CHEN YU v. SKY MERIT LTD AND OTHERS

HCA 725/2022

[2023] HKCFI 1638

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 725 OF 2022

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DECISION

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INTRODUCTION

1.  There are three substantive applications placed before this Court:

(1)  The 1^st defendant’s application made by summons filed on 26 August 2022 for the present action to be stayed in favour of the Eastern Caribbean Supreme Court (Commercial Court) (“the BVI Court”) on the ground of forum non conveniens; further or alternatively, for an order that this Court should not exercise jurisdiction over the plaintiff’s claim against it; and that the leave granted to the plaintiff for these proceedings to be served out of jurisdiction on it be set aside;

(2)  The 2^nd and 3^rd defendants’ applications made by their respective summonses both filed on 13 September 2022 for the present action to be stayed in favour of the BVI Court on the ground of forum non conveniens; further or alternatively, for an order that this Court should not exercise jurisdiction over the plaintiff’s claim against them.

(collectively, “the Stay Summonses”)

EVIDENCE PLACED BEFORE THIS COURT

Applications to file further evidence

2.  Apart from the Stay Summonses, the following summonses which have only been filed in February 2023 (on or even after the due date when the agreed hearing bundle should have been lodged and served for the purpose of paper disposal of the Stay Summonses) are also pending disposal by this Court:

(1)  The 1^st defendant’s summons filed on 8 February 2023 for leave to file and serve the 4^th Affirmation of Mak Tung Shing Alrick (“Mak 4^th”);

(2)  The 2^nd defendant’s summons filed on 13 February 2023 for leave to file and serve the 5^th Affirmation of Mak Tung Shing Alrick (“Mak 5^th”);

(3)  The 2^nd defendant’s summons filed on 2 March 2023 for leave to file and serve the 9^th Affirmation of Garry Albert Muir (“Muir 9^th”).

(collectively, “the New Evidence Summonses”)

3.  As the plaintiff agreed that Mak 4^th, Mak 5^th and Muir 9^th may be considered by the Court on de bene esse basis, I will deal with the New Evidence Summonses at the end of this Decision.

Disputed items in the hearing bundle

4.  When I gave directions for paper disposal of the Stay Summonses, I directed that:

“Any documents sought to be inserted into the hearing bundle without mutual consent shall be inserted anyway but clearly marked at the index accordingly (with the ground of objection stated succinctly).”

5.  To comply with the above directions, the plaintiff’s solicitors have marked in the hearing bundle index that they object against the inclusion of a number of documents in the hearing bundle.  I will deal with the plaintiff’s objections below, following the order of the index:

(1)  The New Evidence Summonses – I do not understand why the plaintiff’s solicitors would object against the inclusion of these documents which apparently are documents which this Court has to consider.   While the plaintiff opposes the New Evidence Summonses, that does not mean that these summonses should not even be included in the bundle.

(2)  The 4^th Affirmation of Mr Garry Albert Muir (“Mr Muir”) filed on 20 October 2022 (“Muir 4^th”) – This affirmation was filed on behalf of the 1^st defendant for the purpose of a hearing before Madam Justice Cheng which was held on 19 October 2022, in which the plaintiff applied for proprietary and Mareva injunctive relief and ancillary disclosure against the defendants (“the plaintiff’s Injunction Applications”).  As the defendants’ application for leave to file Muir 4^th was dismissed by Cheng J., and they did not seek retrospective leave from this Court to file that affirmation for the purpose of the Stay Summonses, Muir 4^th should not have been included in the hearing bundle.

(3)  Mak 4^th, Mak 5^th and Muir 9^th – as aforesaid, these affirmations will be considered on de bene esse basis.  They should be allowed to be included on that basis.

(4)  Exhibits “FM-1-1” and “FM-1-2” – These are documents exhibited to the 3^rd defendant’s affirmation filed on 6 September 2022, which was filed primarily for the purpose of the plaintiff’s Injunction Applications, even though there was also a small section therein which touched on forum non conveniens. The plaintiff complained that since the said exhibits were not mentioned in that small section, they should not be included in the hearing bundle.  I do not agree.  If there is no objection against the inclusion of the 3^rd defendant’s affirmation in the hearing bundle, there is no reason why any of the exhibits thereof should be excluded.

(5)  M-8, M-9 and M-10 – These are documents exhibited to Muir 4^th.  These should not have been included in the hearing bundle by reason of the exclusion of Muir 4^th.

Mr Muir’s evidence

6.  As the director of both the 1^st and 2^nd defendants, Mr Muir has made a number of affirmations on their behalf for the purpose of their applications for stay. 

7.  In his 1^st Affirmation filed on 13 September 2022, having set out his legal qualifications and experience in Australia, New Zealand and England, he stated his belief that he was qualified to give his views and beliefs on “applicable law”[1].

8.  He then went on to, among other things, give his views on various statutory provisions of the Business Companies Act 2004 of BVI.

9.  It may well be because of Cheng J’s observation made in the Decision handed down on 16 November 2022 on the plaintiff’s Injunction Applications (“Cheng J’s Decision”) that the Court was not satisfied that he was qualified to provide expert evidence as to BVI law, that Mr Muir stated in his 5^th Affirmation filed on 23 November 2022 on behalf of the 1^st defendant that:

“I confirm I am not giving expert evidence of BVI law, as Mr Mitchell has, but I believe I am entitled to give evidence as D1’s director as to what I believe are the law…”[2]

10.  He made a similar assertion in his 6^th Affirmation filed on the same day on behalf of the 2^nd defendant.

11.  With greatest respect to Mr Muir, while he was saying that he was not giving expert evidence, he was attempting to do exactly that in his Affirmations.  That is not permissible. 

