearly or distinctly more appropriate than the Hong Kong forum: SPH v SA at [52].

35.  The words “clearly or distinctly” suggest that the onus is not to be lightly discharged. The burden of proof on the defendant in a stay application has been described as “a very high burden”: China International Fund Ltd v West China Cement Ltd unrep, HCA 1889 of 2019, 4 December 2020, DHCJ Burns SC at [27]-[28].

36.  Mere convenience is not enough nor is it enough simply to point to factors which connect a case or the parties to any particular jurisdiction. The approach in forum non conveniens applications is not just an exercise in loading up with factors which point to any particular jurisdiction. The court is required to focus on appropriateness of a forum from the point of view of the trial of action: Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250, 255B-C per Recorder Geoffrey Ma SC (as he then was).

37.  As for lis alibi pendens, it is only one of the relevant factors that a court will take into account when addressing the Stage 1 question of whether an applicant for a stay has demonstrated that another jurisdiction is clearly or distinctly more appropriate than Hong Kong: Bright Shipping Limited v Changhong Group (HK) Limited unrep, FAMV 34 of 2020, 16 July 2020 at [10]-[11].

38.  As a general rule, the fact that to permit the Hong Kong action to be pursued would result in concurrent actions on the same subject matter proceeding in two different jurisdictions could not be sufficient to justify depriving the plaintiff of the advantage to which he was entitled to choose Hong Kong as a forum in which he preferred to litigate the matter. It is only in exceptional cases where the existence of parallel proceedings might cause unusual hardship to a defendant that an action might be stayed on that ground: LN v SCCM unrep, CACV 62 of 2013, 4 June 2013 at [23] - [24] (per Cheung JA). There is no suggestion of undue hardship in the present case.

39.  In his skeleton submissions, Mr Ko, having cited and quoted extensively from the Court of Final Appeal in SPH v SA, curiously did not immediately address this court as to why (i) Hong Kong is not the natural or appropriate forum (“appropriate” in this context means the forum has the most real and substantial connection with the action) and (ii) there is another available forum which is clearly or distinctly more appropriate than Hong Kong.

40.  Instead, Mr Ko submits that firstly, the co-existence of GZ 2153 and the present claim in Hong Kong would amount to a duplicity of proceedings in Hong Kong and the PRC on overlapping issues and it is clearly undesirable for multiple proceedings on the same facts and on the same issues to take place in different jurisdictions. In the present case, the issues to be determined by the Hong Kong Court is essentially identical with the issues before the GZ Court in GZ 2153.

41.  Mr Ko then goes on to quote from Hing Fat Plastic Manufacturing Co Ltd v Advanced Technology Products (HK) Ltd [1992] 2 HKLR 350, a truly lis alibi pendens situation, where the plaintiff commenced PRC proceedings against the defendant for the price of goods sold and delivered, and a month later commenced identical Hong Kong proceedings against the same defendant. The defendant applied for a stay of the Hong Kong proceedings or an injunction to restrain the plaintiff from continuing the PRC proceedings. Keith J (as he then was) observed at pp 352-353:

“ I have no doubt that it is highly undesirable to have concurrent actions in Hong Kong and the PRC between the same parties where the claims in each action are identical. The defendant has to expend double the time and double the expense in defending both sets of proceedings. Moreover, there is the possibility that at the end of it all conflicting decisions will be pronounced. To avoid that, the parties may be tempted to engage in an unseemly race to obtain judgment in one jurisdiction so as to utilize that judgment and plead either res judicata or issue estoppel in the other. As Mr Wong rightly submits, all that puts pressure on the defendant to settle the plaintiff’s claims on less favourable terms than it might otherwise have done if the claim was proceeding in one jurisdiction only.” (emphasis added)

42.  Mr Ko then submits that since both GZ 2153 and the Hong Kong proceedings are ongoing, there is a real danger for inconsistent findings on the same factual matrix to be reached in two different jurisdictions.

43.  What Mr Ko has omitted to mention is that the parties in the HK proceedings and GZ 2153 are different and the factual issues, while there is some overlapping, are not identical. The Miscellaneous Claims, for instance, are not the subject of the 1^st and the 3^rd Plaintiffs’ Counterclaim in GZ 2153. The legal issues are also different.

44.  The Hong Kong proceedings are concerned with 2 Hong Kong companies out of 3 Plaintiffs and all 4 Defendants who are Hong Kong permanent residents and were served in Hong Kong with the Writ herein as of right. The causes of action against the Defendants are for breaches of fiduciary duties against the 1^st and 2^nd Defendants, against the 2^nd to 4^th Defendants for unjust enrichment and against the 3^rd and the 4^th Defendants for knowing receipt and dishonest assistance of the 1^st and/or the 2^nd Defendant’s breaches of fiduciary duties. There is no suggestion that these causes of action should be decided other than in accordance with Hong Kong law.

