VIOLET PASSION HOLDINGS LTD v. LIAN YI

HCA 1981/2020

[2024] HKCFI 2684

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1981 OF 2020

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D E C I S I O N

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A.  INTRODUCTION

1.  This is the restored hearing of the Plaintiff’s re-amended summons first taken out on 21 October 2022. The Plaintiff seeks :

(1)  To continue the 2^nd Injunction Order made by Cheng J on 13 October 2022 (as varied by various orders) until further order; and

(2)  To allow substituted service on the Defendant to be effected by delivery of the relevant documents (marked for the attention of the Defendant) to Ling & Lawyers (“L&L”); alternatively for service of these proceedings to be dispensed with.

2.  At the hearing, I have granted an order to vary the terms of the 2^nd Injunction to put in the name of Quam formerly known as China Tonghai and continued the ex parte injunction as varied until further order. This decision only deals with the application for substituted service order.

B.  BACKGROUND

3.  The background has been aptly summarized by Mr Dong, counsel for the Plaintiff, and I gratefully adopt the same.

4.  The Plaintiff claims against the Defendant, its former director, for misappropriation of assets of the Plaintiff in favour of herself. The misappropriated assets consisted of 55 million shares in a listed company called Yunfeng Financial Group Limited (“the Shares”).

5.  The Defendant had and has a personal account (“Quam Account”) at Quam Securities Ltd (“Quam”, formerly known as China Tonghai Securities Ltd).

6.  As of the date of this hearing, the traceable misappropriated assets consist of the following in the Quam Account: (i) 50,902,000 Shares; and (ii) a cash balance of HK$9,054,149.63 (“Remaining Balance”), being traceable proceeds of sale of the Shares.

7.  On 24 November 2020, the Plaintiff obtained an injunction (“1^st Injunction Order”) from Wilson Chan J. However, due to oversight, the 1^st Injunction Order lapsed. The Plaintiff thus obtained the 2^nd Injunction Order from Cheng J on ex parte basis on 13 October 2022. The 2^nd Injunction Order has since been continued until further order.

8.  The Defendant has 3 addresses in Mainland China, abbreviated as (i) Nanshan Address; (ii) Longgang Address; and (iii) Futian Address.

9.  In the past 4 years since the writ was issued, with leave to serve out of jurisdiction in the Mainland, the Plaintiff has made various attempts to serve the Defendant with the Writ, and the 1^st and 2^nd Injunction Orders through Mainland judicial channel, pursuant to Order 11, rule 5A of the Rules of the High Court (“RHC”), but to no avail.

10.  Meanwhile, after the 2^nd Injunction Order was obtained, the Defendant had attempted to withdraw HK$9 million of the Remaining Balance on 12 December 2022. She emailed William Chun of Quam (“Mr Chun”) requesting for the money to be deposited into her bank account at Hang Seng Bank. The withdrawal instruction was cancelled by Quam on the same day.

11.  According to Quam, the Defendant had 2 conversations with Mr Chun concerning that request to withdraw.

(1)  During the 1^st conversation, the Defendant was informed by Mr Chun that the withdrawal instruction could not be processed because “her account was suspended due to a court order”; but the Defendant claimed that “the case was resolved/settled”. When she was asked to provide documentary proof, she claimed that it was not yet available.

(2)  During the 2^nd conversation, the Defendant claimed that a “legal letter” and withdrawal form would be delivered to Mr Chun later on 12 December 2022.

(3)  On 12 December 2022, L&L issued a demand letter on behalf of the Defendant to Quam (“the Demand Letter”). L&L demanded Quam to transfer HK$9 million from the Quam Account immediately. It further threatened that if the demand was not complied with by noon on 13 December 2022, L&L had the Defendant’s instructions to forthwith commence legal proceedings against Quam without further notice and to seek assistance from regulatory authorities.

12.  At that time, the 2^nd Injunction Order did not on its face cover the Remaining Balance. After the Plaintiff’s solicitors, Zhong Lun, was informed by Quam of the Defendant’s attempt to withdraw funds from the Quam Account, the Plaintiff applied for and was granted an order to vary the Injunction Order to expressly freeze the Remaining Balance.

