GENG FENG v. A.I. INTERNATIONAL TECHNOLOGY LTD AND ANOTHER

HCA 3355/2016

[2021] HKCFI 2701

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3355 OF 2016

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DECISION

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1.  This is the Defendants’ application by Summons filed on 23 November 2018 for a temporary stay of this action pending the final determination of the arbitration proceedings under HKIAC/A 12139 (“Arbitration”)[1].

2.  The Arbitration is not one between the parties to this Action but between the Plaintiff (“Geng”) as Claimant and Wong Man Kit (“Wong”) and Hong Kong Metropolitan Bus Ltd (“HKMB”) as Respondents. 

Background

3.  The background to the dispute between the Plaintiff and the Respondents which gave rise to the root dispute in this Action is complicated.  However, for the present purpose, it may be succinctly stated as follows.

4.  Geng and Wong used to be business partners and operated a transportation business in the Mainland via two companies which may be referred to as Tiancheng Enterprises and Tiancheng Development. Subsequently, Wong wanted to acquire Geng’s interest in those companies. 

5.  On 21 March 2005, Geng (acting in his own capacity and via his nominee company, SZFZ) and Wong (acting in his own capacity and for his company, HKMB) entered into a Share Transfer Agreement whereby the latter would acquire from the former (1) his beneficial interest in Tiancheng Enterprises (amounting to 49% of its shares held by SZFZ) and (2) his shares in Tiencheng Development (20% of its shares held by Geng). 

6.  At the material time, Tiancheng Enterprises had a 35.54% shareholding in another Mainland company which can be referred to as Shenzhen Jinzhi.  Geng had paid one half of the consideration for such shares. It was acknowledged in the Share Transfer Agreement that Geng would retain his interest in the shares in Shenzhen Jinzhi (held by Tiancheng Enterprises). 

7.  On 10 May 2006, there was a capital injection to Shenzhen Jinzhi by Tiancheng Enterprises, for which one half of the funds was paid by Geng.  The exercise resulted in the increase of shareholding held by Tiancheng Enterprises to 40.75% (“SJ Shares”). 

8.  It is Geng’s case that in breach of the Share Transfer Agreement Wong had refused to transfer 50% of the SJ Shares to him. Instead, on 11 January 2010, Wong transferred the SJ Shares to the 2^nd Defendant in this Action, which was (and is) wholly owned by the 1^st Defendant, to put them out of Geng’s reach. 

9.  The Share Transfer Agreement, as well as a related Deed of Guarantee of the same date (21 March 2005) executed by Geng as guarantor in favour of Wong as beneficiary, contained an arbitration clause. Accordingly, on 25 May 2012, a Notice of Arbitration was issued by Geng leading to the Arbitration. 

10.  Geng attempted to join the Defendants as parties to the Arbitration.  It was resisted and unsuccessful.  It is fair to point out that the joinder application was unsuccessful primarily because the Defendants were not parties to either of the arbitration agreements (contained in the Share Transfer Agreement and the Deed of Guarantee).  On the other hand, the Defendants could have agreed to be joined in the Arbitration by entering into an arbitration agreement with Geng.  Such a course would have avoided the present dispute.

11.  About 7 months after the Tribunal had dismissed the joinder application, this Action was commenced on 20 December 2016.

12.  Wong had passed away on 11 October 2017.  His estate had become the 1^st Respondent in the Arbitration, and it is represented by Wong’s son (Vincent) acting as the executor[2].

13.  The subject matter of this Action is Geng’s 50% interest in the SJ Shares.  Geng’s causes of action against the Defendants rest on knowing receipt and dishonest assistance.  In simple terms, it is alleged that Geng’s interest in the SJ Shares was wrongfully transferred to the 2^nd Defendant due to the breach of trust by Tiancheng Enterprises which was procured by Wong and/or HKMB and with the dishonest assistance of the 1^st Defendant.

