天津市裕豐隆資產管理有限公司 v. HO KIN WA AND ANOTHER

HCA 2405/2014

[2019] HKCFI 556

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2405 OF 2014

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DECISION

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Introduction

1.  I have before me an application made by the 1^st defendant (“D1”) to dismiss or stay these proceedings in favour of the Shenzhen Intermediate People’s Court pursuant to Order 12, rule 8 of the Rules of the High Court.

Background

2.  The plaintiff (“P”) is a company incorporated in the Mainland. D1 and the 2^nddefendant (“D2”) were husband and wife, but had separated since late 1997/early 1998.  Plentiful Holdings Ltd (“Plentiful HK”) is and was the sole investor and shareholder of a Mainland company called 港丰房地产开发 (深圳) 有限公司 (“Plentiful Shenzhen”).  Plentiful Shenzhen has been engaging in real estate business development in Shenzhen.  D1 is and was the major beneficial owner of Plentiful HK through his beneficial ownership in a BVI company called Supreme Prosper Holdings Ltd, which holds shares in Plentiful HK.

3.  P commenced this action on 26 November 2014.  Its claim may be summarized as follows:

   (a)   As at July 2010, a sum of not less than RMB 150,000,000 was owed by Plentiful Shenzhen to the Shenzhen Bank Longhua Sub-branch (“the Lender”).

   (b)   By a Chinese Agreement entitled 委托担保协议书 dated 27 July 2010 (“the Guarantee Agreement”), 深圳长城国际盛投资担保控股有限公司 (“the Guarantor”) agreed to provideto the Lender cash deposit to the extent of RMB ¥150,000,000 as collateral securities so that the encumbrances or charge imposed on the property rights owned by Plentiful Shenzhen in Shenzhen could be released for sale to the public, and with the sale proceeds thereof, Shenzhen Plentiful would pay the Guarantor certain service fees and charges on monthly basis (“the Service Fees”).

   (c)   Pursuant to the Guarantee Agreement, D1 executed a Chineseindemnity agreement entitled反担保保证协议 dated 27 July2010 (“the Indemnity Agreement”) to indemnify the Guarantor of its liabilities under the Guarantee Agreement to the extent of RMB ¥150,000,000.  D2 also signed on the Indemnity Agreement as a co-indemnifier.

   (d)   By a supplemental agreement to the Guarantee Agreement dated 26 September 2011 (“the Supplemental Guarantee Agreement”), it was agreed that the due date of performance of the Guarantee Agreement shall be extended by three months to 28 December 2011.

   (e)   By a supplemental agreement to the Indemnity Agreement entitled反担保保证协议之补充协议 dated 28 September 2011 (“the Supplemental Indemnity Agreement”), it was agreed that the due date of performance of the Indemnity Agreement shall also be extended by three months to 28 December 2011.

   (f)   As at January 2012, the total amount of outstanding Service FeesdueundertheGuaranteeAgreementwasRMB¥39,850,000 (“the Outstanding Sum under the Guarantee”).

   (g)   Pursuant to the Indemnity Agreement and the Supplemental Indemnity Agreement, D1 and D2 remain jointly and severally liable to the Guarantor to pay the Outstanding Sum under the Guarantee.

   (h)   By an assignment of loan dated 22 April 2014, the Guarantor transferred all its rights and interests in the Guarantee Agreement, the Indemnity Agreement, the Supplemental Guarantee Agreement and the Supplemental Indemnity Agreement to P; and notice of assignment had been given to Plentiful Shenzhen as well as D1 and D2.

   (i)   Despite a written demand by P’s solicitors dated 6 November2014, D1 and D2 have failed and refused to pay the Outstanding Sum under the Guarantee.

4.  D2 filed a Defence on 2 January 2015, which was subsequently amended with the addition of a counterclaim on 16 March 2016.  P filed a Reply and Defence to Counterclaim on 7 June 2016.