12.  This Court will not give any weight to such evidence of Mr Muir.

BACKGROUND

13.  The background of this action has been set out in Cheng J’s Decision which dealt with the plaintiff’s Injunction Applications.  I will respectfully adopt the same and quote the relevant paragraphs as follows for the sake of convenience[3]:

“2. The Plaintiff (“Mr Chen”) was a shareholder and director of VTRON Group Limited (“VTRON”), a BVI company.

3. The 1st Defendant (“Sky Merit BVI”) is a company incorporated in the BVI.

4. The 2nd Defendant (“Sky Merit HK”) is a company incorporated in Hong Kong, and a wholly-owned subsidiary of Sky Merit BVI.

5. The 3rd Defendant (“Mr Fong”) is the sole shareholder of Sky Merit BVI. Mr Fong was previously a director of both Sky Merit BVI and Sky Merit HK, but resigned after the hearing before DHCJ Laurence Li SC on 21st June 2022. He remains a signatory of the two companies’ bank accounts in Hong Kong, although he says that he has been directed by the current director not to operate them without his agreement. That current director is Garry Albert Muir (“Mr Muir”), the husband of Mr Fong’s sister.

6. Mr Chen’s case is that he got to know Mr Fong through a Madam Ho, whom Mr Chen had known for over thirty years, and who was Mr Chen’s friend and business partner in VTRON. Mr Fong was married to Madam Ho’s daughter, and he also worked for VTRON. Mr Chen understood from Mr Fong that he was experienced in investment management.

7. Mr Chen says that in around 2020, VTRON intended to cease operations, and the board resolved that the company would repurchase 33,501,437 shares from its shareholders for some US$147.8m. The Defendants dispute that there was such a resolution; they say in the alternative that the resolution was invalid under BVI law. Mr Chen would receive US$14,489,914 in return for his 3,503,398 shares in VTRON.

8. Mr Chen says that he told Mr Fong that he wanted to set up a corporate vehicle in Hong Kong to hold part of the proceeds from the sale of his VTRON shares for ease of future investment. Mr Fong proposed that he do this under a nominee arrangement, with Mr Fong holding all the shares in (what would later turn out to be) Sky Merit BVI, which in turn held all the shares in (what would later turn out to be) Sky Merit HK. Mr Chen says that Mr Fong represented to him that this arrangement would confer tax benefits and operational convenience. He trusted him and agreed to the arrangement.

9. Mr Chen says that it was pursuant to this arrangement that Mr Fong arranged to incorporate Sky Merit BVI in November 2020, with Mr Fong being the sole shareholder and director; and Sky Merit HK in December 2020, with Sky Merit BVI being its sole shareholder and Mr Fong being its sole director. Mr Fong later told him that both companies opened accounts with HSBC in Hong Kong.

10. Mr Chen says that he asked VTRON to pay part of the proceeds for the purchase of his shares, in the amount of US$5,286,594.39 (“the Funds”), to Sky Merit HK, and the remainder of the proceeds to himself. A cheque was drawn by VTRON in favour of Sky Merit HK and the funds were deposited in Sky Merit HK’s account with HSBC in Hong Kong in January 2021. In a message of 31st July 2021, Mr Fong told Mr Chen that all the funds had been placed in Sky Merit BVI’s account (with HSBC in Hong Kong). (In fact, according to the 2nd Affirmation of Garry Albert Muir filed on behalf of Sky Merit HK, US$5,268,500.90 (US$5,286,594.39 less US18,093.49) was transferred from Sky Merit HK to Sky Merit BVI on 20th May 2021.)

11. Mr Chen says that in around July 2021, Mr Chen wanted to invest US$3m out of the Funds in an investment fund administered by Morgan Stanley Fund Services (“the Anglepoint Fund”). He instructed Mr Fong to handle this on his behalf. On 4th August 2021, Mr Fong sent Mr Chen an acknowledgement of receipt of funds from Anglepoint addressed to Sky Merit BVI, via WeChat.

12. A print out of the WeChat exchanges between Mr Chen and Mr Fong was produced. They show that on 4th August 2021, Mr Fong sent a copy of Sky Merit BVI’s account statement of the same date to Mr Chen to indicate what the remaining balance of the Funds were before the US$3m was transferred out of Sky Merit BVI’s account for the Anglepoint Fund investment. The statement showed that there was an amount of US$5,197,544.73 in the account, which was less than the amount of the original Funds by US$89,049.66.

13. Mr Chen says that from about September 2021 onwards, Mr Fong became unresponsive and failed to answer his requests for a full accounting of the flow of the Funds from the time they were paid into the Sky Merit HK account. In around November 2021, he learnt that Mr Fong had separated from his wife and was engaged in divorce proceedings. As a result of Mr Fong’s unresponsive attitude and the knowledge of his personal circumstances, Mr Chen became concerned about the Funds. Mr Chen asked him to sign a nominee agreement retrospectively, but Mr Fong failed to do so and stopped responding altogether.

14. Mr Chen says that Mr Fong “resurfaced” in February 2022 and referred him to an email from Sky Merit BVI sent to him on 13th December 2021, which Mr Chen says was sent to a little-used email account of his. It transpired that Mr Muir had apparently been appointed as director of Sky Merit BVI. Mr Chen had never agreed to this. The letter also said that Mr Fong had told the District Court that he beneficially owned the shares in Sky Merit BVI, and that their value was nil; the company owed a debt to the Crown but the Crown could be prevented from claiming it if VTRON were to be restored to the BVI companies register.

15. On 16th March 2022, Mr Chen received a letter from Messrs Cheung Yan & Associates, claiming on behalf of Mr Fong that he had made mistaken payments of sums totaling $1,913,965.73 in the period from November 2017 to June 2021, and demanding repayment. Mr Chen says that he never received such a sum from Mr Fong.

16. Mr Chen instructed solicitors to demand a transfer of Mr Fong’s shareholding in Sky Merit BVI, appoint him as director of Sky Merit BVI and Sky Merit HK, report on matters relating to the Funds, and deliver up all relevant documents and items.

