TZG PARTNERS LTD v. PENG GANG AND OTHERS

HCA 916/2019

[2021] HKCFI 3234

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 916 OF 2019

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JUDGMENT

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INTRODUCTION

1.  The plaintiff’s claims in this action are essentially based on an alleged conspiracy between the defendants (respectively “D1” to “D7” and collectively “Ds”) to misappropriate 5 assets said to be belonging to the plaintiff (“P”).

2.  Before the Court is a summons issued on 7 January 2021 by D2 and D5 (“Summons”)[1] and they seek:

(1)  in paragraph 1 thereof, an order that the amended writ of summons herein (“Amended Writ”), the service of the Amended Writ and all subsequent proceedings against them be set aside on the ground that there was no prospect in P obtaining leave to serve the Amended Writ out of jurisdiction on D2 and D5;

(2)  in paragraph 2 thereof, a declaration that the Hong Kong courts do not have and/or should not exercise jurisdiction over P’s claims against D2 and/or D5 and such claims be stayed in favour of the Shanghai Changning People’s Court or any other appropriate court in Shanghai;

(3)  in paragraphs 3 and 4, further or alternatively, the order of Master Dick Ho dated 3 August 2020 by which the validity of the Amended Writ was extended retrospectively for 12 months from 27 May 2020 (“1^st Extension Order”)[2] be discharged, and the Amended Writ and the service on D2 and D5 be set aside and the action against D2 and D5 be dismissed;

(4)  in paragraph 5 thereof, in the event that the reliefs under the above paragraphs are refused, an order that P’s claims against D2 and D5 be struck out on the grounds that they disclose no reasonable cause of action, they are frivolous or vexatious and/or otherwise an abuse of process of the court.

3.  Counsel Mr Bernard Man SC and Mr Brian Lee appeared for D2 and D5, and Counsel Mr Mike Yeung appeared for P.

BRIEF BACKGROUND

4.  P is a limited company incorporated in Hong Kong in 2003 and is said to be a business management and investment firm which builds and invests in high-growth businesses.  According to P, it either directly founded high –growth businesses as founders or took over projects that were at an early development stage and then developed their profiles and values with P’s knowhow and resources, with an ultimate aim of an offshore exit, thereby benefitting from the capital appreciation of these businesses, and that P usually looks to exit of its projects in Hong Kong.  One of the co-founders of P is Tsen Hsiang I, Ben (“Ben”).  There were at material times two directors of P, namely Ben and one Ms Zhang Yingru. 

5.  Of the defendants, D1 was the first to join P. D1 signed an appointment letter dated 2 April 2016[3], although according to P’s statement of claim, D1 joined  P around 1 June 2016 and left around August 2017.  According to P, D3 joined P from around 1 September 2016.  D3’s appointment letter was however dated 20 December 2016[4] and he was with P until October 2018.

6.  D2 joined P by signing an appointment letter (dated 19 April 2017) on 30 April 2017 (“D2 Appointment Letter”)[5].  D2 left P in September 2017. 

7.  D1, D2, and D3 were each given the title of a “managing director” after joining P.  As seen in the judgments in the Shanghai Proceedings (as set out later), the relationship between P and D2 under the D2 Appointment Letter was stated to be a “co-operation relationship”/“合作關係”, and was not an employer/employee relationship.

8.  As for D4, he was appointed the “IT Director” of P’s wholly-owned subsidiary incorporated in PRC from around 1 September 2016 to 31 August 2017[6].

9.  D5/Shanghai Xiangwushuo Internet Technology Company Limited (上海享物說網絡科技有限公司) is a company established by D1, D2 and D4 on 22 November 2017 in Mainland China (“PRC”), with D1, D2, and D4 holding respectively approximately 17.55%, 60.95% and 6.5% equity interests.  D2 is/was at all material times D5’s legal representative in PRC. 

10.  D6 (上海歌廬網絡科技有限公司) is a company established by D7 together with others on 13 December 2018 in PRC and D7 is/was at all material times and the legal representative of D6. On 17 May 2019, D6 became the sole shareholder of a company 上海赫墨電子商務有限公司/Shanghai Hemo Electronic Commerce Company Limited (“Hemo”).

11.  Hemo is a company established by 上海易江訊息科技有限公司 (“Yijiang”) in the PRC on 24 January 2008.  Yijiang itself was a company established by D1 and D3 in the PRC on 7 December 2004.  On 30 September 2018, D5 became the sole shareholder of Yijiang, and D2 became the legal representative of Yijiang.

12.  As said earlier, P’s claims in this action are essentially based on an alleged conspiracy among Ds. According to P, the conspiracy was masterminded by D2 and D1 and conducted from around September 2017 to July 2019, to misappropriate P’s assets.  These misappropriated assets are principally in the form of intellectual properties pertaining to the following projects which P was developing:

(1)  an idea and platform for exchange by users of goods and services in return for redeemable points initially named as ‘享要一點通’ (later renamed as ‘享物說’, the “XWS Asset”);

(2)  an idea and platform for facilitating and managing business networks called ‘角馬’ (“GnuClub”);

(3)  a flower store chain for a network of flower shops under one brand and one system of management called ‘花里’ (“Huali”);

(4)  an idea and platform for professional networking and referral business called ‘長板坡’ (“Talent Pool”); and

(5)  a lunch-time based program professional networking and referral business platform called ‘午餐會’ (“Self Club”).

13.  It is alleged by P that D2, during his tenure as a “managing director” of P, was designated by P to lead the development of the XWS Asset, and that when D2 left P in September 2017, he did not surrender control over the XWS Asset.  Instead D2 (together with D1) instigated the set-up of D5 in November 2017 which on 30 September 2018 became the holder of the XWS Asset through Yijiang.  