13.  Further, the Defendant had commenced 2 sets of civil proceedings in the Mainland (“the Mainland Proceedings”) against:

(1)  Faith Corporate Services Limited (“Faith Corporate”), the administrators of the Plaintiff and its wholly owned parent company, Clear Expert; and Wang Shiming, the current sole director of the Plaintiff; and

(2)  Faith Corporate only.

14.  The Mainland Proceedings were commenced in April and October 2021, respectively, ie after the writ was issued in the present action. In summary, the Defendant claimed that she had lost her passport and Wang Shiming had forged documents to facilitate transfer of her shareholding and directorship in the Plaintiff and Clear Expert.

15.  Wang Shiming disputed the jurisdiction of the Qianhai Court. In his submission dated 14 June 2021, he relied on the fact that the Plaintiff had commenced the present action and had applied for an injunction against the Defendant, which the High Court had granted in November 2020. Therefore, the Defendant would have notice of the present action and, at least, the 1^st Injunction Order.

16.  The claim against Faith Corporate was dismissed for lack of jurisdiction, as the PRC Court held that she has failed to prove that the infringing conduct took place in Mainland China.

17.  The Defendant plainly had an address at the Futian Address:

(1)  The documents filed in the Mainland Proceedings showed her address to be the Futian Address.

(2)  The Defendant had confirmed that her address for service was the Futian Address in the proceedings against Faith Corporate.

(3)  The judgment dated 31 May 2023 by the Guangdong Shenzhen Intermediate People’s Court showed the Defendant’s address on her identification document to be the Futian Address.

18.  Despite that, service on the Defendant in the past 4 years at the Futian Address had been unsuccessful.

19.  The Plaintiff has applied for substituted service by way of public announcement through the Guangdong Province Shenzhen Futian District People’s Court. However, as Master J Wong informed the Plaintiff on 13 November 2023, that mode of service would not be entertained by the Mainland courts.

20.  On 8 December 2023, Master J Wong granted a substituted service order: (i) giving leave to serve documents out of jurisdiction on the Defendant by delivering them to the office addresses of Quam, L&L and Dah Sing Bank where the Defendant maintained a bank account; and (ii) advertisement in a local newspaper. The order was complied with and the Plaintiff sought to restore the present summons.

21.  By a letter dated 18 March 2024, this Court doubted the appropriateness of the service in view of recent authorities of Toyota Boshoku, Europe NV v Kingsville (HK) Ltd [2024] HKCFI 352, §15; and NTT Devices America Inc v QDE Trade Co Ltd [2024] HKCFI 453, DHCJ KC Chan, §§13-28, 30-32, 34-36. This Court declined to restore the present summons for hearing.

22.  Zhong Lun then made enquiries with Quam for more details about the 2 conversations with the Defendant. Upon Zhong Lun’s request for clarification, L&L replied, on 29 May 2024, that they merely acted for the Defendant in issuing the Demand Letter and no more. L&L had no instructions to accept service, and did not see themselves as having a duty to pass documents to the Defendant.

C.  SUBSTITUTED SERVICE

C1.  Legal principles on substituted service

23.  The requirement is to bring the particular document to the notice of the person being served. The fist consideration must be where the person is likely to be found. Consideration must be given as to what practical steps can be taken to bring the documents to the attention of the relevant party. Often advertisements will be the only practical way. See Chan Yeuk Mui v Ng Shu Chi [1999] 2 HKLRD 376, 380E-H, CA.

24.  Substituted service may be ordered if the proposed means of service would reach the defendant in all reasonable probability: Deutsche Bank AG v Zhang Hong Li [2016] 3 HKLRD 303, §§56, 79. In that case, substituted service on the defendant was ordered on a firm of solicitors (RB) which had not been authorized to accept service in that action but in another extant action in which the defendant sued as one of the plaintiffs.

25.  Substituted service on a solicitor who is not formally on record in an action may be ordered, if the court is satisfied that the party to be served is a client of that solicitor and that solicitor has the means of contacting that client, thus ensuring that the documents are brought to his attention: Price v Douglas [2023] IEHC 247, §§3-5, HC of Ireland.