17. Mr Fong filed an affirmation on 6th September 2021 (“Fong 1st”), saying that he was no longer a director of either Sky Merit BVI or Sky Merit HK, and that he no longer controlled Sky Merit BVI’s assets; he remained a signatory to Sky Merit BVI’s Hong Kong bank accounts but he was directed by Mr Muir not to operate them without his agreement.

18. Mr Fong further denied that he declared any trust of the shares in Sky Merit BVI. At most there was an oral promise to transfer the shares to Mr Chen’s son when the time was right. In any event, whatever arrangement the parties had, the basis was that Mr Chen had had his shares in VTRON repurchased, which was not true. Mr Fong said he was not aware of Mr Chen’s alleged repurchase records. He believed that the VTRON board resolution (to repurchase all VTRON shares) relied on by Mr Chen was not genuine and was created ex post facto. VTRON’s payment to Sky Merit HK was by way of loan, not for repurchase of Mr Chen’s shares.

19. Mr Muir filed an affirmation on 13th September 2022 (“Muir 1st”), saying that he became a director of Sky Merit BVI on 5th December 2021. The affirmation was filed for the purpose of Sky Merit BVI’s application to stay the present proceedings on the grounds of forum non conveniens. Mr Muir said that he had no knowledge of the factual disputes between Mr Chen and Mr Fong and that VTRON was liquidated in October 2021. He exhibited a legal opinion from a BVI lawyer to say, inter alia, that VTRON’s repurchase of shares was not valid, that the sum paid by VTRON to Sky Merit HK was therefore paid under a mistake (as Mr Chen could not have validly directed the payment), and that since VTRON was in liquidation, the amount was owed to the Crown.

20. Mr Muir filed a second affirmation on 13th September 2022 in his capacity as the sole director of Sky Merit HK, referring to and adopting parts of his first affirmation.  He says that he found no evidence that Mr Chen directed VTRON to make any payment to Sky Merit HK.  Sky Merit HK never declared a trust of its assets and there was nothing wrong with it transferring funds to Sky Merit BVI.  The discrepancy between the amount paid by VTRON to Sky Merit HK (the Funds of US$5,286,594.39) and the amount paid by Sky Merit HK to Sky Merit BVI (US$5,268,500.90) was US$18,093.49, which was not misappropriated, but spent on certain legal, accounting and bank fees.  He says that he could not find any evidence of any promise made by Mr Fong that Sky Merit HK would hold its assets on a bare trust.  Mr Muir went on to provide an analysis why the share repurchase by VTRON was not valid under BVI law, but I am not satisfied that he is qualified to provide expert evidence as to BVI law.”

14.  In addition to the above background, I should also state that:

(1)  Sky Merit BVI has been placed by Mr Muir into voluntary liquidation on 6 October 2022;

(2)  On 1 February 2023, the voluntary liquidation of Sky Merit BVI has been converted to a liquidation under the Insolvency Act 2003 of BVI;

(3)  On 20 February 2023, Sky Merit BVI’s liquidator convened the first creditors’ meeting.  This meeting was then adjourned to 6 March 2023.

15.  While all three defendants are asking this Court to stay these proceedings in favour of the BVI Court on the ground of forum non conveniens, only Sky Merit BVI was served out of the jurisdiction of Hong Kong pursuant to Order 11 of the Rules of the High Court (Cap.4A, Laws of Hong Kong) (“RHC”).  Both Sky Merit HK and Mr Fong were served locally in Hong Kong. 

16.  Under such circumstances, the Court’s approach when dealing with the application made by Sky Merit BVI on one hand, and the applications made by Sky Merit HK and Mr Fong on the other hand would be different. 

17.  I will therefore consider their applications separately below, and I will start with the applications made by Sky Merit HK and Mr Fong.

APPLICATIONS BY SKY MERIT HK AND MR FONG

Legal principles

18.  The applicable legal principles regarding stay of proceedings for forum non conveniens had been explained by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364:

“51. We adopt the re-statement of the principles in matrimonial proceedings by the Court of Appeal (Cheung JA and Tang JA (as he then was)) 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.’

52. The Court of Appeal in that case (as in the present case) emphasised that the husband was entitled to sue in Hong Kong as of right. Where jurisdiction is founded in the Hong Kong court as of right (as in divorce proceedings like the present case), 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.  This derives from what Lord Goff said in Spiliada (at 477), which has been regularly applied in Hong Kong: e.g. The Kapitan Shvetsov [1997] HKLRD 374 at 377; The Peng Yan [2009] 1 HKLRD 144, at [22].”

19.  When considering whether there is another available forum which is clearly or distinctly more appropriate than the Hong Kong court, what Mr Recorder G. Ma, SC (as his Lordship then was) stated in Rambas Marketing Co., LLC v Chow Kam Fai David [2001] 3 HKC 250 should be borne in mind:

“The burden is on the defendant to show that the courts of Nevada are clearly or distinctly more appropriate than the Hong Kong courts for the trial of the action. 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 the appropriateness of a forum from the point of view of the trial of the action. This would in part explain the need to identify the particular court in favour of which the action is to be stayed, for it is to the appropriateness of that court for the trial that the court’s attention is directed.” (at 255A – D) (emphasis added)

20.  It has also been held by Litton VP (as he then was) in The Kapitan Shvetsov [1997] HKLRD 374 at 377 that where a party has exercised an undoubted right of access to a preferred forum, the Court will not lightly disturb such a right.  For that reason, the burden of proof on the defendant who has been served in Hong Kong in a stay application has been described as “a very high burden”.[4]

Is Hong Kong Court the natural or appropriate forum?

21.  As explained, “appropriate forum” in this context means the forum which has the most real and substantial connection with the action. 

