YICK TAT DEVELOPMENT CO v. YUNG CHUNG YIU

HCA 1590/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1590 OF 2007

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DECISION

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1.  The defendant applies to strike out the plaintiff’s amended statement of claim on the ground of res judicata; alternatively to stay/dismiss the proceedings on the ground of forum non conveniens in favour of the Dongguan People’s Court.

BACKGROUND

2.  The affirmations on both sides set out a lot of details and it is important not to lose sight of the core facts and issues.

3.  The plaintiff is a partnership under the full control of one Ms Chow. In around early 1990s, the defendant and other persons set up a company in Hong Kong known as P.D. Development Ltd (“PDD”) for the purpose of development and sale of an estate in Dongguan known as Yeung Ming Shan Garden (“the Garden”). This was done through a guakao arrangement (掛靠), i.e. an arrangement whereby a foreign investor (including one from Hong Kong) could only acquire rights in land through a Mainland real property company (掛靠公司) which had those landed rights.  東莞市厚街房地產公司 (“the Property Company”) was the guakao company with whom PDD entered into a joint venture agreement. 東莞市厚街赤岭管理區 (“the Mainland Authority”) was the land owner of the region in which the Garden was situated, with whom PDD entered into an agreement to develop the Garden. 

4.  Before long, PDD found itself in financial difficulty.   The defendant thus agreed to let Ms Chow take over the investment from PDD and the plaintiff was formed to such end.

5.  By a series of agreements in 1991 (“the 1991 agreements”) between:

(i) PDD, the Mainland Authority and the Property Company;  

(ii) PDD and the plaintiff; and

(iii) the plaintiff, the Mainland Authority and the Property Company,

the plaintiff became the sole investor and developer of the Garden.  The Property Company would give the land use rights to the plaintiff who would provide all the capital for the development.  The plaintiff would market the Garden in the name of the Property Company with PDD appointed as the sales agent.

6.  In about 1995, a dispute amongst shareholders of PDD arose.  Proceedings were launched in the Mainland court to challenge the takeover by the plaintiff. It resulted in a judgment dated 26 March 1997 (“the 1997 Judgment”) which held that the 1991 agreements were invalid.  The rights and interests in the Garden remain vested in the Property Company.

7.  Despite the litigation, the development and sale of the Garden continued and revenue was generated.  Since about 1996, the defendant had been employed as the general manager of the plaintiff. His duty was restricted to the sales of the Garden and the making of payment to the Property Company for the application for certificates of ownership and other documents and tax.

8.  The plaintiff alleged that in around 2006, some owners of the Garden complained that they had not received their certificates of ownership or other documents despite payment a long time ago.  It began to suspect the defendant of misappropriating the money from the sales revenue.  It pressed the defendant for an account but to no avail.  The plaintiff took away all the books of account and records of the Garden from the management and sales office of the Garden (“the Office”) on 20 March 2007.  The defendant was dismissed on 19 April.  On 11 May, the plaintiff commenced an action in the Mainland (“the 2007 Action”), suing the defendant in trespass to the Office and other torts.

9.  On 12 July 2007, the 2007 Action was heard with judgment reserved. About 2 weeks later, the plaintiff commenced the present action in Hong Kong against the defendant for repayment of loan monies.

10.  The defendant filed his acknowledgement of service on 3 August 2007. The plaintiff served the 2-page statement of claim on 22 August 2007.  The same asserted that the defendant had borrowed from the plaintiff sums totalling HK$8,430,000 which he refused to repay.

11.  The defendant, then acting in person, filed an affirmation exhibiting the 1997 judgment instead of filing a defence.  The plaintiff applied for default judgment and the same was entered on 3 October 2007.

12.  A month later, on 8 November 2007, the Mainland court handed down its judgment (“the 2007 Judgment”).  The judgment held that the plaintiff had no rights in the Garden and lacked locus standi to pursue the claim in trespass and its claim was thus dismissed.  The time for the plaintiff to appeal has long expired.

13.  The plaintiff did not enforce the default judgment for 2 years. Upon being served with a statutory demand in May 2009,  the defendant applied to set aside the default judgment.  Upon granting the application, the learned Master directed the plaintiff to amend the statement of claim to reflect its proper case.

14.  By its amendment on 23 March 2010, the plaintiff pleaded that it was the “contractual developer” of the Garden.  The defendant, being its employee or agent in the Garden, appropriated monies for the purpose of applying for certificates of ownership and payment of tax for the owners of the Garden units but such purpose was not fulfilled.  Despite demand, the defendant failed to account to the plaintiff. (This claim will be referred to as “the misappropriation claim”.)  The plaintiff prayed for return of RMB 7 million odd, damages for conversion and breach of duty, accounts and enquiry.

