JACKSON XU SHAO ZE AND ANOTHER v. TSAI TIM YUEN AND ANOTHER

HCA902/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 902 OF 2011

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JUDGMENT

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Introduction

1.  This is the 1^st defendant’s appeal from an order dated 7 October 2013 made by Master S Kwang dismissing his summons dated 21 September 2011 (“the Summons”) for a stay of proceedings on the ground of forum non conveniens. He says that the disputes between the parties should be resolved in the Shenzhen Luo Wu People’s Court (深圳市羅湖區人民法院). At the conclusion of the rehearing de novo of the Summons, judgment was reserved which I now give.

2.  By way of background, the 2^nd defendant’s application to strike out the plaintiffs’ claim against him was granted by DHCJ Winnie Tam and the Court of Appeal affirmed the decision on 4 March 2014. The Summons does not concern the 2^nd defendant and the 2^nd defendant has not been involved in this matter.                                              

Plaintiffs’ pleaded case

3.  The plaintiffs’ pleaded case is not easily comprehensible. For the purpose of this application, it can be summarized as follows.

4.  Both the 1^st plaintiff, Jackson Xu Zhao Ze (“Xu”) and the 2^nd plaintiff, Lai Ming Wai, (“Lai”) are businessmen in Hong Kong at all material times. The 1^st defendant, Tsai Tim Yuen (“TTY”), owned 50% of Access Tree industrial Limited (“Access Tee”), which holds 100% of China Profit Development Limited (“China Profit”). China Profit is the sole beneficiary owner of Weiyuen Foodstuff and Drinks (Shenzhen) Ltd (“Weiyuen Shenzhen”), a wholly foreign owned enterprise incorporated in Shenzhen carrying on the business in the trade of food products.

5.  One of the canned food products of Weiyuen Shenzhen was Mixed Congee (八寶粥) (“the Product”) traded under and by reference to the trademark “Weiyuen 味源” (“the Trademark”). The Trademark was registered in the name of Yuen Tai Food Dealers Ltd (“Yuen Tai”) in both Hong Kong and the PRC. Yuen Tai is a company incorporated in Hong Kong and TTY is one of its shareholders.

6.  TTY was and still is the legal representative of Weiyuen Shenzhen. Xu and Lai came to know TTY in 2005. They became interested in the Product and hence the business of Weiyuen Shenzhen. Xu and Lai allege TTY made the following representations to them (“the 1^st Representation”). First, the Product was manufactured by Weiyuan Shenzhen and that the Product was sold in supermarkets throughout the Mainland generating considerable profits with the cash payments received. Further, Weiyuen Shenzhen was under TTY’s control and it was in search of loans to ease its cashflow problems. TTY lastly assured them that any loans advanced to Weiyuen Shenzhen by them would be repaid.

7.  Allegedly induced by the 1^st Representation, Xu and Lai loaned to Weiyuen Shenzhen a total sum of HK$3.88 million on various dates from 2005 onwards. As at January 2007, the loans amounted to HK$5,464,800.00.  Further loans in the total sum of HK$1,584,000.00 were advanced in January 2007. TTY confirmed each of such loans in writing with his signatures.

8.  It should be noted that by an order dated 14 June 2006, China Profit was wound up. The 2^nd defendant, Jacky Muk Chung Wing (“Muk”), became one of its liquidators on 22 November 2006.

9.  In or about February 2007, TTY is alleged to have made some other representations to Xu and Lai (“the 2^nd Representation”). First, Yuen Tai is the registered owner of the Trademark in both Hong Kong and in the PRC and being the controlling shareholder of China Profit, Yuen Tai and Weiyuen Shenzhen, TTY had the ultimate control over all of the companies and was the ultimate owner of the business of the Product and the Trademark. TTY moreover represented that if Xu and Lai agreed to advance a further loan to Weiyuen Shenzhen in the sum of HK$2.9 million and enter into a cooperation agreement with Weiyuen Shenzhen, TTY could and would procure a restructuring of all his companies and caused a new business entity called New Weiyuen to be incorporated to take over all his business including that of the Product. New Weiyuen would be transferred the business of the Product and become the proprietor of the Trademark.