22.  In this regard, the “most significant point” relied on by Sky Merit HK is that “it is practically impossible for [Mr Chen] to recover the sum [of US$5,286,594.39] except to go to the BVI Courts”[5].  In a gist, it was emphasised that since Sky Merit BVI is now being liquidated under the Insolvency Act 2003 of BVI, and no leave has ever been granted for Mr Chen to proceed with the present action, the BVI Court would not recognise the Judgment of the Hong Kong Court, and that means such a Judgment is not enforceable against Sky Merit BVI in BVI.

23.  I agree with the plaintiff’s submissions that this so called “most significant point” is misconceived.

24.  First, it is trite that whether a forum is appropriate should be assessed from the point of view of the trial of the action.  However, Sky Merit HK’s point relates to the enforcement of the judgment only.

25.  Since Sky Merit HK’s “most significant” argument does not relate to the trial of the action at all, it is not helpful to its case.

26.  Second, even though the Hong Kong Court should generally do what it can to give effect or assistance to foreign insolvency proceedings, it remains a matter of discretion of this Court as to how best to recognise and give effect to such proceedings. The Court may adopt a two-stage approach as explained by Anthony Chan J in Skillsoft Asia Pacific PYT Limited v Ambow Education Holding Limited [2014] 1 HKLRD 520:

“13. The dispute here is quite narrow. There is no issue that this court should generally do what it can to give effect or assistance to foreign insolvency proceedings. However, this court is not bound by such proceedings. In other words, the stay of proceedings ordered by the Grand Court is not binding on this court. It remains a matter of discretion of this court as to how best to recognise and give effect to the foreign proceedings.

14. In In re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852, para 30, Lord Hoffmann said:

‘… The primary rule of private international law which seems to me applicable to this case is the principle of (modified) universalism, which has been the golden thread running through English cross-border insolvency law since the 18th century. That principle requires that English courts should, so far as is consistent with justice and UK public policy, co-operate with the courts in the country of the principal liquidation to ensure that all the company’s assets are distributed to its creditors under a single system of distribution. That is the purpose of the power to direct remittal.’

15. The argument here is whether this court should apply a two-stage approach. I have been referred to a useful summary of the relevant principles in The Conflict of Laws in Hong Kong by Graeme Johnston, 2^nd edn, at pp 533 to 539 where the following summary appears on p 536 at para 8.073 (3)(b):

‘(a) The precise nature of the foreign insolvency proceedings … is not a critical factor;

(b) The proper approach when the court is faced with a summary judgment application or similar is in two stages:

(i) If the plaintiff is entitled to summary judgment on ordinary principles (ignoring, for this purpose, the foreign process), judgment should be entered;

(ii) However, the court retains a discretion to have regard to the foreign process and order in deciding whether to allow judgment to be executed …’

16. On p 539 of the abovementioned textbook, it is said that where the plaintiff is not seeking summary judgment, but is instead seeking to proceed to trial, the court may impose a stay if it concludes that it would be a woeful misallocation of resources to allow the action to proceed to trial.

17. The application of the above principles, involving the two-stage process, can be seen in two Hong Kong cases. Firstly, Modern Terminals v States Steamship Company [1979] HKLR 512 where Trainor J permitted summary judgment to be entered under Order 14 when Chapter XI proceedings were pending in the USA, but ordered a stay of execution of the judgment so that the plaintiff would not gain an advantage over other creditors.

18. Secondly, Hong Kong Institute of Education v Aoki Corp (No 2) [2004] 2 HKC 397, in which the two-stage approach was endorsed and adopted by Reyes J.  A debt restructuring scheme was before the Japanese court; the Hong Kong court nevertheless permitted judgment to be entered but did not permit enforcement of the same.  One of the factors the learned judge took into account was that the judgment would allow the judgment creditor to enforce its rights under the debt restructuring scheme in Japan.”

27.  In my view, the two-stage approach should also be adopted in the present case.  Hence, at this stage, we should only be concerned with establishing the liability of the defendants and put aside the question of enforcement.

28.  Even though Mr Chen is not applying for summary judgment herein and as a result a full trial would be necessary, I do not think it would lead to any misallocation of resources as such.  It should be remembered that Sky Merit HK and Mr Fong have paid into Court US$2,286,594.39, which can be applied to settle any amount which the Court might require Sky Merit HK and/or Mr Fong to pay Mr Chen.  In other words, even if there is difficulty on the part of Mr Chen to enforce the eventual judgment in BVI as alleged, he can at least get his hand on the said sum of money which is not a small amount at all.

29.  In relation to the question of “appropriate forum”, Sky Merit HK and Mr Fong submitted that BVI is the forum which has the most real and substantial connection with this action.  With respect, I disagree, for the following reasons:

(1)  According to Mr Chen’s case, the agreement between him and Mr Fong in relation to the trust arrangement and the setting up of corporate vehicle to hold the sale proceeds of the VTRON shares which Mr Chen was entitled to was reached in Hong Kong;

(2)  The main parties involved (Mr Chen and Mr Fong) and all other potential witnesses are either based in Hong Kong or in Mainland China. While Sky Merit HK and Mr Fong challenged that some of them do not live in Hong Kong, I do not think that matters, because it is evident that they can come to Hong Kong conveniently, and it cannot be disputed that it would be much more convenient for them to come to Hong Kong rather than to travel all the way to the BVI.  In Greenwood Limited v Pearl River Container Transportation Limited and Another [1994] 1 HKC 585, the defendant therein sought to stay the Hong Kong proceedings in favour of PRC Court[6]. One of the factors relied on by the defendant was that all the witnesses were in the PRC.  However, it was held that, given the proximity between Hong Kong and Guangzhou and the frequency of travel between these places, differences in terms of convenience to witnesses are minimal.  This decision was upheld by the Court of Appeal (CACV 27/1994, unreported, 25 May 1994);

(3)  The bank accounts which were opened to hold the trust assets were in Hong Kong;

(4)  The alleged trust also arose by operation of law within the jurisdiction of Hong Kong; and

(5)  The management of the alleged trust assets took place in Hong Kong.

