MELVIN WAXMAN AND AOTHER v. LI FEI YU AND ANOTHER

HCA 1972/2012

[2021] HKCFI 3018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1972 OF 2012

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DECISION

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1.  This is the substantive hearing of the summons dated 26 July 2021 (the “Stay Summons”)taken out by the 1^st and 2^nd defendants (“D1”, “D2”, and collectively “Ds”) for:

(a)  a stay of these proceedings pending the appeal by the 1^st and 2^nd plaintiffs (“P1”, “P2”, and collectively “Ps”) against the judgment pronounced by the Xiamen Intermediate People’s Court (the “Xiamen Court”) dated 27 January 2021 (the “Xiamen Judgment”, and the related proceedings “Xiamen Proceedings”); and

(b)  an order that the scheduled trial dates of the present trial (ie from 1 to 16 November 2021) be vacated.

2.  Mr Richard Khaw SC leading Ms Bonnie Cheng and Mr Martin Ho appeared for Ds.  Mr Lai Chun Ho appeared for Ps.

Parties’ respective stances

3.  The stay which Ds are seeking is in the nature of a case management stay.

4.  Mr Khaw submits that the issues involved in the Xiamen Proceedings overlap substantially with those in the present action.  D1 is the plaintiff in the Xiamen Proceedings. Ps have taken part in those proceedings and have lost. They are appealing against the Xiamen Judgment.  Ds submit that Ps must be regarded as having elected to resolve the underlying disputes in the Xiamen Court and submitted to its jurisdiction.  Ds say further that pending Ps’ own appeal to the Xiamen Higher People’s Court, it would be wrong in principle, and an abuse of process, for Ps to be allowed a second bite of the cherry and to insist upon asking the Hong Kong Court to adjudicate on the same issues, in the hope of achieving a different result.

5.  Mr Lai opposes the application.  He submits that the Xiamen Proceedings and the present action concern different subject matters and issues.  The Xiamen Proceedings could not have given rise to any issue estoppel. There is hence no basis for any case management stay to be imposed.  In any event, there are also other strong discretionary factors against the application.

The background facts

6.  The parties have been before the Court.  In 2013, D2 made an application for stay of proceedings on the basis of forum non conveniens.  That application was refused by Anthony To J by his decision handed down on 19 July 2013[1]. D2’s appeal was dismissed by the Court of Appeal on 20 April 2016[2]. I respectfully refer to those decisions for the background facts of the case.

7.  Relevantly, and according to Ps’ Amended Statement of Claim, Ps are suing on an agreement which is pleaded to be “partly written and partly oral” (the “Shareholders’ Agreement”). The terms of that agreement are pleaded in §8 of the Amended Statement of Claim.  In gist, and again relevantly, Ps’ case is that pursuant to the Shareholders’ Agreement, Xiamen WDI Plumbing Industrial Co Ltd (“WDI Plumbing”) would establish a sino‑foreign equity joint venture in the Mainland (the “JV Company”).  The JV Company turned out to be Xiamen WDI Technology Company Limited (“WDI Technology”).  The equity of WDI Technology, and all the equity and dividend of a series of companies mutually recognised as the WDI Group would however be held by D2 and WDI Plumbing as nominees of P1, P2, D1 and Mr Ben Yu (“WDI Beneficial Owners”) in the respective percentages of not below 30%, 10%, 42% and 18%.  There are other terms which relate inter alia to capital injection, which I will not repeat here.

8.  Ps plead further that the Shareholders’ Agreement was “reflected in or evidenced by” 5 documents (the “5 Documents”), which have been identified at §8A of the Amended Statement of Claim as:

(a)  The minutes of the WDI Group’s board of directors’ meeting held on 5 August 2002 (the “5 August 2002 Minutes”);

(b)  An undated “Letter of net equity of shareholders confirmation 股東權益證明書” (the“Confirmation Letter”);

(c)  An undated “Loan Agreement 借款協議” made in about December 2004 signed by D1, Ps and Mr Ben Yu;

(d)  An undated document entitled “The affiliates of WDI Group — WDI集團下屬全資及控股公司”; and

(e)  An Evaluation Report dated 26 May 2007 prepared by Pan‑China (Xiamen) Consulting Corporation (廈門天健諮詢有限公司) on, inter alia, the valuation of the WDI Group.

9.  Ps plead that Ds have been in breach of the Shareholders’ Agreement, and have been acting in breach of trust.

10.  Ps seek inter alia a number of declarations to the effect that D1 and D2 have been holding the equity in a number of specific companies on trust for the WDI Beneficial Owners in accordance with the percentages of shareholding as agreed.   

The applicable principles on case management stay

11.  I have recently considered the principles applicable to case management stay in China Shanshui Cement Group Ltd v Tianrui (International) Holding Co Ltd [2020] HKCFI 3043at §§74-77.  I will not repeat them.  I will for the present purpose:

(a)  emphasize the observation of Bryan J in MAD Atelier International BV v Manés [2020] 3 WLR 631, that a case management stay should only be granted in “rare and compelling circumstances”, and that a stay “will not, at least in general, be appropriate if the other proceedings will not bind the parties to the action stayed or finally resolve all the issues in the case to be stayed, or the parties are not the same” (emphasis added); and

(b)  reiterate that where a plaintiff commences proceedings as of right, he should not be deprived of the right to continue those proceedings in the absence of “very good reasons to the contrary”.