Overlap between the Arbitration and this Action

14.  It is not in dispute that there is much overlap between the issues in the Arbitration and this Action.  Indeed, there is little doubt that if Geng fails to prove his case concerning the alleged wrongdoings on the part of Wong and HKMB, this Action has no leg to stand on.  The overlap between the two sets of proceedings is underlined by Geng’s joinder application made in the Arbitration. 

15.  At one stage, the parties had, quite sensibly, attempted to come to terms on a stay of this Action pending the final determination of the Arbitration.  However, not only did the efforts fail to bear fruit, the parties are accusing one another of blowing hot and cold which resulted in the failure. 

Issue

16.  It is not important for the court to resolve who is to blame for the failure to agree a stay of this Action.  The issue is one of exercise of discretion to serve the ends of justice between the parties and the administration of justice generally. 

17.  The key dispute here is whether the discretion should be exercised when the parties in this Action are different to those of the Arbitration. 

Applicable principles

18.  Both sides had referred the court to the authority of Linfield Ltd v Taoho Design Architects Ltd [2002] 2 HKC 204, per Ma J (as he then was), at §14 where the court set out 3 guiding principles :

(1)  The stay must not cause injustice to the claimant;

(2)  The applicant for a stay must satisfy the court that the continuance of the proceedings would be oppressive or vexatious to him or an abuse of the process of the court, ie, that it would be unjust; and

(3)  Where a plaintiff institutes proceedings as of right (and not in breach of an arbitration agreement or exclusive jurisdiction clause) he is not to be deprived of carrying on those proceedings unless very good reasons exist to the contrary.

19.  In §16, the learned Judge addressed the issue of lack of identity of parties :

“Even if there are multiple sets of proceedings involving similar or even the same issues, if there is no identity of parties, I fail to see how it is desirable or even possible for one or more of such proceedings involving different parties to be stayed pending the resolution of any other set or sets of proceedings. The determination of any issues in proceedings between different parties would not be binding on any other party in another set of proceedings. I recognize immediately that this may give rise to a risk of inconsistent findings, but where findings made in earlier proceedings (even on the same issues) are not binding in later proceedings, the risk is inevitable. However desirable it may be to have consistency, findings made in different proceedings between different parties cannot be made binding on other persons.”

20.  I agree with Mr Pow SC, who appeared for Geng with Mr Tang, that the other authorities on this area cited to the court by Mr Chan SC, who appeared with Mr Liu, Mr Lai and Ms Hung for the Defendants, do not diverge from the above basic tenets.

Different parties

21.  There is no dispute that the Defendants are sued in this Action by Geng as of right.  It is regrettable that Geng had not been able to join them in the Arbitration, and their attempt to agree to a stay of this Action had failed. 

22.  However, the position is such that unless there is a very good answer to the proposition that staying this Action will be pointless because the findings made in the Arbitration will not bind the Defendants, this application cannot succeed.

23.  The Defendants’ answer is their agreement to be bound by any relevant factual finding made in the Arbitration, and that Wong and HKMB had agreed to waive the confidentiality of the Arbitration. 

24.  Geng said that he was agreeable to a stay on the above basis.  However, after having expressed his agreement, Wong and HKMB belatedly brought a jurisdictional challenge to the Arbitration 8 years after its commencement.  

25.  By their Re-Amended Statement of Defence dated 10 July 2020, which was further amended by the Re-Re-Amended Statement of Defence dated 4 June 2021, Wong and HKMB averred that the arbitration agreements were superseded by the provisions in a later Share Transfer Agreement dated 25 April 2005, and pursuant to which the parties had agreed to refer their dispute to the Shenzhen Intermediate People’s Court.  If the jurisdictional challenge is successful, it is highly questionable whether there will be any relevant finding on which Geng may rely upon in this Action. Hence, ultimately Geng refused to agree to a stay. 

26.  The Arbitration is in a comparatively more advanced stage as pleadings are now closed, whereas the Defendants have yet to file their pleading in this Action.  Following the close of pleadings, the parties in the Arbitration were to proceed with the request for production of documents which was due on 4 September 2021.  It appears that the jurisdictional challenge will be dealt with as part of the trial in the Arbitration.  There is no indication of when the same will take place.  It is doubtful that the Arbitration will be resolved in the near future. 