5.  On the other hand, P entered default judgment against D1 on 1 April 2015.  On 29 January 2016, D1 applied to set aside the default judgment on the ground that:

“ the 1^st Defendant was not aware of the Writ of Summons until late November 2015 and/or the 1^st Defendant has merits in his Defence.”

6.  In the affirmation made in support of that application made on 28 January 2016, D1 stated that:

   (a)   He was unaware of these proceedings and the legal documents were all sent to his old addresses in Hong Kong when he was in custody in Shenzhen due to a criminal case between 3 December 2014 and 17 July 2015.

   (b)   There were proceedings in relation to the same dispute and substantially the same parties before the Shenzhen Intermediate People’s Court under action no. 113 of 2014 (“the PRC Proceedings”).  They were commenced on 17 July 2014.  He and the other defendants in that case contested the claim on the ground that they did not owe to P any outstanding fees: they had paid P (or its predecessor) a total sum of RMB ¥65,353,674 already and they had in fact overpaid P by some RMB ¥59,353,674 if a reasonable guarantee fee of 3% was provided in respect of the guarantee service fees.

   (c)   Further, the Indemnity Agreement and the Supplemental Indemnity Agreement contain express provisions that any dispute arising therein should be brought before the Mainland Court and the applicable law is Mainland law.

7.  On 19 February 2016, the default judgment was set aside by consent.  It was also ordered that:

“ Leave for the 1^st Defendant to file and serve his Defence and Counterclaim (if any) within 21 days from the date of this Order without prejudice to the 1^st Defendant’s right to take out an application to challenge the jurisdiction of the Court.”

8.  By another consent order dated 31 March 2016, it was ordered that:

“ the time for filing and service of the 1^stDefendant’s Defence and Counterclaim, if any, without prejudice to the 1^st Defendant’s right to take out an application to challenge the jurisdiction of the Court, pursuant to the Order of Master R. Lai dated 19^th February 2016 be extended by 21 days to 1^st April 2016”.

9.  On 24 March 2016, D1 took out the present summons.

Whether D1 has waived the right to dispute jurisdiction of the Hong Kong Court

10.  First, P argues that D1 has waived the right to dispute the jurisdiction of the Hong Kong Court.  Mr Cheung submits that in the application to set aside the default judgment, one of the grounds that D1 relied on was that he has merits in his defence; and that, in the affirmation made on 28 January 2016 in support of that application, D1 had gone into the merits of the case when it was unnecessary to do so.

11.  In ABN Amro Bank NV v Fortgang [2008] 2 HKLRD 349 at 355, §24, Sakhrani J cited and approved the following judgment in GlobalMultimedia International Ltd v ARA Media Services & Ors [2007] 1 All ER (Comm) 1160 at [28] that:

“ Thus the test to be applied is an objective one and what must be determined is whether the only possible explanation for the conduct relied on is an intention on the part of the defendant to have the case tried in England.”

He also cited the following judgment of Rogers VP in Miruvor Ltd v Panama-Globe Steamer Lines SA [2007] 1 HKLRD 804 at 809, §9:

“ The question which appears to me to be relevant, therefore, is whether looked at fairly and sensibly has what the defendant has done constituted a submission to jurisdiction. In my view,when the defences are considered it is abundantly clear from thefirst paragraph that the third defendant intended to challenge the jurisdiction and was to make an application to that effect.”

12.  Applying an objective test and looking at the matter fairly and sensibly, I take the view that D1 has not waived the right to dispute thejurisdiction of the Hong Kong Court.  It is true that in the said affirmationmade by him, he had gone into the substantive merits of the case and claimed that there are merits in his defence.  I also agree that it may not be strictly necessary for him to do so for the purpose of the application to set aside the default judgment.  However, it was understandable why he did so as the Court might take into account the merits of the case in deciding whether toexercise the discretion to set aside the default judgment.  Further, it is clear that he referred to the merits of the case in his affirmation to explain on what grounds he contested the claim in the PRC Proceedings.

