LIU, PEIBAO v. TENCENT HOLDINGS LTD

HCA 229/2023

[2024] HKCFI 1158

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 229 OF 2023

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DECISION

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Introduction

1.  By his order dated 15 January 2024 (“the Order”), Master Yip, of his own motion, struck out the claim of Mr Liu on the ground that it is frivolous and vexatious and is an abuse of the court process pursuant to O.18, r.19 of the Rules of the High Court (“RHC”). By the Order, the master further disposed of the summons of Tencent Holdings Limited (“HK Tencent”) dated 14 June 2023 (“D’s Summons”) by making no order thereon and dismissed the summons of Mr Liu dated 12 October 2023 whereby Mr Liu sought to strike out D’s Summons (“P’s Summons”) with costs to HK Tencent.

2.  Mr Liu now appeals against the Order. HK Tencent has also filed a cross-appeal against the master’s refusal to make an order in terms of D’s Summons.

3.  In gist, by D’s Summons, HK Tencent asks for a stay of proceedings by reason of forum non conveniens and an order for security for costs. HK Tencent contends that the Courts of Nanshan District, Shezhen City, Guangdong Province of the People’s Republic of China (“PRC”) is clearly and distinctly the more appropriate forum for the determination of Mr Liu’s claim and that Mr Liu is a resident in the Mainland China with no assets within this jurisdiction.

4.  This is the de novo hearing of the parties’ summonses. I shall deal with the applications of both Mr Liu and HK Tencent as if they were heard for the first time. The parties agree that I should first determine whether to uphold the striking out order of the master.

Mr Liu’s appeal

5.  The core complaint of Mr Liu in this action is that he was prevented or restricted from sharing certain posts on Weixin Moments, a social media feature within the Weixin application on at least 3 occasions in the Mainland China from February 2022 to January 2023.

6.  Mr Liu believes that his right to freedom of speech under the PRC Constitution and the Hong Kong Bill of Rights Ordinance, Cap. 383 has been violated. He prays for an injunction to the effect that HK Tencent be injuncted from hindering or obstructing his exercise of his constitutional right to freedom of speech through Weixin and an order of apology. Mr Liu further claims against HK Tencent for damages in the sum of RMB227 million and costs of this action.

7.  In the Affirmation of Lin Meng Chu filed by HK Tencent in support of D’s Summons, it is explained that HK Tencent is a company incorporated in the Cayman Islands operating as an investment holding company. The operations of Weixin are conducted in the Mainland by Shenzhen Tencent Computer Systems Company Limited (“Shenzhen Tencent”) which was incorporated in the PRC and controlled by HK Tencent through a series of contractual arrangements.

8.  Mr Lin further points out that every users of Weixin including Mr Liu and Shenzhen Tencent has entered into a User Agreement which is published on the website of Weixin.

9.  For the purpose of the hearing of D’s Summons and P’s Summons on 12 December 2023, the solicitors of HK Tencent lodged a skeleton submission dated 30 November 2023. In that document, the foregoing evidence of Mr Lin is highlighted and it is submitted that HK Tencent is not the correct defendant and, as a matter of law and fact, Mr Liu has no claims against HK Tencent.

10.  In light of these matters, at the hearing on 12 December 2023, Master Yip adjourned the hearing of the two summonses and directed the parties to make submissions on whether the court should exercise its power under O.18, r.19 of the RHC to strike out the claim of Mr Liu of its own motion.

11.  Subsequently, the solicitors for HK Tencent lodged a supplemental skeleton submission dated 19 December 2023. There, it is reiterated that Shenzhen Tencent, and not HK Tencent, should be the proper defendant and HK Tencent is the wrong defendant. Hence, the present claim of Mr Liu is frivolous and an abuse of process and should be liable to be struck out by the court of its own volition.

12.  At the resumed hearing held on 15 January 2024, Master Yip accepted the submissions of HK Tencent and made the Order.

13.  On the evidence and applying the established legal principles, I can only reach the same conclusion.

14.  To start with, Mr Liu is unable to adduce any evidence to rebut the contention of HK Tencent that the User Agreement was made between Shenzhen Tencent and him only. HK Tencent is not a party.

15.  Mr Liu is also unable to adduce any evidence that HK Tencent was in any way involved in the alleged obstruction or restriction of his use of his Weixin account in the Mainland.