14.  P further alleges that D5, under the control of D1 and D2 then procured Hemo to facilitate the misappropriation of Huali, GnuClub, Talent Pool and Self Club conducted by various conspirators, through transfer to Hemo, registration by Hemo or unauthorised used by Hemo, intellectual property rights relating to these assets starting in April 2018 up till July 2019.  D1 and D2 in May 2019 procured the change of ownership of Hemo from Yijiang to D6, whose legal representative and shareholder was D7.  According to P, D7 is the wife of a former managing director of P and was recruited by D1 since August 2018.

15.  In short, the XWS Asset is now held by D5 through Yijiang, and GnuClub, Huali, Talent Pool and Self Club are now held by D6 through Hemo.

16.  In 2018 and in 2019, P commenced 2 sets of proceedings in Shanghai as set out later.  P failed in those proceedings.

17.  The writ in the present action was issued on 27 May 2019 (“Original Writ”), 5 days after the trial of the 1^st Shanghai Proceedings (as defined later) on 23 May 2019[7]. 

18.  The Original Writ was substantially amended on 21 August 2019 by the Amended Writ, which includes 3 new defendants being added.

THE SHANGHAI PROCEEDINGS

19.  P first commenced proceedings in Shanghai Changning District People’s Court (“Changning Court”) against D2 and D5 by a Civil Claim Form dated 8 November 2018 (“1^st Shanghai Proceedings”)[8], in which P claimed that it was a 40 % shareholder in D5.

20.  P had attempted to join D1 and D4 in the 1^st Shanghai Proceedings.  This was rejected by the Changning Court in its decision of 6 May 2019[9] (“Changning Joinder Decision”).  As seen in that decision, the Changning Court held that in the 1^st Shanghai Proceedings, P’s claim against D2 was based on D2’s breach of contract, but P’s application for joinder of D1 and D4 was based on P’s claim that D1 and D4, together with D2, had maliciously infringed P’s share rights and thus they were not of the same cause of action and did not comply with the requirement for joinder under the relevant PRC regulation.  

21.  The Changning Court later handed down its judgment dated 10 June 2019[10], in which it dismissed P’s claim against D2 and D5.

22.  P appealed from that judgment. By judgment dated 24 September 2019[11], the Shanghai No 1 Intermediate People’s Court (“Intermediate Court”) confirmed the findings of the first instance judgment and dismissed P’s appeal[12].

23.  P issued a new set of proceedings against D1 by a Civil Claim Form sometime in 2019 (“2^nd Shanghai Proceedings”) in respect of the XWS Asset in the Shanghai Pudong New District People’s Court (“Pudong Court”)[13]. P claimed therein that D1 together with D2 had seriously injured P’s interests by misappropriating the XWS Asset and injecting it into D5.  P claimed that according to the valuation of D5 during the 1^st round of financing for the XWS Asset, D1’s share was valued to be about RMB 44 m, and P therefore claimed damages of RMB 5m against D1.

24.  By a judgment dated 29 April 2020[14], the Pudong Court dismissed P’s claim against D1.  

PROCEDURAL CHRONOLOGY OF THE PRESENT ACTION

25.  In the Original Writ, only 4 defendants were named, namely D1 herein (originally the 3^rd defendant), D2 herein (originally also the 2^nd defendant), D4 herein (originally also the 4^th defendant), D5 (originally the 1^st defendant) (collectively “Original Defendants”).  After issue of the Original Writ, P did not immediately arrange for the writ to be served on the Original Defendants.  When the Original Defendants learnt of the issue of the writ, they instructed their solicitors (“ASC”) to write to P’s solicitors (“KBC”) on 20 June 2019 to accept service of the writ and complained of abuse of process in light of the 1^st Shanghai Proceedings[15].

26.  By a reply on 4 July 2019, KBC indicated that they had instructions from P to amend the Original Writ and therefore for the purpose of saving time and costs, they asked ASC to withhold action.

27.  On 14 August 2019, not having been served by the Original Writ, ASC filed a notice to act and took out a strike out application to strike out the action (“1^st Strike Out Application”).

28.  The Amended Writ was eventually filed on 21 August 2019 with 10 pages of amended indorsement of claim and the rest of Ds were added.  On 22 August 2019, KBC wrote to ASC to enquire whether ASC had instructions to accept service on behalf of all Ds.

29.  On 3 September 2019, ASC responded that they would not accept service of the Amended Writ on behalf of Ds.

30.  Thereafter, by consent, the 1^st Strike Out Application was on 9 September 2019 adjourned sine die with liberty to restore[16].

31.  On 11 September 2019, D2’s affirmation in support of the 1^st Strike Out Application was filed (“1^st Affirmation”)[17].

32.  After the filing of D2’s 1^st Affirmation, KBC wrote to ASC to enquire again whether they had instructions to accept service of the Amended Writ on all Ds.  On 30 September 2019, ASC replied that they had been instructed not to accept service of the Amended Writ.

33.  On 7 May 2020, the Original Defendants issued another summons to strike out this action (“2^nd Strike Out Summons”).

34.  On 27 May 2020, the 12 month period of validity of service of the Amended Writ expired.  P did not make any application to extend the validity period, nor did P serve the Amended Writ on any of Ds before the said expiry.

35.  On 26 June 2020, in the morning of the call over hearing of the 2^nd Strike Out Summons, P made an ex parte application to retrospectively extend the validity period of the Amended Writ.

36.  On 3 August 2020, Master Dick Ho granted the 1^st Extension Order, for P to retrospectively extend the validity period of the Amended Writ for 12 months from 27 May 2020.

37.  The 2^nd Strike Out Summons was dismissed by Master Connie Lee on 25 September 2020, on the ground that the Court had no jurisdiction over the application when the Amended Writ had not been served on Ds.