26.  In that case, there was no solicitor on record for a substituted defendant D. However, D had engaged a solicitor S in respect of the proceedings, in particular in settlement discussions for 2 months in 2022. S had since indicated in correspondence that her firm was not involved in the relevant proceedings, asserting that “your appeal has nothing to do with our office and/or our client”. It seemed that S had, from time to time, instructed counsel to maintain a watching brief on applications in those proceedings. S also acted for D in taking out the letters of administration in respect of the deceased defendant’s estate. It had not been possible to effect personal service on D, and D did not appear to have a presence on social media such as Facebook or Linkedin. The court ordered substituted service on S. Mr Justice Garrett Simons comment as follows:

“7. It is important to emphasize the distinction between the obligation of a solicitor, as an officer of the court, to furnish proceedings to their client when ordered to do so, and the separate obligation to act for that client in the proceedings. The fact that substituted service may have been effected upon a solicitor does not make that solicitor the solicitor on record in the proceedings. The obligation extends merely to making a reasonable effort to furnish the papers to their client.”

27.  The court therefore ordered service on S at her office address, deeming such service as good service on D. S was at liberty to apply to set the order aside by a specified date. If no such application is made by S by that date, the court will assume that D has received a full set of the papers and a date will be fixed for hearing of the appeal. (§§9-10 of the judgment)

28.  The approach of the Irish High Court was similar to that in the case of Deutsche Bank v Zhang Hong Li.

29.  If a solicitor considers that he/she is not in a position to fulfil the substituted service order, the proper approach is not to ignore the order by returning the documents, but to apply to the court for relief from the task by setting the order aside: Danske Bank v John Meagher [2013] IEHC 496, §19.

30.  A solicitor is clearly distinguishable from other entities (like banks) who may be in communication with a defendant to be served. Accepting service of court documents is not part of their usual service for customers: Toyota Boshoku, §§15(2) and (3); NTT Devices, §§20-28. A solicitor, however, is familiar with service of legal documents and owes duties to the court. There is thus justification to order a solicitor who satisfies the test in paragraphs 24 and 25 above to pass on documents to a defendant client.

31.  Advertisement in a newspaper in Hong Kong is not a valid mode of service that can bring notice of proceedings on a defendant who is out of Hong Kong: Toyota Boshoku, §15(3).

C2.  Application of the legal principles to this case

32.  I am satisfied that the Plaintiff has used their best endeavours to serve the Defendant in Mainland China. Their failure to effect service was due to circumstances entirely out of its control. The Plaintiff may, of course, take out another application for Norwich Pharmacal Order against the Hang Seng Bank. However, if the Defendant could not be located at the Futian Address provided by her own self to the Mainland courts, it is unlikely that there would be other addresses at which the Defendant could be found.

33.  The Defendant clearly has learnt through Mr Wang Shiming the existence of the present action; and through Mr Chun “a court order” freezing her Quam Account. And yet for another 2 years since and despite the enormous amount involved, she has never taken any step to set aside “the court order” pursuant to the threat in the Demand Letter. She has clearly been evading service or she simply lacks merit in setting aside the court order. A substituted service order is warranted.

34.  L&L have not been solicitors on record for the Defendant and I do not agree with Mr Dong that L&L was acting as a fiduciary for the Defendant just by issuing the Demand Letter. However, L&L has done a single act in Hong Kong on behalf of the Defendant – that of issuing the Demand Letter against a local securities company, in relation to a subject matter directly related to the cause of this action. L&L’s position was even more direct than RB in the case of Deutsche Bank v Zhang Hong Li.

35.  The Demand Letter was issued more than 1 ½ years before the present application for substituted service. The Plaintiff should have applied earlier. However, there is nothing to indicate that any prejudice to the Defendant has arisen in the meantime or that L&L has lost the means of contacting her. Considering the delay of the Plaintiff and the Defendant’s evasion of service, the balance is in favour of substituted service so that this action can progress as soon as possible.

