CAPITAL WEALTH HOLDINGS LTD AND OTHERS v. 南通嘉禾科技投资开发有限公司

HCCT 66/2020

[2020] HKCFI 3058

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 66 OF 2020

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BETWEEN

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DECISION

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1.  By an interim anti-suit injunction of 19 October 2020 granted by Deputy Judge Sit SC (the “Interim Injunction”), the defendant (“D”) is inter alia restrained from starting, continuing, pursuing or taking further steps in 4 specified proceedings commenced by D in the Mainland before the Nantong Intermediate People’s Court (“NIPC”) against inter alios P3 to P6 (the “WFOEs”). 3 of those proceedings have been referred by the parties as the WFOE Proceedings, which term I adopt.

2.  By summons of 1 December 2020 (the “Summons”), D is seeking (1) the discharge of the Interim Injunction in respect of the WFOE Proceedings, (2) a limited variation to, as summarized by Mr Anson Wong SC who appears for D, enable D to (i) respond to the WFOEs’ jurisdictional challenge made before the NIPC (“1^st Variation”), and (ii) to seek a stay or adjournment of the WFOE Proceedings thereafter (“2^nd Variation”), and (3) fortification of the undertaking as to damages.

3.  This is the first hearing of the Summons.

4.  Mr Maurellet SC appears for the plaintiffs (“Ps”).

5.  The part of the Summons for discharge and fortification will be adjourned for substantive hearing.  I have given parties directions on the filing of evidence.  Parties will come back before me on 20 January 2021. I now deal with the application for variation.

6.  The basis of Ps’ application for the Interim Injunction was that the WFOE Proceedings were brought by D in breach of the arbitration agreement between some of the parties, and that there are indeed ongoing arbitration proceedings in Hong Kong initiated by Ps against D in relation to the subject disputes.

7.  I have considered the draft affirmation Zhao Lifeng exhibited to the affirmation of Wong Ka Chun filed in support of the Summons.  I have also read the 4^th affirmation of Yang Tai Ming filed in opposition, together with the Mainland legal opinion of Mr Sun Guangwei exhibited thereto (the “Mainland Legal Opinion”).

8.  I set out some relevant background leading to the present application.

9.  As said, the WFOE Proceedings were commenced by D.

10.  What appears to have happened is that the NIPC, having seized upon the WFOE Proceedings, proceeded to fix the substantive hearing of the WFOE Proceedings to be heard between 8 and 10 December 2020.  Those dates were apparently fixed without consulting the parties. 

11.  After those dates had been fixed, and with knowledge of the hearing dates, Ps came before Deputy Judge Sit SC for the Interim Injunction. 

12.  There was no application for an order that the WFOE Proceedings be withdrawn (though it is one of the relief Ps seek by the Originating Summons).

13.  On the other hand, despite having notice of Ps’ application for the Interim Injunction, D took no part in the application and did not attend the hearing before the learned Deputy Judge.

14.  Upon the grant of the Interim Injunction, and restrained thereby, D could take no further step in the WFOE Proceedings.  According to the strict terms of the Interim Injunction, D cannot even take any step to apply to have the WFOE Proceedings adjourned or stayed.  Those proceedings remain pending before the NIPC.

15.  The WFOEs then on 12 November 2020 took out applications before the NIPC to challenge its jurisdiction to hear the WFOE Proceedings. They thought it was necessary for them to do so to prevent the hearing on 8 to10 December 2020 from taking place.  It is not apparent why they did not do so earlier, and only did so after the grant of the Interim Order.  Those applications have subsequently been fixed to be heard on 7 December 2020 before the NIPC.

16.  It is against those background that the Summons now come before me.

17.  Parties’ consensus is that given the Interim Injunction, the WFOE Proceedings should be adjourned or stayed.  But how that should be done they cannot agree upon.

18.  D’s concern is that if the NIPC refuses any application for an adjournment or stay, which NIPC can, D will suffer irreparable damage if it were to be restrained from resisting before the NIPC the WFOEs’ jurisdictional challenge — hence the need for the 1^st Variation.

19.  Ps do not agree.  Ps’ concern is that if the NIPC refuses any application for adjournment or stay, and if D is to be permitted to participate in the WFOE Proceedings in the manner as contemplated by the 1^st Variation, the WFOE Proceedings would in reality be permitted to be continued, thereby defeating the purpose of the Interim Injunction.  Ps’ position is that in the eventuality of any application for adjournment or stay being refused, D should apply to have the WFOE Proceedings withdrawn.

20.  But on the other hand, Ps sought the Interim Injunction with knowledge of the hearing dates of 8 to 10 December 2020.  They did not see fit to seek an interim order compelling D to withdraw the WFOE Proceedings.  I see force in Mr Wong’s submission that if this court is to accept the WFOEs’ present stance, D may in effect be compelled to withdraw the WFOE Proceedings. The WFOEs will benefit from an extra step they took in challenging the jurisdiction of the NIPC after D’s hands have been tied, which step they could have taken before their application for the Interim Injunction.

21.  The task before this court is to decide which course would pose lower risk of injustice.

22.  According to the Mainland Legal Opinion, whilst a jurisdictional challenge is pending, the court concerned cannot proceed to consider the substantive merits of the case.  To do so would be a serious procedural irregularity.

23.  Bearing in mind all the circumstances, the variation that is going to pose the lowest level of risk of injustice is in my view as follows:

(a) D be granted liberty first of all to seek a stay, or alternatively an adjournment of the WFOE Proceedings, including the jurisdictional challenge lodged by the WFOEs;

(b) should that application be unsuccessful, and only so when D be granted liberty to take steps to resist oppose and/or respond to the WOFEs’ jurisdictional challenge;

(c) to answer the summons issued by the NIPC dated 27 November 2020, including to attend and participate at the hearing on 7 December 2020, for the purpose of, subject to the applicable Mainland law, carrying out §§(a) and (b) above.

24.  To implement the mechanism above, Mr Wong placed before me a refined set of variations which he now seeks instead.

25.  On the evidence before me, I form the view that the variations now proposed by D pose lower risk of injustice.

26.  I vary the Interim Injunction in terms of the refined variations now being sought.