30.  It was further submitted by Mr Ko for Sky Merit HK that since the crux of the present case is whether there was any valid repurchase of shares from Mr Chen by VTRON in the first place, the applicability of the BVI law would make BVI an appropriate forum.

31.  However, it is noted that:

(1)  According to the legal opinion adduced by the defendants’ BVI law expert, the requirement of share repurchase was set out in the Memorandum and Articles of Association of VTRON;

(2)  Generally speaking, there are three requirements: (i) there should be written consents of the relevant members of the company; (ii) there should be a directors’ resolution confirming that in the opinion of the directors, immediately after the re-purchase, the value of the company’s assets would exceed its liabilities and the company would be able to pay its debts as they fall due; and (iii) there should be at least one member remaining after the re-purchase.

32.  In the present case, Mr Chen has indeed produced written resolutions of VTRON’s directors dated 7 January 2021, and on the face of it (reading together with the Appendix attached thereto), the aforesaid requirements are satisfied.

33.  Mr Fong now alleges that while he was the CEO of VTRON at the material time, he did not have knowledge about such directors’ resolutions until 31 March 2021.  He therefore believes that those resolutions were not genuine and were only created after VTRON was placed into liquidation or liquidated.  In this regard, he has made a number of forensic points in his Affirmation filed on 6 September 2022 in support.  It suffices for me to say that those points concern question of fact rather than question of law.

34.  Furthermore, even if any question of law is involved, it has not been shown that the relevant BVI law is so complicated that the Hong Kong Court cannot rule on the matter with the assistance of BVI law experts.

35.  However, Mr Ko went as far as to submit that:

“The BVI Court alone has jurisdiction to determine whether all BVI statutory requirements had been satisfied, and whether the Share Repurchase is valid in BVI law.”[7] (emphasis added by Counsel)

36.  With respect, this is a very bold assertion which is not supported by any authority at all.  This must be rejected.

37.  Mr Ko further submitted that if the share re-purchase by VTRON is found to be invalid, it would be the BVI Crown which should be entitled to repayment by Sky Merit BVI (as VTRON has been dissolved).  He stated that, in such circumstances, the BVI Court is better placed to consider all competing claims to the assets of Sky Merit BVI, including that of the BVI Crown.  This is a red herring, as there is simply no evidence to suggest that the BVI Crown or VTRON’s liquidator has ever indicated any intention to seek recovery of the purchase money as such from Sky Merit HK or Sky Merit BVI.

38.  Lastly, it must be emphaisized that both Sky Merit HK and Mr Fong had been validly served with the originating documents of this action in Hong Kong, and as a result Mr Chen is entitled to proceed against them as of right here.  It is trite that this Court should not lightly interfere with such a right of Mr Chen, and this is clearly not a case which justifies such interference.

Conclusion

39.  For the above reasons, the applications for stay made by Sky Merit HK and Mr Fong must be dismissed.

SKY MERIT BVI’S APPLICATIONS

Sky Merit BVI’s absence

40.  I will now turn to consider the applications made by Sky Merit BVI.  To recap, it asks this Court:

(1)  To stay in favour of the BVI Court on the ground of forum non conveniens;

(2)  Not to exercise jurisdiction over Mr Chen’s claim against it;

(3)  To set aside the leave granted to Mr Chen for these proceedings to be served out of jurisdiction on it.

41.  Before I deal with Sky Merit BVI’s applications, I should first of all consider a procedural matter.

42.  As aforesaid, since the filing of the stay application, Mr Muir has placed Sky Merit BVI into voluntary liquidation on 6 October 2022.  On 1 February 2023, the voluntary liquidation of Sky Merit BVI has been converted to a liquidation under the Insolvency Act 2003 of BVI.

43.  When Mr Ko lodged its written submissions for the purpose of the present stay applications for and on behalf of Sky Merit HK, he stated that:

“As shall be elaborated below, D1 has since then gone into voluntary liquidation, and subsequently into insolvent liquidation under the BVI Insolvency Act 2003 (‘IA’). Consequent upon that, D1 is now under the control of its Liquidator under IA since 1 February 2022[8]. As such, while the same legal team originally represented both D1 and D2, these submissions are filed on behalf of D2 at this stage pending the Liquidator’s instruction.”[9]

44.  At the end of the day, it appears that Sky Merit BVI’s Liquidator did not give such instruction to Sky Merit BVI’s solicitors. In other words, Sky Merit BVI has not lodged any written submissions for its stay application.  As a result, Sky Merit BVI should be treated as if it has been absent from the substantive hearing of the stay application. 

45.  Order 32 rule 5 of the RHC provides that:

“(1) Where any party to a summons fails to attend on the first or any resumed hearing thereof, the Court may proceed in his absence if, having regard to the nature of the application, it thinks it expedient so to do.

(2) Before proceeding in the absence of any party the Court may require to be satisfied that the summons or, as the case may be, notice of the time appointed for the resumed hearing was duly served on that party.

(3) Where the Court hearing a summons proceeded in the absence of a party, then, provided that any order made on the hearing has not been perfected, the Court, if satisfied that it is just to do so, may re-hear the summons.

(4) Where an application made by summons has been dismissed without a hearing by reason of the failure of the party who took out the summons to attend the hearing, the Court, if satisfied that it is just to do so, may allow the summons to be restored to the list.”

46.  In the circumstances of the present case, where there is no doubt that the Liquidator of Sky Merit BVI knows about these proceedings[10], it can be inferred that the Liquidator has been notified about the deadline for lodging written submissions (which, for the present purpose, should be regarded as the date of the substantive hearing).