38.  On 7 October 2020, ASC wrote to KBC confirming that they had no further instructions to act for D1 and D4 but had instructions from D2 and D5 to accept service of the Amended Writ, reserving their right to contest the jurisdiction of the Hong Kong Court under Order 12 rule 8 of the Rules of the High Court (RHC) and that service was accepted on that basis only[18].

39.  On 9 October 2020, D2 and D5 filed a notice of appeal against Master Connie Lee’s order dismissing the 2^nd Strike Out Application.

40.  Thereafter, the Amended Writ was served on D2 and D5 on 27 October 2020.

41.  P filed its statement of claim on 10 November 2020 (“SoC”) and served the same on D2 and D5 the same day.

42.  Later in November 2020, D2 and D5 withdrew their notice of appeal.

43.  On 7 January 2021, D2 and D5 issued the Summons.

44.  On 29 March 2021, P obtained ex parte leave to serve the Amended Writ out of jurisdiction on the other Ds.

45.  On 3 June 2021, the validity of the Amended Writ was further extended ex parte for 8 months from 27 May 2021[19] (“2^nd Extension Order”).

WHETHER THE SERVICE OF THE AMENDED WRIT SHOULD BE SET ASIDE

Generally

46.  The principal cases in which service of writ out of jurisdiction is permissible have been set out in Order 11 rule 1(1) of the RHC.

47.  Mr Man has referred this Court to New Link Consultants Ltd v Air China & Others HCA 515/2001, 03.05.04 in which DHCJ Poon, as he then was, made the following observation in paragraph 39:

“The rules do not prevent the parties from agreeing on how the service of a writ is to be effected. Thus, in cases where a foreign defendant is involved, in order to “short-circuit” the cumbersome procedure under Order 11 and hence saving costs, solicitors have developed a practice, which is laudable, of agreeing to accept service on behalf of that defendant but reserving at the same time its right to dispute jurisdiction later. (This reservation is important because if the indorsement on the writ by the solicitors is not so qualified, the defendant will be precluded from disputing jurisdiction later: see Hong Kong Civil Procedure, Vol. 1, paragraphs 10/1/9 and 11/1/13A at pp.88 and 103). The writ so served on the defendant’s solicitors would then be regarded as if it had been served on the defendant outside jurisdiction under Order 11. The defendant will then be free to dispute jurisdiction in the normal way under Order 12, rule 8. See generally Sphere Drake Insurance Plc & others v. Gunes Sigorta Anonim Sirketi [1988] 1 Lloyd’s LR 139.”

48.  As submitted by Mr Man, leave would only be granted for P to serve D2 and D5 out of jurisdiction if P could demonstrate that[20]:

(1)  There is a good arguable case that its claims fall within one or more of the gateways under Order 11 Rule 1;

(2)  There are serious issues to be tried in respect of its claims; and

(3)  Hong Kong is clearly or distinctly the more appropriate forum to try its claims.

49.  The burden is thus on P to satisfy this Court over the above 3 requirements before leave is granted under Order 11.

50.  The last of the 3 requirements was the first issue which Mr Man addressed the Court at the hearing.

Requirement (3) - Whether Hong Kong is clearly or distinctly the more appropriate forum to try P’s claims 

The parties’ respective case

51.  Mr Man has referred this Court to what was held by Ma J, as he then was, in Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250, that “appropriate” means the forum with the most real and substantial connection with the action from the point of view of trial[21]. 

52.  Mr Man has further referred the Court to paragraphs 11/1/125 – 126 of Hong Kong Civil Procedure 2021 (HKCP) that where litigation over the same of similar subject matter has already been brought in another jurisdiction such that counsel, solicitors, experts and/or the courts in that jurisdiction have built up familiarity and expertise with the relevant issues, it is more appropriate to have any related or similar litigation take place in the same jurisdiction.

53.  It is Mr Man’s submission that Shanghai/PRC is clearly and distinctly the more appropriate forum than Hong Kong.

54.  On the other hand, Mr Yeung submits that the cogently supported facts in the present case demonstrate a strong degree of connection with Hong Kong and practically, Hong Kong is also the most appropriate and natural forum for trial of the present case.  To summarise, Mr Yeung in his Skeleton Arguments has submitted as follows:

(1)  D2 was at all material times a person stationed in Hong Kong, contrary to his claim in his various affirmations that he left for Shanghai from August 2017 (para 10(c));

(2)  The conspiracy was in substance committed in Hong Kong (para 37(a));

(3)  The resulting damage suffered by P (a Hong Kong company) was in Hong Kong (para 37(a)iv);

(4)  The Appointment Letters of D1, D2 and D3 are all governed by Hong Kong law (para 37(a)ii);

Whether D2 was stationed in Hong Kong and whether the conspiracy was committed in Hong Kong

55.  In relation to (1), Mr Yeung has relied on various WeChat messages.  In a WeChat message at 1:52pm on 16 March 2017 D2 sent to Ben, D2 had told Ben that he was at that time in Hong Kong[22].  However, this would not necessarily mean “D2 expressed that he was resident in Hong Kong” as submitted by Mr Yeung[23].

56.  Mr Yeung has also referred to a series of WeChat group messages produced by Ben on behalf of P, which seemed to have started from around 12 June 2017 with exchanges of messages between D2 and other persons at P, including Ben[24].  In particular, D2 had sent a message at 7:14 pm on 12 June 2017 to Ben, Steven, Hong[25], in which D2 had said from that week onwards he would take lead of the XWS project and needed everyone to “brainstorm” a good name for the project.  There followed a series of exchange of messages discussing about the brainstorming of the name and related matters including D2 enquiring and discussing about the number of people sharing and participating in the platform and arrangement of delivery of items being offered.  There was one message in which D2 had said that it was inconvenient to send items by post from his end in Hong Kong[26], but he had also said that for the week of 17 July, he wanted to work in the office for 2 weeks if there was space in the office or a small meeting room which would be convenient for them to discuss, and the reply from one of the group participants showed that there was space in the office which could accommodate 3 persons[27].  Although the series of messages showed that the group was exchanging ideas through WeChat, it also showed that D2 wanted to meet with the group participants in person and to work in P’s office in Shanghai.