13.  More importantly, he had made it abundantly clear that he would challenge the jurisdiction of the Hong Kong Court.  He stated in §27 of that affirmation:

“ First, I would challenge the jurisdiction of the HK Proceedings because of the express provisions in the Guarantee Agreement,Indemnity Agreement and Supplemental Indemnity Agreement.”

And in §28:

“ Secondly the amount of alleged guarantee service fees is disputed. This matter is being adjudicated in the PRC Proceedings under lawsuit no. 113-2014. There should not be duplicity of proceedings in 2 jurisdictions.”

14.  For these reasons, I take the view that D1 has not waived the right to dispute the jurisdiction of the Hong Kong Court.

Proper construction of the Jurisdiction Clauses and their legal effect

15.  Both the Indemnity Agreement and the Supplemental IndemnityAgreement contain a choice of jurisdiction clause (“the Jurisdiction Clauses”). In the Indemnity Agreement:

「 第七条 争议解决和法律适用

1. 双方就本协议的解释和履行发生的任何争议，应通过友好协商方式解决。未能通过友好协商方式解决的争议，甲乙双方选择以下第 (2) 种方式解决：

(1) 将争议提交　　　　(仲裁机构全称) 按其当时有效的仲裁规则进行仲裁。仲裁裁决是终局的，对双方都有约束力。

(2) 应提交甲方所在地的有管辖权的人民法院诉讼解决。

(3)  本协议的有效性、解释、执行及履行和争议解决均应适用中华人民共和国 (香港、澳门、台湾除外) 现行法律、行政法规之规定。」

And in the Supplemental Indemnity Agreement:

「 四、争议解决和法律适用

1. 双方就本补充协议的解释和履行发生的任何争议，应通过友好协商方式解决。未能通过友好协商方式解决的争议，甲乙双方应提交甲方所在地的管辖权的人民法院诉讼解决。

2.   本补充协议的有效性、解释、执行及履行和争议解决均应适用於中华人民共和国 (香港、澳门、台湾除外) 现行法律、行政法规之规定。」

16.  P contends that the Jurisdiction Clauses are non-exclusive whereas D1 contends they are exclusive.

17.  In the light of the express choice of law clauses in both agreements, I agree that the Jurisdiction Clauses should be construed in accordance with Mainland law.  Both parties have adduced Mainland legalexpert opinions to support their respective interpretation of the Jurisdiction Clauses.  D1’s expert opined that:

“ 虽然合约条文没有明确指出内地人民法院具有唯一管辖权。但按条文文字面“甲乙双方应提交甲方所在地的有管辖权的人民法院诉讼程序解决”，我们认为合约双方的意图仍是诉讼在内地法院审理，而非在境外如香港法院审理。”

Although Mr Cheung seeks to argue otherwise, it is clear that D1’s expert was saying that, although the word “exclusive” or the like in Chinese was not used expressly, the parties intended that litigations should be tried by the Mainland Court, but not any other court outside the Mainland such as the Hong Kong Court.

18.  D1’s expert supports that, under the Mainland law, the word “exclusive” or its equivalent in Chinese needs not be expressly used.  This is the same under Hong Kong law, under which the fact that the forum clause does not explicitly impose exclusive jurisdiction is inconclusive.  In Hwoo Huang Linda v Fu Being San [2013] 1 HKLRD 259 at 273, §40, Deputy Judge Reyes SC (as he then was) held that the question:

“ is whether on its true construction the clause obliges the partiesto resort to the relevant jurisdiction, irrespective of whether the word ‘exclusive’ is used …”.

19.  On the other hand, P’s expert had not really answered the question.  He merely said that the Mainland Court has jurisdiction under theJurisdiction Clauses; but because of Article 19 of the Basic Law, the Hong Kong Court will have jurisdiction if conditions prescribed by the relevant Hong Kong law are met.  He had not given any opinion on whether, upon a proper construction of the Jurisdiction Clauses, it was intended that legal proceedings should only be brought before the Mainland Court.