47.  Therefore, there is no reason why this Court should not proceed in the absence of Sky Merit BVI.

Applicable legal principles

48.  The legal principles which are applicable when a plaintiff seeks leave to serve a writ out of jurisdiction under Order 11 rule 1 of the RHC are trite.  He has to demonstrate that:

(1)  there is a good arguable case that his claim falls within one or more of the “gateways” under Order 11 rule 1(1) of the RHC;

(2)  there is a serious issue to be tried on the merits of the plaintiff’s case;

(3)  Hong Kong is the appropriate forum under the principle governing forum conveniens for the trial of the action.

49.  Although this is an application for stay made by Sky Merit BVI, it is undisputed that the burden of satisfying the Court that the aforesaid criteria are met lies on Mr Chen.

50.  In relation to the question of whether there is a good arguable case that the claim falls within one of the “gateways” under Order 11 rule 1(1) of the RHC:

(1)  it is sufficient for the plaintiff to show a “strong case for argument”, and it is not necessary for the Court to be able to reach even a tentative conclusion that the plaintiff is “probably right”.  The standard is less onerous than the balance of probabilities required in a civil trial.  The question is whether one side has “much the better of the argument” than the other on the point.

(2)  Where there are disputes of fact, the question is to be decided primarily by reference to the plaintiff’s evidence, rather than attempt to resolve such disputes on affidavit, although the court will weigh the arguments on both sides. 

(3)  Where there are disputes of law, only where the dispute is a “succinct” one of law would it be appropriate to resolve the same at the Order 11 stage.  Where complex issues of law are involved, it may not be appropriate for the court to deal with the same at the Order 11 stage.

(4)  If the plaintiff has made more than one claim in an action, then he must in general show a good arguable case that each of his claims falls within one of the “gateways”.  If he can only show that some but not all of his claims fall within the “gateway(s)”, then the Court can set aside the leave to serve the writ out of the jurisdiction in part.[11]

51.  On the question of whether there is a serious issue to be tried regarding the merits of the plaintiff’s case, the issue is whether the affidavit evidence discloses a case against the defendant which merits consideration at trial.  The test in question can be equated with whether the claim would survive an application to strike out.  However, a defendant is entitled to keep his powder dry and simply put the plaintiff to proof of his case.  The onus is on the plaintiff to show that there is a serious issue to be tried, not on the defendant to show that there is a real prospect of successfully defending it.[12]

52.  As far as the question of forum is concerned, Cheng J had summarised the principles in China Shanshui Cement Group Limited & Others v Mi Jingtian & Others [2018] HKCFI 1553 at [66] as follows:

“(1) the plaintiff has to satisfy the Court that in all the circumstances, Hong Kong is clearly or distinctly the appropriate forum in which the case could most suitably be tried for the interests of all the parties and for the ends of justice: the Spiliada question. See Tremendous Success Holdings Ltd at [15(2)], [17], [105(2)];

(2) in The Adhiguna Meranti [1987] HKLR 904, the Court of Appeal developed a three-stage test to answer the Spiliada question. See Tremendous Success Holdings Ltd at [105(3)]. As summarised by Cheung JA in DGC v SLC (née C) [2005] 3HKC 293, that test is as follows (in the context of an application for stay of Hong Kong proceedings for forum non conveniens, where the burden is on the defendant rather than the plaintiff):

(a) the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (“appropriate” meaning the forum which 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;

(b) 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;

(c) 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;

(3) the appropriate forum is one with which the action has the most real and substantial connection. This includes not only factors affecting convenience and expense (such as availability of witnesses) but also other factors such as the law governing the relevant transaction and the place where the parties respectively reside and carry on business. Whilst modern commercial transactions usually entail multiple jurisdictional aspects, some of these aspects may feature only as the backdrop to the case, and may have little if any, substantial relevance to the issues that may be required to be canvassed at the trial. The Court does not simply load up factors which point to any particular jurisdiction but focusses on the appropriateness of a forum from the point of view of the trial of the action. See Dynasty Line Ltd at [58], [59];

(4) the existence of related proceedings in another jurisdiction is one of the factors to take into account.  The proceedings must relate to the same matter, although the causes of action do not need to be identical.  Where proceedings are already pending in a foreign court, in order to be permitted to proceed with proceedings in the jurisdiction the plaintiff will have to show by cogent evidence some personal or juridical advantage that would only be available in the jurisdiction.  The fact that the foreign proceedings would or might continue even if the Hong Kong proceedings were to continue is relevant because it leads to both double expenditure and the spectre of inconsistent outcomes.  See Hong Kong Civil Procedure 2018, notes 11/1/12, 12A, 12B.”

Gateways (b) and (p)

53.  In this action, Mr Chen claims against Sky Merit BVI for, inter alia:

(1)  an injunction prohibiting it from disposing of or dealing with the trust assets including the Funds held in its bank account with HSBC in Hong Kong and the investment in Anglepoint;

(2)  an injunction prohibiting it from redeeming the Anglepoint Investment Fund subscribed to under Sky Merit BVI’s name;

(3)  a mandatory injunction to account for and for the return of the Funds/money held on trust for Mr Chen and for the transfer back to Mr Chen all rights and interests in the Angelpoint Investment.  

54.  The basis of the above claims against Sky Merit BVI is that the Funds and the Anglepoint Investment are trust assets held by Sky Merit BVI as trustee on Mr Chen’s behalf.

55.  The above claims are covered by Order 11 rule 1(1)(b) and rule 1(1)(p) of the RHC which provide that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ:

(1)  an injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of a failure to do or the doing of that thing);

(2)  the claim is brought for money had and received or for an account or other relief against the defendant as constructive trustee, and the defendant’s alleged liability arises out of acts committed, whether by him or otherwise, within the jurisdiction.