57.  D2’s evidence in his affirmations was that he moved to Shanghai in August 2017 and has not been ordinarily resident in Hong Kong since then[28].  D2 has produced a statement of his travel records from the Immigration Department for the period 1 January 2017 to 31 December 2020[29] to show that during the time of the alleged conspiracy (according to P, from September 2017 to July 2019), he came to Hong Kong only for very short stays from time to time. 

58.  In particular, the travel records showed that D2 had departed from Hong Kong on 17 December 2019 and up until 31 December 2020, he had not re-entered Hong Kong.  Further, there were 5 affirmations of D2 included in the hearing bundles, of dates ranging from 11 September 2019 to 28 May 2021, and save the last one of 28 May 2021 (in which D2 gave an address in Shanghai), D2’s address on all the other 4 was in Shenzhen.  Apart from the 1^st one of 11 September 2019 which D2 affirmed in Hong Kong, the rest were all notarised by the Notary Office in Shanghai.  The notarial certificates indicated that D2 holds a PRC identity card. 

59.  D2 has explained that after he moved to Shanghai in August 2017, his family still resided in the Tai Kwok Tsui address shown in the corporate filings of Happy Sharing HK and that he would visit his family from time to time.  Then a year later, in about August 2018, his family also moved to Shanghai, although his address in the corporate filings remained that of the Tai Kwok Tsui address, this was an administrative error as the company secretary had not reminded him to change his registered address and this matter had since been rectified. 

60.  Mr Yeung referred to D2’s evidence that he was making mortgage application with HSBC in Hong Kong in around January 2020[30].  To be exact, D2 did not actually say that he was at that time making any mortgage application.  All he said was that he had received enquiries from HSBC enquiring over these proceedings, and that he was worried that his credit rating would be affected which would in turn affect his mortgage application. D2 then instructed his solicitors to write to HSBC, and also BOC to set out his explanations.  Even if D2 was indeed making a mortgage application at that time, this would not necessarily mean D2 was stationed or resident in Hong Kong at the time.

61.  The D2 Appointment Letter was in fact addressed to “Mr Shao Sun, Shanghai, PRC”.  Further, in the Civil Claim Form dated 8 November 2018 in the 1^st Shanghai Proceedings commenced by P, P had stated D2’s address to be the one in Shenzhen and D5’s address to be one in Shanghai.  D2 was served with the 1^st Shanghai Proceedings in Shenzhen.

62.  Thus, the above appeared to show that P knew that D2 was residing at an address in Shenzhen at least by November 2018.  Yet, in the Original Writ issued on 27 May 2019, and the Amended Writ of 21 August 2019, P stated D2’s address to be the one in Hong Kong, but as pointed out by Mr Man, there was no attempt to serve on D2 at that address in Hong Kong.

63.  Mr Yeung has referred to a WeChat message said to be sent by an investor to P enquiring about D2’s relationship with P[31].  Mr Yeung then submitted that Shanghai was only a place where D2 had visited for business trip and was not D2’s place of residence[32].  However, the response message stated that D2 almost did not work at P, and although he had used the Shanghai office, he had not claimed reimbursements for any expenses[33]. As the response seemed to be from P, it was self-serving.  In any event, all the response indicated was that that D2 almost did not work at P in Shanghai, there was nothing about “Shanghai was only a place where D2 had visited for business trip”.  The exchanges would not indicate whether Shanghai was or was not D2’s place of residence, or whether D2 was then still residing in Hong Kong.

64.  Mr Yeung submitted that the substance of the conspiracy must be Ds’ retention of control over the XWS Asset after leaving P and the procurement of the set-up of D5 in November 2017 which provided the hub of ensuing misconduct and apparently signalled complete conveyance by the masterminds (being D1 and D2) of what follow-up actions to be taken to the other co-conspirators, and in light of this, if D2 committed any wrongdoing between September 2017 to December 2017, it was more likely than not that such wrongdoing was conducted in Hong Kong[34]. Mr Yeung then pointed out that during the period from August 2017 to December 2017, D2 spent over 50% of his time in Hong Kong (86 out of 153 days).  

65.  P’s allegations were rather vague.  In the Indorsement of Claim of the Amended Writ, the alleged transfer by D1, D2 and D3 of the “Misappropriated Assets” (which include all the subject assets in this action) to unauthorised third party was starting from around April 2018, to D5 was in or around September 2018 and to D6 was in May 2019[35].  The word “conspiracy” is not actually stated therein, although P now says it is effectively a conspiracy claim[36]. In any event, although it is pleaded in the SoC that the alleged conspiracy was between around September 2017 to July 2019, again it was vague and in so far as one can see, there were no specific acts pleaded which were alleged to have taken place between September 2017 and December 2017 in Hong Kong, nor for that matter in PRC save that D1 and D2 on 22 November 2017 procured the establishment of D5.  Anyway, the evidence showed that that all preparatory work for setting up of D5 including the reservation of its name in September 2017, and renting of office premises in Shanghai from October 2017 (with tenancy agreement signed by D2) was done in Shanghai.  D5 established by D1, D2 and D4 in Shanghai in PRC, and D2 was its legal representative in PRC.  There was nothing to support Mr Yeung’s submissions that it was more likely that than not that the wrongdoing between September 2017 and December 2017 was conducted in Hong Kong.