10.  In addition, an amount of HK$5 million of all the existing debts owed to Xu and Lai would be converted into the share capital of New Weiyuen and Xu and Lai would be allotted 40% shares of New Weiyuen. They would also be entitled to share the profit arising from the sale of the Product since 14 February 2006 at the flat rate of RMB 1.00 per can.

11.  In the end, Xu and Lai entered into a written Chinese agreement entitled 「合作協議」 (“the Cooperation Agreement”) with Weiyuen Shenzhen. The Cooperation Agreement was dated 2 February 2007 but it was actually signed on 15 May 2007. TTY signed the Cooperation Agreement not in his personal capacity but as the legal representative of Weiyuen Shenzhen.

12.  The pleaded express terms of the Cooperation Agreement include:

(a) The purpose of the Cooperation Agreement was to restructure and to develop TTY’s business of the Product;

(b) TTY’s business and the Trademark would be transferred to a newly formed entity viz New Weiyuen;

(c) Further loans in the sum of HK$2,951,200.00 would be advanced by Xu and Lai to maintain the business and production of the new company;

(d) Given the outstanding dues, the total loan would stand at HK$10 million;

(e) TTY acknowledges that a total amount of interest of HK$1,584,800.00 has accrued on the existing loans (as at the date of the Cooperation Agreement);

(f) Xu and Lai would procure new investors to inject further capital to New Weiyuen and the shareholding of such investors should not exceed 40%;

(g) HK$5 million of the existing loans would be converted into the share capital of New Weiyuen so that Xu and Lai would be entitled to 40% shares of New Weiyuen; and

(h) The balance of the loans would be repaid by installments and the repayment schedule would be confirmed by the parties taking into account the expected investment of the new investor.

13.  The parties entered into several supplemental agreements subsequent to the Cooperation Agreement. It is only necessary to note that the parties subsequently agree that the governing law of the Cooperation Agreement together with all the supplemental agreements is PRC law.

14.  Xu and Lai allege that TTY entered into an oral agreement in personam with Xu and Lai (“Collateral Agreement”) in consideration of their agreement to enter into the Cooperation Agreement with Weiyuen Shenzhen. The express terms of the Collateral Agreement contained the following undertakings and warranties of TTY:

(a)After deduction of the HK$5 million as share capital, the remaining amount of the loans advanced by Xu and Lai would be repaid by Weiyuen Shenzhen within reasonable time;

(b) In consideration of the loans advanced by Xu and Lai and their contribution of HK$5million, they would be entitled to 40 shares of the newly formed entity whether or not a new investor could be procured;

(c) Xu and Lai would be entitled to 40% shares of the new business entity, viz, New Weiyuen including its business relating to the Product. They would also be entitled to share the profit arising from the sale of the Product since 14 February 2006 at the flat rate of RMB 1.00 per can whether or not the restructure of the companies of TTY materializes; and

(d)Xu and Lai would be 40% shareholders of the company which is the proprietor of the registrations of the Trademark both in Hong Kong and the PRC, whether or not the restructure of the companies of TTY materializes.

15.  Xu and Lai allege that they relied on and/or were induced by the 1^st and 2^nd Representations and the Collateral Agreement when entering into the Cooperation Agreement. They performed the Collateral Agreement in particular by advancing loans totaling HK$10 million to Weiyuen Shenzhen and other additional loans allegedly in reliance on and/or under the inducement of the 1^st and 2^nd Representations and the Collateral Agreement.

16.  The core complaints of Xu and Lai are that TTY failed to procure any restructuring of his companies as promised and that they received no share of the profits arising out of the sale of the Product. Lastly, they fail to recover any part of the loans advanced to Weiyuen Shenzhen.

17.  Xu and Lai further make a conspiracy plea and allege that TTY and Muk wrongfully and with intent to injure them conspired and agreed together to wrongfully and unlawfully misappropriate their money and/or do other unlawful acts against them.   

18.  This conspiracy claim is based on the following allegations. Despite their economic interests under the Cooperation Agreement and Collateral Agreement, TTY and Muk acting in concert caused China Profit to enter into a sale and purchase agreement with Techson (HK) Ltd (“Techson”), a Hong Kong company and Yuen Tai to enter into a “Framework Agreement”.