27.  The Defendants submitted that the jurisdictional challenge is for the Tribunal to determine.  That is no answer to Geng’s entitlement to sue the Defendants in this Action.  I fail to see why Geng should be forced to accept the Defendants’ agreement to be bound by the findings of the Arbitral Tribunal when the Arbitration may not result in any relevant finding.  Geng has a legitimate concern that keeping this Action in abeyance whilst waiting for the resolution of the Arbitration may come to nought.  Such delay can only work against his interest. 

28.  It should be added that there is substance in Geng’s concern that Wong, HKMB and the Defendants are acting in tandem in trying to delay the determination of this Action.  These parties are certainly related.  In addition to the matters referred to in paras 5 and 8 above, (a) Vincent and his sister are directors of the 1^st Defendant (its two shareholders are BVI companies); and (b) Vincent is the legal representative and chairman of the 2^nd Defendant.

29.  The Defendants sought to rely on a Singaporean authority of Trinity Construction Development Pte Ltd v Sinohydro Corp Ltd [2020] SGHC 215.  I am unable to see how that case can assist the Defendants.  It was one where there was identity of parties in the arbitration and court proceedings.

30.  The Defendants submitted that even if the Tribunal is to uphold the jurisdictional challenge, it will have to make important findings which may be relevant to this Action.  I am not attracted by the submission.  It is very difficult, if at all possible, for the court to second guess what finding(s) or ruling(s) may be made by the Tribunal in the Jurisdictional challenge or whether the same may be relevant to this Action (the Defendants have yet to file their pleadings in this Action).  Further, ruling(s) may be on issues of law and finding(s) may be mixed findings of law and facts.  Hence, they may be of little assistance to Geng in proving his case in this Action. 

31.  Applying the guiding principles of Linfield Ltd, I accept that a stay of these proceedings may cause injustice to Geng in terms of delay to the resolution of the same.  I fail to see that the continuation of these proceedings would be oppressive or vexatious to the Defendants when they are not parties to the Arbitration, nor do I see any abuse of process of this court on the part of Geng.  There does not exist a very good reason to stay these proceedings which had been instituted as of right. 

32.  Finally, I believe that in dealing with the key issue identified in para 17 above, the substance of the many arguments set out in section IV of the Defendants’ submissions have been adequately covered (the hearing of the Summons was indeed focused on that key issue).  The only exception concerns the allegation that the parties had agreed to a stay.

33.  The Defendants contended that there was a binding agreement made between the parties over the stay.  The court was referred to a letter of Geng’s solicitors dated 23 March 2020 (“Letter”) which apparently referred to a draft Consent Summons sent to the Defendants’ solicitors on the same day under a “without prejudice save as to costs” letter (not before the court).  Mr Chan said that the Consent Summons had been signed and there exists therefore a binding agreement. 

34.  Unfortunately, the court has not been presented with a complete set of the relevant correspondence.  However, the Letter ended with a request to the Defendants’ solicitors for “a draft consent summons for our review and consideration”.  It was likely a request for a draft of the stay summons.  The next letter in the bundle was one from the Defendants’ solicitors dated 15 July 2020 enclosing a draft Consent Summons for staying this Action. By that time, the Respondents had brought a jurisdictional challenge in the Arbitration and the Summons was not signed by Geng. 

35.  In light of the evidence before the court, I am not satisfied that the parties had actually reached a binding agreement on the stay.  Further, as submitted by Mr Pow, Geng’s agreement was based on avoiding the duplicity of proceedings.  I do not believe that Geng had anticipated at the time that the Arbitration might not result in any factual finding relevant to resolving this Action.  The circumstances had been undermined by the jurisdictional challenge.  The promise by the Defendants to be bound may be an empty one.  In the premises, the court is not swayed by these matters to staying these proceedings.

Conclusion

36.  For these reasons, the Summons is dismissed with costs to the Plaintiff with a certificate for 2 counsel.

37.  I am grateful to counsel for their assistance.