16.  Mr Liu merely relies on the contents of the 2021 and 2022 annual reports of HK Tencent. Such annual reports contained the corporate information of HK Tencent including the following statements:

“At the beginning, the business operations of HK Tencent were mainly carried out through Shenzhen Tencent, which was a limited company incorporated by certain shareholders in the Mainland China on 11 November 1998. The core founders of HK Tencent who are PRC citizen legitimately own Shenhzen Tencent.

According to a series of contractual arrangements among Shenzhen Tencent, HK Tencent and the registered shareholders, HK Tencent is able to effectively control, confirm and enjoy in substance all the economic benefits of the business operations of Shenzhen Tencent including the net revenue gain of Shenzhen Tencent after deduction of its actual and projected operation costs.”

17.  In light of such information and representations, Mr Liu contends that the business of Weixin is actually operated by HK Tencent and, according to the law of agency, HK Tencent must take all the risks arising from the business of Weixin including its liabilities.

18.  Mr Liu, moreover, points out that both revenue and expenses of Shenzhen Tencent were attributable to HK Tencent according to the financial statements of HK Tencent.

19.  It should be noted that in those annual reports, HK Tencent made it clear that it does not have legal ownership in equity of all its subsidiaries and controlled structured entities, which include Shenzhen Tencent.

20.  On the other hand, it was also explained in those annual reports that the inclusion of the financial information of Shenzhen Tencent as a controlled entity of HK Tencent in the consolidated financial statements of the group is in conformity with all applicable accounting policies known as International Financial Reporting Standards.

21.  Mr Liu simply ignores these statements in the same documents. And he has not adduced any evidence to contradict them.

22.  Nothing in the statements in those annual reports relied on by Mr Liu can undermine the operation of the well-established principle of Salomon v Salomon & Co Ltd [1897] AC 22 and alter the fact that Shenzhen Tencent and HK Tencent are two separate legal entities.

23.  It is the fundamental principle in company law that a parent company and its subsidiary are separate legal entities despite their financial connection. In Bank of Tokyo Ltd v Karoon (Note) [1987] AC 45 at p.64, Robert Goff LJ said this,

“[counsel] suggested beguilingly that it would be technical for us to distinguish between parent and subsidiary in this context; economically, he said, they were one. But we are concerned not with economics but with law. The distinction between the two is, in law, fundamental and cannot here be bridged.”

24.  This passage was cited with approval by the English Supreme Court in Prest v Petrodel Resources Ltd [2013] 3 WLR 1 and the Court of Appeal in Re Yung Kee Holdings Ltd [2014] 2 HKLRD 313 at para. 56.

25.  On the other hand, I cannot accept Mr Liu’s submission that Shenzhen Tencent is the agent of HK Tencent. It is devoid of legal and evidential basis and is not the pleaded case of Mr Liu, either.

26.  I, thus, come to the view that it is plain and obvious that HK Tencent cannot be held liable for the alleged wrongdoings of Shenzhen Tencent in the Mainland. Mr Liu’s claim against HK Tencent is hopeless and cannot possibly succeed. It is, hence, frivolous and an abuse of process. I am satisfied that the high threshold of striking out is met and the master’s decision to strike out Mr Liu’s claim of his own motion is amply justified. I have no hesitation in upholding the decision of the master and I would dismiss the appeal of Mr Liu.

HK Tencent’s appeal

27.  HK Tencent now appeals against the decision of the master to make no order in respect of D’s Summons and in particular to make no order in respect of the costs of the same thereby depriving HK Tencent of the recovery of its costs of D’s Summons.

28.  Mr Rogers, for HK Tencent, submits that it was incorrect for the master not to conclude that the applications of HK Tencent by D’s Summons were well-founded and should have been granted but for the striking out order. Mr Rogers submits that at least the court should order Mr Liu to pay HK Tencent’s costs of D’s Summons even if there is no substantive order made on D’s Summons.

29.  Mr Rogers further submits that HK Tencent cannot be faulted for not seeking to strike out Mr Liu’s claim and, instead, asking for a stay on the ground of forum non conveniens and an order for security for costs. First, he explains that neither HK Tencent nor Shenzhen Tencent wishes to set any form of precedent for Weixin account holders that they are willing to submit to the jurisdiction of the Hong Kong courts in respect of any of their claims. He stresses that any such claims fall within the jurisdiction of the Shenzhen Nanshan Court pursuant to the User Agreement.