20.  As Recorder A Ho SC held in Oracle (China) Software Systems Co Ltd v Citic 21 CN (China) Technology Co Ltd HCA 105/2012 (18 September 2013, unreported), §22:

“ There is no dispute that in analyzing and resolving rival contentions advanced by the respective experts, this Court should adopt the approach explained by Deputy High Court Judge Lam (as the learned judge then was) in Shenzhen Development Bank Company Limited v New Century Int’l (Holdings) Ltd and another, HCA 2896/2011. Given that this Court is able to read the relevant provisions in the Chineselanguage, this Court is entitled and indeed bound to use his own legal skill and experience to examine the relevant legislation in light of the reasoning of the Higher People’s Court’s decision,insofar as it may have a bearing on the resolution of the issue.”

21.  I am duty bound to consider the Mainland legal experts’ opinions with my legal skill and experience, in particular, when the Jurisdiction Clauses are written in Chinese, which is a language that I am familiar with.  In my view, the use of the Chinese word “应” is critical and decisive.

22.  In Rich Village Ltd v Grand Pride Holdings Ltd & anor CACV 224/2012 (22 January 2013, unreported), Cheung CJHC (as he then was) held in §17:

“ First, an exclusive jurisdiction clause is, by definition, an important clause. The parties are, by agreement, to be restrictedto litigation in the specified forum only. For such an importantclause to be found in a serious and important commercial contract involving RMB500 million (or more), one would expect the exclusive jurisdiction clause to be expressed in clear terms, particularly when the agreement was drafted by lawyers. After all, it is easy to use words such as ‘應’, ‘須’ or the like (should,shall, must etc) to clearly specify the obligation to make use of the two designated methods to resolve the relevant disputes. But those words are conspicuous by their absence in clause 13.2. Contrast that with other clauses in the agreement where the word ‘應’ (should) is used regularly to express a mandatory obligation. …”

23.  In this case, in the Indemnity Agreement, the word “应” was used in other clause to express mandatory obligations (see, for example, clauses 1(4), 4(4), 6(1), 8(3), 8(4), 9(1), 10(4)).

24.  For these reasons, I take the view that the Jurisdiction Clauses are exclusive in nature.

25.  Having said that, this is not the end of the matter.  In The Pioneer Container [1994] 2 AC 324 at 347, the Privy Council held that:

“ It is common ground between the parties that, in a case such as the present, the applicable principles are those set out in the judgment of Brandon L.J. in Aratra Potato Co. Ltd. v. EgyptianNavigation Co. [1981] 2 Lloyd’s Rep. 119. According to those principles, the court has a discretion whether to grant a stay of proceedings brought in breach of an agreement to refer disputes to a foreign court; but the discretion should be exercised by granting a stay, unless strong cause for not doing so is shown. One of the matters to be taken into account in the exercise of the discretion is whether the plaintiff would be prejudiced by having to sue in the foreign court because, for example, he would be faced with a time bar not applicable in the domestic jurisdiction, here Hong Kong.”

26.  Hence, the burden is on P to show strong cause for not granting a stay.

27.  First, Mr Cheung submits that under Mainland law, the limitation period for commencing a legal action for the claim against D1 is 3 years and it has expired by around April 2017.  I agree with Mr Leung that P has not adduced any Mainland legal expert opinion to support such argument at all.

28.  Nevertheless, let us assume that what P contends is correct asa matter of Mainland Law.  It is necessary to note that it was P who applied to withdraw the PRC Proceedings as against D1 and D2 on 26 December 2014 (which was one month after P commenced this action), and the application was granted by the Shenzhen Intermediate People’s Court on 26 January 2015.