19.  The agreement with Techson was made on 14 August 2007 (“the Techson Agreement”) whereby Muk together with another liquidator of China Profit agreed with the approval of the Committee of Inspection to sell all the equity interest of China Profit in Weiyuen Shenzhen to Techson for 10 million.  

20.  The Framework Agreement is undated and was made among Weiyuen Shenzhen, TTY and three other PRC companies (“the PRC Companies”). Under the Framework Agreement, TTY as the shareholder of Yuen Tai and the legal representative of Weiyuen Shenzhen, was to procure China Profit to transfer the shares of Yuen Tai to the PRC Companies and TTY himself in exchange of their injection of capital into the business of Weiyuen Shenzhen. Under the Framework Agreement, in the end, TTY would have 51% shares in Yuen Tai and the PRC Companies would have different shareholdings of Yuen Tai making up the remaining 49%.

21.  Xu and Lai allege that from June 2007 to September 2009, TTY received a total sum of RMB126,900,000.00 from the PRC Companies pursuant to the Framework Agreement.

22.  By reason of the foregoing allegations, Xu and Lai claim that the 1^st and 2^nd Representations were made falsely, negligently, fraudulently and recklessly and that TTY had no intention to perform the Collateral Agreement at all. They claim that TTY conspired with Muk to induce them into entering into the Cooperation Agreement, which Weiyuen Shenzhen failed to perform, and hence they have suffered loss and damage.

23.  Thus, the action of Xu and Lai against TTY is based on misrepresentations in the form of the 1^st and 2^nd Representations, breach of the Collateral Agreement and the economic tort of conspiracy to injury.

24.  The non-involvement of Weiyuen Shenzhen is conspicuous. It is privy to the Cooperation Agreement and apparently liable to repay any loans advanced to it by Xu and Lai. Yet, it is not a party to this action.

Preliminary matters

25.  At the outset of the hearing, I raised two procedural matters with Mr Man, counsel for TTY and Mr Chan, counsel for Xu and Lai in light of what transpired at the hearing below. First, Master S Kwang, quite rightly, found the Summons defective in that the Summons does not state any of the specific grounds set out in Order 12 rule 8(2A), in breach of rule 8(3) under the same Order. Mr Chan makes the same complaint in his skeleton submission.

26.  Apparently, Xu and Lai understand perfectly the grounds of the application and the parties are able and ready to argue the merits of the application despite the irregularity. Mr Chan confirms that he would take no point about the irregularity.

27.  Secondly, I note that the expert reports respectively filed by the parties were ruled inadmissible by Master S Kwang for want of a statement of truth in compliance in compliance with Order 38 rule 37A. Whilst Mr Man refers to the expert report filed by TTY dated 27 December 2011 (“the TTY Expert Report”) in his skeleton submission, Mr Chan is his document does not refer to any expert evidence at all.    

28.  Mr Man immediately hands up a copy of the statement of truth dated 26 March 2014 for the purpose of curing the defeat and asks for indulgence to file the same so that the TTY Expert Report could be made admissible for the purpose of this rehearing of the Summons. Mr Man confirms that the TTY Expert Report would be relied upon to a very limited extent to show that there exists an argument that under PRC law, a contract of guarantee has to be in writing. Mr Man submits that the omission of the statement of truth in the first instance is very technical in nature and there can be no prejudice caused to the other side.

29.  Mr Chan opposes the application and quite rightly complains about the inexcusable lateness of the application. The notice of appeal was filed in October 2013 and there is no reason why TTY left it till the day before this hearing to cure the defeat.   

30.  Admittedly, as Mr Man frankly accepts, there is no valid explanation for the delay. Yet, I find the omission to be, after all, a mere irregularity causing no real prejudice to the plaintiffs. The lateness of the remedy by way of a late statement of truth causes no real prejudice, either. The TTY Expert Report without a statement of truth was filed in 3 January 2013. The plaintiffs had ample opportunity to deal with its contents and no objection to its contents was ever taken on the ground that there is no statement of truth. I do not think that it is just to exclude the TTY Expert Report simply because of the lateness of the filing of the requisite statement of truth to comply with the formality. In the result, I accede to this application of TTY and accept the late statement of truth to be filed. The upshot is that the TTY Expert Report is admissible for the purpose of the Summons and it would be relied on only to the said limited extent.