30.  Next, Mr Rogers submits that the pleaded case of Mr Liu refers to PRC law and so his claim should be more appropriately addressed by the PRC courts.

31.  Mr Rogers also indicates that given the fact that Mr Liu acts in person, the preference of HK Tenant was, as a matter of principle, not to seek an outright dismissal of Mr Liu’s claim and instead a stay is preferable.

32.  Mr Rogers shows his concern about the high threshold of a striking out application and in the present case, it is even more complicated when PRC law is involved. HK Tencent is reluctant to spend on any extra costs of adducing PRC law expert evidence.

33.  Lastly, Mr Rogers points out that an appellate court may set aside a striking out order, which is a draconian remedy, to allow a plaintiff to amend his pleading so that his claim can be reinstated. He cites Natamon Protpakorn v Citibank N.A. [2009] 1 HKLRD 455 as an example. Mr Rogers submits that, in contrast, there is zero chance of a successful challenge to a stay on the ground of forum non conveniens.

34.  My view is this. This court is certain about the correctness of the striking out order and so the master’s decision is upheld. The claim having been struck out, this court is reluctant to continue to assess the merit of the applications of HK Tencent, which have become academic given the striking out order. The refusal of the master to make any order on D’s Summons after striking out Mr Liu’s claim is perfectly understandable and appears to be reasonable.

35.  It is noteworthy that HK Tencent adopts a neutral stance in regard to the appeal of Mr Liu. Mr Rogers makes no submission to doubt the proprietary of the striking out order. Indeed, both the evidence filed by HK Tencent and the written submissions lodged on its behalf led the court to the inescapable conclusion that the claim of Mr Liu in this action should be struck out.

36.  If a claim should be struck out, it must be struck out in the spirits of the Civil Justice Reform (“CJR”). This explains why CJR introduced a power of the court to strike out a claim of its own motion even in the absence of an application by the parties. A claim capable of being struck out should not take up court resources any further. Any applications, other than a striking out application, tactical or otherwise, are superfluous however meritorious they appear to be. The courts never welcome unnecessary applications.

37.  Without going into the merits of the applications, the master simply did not make any order on D’s Summons including its costs. I agree to this approach though any other costs order to reflect the court’s disapproval of the applications may somehow be justified.

38.  I come to this conclusion and I am unable to accept the submissions of Mr Rogers. I do not believe that the decision to strike out Mr Liu’s claim can reasonably be taken as a precedent that any claim of Weixin users can be determined in Hong Kong. If anything, this decision should be considered by a reasonable litigant as a sound reminder that HK Tencent and Shenzhen Tencent are two separate entities. I fail to see how the orders sought by HK Tencent can more effectively deter other Weixin users to commence their claims against HK Tencent in Hong Kong.

39.  The reference to PRC law is only a red-herring. Mr Liu does not say that the Salomon v Salomon principle is inconsistent with PRC law. Nor does Mr Liu adduce any expert evidence in this regard. HK Tencent itself relies on this principle in its written submissions and cites both local and English authorities in support of its contention. It cannot now be heard to say that the sustainability of Mr Liu’s claim should not be considered in light of the Saloman v Saloman principle and expert evidence of PRC law is indispensable.

40.  HK Tencent may have its own considerations when dealing with a litigant in person. There is no reason why this court should take such considerations into account in the assessment of the actual merits/necessity of its substantive applications.

41.  Lastly, I find no merit in the submission that an order for a stay is less prone to being overturned by an appellate court. If HK Tencent has conviction in the truth of its evidence and the correctness of the submissions made on its behalf, it should have sought a striking out order without incurring extra costs on unnecessary applications no matter how safe such applications may be. If it opts to make such applications, it should bear the costs consequences.

Conclusion

42.  For the reasons given, I conclude that neither the appeal of Mr Liu nor the cross-appeal of HK Tencent has any merit. Both of them must be dismissed and the Order do stand.

43.  Neither parties is successful in their respective appeals. Accordingly, I make an order nisi that each of them bears his/its own costs of the appeal of Mr Liu and the cross-appeal of HK Tencent.