66.  In Ben’s 3^rd affirmation, he said that as evidence of the alleged conspiracy, D2 attempted to portray to potential investors of the XWS Asset in August 2017 that it was not an asset associated with P[37].  However, this has in fact all along been D2’s case and further, the Shanghai Court has held in D2’s favour, namely that P failed to prove that the XWS Asset belonged to P.  It is not clear as to how D2’s alleged attempted portrayal is evidence of any alleged conspiracy, or that such was conducted in Hong Kong.

67.  In any event, having considered all above, P has not able to satisfy this Court that D2 was stationed in Hong Kong at all material times.  What is also clear, he no longer resides in Hong Kong.  I also find that there is no sufficient evidence that the alleged conspiracy was in substance committed in Hong Kong.

Whether the resulting damage suffered by P was in Hong Kong

68.  P is a Hong Kong company and according to P, P usually looks to exit of its projects in Hong Kong.

69.  P suggests that damage was sustained in Hong Kong because it might look to offshore exit of the 5 platforms. However, as pointed out by Mr Man, no evidence has been produced of such an intention.

70.  In fact, as set out earlier, when P decided to sue D1 for damages caused by D1, together with D2, misappropriating the XWS Asset, P sued in Shanghai, namely by the 2^nd Shanghai Proceedings.

71.  There is no dispute that all 5 platforms/assets, the subject matters of this action, are situated and operates in the PRC.  The damages suffered from those assets having been misappropriated must be suffered in the PRC.  In any event, P has not been able to satisfy this Court damages were sustained by P in Hong Kong at the time when the alleged acts of wrongdoing occurred or there was any resulting damage suffered by P in Hong Kong.

The Appointment Letters

72.  It is not disputed that clause 17 of the D2 Appointment Letter stipulates that the agreement shall be governed by the laws of the Hong Kong and there are similar provisions in the Appointment Letters for D1 and D3.  As pointed out by Mr Man, contrary to what Mr Yeung’s submission that the governing law of the Appointment Letters was Hong Kong, when P had a complaint, P went off to the courts in Shanghai and sued D2 and D5 there and had further tried to join D1 and D4 in the 1^st Shanghai Proceedings, and when they did not succeed, they then commenced the 2^nd Shanghai Proceedings against D1 for damages.  

73.  Further in the Changning Joinder Decision, P’s claim against D2 in the 1^st Shanghai Proceedings was said by the Changning Court to be based on breach of contract, ie the D2 Appointment Letter.  Yet, P did not sue in Hong Kong, nor did P, D2, or D5 raise any jurisdictional issues in the 1^st Shanghai Proceedings.  In fact, as seen in the Transcript (referred to and defined later), the parties were asked by the Changning Court that whether the parties had any views on the applicable law, and the parties (namely P, D2 and D5) all agreed to the PRC law being the applicable law[38].

74.  As also seen in the judgment of the Pudong Court in the 2^nd Shanghai Proceedings, P and D1 had also agreed to their disputes be dealt with under PRC law[39].

75.  In any event, it seems the stance P now takes is inconsistent with its own stance in the Shanghai Proceedings. 

Equity and trust issues

76.  It is Mr Yeung’s submission that this case involves equity and trust issues under common law principles as the relationship between P and the major culprits D1, D2 and D3 began from their respective Appointment Letters which were governed by Hong Kong law, and that the Shanghai Courts and the parties’ respective PRC legal teams have relatively limited knowledge of the parties’ case, as evidenced by their confirmation on the confined scope of issues that were considered and adjudicated.

77.  However, as pointed out by Mr Man, P has failed to identify the equity and trust issues it is alleging.

Rule of double actionability

78.  As stated in paragraph 5.077 of The Conflict of Laws in Hong Kong 3^rd Edition, and quoted in paragraph 215 of Xiamen Xinjingdi Group and Eton Properties Ltd [2016] 2HKLRD 1106, CACV 158/2012, 15 April 2016:-

“1. The general rule is that, in order for tortious liability to be established, the matter must be actionable both under the lex fori and under the lex loci delicti. This is often referred to as the rule of double actionability.

2.   The exception is that a particular issue between the parties (or the entirety of the claim) may in some circumstances be governed by the law of the country which, with respect to that issue (or the claim as a whole), has the most significant relationship with the occurrence and with the parties”.

79.  It is Mr Man’s submission that to satisfy the double actionability rule, to the extent that the substance of the conspiracy was committed in PRC and not in Hong Kong, it is necessary for P suing in Hong Kong to show that the conspiracy is also a tort actionable as a civil wrong in PRC. 

80.  On the other hand, Mr Yeung argues that the double actionability rule is not engaged but even if it is, P is only required to show that the claim should be ‘civilly actionable’ under the PRC law.

81.  P has produced an PRC legal expert opinion dated 20 February 2021[40].  P’s expert was of the opinion that P’s claim can be launched under two causes of action, namely breach of confidence and unfair competition.

82.  The above causes of action are in my view completely different from the tort of conspiracy to injure.  Further, as pointed out by Mr Man, it seems clear from the opinion of P’s own PRC expert there is no tort of conspiracy to injure under PRC law[41].

83.  Mr Man has referred to paragraphs 220 to 234 of the Court of Appeal’s judgment in Xiamen Xinjingdi and also paragraphs 261 and 279 of the lower court DHCJ Stone’ judgment and submits that it is now well established that there is no tort of conspiracy in PRC.

84.  Having considered the above, in my view P has not been able to satisfy the double actionability rule.

The appropriate forum

85.  As said earlier, all the 5 assets/platforms are in PRC.  In fact, the sole shareholder of P and one of P’s two directors, Ms Zhang Yingru, is also in Shanghai, PRC[42]. The other director, Ben, is in California in the US.  Save for D2, there is no allegation that any of D1, D3 to D7 have been resident or are situated in Hong Kong.  As said earlier, clearly now the travel records show that D2 is not residing in Hong Kong. 