Applicable legal principles

31.  There is no dispute about the general principles relating to an application to a stay of proceedings on basis of forum non conveniens.  The guiding principles were expounded by the House of Lords in Spiliada Maritime Corp v Cansulex Ltd, the Spiliada [1987] 1 A.C. 460 where the well-known 3-stage test was formulated. Cheung JA in DGC v SLC nee C, unreported, CACV 37/2005, 1.8.2005 gave a convenient summary of the same, which is as follows:

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 proceeding 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.

32.  My assessment of the merit of TTY’s application would be made with reference to the foregoing considerations. Before doing so, I further note that where an action is founded as of right in a forum which is being challenged, this is a relevant factor to refuse to grant a stay: Spilida at p.477 and Pei Zheng Middle School and Anor. v China Pui Ching Education Foundation Limited formerly known as Pui Ching Educational Foundation Limited, unreported, CACV 262/2005, 21.2.2006 per Cheung J.A. at §19.

33.  Moreover, I should note that, as accepted by Mr Man, the merit of the plaintiffs’ claim (or the lack of it) is not a relevant consideration in this application despite his forceful submissions on the peculiar features and unsustainability of the plaintiffs’ claim against TTY. 

The application

34.  As pointed out by Mr Chan, TTY is a Hong Kong Identity card holder having a Hong Kong residential address stated in his affirmations. He also provided a Hong Kong address in the Framework Agreement. He is being sued on the basis that he is a Hong Kong resident. As such, jurisdiction in Hong Kong is evoked by Xu and Lai against TTY as of right. Mr Man submits that it is only a matter of onus meaning it is incumbent on TTY to demonstrate that his specified PRC forum is clearly more appropriate.

35.  I do not agree that this is only a matter of onus. As noted by DHCJ Lam (as he then was) in First Laser Limited v Fujian Enterprises (Holdings) Co. Limited and Anor., unreported, HCA 4414/2001, 12.12.2002, Lord Goff in Spiliada had this to say at p.476F:

“The question being whether there is some other forum which is the appropriate forum for the trial of the action, it is pertinent to ask whether the fact the plaintiff has, ex hypothesi, founded jurisdiction as of right in accordance with the law of this country, of itself gives the plaintiff an advantage in the sense that the English court will not likely disturb jurisdiction so established.”

36.  The deputy judge went on to refer to the following dictum of Keith JA in United Phosphorous Limited v China Merchants Shipping & Enterprises, unreported, CACV 244 of 1988, 11.2.2000 on the issue as to what weight the court could attach to the fact that the plaintiff sue the defendant in Hong Kong as of right in light of the foregoing dictum of Lord Goff,

“Lord Goff himself recognized that distinctions can be drawn even between the plaintiffs who have the right to sue in a particular jurisdiction. Lord Goff gave the example at p.477F of the case where “the connection of the defendant with the English forum is a fragile one (for example, if he is served with proceedings during a short visit to this country)”. Hat is to be contrasted with corporate defendants, such as the defendant in the present case, who are incorporated in Hong Kong and who hold themselves out as doing business in Hong Kong. In such cases, it is not inconsistent with Lord Goff’s statement of principle for the court to give modest weighting to the plaintiff’s right to sue in Hong Kong. To apply what Lord Goff said to the Hong Kong context, the more fragile the defendant’s connection with Hong Kong, the easier it should be for the defendant to prove that there is another clearly more appropriate forum for the trial than Hong Kong.”

37.  Hence, the true effect of the statement of principle of Lord Goff is clear. Whether jurisdiction is evoked as of right does not just concern the onus in an application for a stay on the ground of forum non conveniens. It also sheds light on the standard of proof as to whether there is another clearly more appropriate forum. In the present case, given the undisputed connection of TTY with Hong Kong, this court is justified to require more cogent grounds to be advanced by TTY for his stay application given the fact that TTY is being sued as of right in Hong Kong.  

38.  Mr Man first points out that Xu and Lai by petition sought to wind up Weiyuen Shenzhen in Shenzhen in October 2008 by reason of its breach of the Cooperation Agreement. The petition was dismissed for want of a prior civil action against Weiyuen Shenzhen in the PRC.