36.  The intended order would be of the kind set out in Price v Douglas, with liberty to L&L to apply to have it set aside within 2 months. Documents will be deemed served after they are left with L&L and there would be no need for L&L to file an affirmation of service, unless called upon by the Court to do so. The Plaintiff does not object to indemnifying L&L for costs in compliance with the intended order.

37.  In addition, the Defendant appears to have 2 email addresses:

(1)  lylian_unsw@yeah.net (at p.103 of the hearing bundle, which L&L claimed to be kept by Quam); and

(2)  violetpassion@126.com (Zhong Lun had been using this to send documents to the Defendant, with no message of delivery failure received).

I require the intended order to be served at those 2 email addresses as well.

C3.  L&L’s concerns as to the substituted service order to be made

38.  L&L has been notified of this application for substituted service and has made representation by letter dated 4 July 2024. In gist, they object to an order being made for the following reasons:

(1)  There are many flaws in the Plaintiff’s submission;

(2)  L&L would suffer unreasonable hardship and there will be multiple issues of professional conduct for solicitors; and

(3)  There may be other avenues as mentioned in the case of Toyota Boshoku Europe NV or otherwise.

39.  With regard to the first reason, L&L submit that:

(1)  Even as officers of the Court, they are not assistants to the Plaintiff and would not want to do so without remuneration from the Plaintiff. With respect, the intended order would not make L&L assistants to the Plaintiff. L&L’s obligation stems from the terms of the intended order itself. L&L will be compensated on costs for compliance.

(2)  They are bound by solicitors’ professional conduct and duty of confidentiality not to disclose to the Plaintiff whether or not they still have contact with the Defendant, whether or not they are able to pass any document to her, and whether or not they have passed any document to the Defendant. The Plaintiff’s counsel was merely speculating as there is no evidence to show that there was contact between the Defendant and L&L and whether they are still able to effectively pass any document to her. There are privacy issues, since clients may have consented to the use of their contact method for one particular purpose but not another. With respect, the intended order would not require L&L to breach professional conduct or duty of confidentiality, or disclose the means of contacting the Defendant. If L&L face any difficulty in service, there is liberty on them to apply under the principle of Danske Bank v John Meagher.

40.  With regard to the second reason, L&L submits that it would be difficult to comply with the order because of various issues:

(1)  Privacy – litigants have the right to keep legal documents to themselves and they may not want anyone else, including their former solicitors to know anything about the present case. Personal data may need to be used for a purpose not consented to by the client.

(2)  Parameters of the order – are L&L bound to pass the documents or could they ignore the documents passed to them? What is the time limit for service and the mode of service? Must L&L ensure that the documents have been delivered to the Defendant? Are L&L duty bound to review the documents or blindly pass any documents received from the Plaintiff? Are L&L duty bound to explain the documents to the Defendant or answer her questions about service of process? Would the passing of documents to the Defendant make her a de facto client of L&L, ending up with all the fiduciary duties as in the case of a regular solicitor-client relationship?

(3)  Clients have the right to freely instruct solicitors. They may not want a particular firm to pass documents to them or otherwise get involved in their case.

(4)  L&L had charged the Defendant for the relatively standard Demand Letter but would have to incur substantial time and resources in dealing with this service issue over the past 1 ½ years as the Plaintiff kept sending documents to L&L and recently got L&L involved in court correspondence. Costs can nowhere be recovered. More costs will be incurred if the substituted service order is made.

41.  With respect, the alleged hardships are more apparent than real. They can be answered by the comments of Mr Justice Garrett Simons in paragraph 26 above. Any “review” of documents is probably just to go through the list of specified documents to be served on the Defendant as set out in the court order to make sure that L&L had received them all and pass them on. The intended order does not impose a solicitor-client duty on L&L and the Defendant, force L&L to disclose confidential information, or take away the Defendant’s privacy. L&L would be indemnified for costs for compliance with the intended order.

42.  With regard to the third reason, L&L have not suggested any other effective avenues for service. There are none in fact.

43.  Zhong Lun’s delivery of documents to L&L in the past 1 ½ years is now history. On the other hand, L&L could have raised objection earlier, as what SCB did in Toyota Boshoku, §§11,12 and 15(1).