My decision

12.  I have considered both the written and oral submissions made to me by counsel.  I have also considered the authorities cited to me. 

13.  I have decided to refuse the application.

14.  In the light of my decision, and given the fact that the trial is going to take place before this Court soon, I do not find it appropriate to express any view on the matters beyond those which are absolutely necessary for the disposition of the application.  In the end, I have decided to give only the following concise reasons explaining why I have, in the exercise of my discretion, decided to refuse the application.

(a)  As pleaded in the Amended Statement of Claim, the focus of Ps’ claim is the existence and terms of the Shareholders’ Agreement;

(b)  I have been taken through D1’s claim form filed for the purpose of the Xiamen Proceedings, Ps’ defence and counterclaim, and the Xiamen Judgment.  I have in particular considered Mr Khaw’s submissions[3] on the effects of the Xiamen Judgment.  I note that the foci of the Xiamen Judgment are the 5 August 2002 Minutes, the Confirmation Letter, and whether the WDI Group was an actual entity recognised by law.  The Xiamen Court ruled inter alia that the 5 August 2002 Minutes had not taken effect or had no effect;

(c)  The effects of the Xiamen Judgment however have to be considered in the light of the way which D1 framed his case.  He asked the Xiamen Court to confirm and declare that the agreements in or which take the form[4] of the 5 August 2002 Minutes and the Confirmation Letter had not taken effect.  Ps’ counterclaim before the Xiamen Court was accordingly similarly framed;

(d)  However, in the present case, the Shareholders’ Agreement is pleaded to be “partly written and partly oral”;

(e)  The Shareholders’ Agreement is not pleaded to be contained in the 5 Documents, but only “reflected in or evidenced by” them;

(f)  The Further and Better Particulars provided by Ps on 5 June 2017 are of similar effects;

(g)  I accept Mr Lai’s submissions that the respective subject matters and issues before the Xiamen Court and this Court are different;

(h)  The validity of the 5 August 2002 Minutes and the Confirmation Letter, or whether they had taken effect, do not in my view necessarily decide finally the existence or otherwise of the Shareholders’ Agreement — see MAD Atelier International BV;

(i)  In my view, there is considerable force in Mr Lai’s submission[5] that the 5 August 2002 Minutes and the Confirmation Letter can, despite the Xiamen Judgment, still evidence a separate oral agreement that is valid under Hong Kong law;

(j)  I note Mr Khaw’s submissions.  He is careful in submitting only that there is a substantial overlap between the issues before the Xiamen Court and those before this Court, without suggesting that they are identical. He relies further to what he submits to be the findings of the Xiamen Court that any agreement in the 5 August 2002 Minutes had been superseded by subsequent events, and that Ps had not been able to prove the requisite existence of the share structure as at 31 December 2002.  However, even those findings, assuming that they are, in my view have to be considered in the light of the different subject matters before the Xiamen Court and this Court;

(k)  In my view, whilst there is some overlap between the issues before the Xiamen Court and this Court, the degree of overlap is not sufficient for this Court to exercise its discretion in favour of a case management stay;

(l)  Mr Khaw further refers to Ps’ participation in the Xiamen Proceedings, which amounts in his submission to the submission by Ps to the jurisdiction of the Xiamen Court.  However, given the difference in the subject matters as discussed above, Ps’ participation in the Xiamen Proceedings is in my view not sufficient to constitute any “rare and compelling circumstances” to ground a case management stay.  I add in this regard that Ps commenced the present action in Hong Kong as of right, and they should not be deprived of the right to continue those proceedings in the absence of very good reasons to the contrary, which I do not see any;

(m)  In exercising my discretion, I have also considered the following factors which are in my view against the grant of any case management stay:

(i)   the fact that the time for the completion of the appellant process before the Xiamen Higher People’s Court is not certain;

(ii)  the age of P1 (being 87), such that Ps may be prejudiced if ultimately the trial will have to be resumed;

(iii) the delay in the taking out of the Stay Summons, the Xiamen Court having been handed down on 27 January 2021 but the Stay Summons not being filed till 27 July 2021; and

(iv) the fact that any stay will necessitate the vacation of a 12‑day trial set down a long time ago of a case commenced in 2012.

Disposition

15.  For the above reasons, I refuse the application.

Costs

16.  I make a costs order nisi that Ps shall have the costs of and occasioned by the Stay Summons, with certificate for counsel, to be taxed if not agreed.  I consider at this stage that taxation may be preferred to summary assessment because of the imminent trial dates, that parties may best focus their attention on the further preparation of the trial, and that it may be more appropriate for the relevant costs to be taxed in one go upon the conclusion of the trial.