39.  Mr Man further submits that the breach of the Cooperation Agreement on the part of Weiyuen Shenzhen lies at the heart of the complaints against TTY and Weiyuen Shenzhen must be a necessary party to an action against TTY.  He submits that Xu and Lai should sue Weiyuen Shenzhen in the PRC, Weiyuen Shenzhen being a PRC entity with no presence in Hong Kong and the Cooperation Agreement and all other supplementary agreements being governed by PRC law.

40.  Mr Man submits that the Collateral Agreement allegedly made was in essence a guarantee of Weiyuen Shenzhen’s obligations under the Cooperation Agreement. As such, TTY is entitled to be indemnified by the principal debtor, i.e. Weiyuen Shenzhen and thus to join Weiyuen Shenzhen as a party even if Xu and Lai do not join Weiyuen Shenzhen in the first place. If Weiyuen Shenzhen is joined, it may well dispute any breach of the Cooperation Agreement on its part.

41.  In passing, I note that according to the affirmations of TTY, he is still the legal representative of Weiyuen Shenzhen and he handled the winding-up petition presented by Xu and Lai against Weiyuen Shenzhen. He should be able to at the very least state the legal position of Weiyuen Shenzhen regarding the alleged breach of the Cooperation Agreement. Yet, he does not even make a bare denial in his affirmations.  

42.  In short, Mr Man seeks to persuade that this is essentially a composite dispute involving three parties. Weiyuen Shenzhen is a necessary party at least for contribution and/or indemnity purposes. The composite dispute should be resolved at the same time by one single tribunal to avoid inconsistent decisions and the Shenzhen Lou Wu People’s Court should be the most appropriate forum. 

43.  Mr Man relies heavily on two English authorities in this regard. First, he refers to me The El Amria [1981] 2 Llyod’s Re 119, CA. In that case, the plaintiffs loaded their cargo of Egyptian potatoes into the defendants’ vessel El Amria for carriage from Alexandria to Liverpool. In the bills of lading, there was a foreign jurisdiction clause to the effect that any dispute arising under the bills of lading should be decided in and by the application of the law governing the business place of the defendants’ vessel, i.e. Egypt. When the potatoes reached Liverpool, the cargo was discharged by an English company, viz, Mersey Docks and Harbour Co.  It was found that some or all of them were in a seriously deteriorated condition. 

44.  The defendants alleged that any deterioration in the cargo had been caused not by any fault of the ship but by delay in discharge, deflecting the blame onto the English company. This allegation prompted the plaintiffs to issue a writ in peronam against the English company in England claiming against them damages for delay in discharging the cargo.

45.  The defendants applied for a stay of an action against them in England in reliance of the foreign jurisdiction clause but Sheen J in the first instance refused their application. The Court of Appeal dismissed their appeal notwithstanding their disagreement with Sheen J in some respects.

46.  Mr Man highlights to me the following dictum of Brandon LJ at p.128:

“I agree entirely with the learned Judge’s view on that matter, but would go rather further than he did in the passage from his judgment quoted above, By that I mean that I do not regard it merely as convenient that two actions, in which many of the same issues fall to be determined, should be tried together; rather that I regard it as a potential disaster from a legal point of view if they were not, because of the risk inherent in separate trials, one in Egypt and the other one in England, that the same issues might be determined differently in the two countries.”

47.  Mr Man next refers me to Donohue v Armco Inc and Ors. [2002] 1 All ER 749, HL.  There, the House of Lord considered an appeal from a decision to allow an anti-suit injunction to stop the plaintiffs from suing the defendant in any forum other than England. The plaintiffs and the defendant were parties to an agreement containing an exclusive jurisdiction clause whereby the parties submitted themselves to the exclusive jurisdiction of the English Courts. In spite of the clause, the plaintiffs instituted proceedings in New York against the defendant and other alleged co-conspirators who were not privy to the exclusive jurisdiction clause.

48.  Lord Bingham, whose speech was agreed with by Lord Mackay, Lord Nicholls, Lord Hobhouse and Lord Scott, reviewed some authorities including The El Amria and cited the foregoing dictum of Brandon LJ with approval. Lord Bingham acknowledged both the defendant’s strong prima facie right to be sued in England and the clear prima facie right of the plaintiffs to pursue other claims in New York. His Lordship agreed that the interests of justice were best served by the submission of the whole dispute to a single tribunal and that a procedure which permitted the possibility of different conclusions by different tribunals perhaps made on different evidence would run directly counter to the interests of justice. This overriding concern drove his Lordship to the conclusion that there were strong reasons for not giving effect to the exclusive jurisdiction clause in favour of the defendant and hence refused to grant the defendant an anti-suit injunction.   