29.  In the 1^st affirmation of Chen Wei Qiang made on behalf of P dated 24 June 2016, he stated in §6:

“ An application was made by the Plaintiff to the Shenzhen Intermediate People’s Court, on 26^th December 2014, to discontinue or withdraw the action on the basis that the Plaintiff has decided and elected to pursue its relief against the 1^st and 2^nd Defendants in Hong Kong court.”

30.  In the application submitted to the Shenzhen Court dated 26 December 2014, P stated that, according to its understanding, D1 and D2 no longer had any assets which may be enforced against in the Mainland, but they had assets in Hong Kong and there was a risk of dissipation; hence, it decided to commence legal proceedings in Hong Kong.  Irrespective ofwhat reasons had been given by P, it was clearly a deliberate and consciousdecision of P to withdraw the PRC Proceedings against D1.  D1 would not have been able to rely on any limitation defence if P starts a new action against him before the Shenzhen Court now but for P’s withdrawal of the PRC Proceedings against him.  The juridical disadvantage that P may suffer now is self-induced.

31.  In addition, D1 had made it clear that he intended to challenge the jurisdiction of the Hong Kong Court in his affirmation made on 28 January 2016. By the time P received D1’s present summons taken out on 24 March 2016, P should know that D1 was serious about his challenge to the jurisdiction of the Hong Kong Court.  P should and could have procured this summons to be disposed of expeditiously before April 2017; and perhaps re-commenced a legal action against D1 before the Shenzhen Court to safeguard its position pending the disposal of the present summons.

32.  Second, Mr Cheung stated in his written skeleton that P will suffer a juridical disadvantage if the action is to be tried in the Mainland due to an alleged deprivation of security.  I have some difficulties in understanding his arguments in this respect.  Be that as it may, Mr Cheung accepted in his oral submissions that any such loss of security would be caused by the application of the relevant contractual documents, and it does not depend on where P’s claim against D1 is to be tried.

33.  Third, Mr Cheung submits that there are numerous connecting factors between P’s claim and Hong Kong.  D1 is a Hong Kong resident having addresses in Hong Kong.  P’s claim against D2 will proceed in any event.  And there may be other witnesses in Hong Kong, including D1.  I agree with Mr Leung that D1’s position should not be prejudiced by P’s continuing claim against D2.  P has not identified any particular witness; and more importantly, there is no suggestion that any potential witness (including D1) can only give evidence in Hong Kong but cannot do so in the Mainland.

34.  In the circumstances, I am not convinced that P has shown any strong cause for not granting a stay of these proceedings against D1.

Forum non conveniens

35.  It follows that it has become unnecessary to me to determine the issue of forum non conveniens.  Solely for the sake of completeness, I shall deal with this issue briefly.

36.  If I had to decide on this issue in order to dispose of the presentsummons, I would have refused to stay P’s claim against D1 on the ground of forum non conveniens for the following reasons.  The burden is on D1 to show that the Shenzhen Intermediate People’s Court is clearly and distinctly more appropriate than the Hong Kong Court to try the dispute between them.  D1 is a Hong Kong resident.  Based on what D1 said in his previous affirmations, this will largely be a documentary case as the main factual issue is whether, and if so, how much had already been paid as service fees.  The issues do not appear to be complicated even though Mainland law may be involved.  There is no evidence that any potential witness will have difficulties to come to Hong Kong to give evidence.  I was informed that the Shenzhen Court delivered judgment in the PRC Proceedings as against the other remaining defendants on 28 June 2018.  However, as D1 is no longer a party in those proceedings, the judgment ofthe Mainland Court would not give rise to any issue estoppel or res judicata.  In any event, I fail to see how this would, by itself, make Hong Kong not an appropriate forum.

Conclusion and order

37.  For the above reasons, I shall exercise my discretion to stay P’s claim against D1.  P shall pay D1’s costs of and occasioned by the present summons, to be taxed if not agreed.