86.  All in all, having consider all the above and the present available evidence before the Court, I find that P has not satisfied this Court that Hong Kong is clearly or distinctly the more appropriate forum than Shanghai/PRC to try its claims, or the forum conveniens.  P has failed to demonstrate that Hong Kong is the forum which has the most significant relationship with the occurrence and with the parties.  In my view, there is no prospect of P obtaining leave to serve out the Amended Writ on D2 and/or D5.

87.  Although the above will suffice in disposing of this matter, I will also consider briefly the other requirements under Order 11 Rule (1).

Requirement (1) - Whether a “good arguable case” under Order 11 Rule 1 (1)

88.  P invokes gateways (c) and (f)[43].  I agree with Mr Man that P is not entitled to rely on gateway (c) against D2 and D5, since no defendants herein was properly served prior to D2 and/or D5 having been served with the Amended Writ.

89.  As for gateway (f), I have found earlier that there is no sufficient evidence that the alleged conspiracy was substantially committed in Hong Kong.  I have also found earlier that there is no sufficient evidence that damages were sustained in Hong Kong or there was resulting damage suffered by P in Hong Kong.

90.  I find that P has not been able to satisfy the “good arguable case” requirement.

Requirement (2) – whether serious issue to be tried

The XWS Asset

91.  So far as the XWS Asset is concerned, D2 and D5 rely on (i) res judicata, in that both the Changing Court in the 1^st Shanghai Proceedings (confirmed by the Intermediate Court) and the Pudong Court in the 2^nd Shanghai Proceedings have held that P failed to prove that the XWS Asset belonged to P; and (ii) there is no evidence to support P’s pleading that D2 and/or D5 have misappropriated the XWS Asset.

92.  In relation to (i) res judicata, Mr Yeung submits that the Changning Court only adjudicated on whether P was entitled to 40% equity interest in D5 based on the PRC company law in light of P’s contributions towards the XSW Asset and D2’s entitlement under the terms of the D2 Appointment Letter. This issue (“P’s Ownership by Contribution”)[44] is thus completely different from the issue of whether the XWS Asset had become P’s asset upon D1 and D3 joining P (P’s Ownership by Initial Vesting)[45].

93.  In so far as this Court can gather from paragraph 10(b) of Mr Yeung’s Skeleton Submissions, what Mr Yeung was submitting in relation to “P’s Ownership by Initial Vesting” was that Yijiang was already in existence when D1 joined P and at that time, the XWS Asset was at an initial start-up stage under Yijiang and that given D1’s desire to join P, along with which came the exclusivity obligation, his share in Yijiang would be vested in P if he was required to spend time on the project.  Thus Yijiang and the XWS Asset became P’s assets when D1 and later D3 joined P. 

94.  Anyway, there is no specific provision in the D2 Appointment Letter as to who is to be responsible for setting up the “project company”, but as it has expressly stated under clauses 3 and 4 therein that the “TSZ Founder Equity” is the equity in the project company that TZG retains/receives for creating such company, it would appear that the project company is to be created by TZG.  Further, according to the D2 Appointment Letter, D2 was either to receive “Base Compensation” allocated from the TZG Founder Equity under clause 3 for “Existing Projects” or 60% of the TZG Founder Equity under clause 4 for “New Projects”. 

95.  As seen in the judgment of the Changning Court, and also set out in P’s Civil Claim Form, the factual basis of P’s claim for 40% of D5 was that that the D2’s Appointment Letter clearly stipulated that for any “New Project” led by D2, until P exited from the project, D2 would be entitled to 60% shares of the “TSZ Founder Equity”/TSZ創始人股權 in the project company and P would be entitled to 40% thereof, and that D2’s 60% would be held by P on behalf of D2 until P’s exit from the project[46].  In light of P’s claim for 40% in D5, it would appear that it was P’s case that the XWS was a “New Project”.

96.  Thereafter, according to P, P handed the XWS project for D2 to lead and P was to be responsible for various support and expenses. 

97.  The defence of D2 and D5 included that (i) P had failed to demonstrate that it had made any contribution or payment towards the share capital of D5[47]; (ii) the relationship between P and D2 under the D2 Appointment Letter was that of a co-operation relationship, ie if P handed over to D2 P’s own project to D2 to lead and the parties agreed to form a project company, then the shareholding would be as provided in the D2 Appointment Letter:  (iii) the XWS Asset was not a project which belonged originally to P and that it originated from a project held by Yijiang; (iv) there was no agreement between the parties to form a project company for the XWS Asset, nor was there any agreement signed for D2 to hold any shares in the company (ie D5) for P.

98.  D2 has produced a transcript of the hearing before the Changning Court on 23 May 2019 (“Transcript”)[48].  P’s legal representative submitted that P’s claim for 40% shares in D5 was based on P’s ownership of 40% of the XWS project and that P and D2 were both founders of the XWS project[49].

99.  However, later on in the hearing, in response to the submission made on behalf of D2 and D5 that the XWS project was all along Yijiang’s project, P’s representative accepted that, referring to the evidence of D1 (who appeared as D2’s witness in the 1^st Shanghai Proceedings) that a project could be established after joining P, and could also have existed prior to joining P, and that the XWS project could be said to be a project which had existed prior to D1 joining P.  P’s legal representative then went on to argue that even so, some projects established prior to joining were completed and some were not completed and that the XWS project was one that was not completed, and that prior to D1 joining P, D1 had passed the XWS project to P, that there was an agreement that D1 brought the project into P towards which project P had made plenty of contribution, and that the XWS project was P’s project[50].