45.  As for the GZ 2153 proceedings, GZ Peishen’s cause of action against the 1^st and 3^rd Defendants is for the wrongful termination of the 2017 Agreement in accordance with PRC laws by reason of Article 14 of the 2017 Agreement. Because the parties are different from the Hong Kong proceedings and the issues are not identical, this is not strictly speaking a lis alibi pendens situation. While some of the objections inherent in genuine cases of lis alibi pendens may still be available, Mr Ko has failed to identify what objections are available to the present proceedings - certainly the objections mentioned by Keith J in Hing Fat Plastic Manufacturing Co Ltd v Advanced Technology Products (HK) Ltd quoted above are not applicable.

46.  Further, even in genuine lis alibi pendens cases, it is only one of the relevant factors that a court will take into account when addressing the Stage 1 question of whether an applicant for a stay has demonstrated that another jurisdiction is clearly or distinctly more appropriate than Hong Kong.

47.  In this regard, this court does not agree with Mr Ko’s Reply Submissions at para 21 that notwithstanding the fact that the existence of GZ 2153 is merely a factor to be considered in the weighing exercise, considerable weight should be accorded to GZ 2153 given that it had already gone past the initiation stage and substantive evidence had been divulged before the GZ Court. For that proposition, Mr Ko cited De Dampierre v De Dampierre [1988] 1 AC 92[5] at 108C-D but the passage quoted by Mr Ko does not support his proposition. What Lord Goff of Chieveley actually said at 108C-D was that:

“ … But if, for example, genuine proceedings have been started and have not merely been started but have developed to the stage where they have had some impact upon the dispute between the parties, especially if such impact is likely to have a continuing effect, then [the existing foreign proceedings] may be a relevant factor to be taken into account when considering whether the foreign jurisdiction provides the appropriate forum for the resolution of the dispute between the parties.” (emphasis added)

48.  Secondly, Mr Ko submits that it is clear that the GZ Court is a more suitable forum for the present proceedings to be heard. In this regard, Mr Ko points to the fact that the 2017 Agreement was signed by representatives on behalf of the 3^rd Plaintiff and GZ Peishen. Both companies are incorporated and have their primary place of business in Mainland China. The Plaintiffs’ claims do not concern agreements signed by or payments received in the Defendants’ personal capacities, but only in relation to the 2017 Agreement and payments made thereunder to GZ Peishen. Mr Ko also points out that the 2017 Agreement was concluded and performed in the PRC. It was expressly agreed by the parties that the 2017 Agreement is governed by PRC laws. The alleged breaches of the 1^st and the 2^nd Defendants’ duties owed to the 3^rd Plaintiff also took place in the PRC. He then made a bald assertion that the witnesses are primarily in the PRC without explaining why, in light of the fact that all 4 Defendants are Hong Kong permanent residents.

49.  Again, Mr Ko has omitted that the 2017 Agreement was signed by the 1^st and the 2^nd Defendants on behalf of the 1^st and the 3^rd Plaintiffs and that it is the Plaintiffs’ case the payments to GZ Peishen under that agreement, or at least some of which, were made in Hong Kong to the Defendants in Hong Kong dollars, and importantly were all for the benefit of the 1^st and 2^nd Defendants as its beneficial owners. Further, the Plaintiffs are not suing the Defendants on the 2017 Agreement as such since they are not even parties to it.

50.  What is so misconceived about the Defendants’ stay application is that they have not even begun to explain why Hong Kong is not the natural or appropriate forum for the trial between the Plaintiffs and the Defendants. There is only an assertion to that effect towards the end of Mr Ko’s submissions. The focus of Mr Ko’s submissions is the existence of GZ 2153 which is not even a genuine lis alibi pendens case. Nor is this court persuaded by Mr Ko’s submission that the GZ Court is clearly or distinctly more appropriate than the Hong Kong Court for that purpose. As stated in SPH v SA, failure by the Defendants to establish these two matters at Stage 1 is fatal.

Disposition and costs order

51.  For the above reasons, the Defendants’ summons is hereby dismissed.

52.  Both parties having agreed at the hearing that costs should follow the event, there shall be an Order that costs of and occasioned by the summons be to the Plaintiffs, to be taxed if not agreed, and paid by the Defendants forthwith, certificate for counsel.