49.  On these authorities, Mr Man submits that in the absence of an exclusive jurisdiction clause for the parties’ submission to the Hong Kong courts, this court should a fortiori be ready to allow the composite tripartite dispute be tried in the Shenzhen Lou Wu People’s Court so as to avoid the potential disaster of inconsistent decisions on the same issues among the parties.       

50.  I cannot accept the argument of Mr Man albeit attractively and skillfully presented.

51.  In my judgment, when considering whether this court should exercise the discretion to stay this action, the focus should firmly remain on the existing parties to this action and the issues raised between them in this action.

52.  As mentioned, TTY is an ordinary Hong Kong resident. He has assets in Hong Kong including his shareholdings in Yuen Tai. There is no suggestion that he has any significant assets in the Mainland. Xu and Lai themselves are also businessmen based in Hong Kong. As regards the issues in this action, TTY allegedly made the 1^st and 2^nd Representations, the Collateral Agreement and his conspiracy by himself and/or with Muk, who is also a Hong Kong resident and has previously submitted to this jurisdiction. The major controversy in these proceedings is the beneficial interest in China Profit, a Hong Kong company. The Trademark, being one of the subject matters of this action, is owned by Yuen Tai, a Hong Kong company. The Techson Agreement, another subject matter of this action, involves Hong Kong parties only. Lastly, the unchallenged evidence is that most of the loans were advanced to Weiyuen Shenzhen in Hong Kong.

53.  In light of all these, I am of the view that despite their business activities in the Mainland, all the parties to this action are more closely connected with Hong Kong than with the Mainland and that the issues in this action have sufficient local connections.

54.  On the other hand, I would agree that TTY may turn to Weiyuen Shenzhen for contribution and/or indemnity in so far as the claims relating to the Representations and Collateral Agreement are concerned. He may pray in aid Order 16 proceedings in Hong Kong in due course.

55.  However, it is clear that Xu and Lai are not obliged to sue Weiyuen Shenzhen in this action. They are free to sue TTY alone in Hong Kong at their own risk. Mr Man does not suggest that Weiyuen Shenzhen is an indispensable party to their present claim against TTY to the extent that they are unable to pursue their claim against TTY without Weiyuen Shenzhen. Apparently, they have also decided not to sue Weiyuen Shenzhen in the Mainland and again it is a matter of their decision. The important thing is that they have not started any proceedings against Weiyuen Shenzhen elsewhere.

56.  It is not suggestion that TTY has an independent claim against Weiyuen Shenzhen. There is no evidence of its intention to sue Weiyuen Shenzhen in any jurisdiction other than seeking from it contribution and/or an indemnity when Xu and Lai sue him. Thus, there is no evidence that Weiyuen Shenzhen would be sued by either Xu and Lai or TTY in the Mainland or elsewhere.

57.  In the circumstances, the situation is very different from those in The El Amria and the Donohue case. There can be no potential disaster arising from inherent risks in separate trials if the present action is to proceed against TTY alone in Hong Kong.

58.  Mr Man suggests that it is entirely uncertain whether TTY could succeed in joining Weiyuen Shenzhen to the present action. Hence it is submitted that Hong Kong is not the forum conveniens for the determination of both the plaintiffs’ claim and the claim of TTY against Weiyuen Shenzhen.

59.  As said, Xu and Lai opt not to sue Weiyuen Shenzhen in this action and they are entitled to make this decision. In regard to the claim of TTY, I do not understand why there is any uncertainty as to whether Weiyuen Shenzhen can be joined under the Order 16 proceedings. TTY being the legal representative of Weiyuen Shenzhen and having handled the petition against Xu and Lai on behalf of Weiyuen Shenzhen previously must be able to state the position. In any event, TTY and not the plaintiffs should overcome any purported difficulties in joining Weiyuen Shenzhen to these proceedings if TTY opts to apply for the joinder and this does not affect the appropriateness of the Hong Kong courts to try their claim.