100.  The Changning Court had summarised the relevant issues of the parties’ dispute, namely (1) whether there was agreement for P and D2 to jointly set up D5 and for D2 to hold P’s shares in D5 on P’s behalf; and (2) whether P had actually contributed towards the capital of D2[51].

101.  As P had accepted during the hearing that the XWS project was one that was brought by D1 into P, P was thus claiming that the XWS Asset had vested in P or became P’s asset by “P’s Ownership by Initial Vesting”.  Further, it was also P’s claim that it had made substantial contribution towards the share capital of D5, ie “P’s Ownership by Contribution”.  It was further P’s allegation that D5 was the project company set up by D2 pursuant to the cooperation relationship between P and D2, and for D2 to lead the XWS project which was P’s asset[52]. The Changning Court’s findings were made against such allegations of P’s.

102.  For issue (1), the Changning Court found amongst other things that there was no specific mention of the XWS Asset in the D2 Appointment Letter, and further according to clauses 3 and 7 etc of the D2 Appointment Letter, after establishing a project company, it should be P who was to hold the TZG Founder Equity in the project company for D2.  The Changning Court also found that even though D2 had in WeChat messages expressed to the chat group that he would lead the XWS project, and there were discussions over the name and related issues, this could not be regarded as evidence that the XWS project was P’s project, nor could one infer therefrom that it was based on both parties’ agreement that [D5] was set up[53]. 

103.  Thus, it was a clear finding of the Changning Court that there was no sufficient evidence that the XWS Asset was P’s asset, nor was there any evidence that D5 was set up based on an agreement between P and D2 to hold P’s asset, ie the XWS Asset.

104.  In relation to (2), the Changning Court held that P’s alleged contribution/material support was calculated on the basis that it was for the benefit of P that D2 and P’s staff participated in the XWS project, but the participation of P’s staff in the activities of the XWS WeChat group was not part of their work for P, and further the activities were carried out during the staff’s lunch break and after work hours, and the items “shared” were their own idle items and/or items provided by other non parties.

105.  Thus, in my view, the Changning Court had rejected P’s claims, including that XWS Asset was P’s asset, whether by “P’s Ownership by Initial Vesting” or by “P’s Ownership by Contribution”.

106.  As further seen in the judgment of the Intermediate Court, during the hearing, P had confirmed that there was no clear internal system in P in establishing a project, and thus there was no document to show the establishment of the XWS project, or meeting minutes or any other written evidence, and further both parties unanimously confirmed that the relationship they had pursuant to the D2 Appointment Letter was one of a “co-operation relationship”.  As seen in the judgment, P had also during the appeal applied for a declaration that the XWS Asset belonged to P.  The Intermediate Court took the view that this was not within the ambit of P’s claim.

107.  Further, in the 2^nd Shanghai Proceedings, P’s claim against D1 was based on the XWS Asset being a project created by P[54] which was misappropriated by D1 together with D2 and injected into D5, but P’s claim was rejected by the Pudong Court.

108.  Having considered all those judgments of the Shanghai Courts, in the two sets of the Shanghai Proceedings, it has already been decided that the XWS Asset did not belong to P, or there was no sufficient evidence that the XWS Asset was P’s asset, whether by reason of the alleged “P’s Ownership By Initial Vesting” or by reason of “P’s Ownership By Contribution”.  D2 and D5 are entitled in my view to rely on res judicata.

109.  D2 has in paragraphs 30 to 43 of his 4^th affirmation (18 January 2021) set out in detail his evidence and analysis of P’s causes of action[55].  Having considered D2’s evidence, I accept Mr Man’s submissions in paragraphs 65 to 66 of his Skeleton Submissions that there is no sufficient evidence to support P’s pleaded case and that P’s claims in respect of the XWS Asset are defective.

The other 4 Assets

110.  Further, having considered D2’s evidence in his 4^th affirmation, I also accept Mr Man’s submissions in paragraphs 67-77 that there is no proper evidence to support P’s pleaded case of misappropriation of the other 4 assets by D2 and/or D5 and that P’s claims are defective.

Conclusion under Requirement (2)

111.  In light of the above, P has not been able to satisfy Requirement (2), that there are serious issues to be tried in respect of its claims against D2 and D5.

Whether D2 and D5 have submitted to jurisdiction

112.  Mr Yeung submitted that the Original Defendants have unequivocally shown their submission to the Hong Kong Court’s jurisdiction over P’s claim against them by their issuing the 1^st Strike Out Application to strike out P’s claim based on merits without any reservation of rights on jurisdictional challenge. It is Mr Yeung’s submission that the pursuit of the 1^st Strike Out Application signalled unequivocally the absence of intention to mount jurisdictional challenge on P’s claim.

113.  Further, Mr Yeung pointed out that after being made aware of the Amended Writ, ASC then requested for the statement of claim in their letter of 27 August 2019[56] and that there was still absence of jurisdictional challenge in the letter.

114.  Mr Yeung also referred to D2’s 1^st Affirmation (filed on 11 September 2011) in which there was no jurisdictional challenge.

115.  On the other hand, Mr Man submits that there has been no submission to jurisdiction, whether by the Original Defendants issuing the 1^st Strike Out Application or by D2 and D5 issuing the 2^nd Strike Out Application, or by D2’s 1^st Affirmation.

116.  It is not disputed that after the Original Writ was issued, it was not served on the Original Defendants.  Thus, Order 12 rule 8 of RHC was not yet engaged.  The Original Defendants issued the 1^st Strike Out Application to strike out the Original Writ on the ground of res judicata.  The Application was supported by an affirmation of 14 August 2019 by the solicitor acting for the Original Defendants exhibiting a draft unsworn version of D2’s 1^st Affirmation.  Thereafter, on 19 August 2019, P filed the Amended Writ, and on 9 September 2019, the 1^st Strike Out Application was by consent adjourned sine die with liberty to restore.  It was only on 11 September 2019 that D2 was able to properly sign his affirmation in Hong Kong and that was why his 1^st Affirmation was only filed on that day.