56.  In Cheng J’s Decision, after referring to several WeChat exchanges between Mr Chen and Mr Fong, her Ladyship held that:

“These exchanges support Mr Chen’s case that Sky Merit BVI and Sky Merit HK were set up to hold assets on his behalf; that Mr Fong held the shares in Sky Merit BVI on behalf of Mr Chen rather than as beneficial owner; that the Anglepoint Fund investment was made using funds provided originally by Mr Chen and subsequently transferred to Sky Merit BVI’s HSBC account in Hong Kong.”[13]

57.  Having dealt with various arguments made by the defendants, her Ladyship concluded:

“35. […] even if Sky Merit HK never declared a trust of its assets, this would not prevent a trust arising by reason of Mr Chen having procured the Funds to be transferred to Sky Merit HK. At least, there must be a serious issue to be tried, and indeed a good arguable case, in this regard.

36. I therefore consider that there is a serious issue to be tried, and a good arguable case, on the merits of Mr Chen’s claim that Mr Fong holds the shares in Sky Merit BVI as trustee or nominee for Mr Chen; that Sky Merit BVI and Sky Merit HK are also trustees or nominees of Mr Chen and hold the Funds (or what remains of them) and the Anglepoint Fund investment in that capacity.”

58.  I agree entirely with Cheng J.

59.  I am therefore satisfied that there is a good arguable case that Mr Chen’s claims fall within gateways (b) and (p) under Order 11 rule 1(1) of the RHC.

Gateway (c)

60.  Order 11 rule 1(1)(c) of the RHC provides that service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ, the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto.

61.  There is no dispute that Sky Merit HK and Mr Fong have been validly served within the jurisdiction of Hong Kong.

62.  As it is Mr Chen’s case that Sky Merit BVI is a trustee which has been specifically set up by Mr Fong to hold assets for and on behalf of Mr Chen, I am satisfied that it is a necessary party to this action.

63.  I therefore accept that Mr Chen has shown a good arguable case on gateway (c).

Serious issue to be tried

64.  It has been found in Cheng J’s Decision that there is serious issue to be tried on the merits of Mr Chen’s claims herein.   Nothing further needs be said in this regard.

Appropriate forum

65.  I have already explained in the earlier part of this Decision as to why I take the view that Hong Kong is the appropriate forum of this action. 

66.  As far as Sky Merit BVI is concerned, the following matters may be further highlighted:

(1)  Mr Chen’s case is that Sky Merit BVI is merely a holding company of his assets, and that it does not run any business at all. None of the defendants was able to produce any evidence to negate this assertion;

(2)  All alleged trust assets held by Sky Merit BVI are in Hong Kong (this point is not rendered incorrect despite the fact that they are now allegedly under the control of the liquidators of Sky Merit BVI);

(3)  At all material times, the operation and management of Sky Merit BVI were conducted in Hong Kong;

(4)  The only connection which Sky Merit BVI has with BVI is that that was the place where it was incorporated.  However, the place of incorporation has nothing to do with the trial of the action: Shenzhen Futaihong Precision Industry Co., Ltd. & Another v. BYD Company Limited & Others (HCA 2114/2007, unreported, 27 June 2008) at [37] – [38].

67.  The above reinforce my view that Hong Kong must be the appropriate forum of this action.

68.  In Muir 9^th, Mr Muir stated that Mr Chen has submitted a proof of debt to the Liquidator.  It was argued that, by virtue of such action on the part of Mr Chen, he had submitted to the BVI’s insolvency jurisdiction, and therefore the action here in Hong Kong should be stayed.

69.  I agree with counsel for Mr Chen that, taking Sky Merit HK’s argument to the highest, Mr Chen’s participation in the liquidation process of Sky Merit BVI in the BVI would give rise to something similar to lis alibi pendens.  However, it should be noted that it is not really a typical lis alibi pendens situation, because the liquidation process in the BVI does not involve the same parties as the present case – Sky Merit HK and, most importantly, Mr Fong are not involved. 

70.  In any event, even if the liquidation process of Sky Merit BVI in the BVI would give rise to lis alibi pendens, this is just one of the matters which the Court should take into account.  In Elite Consortium Limited & Others v Yim Wan Por & Others [2022] HKCFI 3303, Ng J had the following to say:

“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.”

71.  In the present case, a very important matter which the Court should bear in mind is that Mr Chen is entitled to sue Sky Merit HK and Mr Fong here in Hong Kong as of right.  It is also apparent that Hong Kong is the forum which has the most real and substantial connection with the action.  In my view, these weigh heavily in favour of Mr Chen, and as a result, his claim against Sky Merit BVI should also be tried here.

Conclusion

72.  For the above reasons, the applications made by Sky Merit BVI must be dismissed.

THE NEW EVIDENCE SUMMONSES

73.  Upon the taking out of the Stay Summonses, Registrar Ho gave directions on 16 September 2022 for the filing and service of affirmations in relation thereto, and adjourned the applications for argument. Affirmations were then filed by both sides accordingly.

74.  The New Evidence Summonses were taken out subsequently on 8 February 2023, 13 February 2023 and 2 March 2023 respectively. 

75.  Order 32 rule 11A(4) of the RHC provides that:

“Where the determination of the application is adjourned for the hearing of the summons, no further evidence may be adduced unless it appears to the Court that there are exceptional circumstances making it desirable that further evidence should be adduced.”

76.  In Industrial Bank Company Limited v Rich Crown International Industries Limited & Others [2022] HKCFI 81, it has been held that:

“Where the Court has given directions previously that no further affirmation is to be filed without leave of the court, it has been held to be inconceivable that leave would be granted in the absence of ‘genuine extenuating circumstances’, meaning circumstances that would normally fall within the rule in Ladd v Marshall. In exercising the discretion to grant leave, the court is bound to have regard to the underlying objectives set out in Order 1A, rule 1 and to seek to promote the attainment of such objectives […]”[14]

77.  Under the criteria as discussed in Ladd v Marshall [1954] 1 WLR 1489, further evidence is admissible only where such evidence:

(1)  could not have been obtained before with reasonable diligence (“the 1^st Condition”);

(2)  would or might, if believed, have a very important influence on the result of the case, though it need not be decisive (“the 2^nd Condition”); and

(3)  is apparently credible though it need not be incontrovertible (“the 3^rd Condition”).