60.  Mr Man also makes a submission on the governing law of the Collateral Agreement. He submits that since the Collateral Agreement is essentially a guarantee of Weiyuen Shenzhen’s obligations under the Cooperation Agreement, the governing law of the Collateral Agreement should be that of the Cooperation Agreement: Philips: The Modern Contract of Guarantee (2^nd edn, 2010). Relying on the TTY’s Expert Report, Mr Man further submits that such a guarantee has to be in writing according to PRC law.

61.  Mr Chan first submits that the Collateral Agreement is to be governed by Hong Kong law pursuant to the common understanding and the agreement between the plaintiffs and TTY as disclosed in the evidence of the plaintiffs. Mr Man observes that it is inconceivable that the parties had this common understanding and agreement when the Collateral Agreement was made orally. He pertinently points out that even the original Cooperation Agreement did not contain any express choice of law clause. There is much force in Mr Man’s submission but whether there was such a common understanding and agreement cannot be resolved on affidavits and I shall refrain from doing so. 

62.  Mr Chan further submits that the pleaded terms of the Collateral Agreement including matters not covered by the Cooperation Agreement. He points out that TTY allegedly undertakes and warrants more than those obligations of Weiyuen Shenzhen under the Cooperation Agreement. For example, under the Collateral Agreement, TTY allegedly promises profit sharing of the Product since 14 February 2006 and 40% shares in the company having the registrations of the Trademark in Hong Kong and the PRC in any event.

63.  Be that as it may, in my view, this does not alter the fact under the Collateral Agreement, TTY allegedly guarantees Weiyuen Shenzhen’s performance of some of its obligations under the Cooperation and in so far as such guarantees are concerned, it remains a live issue whether they would be rendered enforceable for want of writing if PRC law is applicable.

64.  Even if I accept that both the Collateral Agreement and the Cooperation Agreement are to be governed by PRC law, though this being a relevant consideration, I am not convinced on the evidence that the Hong Kong court is not an appropriate forum to try the disputes between the parties. Given the present socio-economic condition in Hong Kong, it is not uncommon for the Hong Kong courts to deal with disputes involving PRC law. There is no allegation that the disputes in this action involve any complicated and difficult legal issues such that the Hong Kong court may not be able to handle even with the guidance of expert evidence of PRC law: City Express Investment Limited and Ors v Zhang Da Wai, unreported, HCA1673/2003, 8.11.2004.

65.  I should also deal with the allegation of TTY that various defence witnesses reside in the Mainland and it would be difficult if not impossible for them to attend court proceedings in Hong Kong. Three of such witnesses are identified in the affirmation and they are apparently based in Shenzhen. It is unclear how their evidence would be relevant to the issues between the parties. There is also no cogent evidence to explain their alleged impossibility or difficulties to cross the border to testify for TTY in the Hong Kong court. I am not convinced on the evidence that the location of the defence witness is a very weighty factor in the balance.

66.  Lastly, Mr Chan draws my attention to another set of High Court proceedings under HCMP 964/2013 in which TTY was sued as a defendant. That action, Mr Chan submits, involve similar issues and entities and hence there is no reason why TTY submitted to jurisdiction in that action whereas in the present action TTY alleges Hong Kong is not a convenient forum.

67.  However interesting this argument sounds, I am reluctant to place any weight on that action. In the absence of full knowledge of its details, I am unable to make a meaningful comparison of the issues involved.

Conclusion and Orders

68.  By reason of the foregoing analysis, I come to the conclusion that TTY has failed to show that Hong Kong is not the natural or appropriate forum for the trial of the plaintiffs’ present claim and I am not at all convinced that the Shenzhen Luo Wu People’s Court is clearly or distinctly more appropriate. That being my conclusion, I need not consider the second and third stages and the Summons should be dismissed on that basis.

69.  I therefore dismiss the appeal and affirm the order of Master S Kwang. Costs should follow the event and so I make an order nisi that TTY should pay Xu and Lai their costs of the appeal. Summary assessment of costs on papers seems appropriate. I direct that the plaintiffs shall file and serve their statement of costs by 21 May 2014 and TTY shall file and serve his grounds of objection if any by 28 May 2014.

70.  It remains for me to thank Mr Chan and Mr Man for their able assistance.