44.  Having considered L&L’s representations, I am of the view that the intended order will not impose an onerous burden on L&L. Applying Deutsche Bank v Zhong Hong Li and Price v Douglas, I am of the view that documents served on L&L (marked for the attention of the Defendant) would ensure that the documents are brought to the Defendant’s attention.

C4.  Terms of the order

45.  In the draft order, Zhong Lun has set out a list of documents (comprising, I am told, about 3-4 box files) to be served on the Defendant. They include the re-re-renewed writ, court orders, summonses, affirmations and skeleton submissions (“specified documents”). It also includes any further notice, order, affidavit or any other documents in relation to and arising from these proceedings on the Defendant (“further documents”).

46.  I am not minded to give a blanket order for service of the further documents. If, after service of the specified documents, the Defendant does not file an acknowledgement of service, the Plaintiff need not send her further documents, unless otherwise directed by the Court: Order 65, rule 9.

47.  Given my decision on substituted service, it is not necessary to consider the alternative of dispensing with service.

D.  CONCLUSION

48.  I therefore order as follows:

(1)  There be leave to the Plaintiff to serve the following documents on the Defendant by way of substituted service by delivering the same (marked for the attention of the Defendant) at the office address in Hong Kong of Ling & Lawyers, and the same shall be deemed to be good and sufficient service of those documents on the Defendant:

(a)  the re-re-renewed Writ of Summons in this action dated 24 November 2020 duly sealed with the seal of the High Court of the Hong Kong Special Administrative Region out of which the writ was issued and accompanied by a prescribed form of Acknowledgment of Service together with a sealed copy of the Order (inter alia, for service out) dated 27 November 2020;

(b)  a sealed copy of the Order of the Honourable Madam Justice Cheng dated 13 October 2022;

(c)  A sealed copy of the Orders of the Hounourable Madam Justice Au-Yeung dated 23 December 2022, 15 March 2023, 19 June 2023, 15 September 2023, 20 September 2023, 13 December 2023, 18 March 2024, 17 June 2024 and 5 July 2024;

(d)  the supporting affirmation(s) and affidavit(s) of the aforesaid orders and the 28^th Affidavit of Fung Yau Him Francis filed on 30 November 2023 and the exhibits referred thereto;

(e)  a sealed copy of the inter partes Summons issued on 21 October 2022;

(f)  a sealed copy of the Summons filed on 13 December 2022;

(g)  a sealed copy of the Amended Summons filed on 13 April 2023;

(h)  a sealed copy of the Summons filed on 9 June 2023;

(i)  a sealed copy of the Re-Amended Summons filed on 20 June 2023 (i.e. the 2^nd Injunction Summons as defined in paragraph 16(2) of the 28^th Affidavit of Fung Yau Him Francis filed on 30 November 2023 and the exhibits referred thereto);

(j)  Plaintiff’s skeleton submissions dated 13 October 2022, 20 December 2022, 28 June 2024 and 8 July 2024; and

(k)  this Order.

(2)  This Order shall also be served on the Defendant by way of email to 2 email addresses:

(a)  lylian_unsw@yeah.net; and

(b)  violetpassion@126.com.

(3)  Ling & Lawyers shall pass on the documents set out in paragraph (1) above to the Defendant by the means of contact in Ling & Lawyers’ possession.

(4)  The Defendant (or anyone notified of this Order) may apply to the Court at any time to vary or discharge this Order (or so much of it as affects that person) upon giving 48 hours’ written notice to the Plaintiff’s solicitors.

(5)  Liberty to Ling & Lawyers to apply to set aside this Order on or before 8 November 2024.

(6)  Costs of L&L incurred for the purpose of compliance with this Order be borne by the Plaintiff on indemnity basis, which costs shall be in the cause of this action.

(7)  Cost of, and occasioned by the Summonses dated 24 November 2020, and 21 October 2022, be costs in the cause, with certificate for counsel.

(8)  Costs of this hearing be in the cause.

49.  I thank Mr Dong for his assistance.