117.  D2’s 1^st Affirmation was clearly filed in support of the 1^st Strike Out Application, albeit filed after the Amended Writ.  This is in fact quite clear as the heading of that affirmation is the one in the Original Writ.  Further, D2 has in his 1^st Affirmation made clear that the Original Writ was an attempt to re-litigate the same claims in the Shanghai Proceedings and that P should not re-litigate in Hong Kong.

118.  In any event, the issue of the 1^st Strike Out Application striking out the Original Writ and D2’s 1^st Affirmation in support thereof cannot be taken to mean that D2 and D5 have submitted to jurisdiction to P’s claims in the Amended Writ.

119.  In the 2^nd Strike Out Application, D2 and D5 have expressly challenged the jurisdiction of the Hong Kong courts.

120.  Having considered the above, I do not find that D2 and D5 have submitted to the jurisdiction of Hong Kong courts by the issue of the 1^st Strike Out Application, or by the issue of the 2^nd Strike Out Application or by filing D2’s 1^st Affirmation. 

Conclusion 

121.  Having regard to all said above, I have come to the conclusion that service of the Amended Writ and all subsequent proceedings on D2 and D5 should be set aside as there was/is no prospect in P obtaining leave to serve the Amended Writ on D2 and D5 out of jurisdiction.  In light of my conclusion in relation to paragraph 1 of the Summons, I do not find it necessary to make any declaration as sought in paragraph 2 of the Summons.

EXTENSION OF VALIDITY OF THE WRIT

122.  This is only an alternative order sought by D2 and D5 in the event that they do not succeed in setting aside the service of the Amended Writ on D2 and D5. 

123.  Whether there was any “u-turn” in relation to accepting service on the part of ASC or not, by 30 September 2019, ASC had made it clear that they had no instructions to accept service of the Amended Writ on behalf of Ds.  The reasons given by P as to why there continued to be a delay in service and why P failed to apply for extension prior to the expiration of 12 months of the Amended Writ were in my view not good reasons. 

124.  Further, the evidence showed that notwithstanding withholding service on D2 and D5, P had sent copies of the court documents in these proceedings to D5’s investors.  P purported to explain its actions in sending copies of the court documents was necessary to distance P from Ds, to protect the assets misappropriated and to protect P’s reputation and to remind investors of P’s efforts to iron out impropriety.

125.  Again, I find those explanations were no good reasons. I am of the view that D2 and D5 have suffered hardship in that P had already raised claims against them over the XWS Asset in Shanghai and failed and now they are being vexed for the second time.

126.  D2 has also set out in his affirmation of 2 February 2021 the particulars of material non-disclosure.

127.  Having considered the evidence, all in all, I am of the view that the 1^st Extension Order ought not have been granted.

WHETHER P’S CLAIMS SHOULD BE STRUCK OUT 

128.  This is again an alternative order sought by D2 and D5 under Order 18 rule 19 of RHC in the event they do not succeed with their other applications in the Summons.

129.  The 2^nd Strike Out Summons was only struck out on procedural/technical reasons. 

130.  For reasons set out earlier, I am of the view that there is no serious issue to be tried and P’s claims against D2 and D5 are defective.  They disclose no reasonable cause of action.  P’s actions in sending copies of the court documents in these proceedings to D5’s investors whilst withholding service support the case of D2 and D5 that P has an ulterior purpose in maintaining these proceedings.

131.  Further, during the hearing, Mr Man submitted that since it is now P’s argument that in relation to the XWS Asset, the Shanghai Courts only decided on the “P’s Ownership by Contribution” issue and not “P’s Ownership by Initial Vesting”, then P should have included their claim on P’s Ownership by Initial Vesting in their claim in the Shanghai Proceedings, and that by failing to do so, this is in fact a Henderson v Henderson abuse on P’s part, in that D2 and D5 now have to be vexed again.

132.  On the other hand, P argued that at the time of the 1^st Shanghai Proceedings, P did not consider that “P’s Ownership by Initial Vesting” to be an issue and thus did not raise the same. This is plainly not correct in light of what was set out earlier in those judgments in the Shanghai Proceedings.

133.  In any event, I have come to the view that even if the Court is not prepared to grant the reliefs sought by D2 and D5 in paragraphs 1, 3 and 4 of the Summons, P’s claims against D2 and D5 ought to be struck out on the grounds that they disclose no reasonable cause of action; and/or are frivolous or vexatious; and/or are otherwise an abuse of the process of the Court.

ORDER

134.  Having regard to all above said, the effect of my order is as follows:

(1)  The Amended Writ be struck out, the service of the Amended Writ and all subsequent proceedings herein be set aside, as against D2 and D5, and the action against D2 and D5 be dismissed;

(2)  Alternatively, the 1st Extension Order, and accordingly the 2nd Extension Order be discharged as against D2 and D5, and the service of the Amended Writ and all subsequent proceedings be set aside, as against D2 and D5, and the action against D2 and D5 be dismissed;

(3)  Alternatively, the Amended Writ and the SoC be struck out as against D2 and D5 under Order 18 rule 19 (1)(a), (b) and/or (c) of RHC, and the action against D2 and D5 be dismissed.

135.  Costs should follow the event.  I there order that costs of and occasioned by the Summons and costs of this action be to D2 and D5, to be taxed, if not agreed, on party and party basis, with certificate for two counsel.  This is an order nisi which shall be made final after 14 days.