78.  With the above in mind, I now turn to consider the three new affirmations sought to be adduced.

Mak 4^th

79.  Mak 4^th only sought to exhibit a letter issued by the Liquidator of Sky Merit BVI to the Official Receiver of BVI Financial Services Commission dated 1 February 2023 (“the February Letter”), which confirmed that Sky Merit BVI has been converted to a liquidation under the Insolvency Act in BVI.

80.  Given the fact that the February Letter was only issued recently, the 1^st Condition is satisfied.

81.  The 3^rd Condition is also satisfied because there is no reason to doubt what the Liquidator represented in the February Letter.

82.  However, for reasons which have been explained in the earlier part of this Decision, I do not think the fact that Sky Merit BVI has been converted to a liquidation under the Insolvency Act in BVI has a very important influence on the result of the Stay Summonses.

83.  Sky Merit BVI’s application for leave to adduce Mak 4^th should therefore be dismissed.

Mak 5^th

84.  Mak 5^th only sought to exhibit the legal expert opinion of Mr Barry Mitchell given on 10 February 2023 as a result of the insolvency liquidation of Sky Merit BVI.

85.  In a gist, the legal opinion was that even if Judgment is obtained in this action, it cannot be enforced against Sky Merit BVI in BVI because no leave has ever been obtained from the BVI Court to commence these proceedings.  It was also said that once a liquidator has been appointed, Sky Merit BVI ceases to be the beneficial owner of its property.

86.  As explained above, a two-stage approach can and should be adopted herein.  The fact that Mr Chen cannot enforce the Judgment obtained herein against Sky Merit BVI does not mean that he should not be allowed to proceed with this action. 

87.  In my view, the 2^nd Condition cannot be satisfied.  Therefore, the application for leave to adduce Mak 5^th should be refused.

Muir 9^th

88.  In Muir 9^th, Mr Muir stated that he made that affirmation as an “updating affidavit to bring to the Court’s attention important development” since Sky Merit HK lodged its written submissions in support of its stay application on 13 February 2023.

89.  However, at the end of Muir 9^th, he stated that:

“8. I have been to the British Virgin Islands many times.

9.  A properly completed and signed application to HSBC to close [Sky Merit BVI]’s bank account was delivered to HSBC commercial centre prior to the Judgment of 17 November 2022.  It has not been possible to operate [Sky Merit BVI]’s accounts since that time.  It may be HSBC has frozen the closing process to enable it to prove as a creditor against [Sky Merit BVI].  [Sky Merit BVI] presently owes HSBC HK$175.”

90.  Mr Muir did not make it clear when he travelled to the BVI.  If it is his evidence that went to the BVI many times after 23 November 2022 (the date when Sky Merit HK filed its affirmation in reply (i.e. Muir 6^th), then he should have made it clear.  Without such clear evidence, he has failed to discharge his burden to show that this piece of evidence (paragraph 8 of Muir 9^th) could not have been included in Muir 6^th.

91.  In relation to paragraph 9 of Muir 9^th, it is apparent that the content of which could have been included in Muir 6^th which was filed on 23 November 2022 and that it is not a development since the lodging of Sky Merit HK’s written submissions on 13 February 2023.  Mr Muir should not have slipped that part of his evidence in Muir 9^th. 

92.  Hence, the content of paragraphs 8 and 9 of Muir 9^th do not satisfy the 1^st Condition, and for that reason alone, they should not be allowed to be adduced for the purpose of the Stay Summonses.

93.  Mr Ko submitted that the last sentence of paragraph 9 shows that Sky Merit HK does not have assets in Hong Kong, and that is relevant when the Court considers the question of forum non conveniens. I am afraid it is inadequate for him to persuade the Court that the new evidence is relevant.  That is not enough.  He has to show that the new evidence would or might, if believed, have a very important influence on the result of the case. 

94.  In this regard, it should be pointed out that even without this new evidence, it is evident that Sky Merit HK only had US$0.24 remaining in its HSBC account as at the time of Cheng J’s Decision[15].  In my view, the new evidence does not make any difference, not to mention having “very important influence”.

95.  The other paragraphs of Muir 9^th concern the first creditors’ meeting of Sky Merit BVI which was held on 20 February 2023.  Sky Merit HK and Mr Fong relied heavily on the fact that Mr Chen has submitted a proof of debt to Sky Merit BVI’s Liquidator in the BVI.  However, as explained above, I do not think that assists the defendants at all.  Hence, Condition 2 is not satisfied.

96.  I will therefore refuse to grant leave to Sky Merit HK to adduce Muir 9^th.

ORDER

97.  By reasons of the aforesaid, the Stay Summonses and the New Evidence Summonses are hereby dismissed.

COSTS

98.  I make a costs order nisi that the defendants shall bear Mr Chen’s costs of the Stay Summonses and the New Evidence Summonses.

99.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper) within 14 days hereof.

100.  Mr Chen’s costs shall be summarily assessed in lieu of taxation.  Unless any application for variation of the aforesaid costs order nisi is made within time, he shall lodge and serve his statement of costs within 7 days after the expiry of the said 14-day period.  The defendants shall lodge and serve their respective statements of objection within 7 days thereafter.  Summary assessment of the costs will be conducted on paper (no matter whether any statement of objection is lodged by the defendants within time) thereafter.  The costs assessed shall be payable by Sky Merit HK and Mr Fong within 14 days after assessment.  Mr Chen shall not enforce the aforesaid costs order against Sky Merit BVI without leave of the Court.