15.  A month later, the defendant took out the present application.  In his affirmation in support, the defendant admitted withdrawing money from the sale proceeds and management fees to defray various costs, including those for tax and certificates of ownership.  The defendant claimed that since the plaintiff did not have rights in the Garden, it was not in a position to question how the defendant withdrew and applied the money. 

THE APPLICATION TO STRIKE OUT

16.  The defendant bases his application on the ground of res judicata, i.e. that the issues or claims herein have or could and should have been raised and adjudicated upon in the actions in which the 1997 and 2007 Judgments were issued.  The defendant also relies on the ground that the plaintiff’s action is frivolous, vexatious and an abuse of process.

17.  To see whether this application is sustainable, one needs to understand the 2 Mainland Judgments and the amended statement of claim.

THE 1997 JUDGMENT

18.  The claim was by various shareholders of PDD (“claimants”) against other shareholders (including the defendant in this case) and the plaintiff in this case.  The Property Company was the third party.    The claimants alleged that the defendant and other shareholders abused their position by transferring all rights of PDD in the Garden to the plaintiff.  The claimants asked for: (i) confirmation that they and PDD were investors and developers of the Garden, and that they had purchased the lawful right to use the land and ownership of the Garden;  (ii) an order that the plaintiff  do stop misrepresenting itself as the investor and developer of the Garden; (iii) audit of PDD’s accounts; (iv) an order for restitution of profits and agency fees of PDD misappropriated by the defendant shareholders.  In the course of the proceedings, the claimants amended its claim to seek confirmation that PDD had the only lawful operating rights over the Garden.

19.  The judgment dated 26 March 1997 (“the 1997 Judgment”) held that:

(i) PDD did not comply with the law on land development and so its agreements with the Property Company and the Mainland Authority  as to use of land and land transactions thereunder were null and void.

(ii) PDD’s transfer to the plaintiff was null and void as it was done without notice to PDD’s shareholders and the plaintiff was not even incorporated then. 

(iii) Because of (ii), the agreements between the plaintiff, the Property Company and the Mainland Authority for the investment and development of the Garden were also null and void. 

(iv) All rights and debts of the Garden would be shared and borne by the shareholders of PDD and the Property Company.  The subsequent rights to operate and manage the Garden shall be vested in the Property Company. 

20.  The 1997 Judgment effectively ruled that rights and interests in the Garden belonged to the Property Company and not the plaintiff.

THE 2007 JUDGMENT

21.  The plaintiff in the present case was the claimant in the 2007 Action. The present defendant, one Leung Shu Ming and PDD were the defendants there and the Property Company was the third party.

22.  The claim of the plaintiff was, amongst others, that the defendants trespassed the management office of the Garden, on 2/F north suite and carried out decoration.  The plaintiff sought an order that the defendants do immediately cease its trespass, withdraw its security force and reinstate the north suite of the office and pay damages. 

23.  The defence in that action was that the suit premises were not developed by the plaintiff but by the defendant and PDD, a matter which had been confirmed by the 1997 Judgment.  The plaintiff did not enjoy the rights of development. Further, the suit premises had been purchased by Leung Shu Ming.  PDD was formed subsequently and had nothing to do with the dispute.

24.  The Mainland court held that the plaintiff had first to prove that it was the rightful owner of the suit premises.  The court examined the 1997 Judgment and held that because the court had held that the 1991 agreement  signed between the plaintiff and the Property Company had been declared void, the court would not accept that agreement produced by the plaintiff as evidence.  The court further held:

“而原告在本案中並無提交相關證據證明其對陽明山花園有投資,或對陽明山花園有經營、管理、銷售等權利，也未提交相關證據證明其對案涉陽明山花園管理處寫字樓二樓北面的房屋依法享有佔有、使用、收益、處分等權利，原告主張自己係案涉房屋的權利人，證據不足，本院不予確認。據此，由於原告不能證明自己與本案爭議之事實存在直接利害關係，其起訴不符合《中華人民共和國民事訴訟法》第一百零八條規定的起訴條件，故依法應當予以駁回。”

25.  The claim in trespass was thus dismissed on the ground that the plaintiff could not prove that it had the locus standi and direct interest in the dispute.

THE PLAINTIFF’S CASE

26.  In paragraph 1 of the amended statement of claim, the plaintiff pleaded that it was the “contractual developer” of the Garden.   What that meant was not clear on the face of the pleading. 

27.  The amended statement of claim went on to plead that the defendant was the employee, servant or agent of the plaintiff in the Garden.  In the course of the development between January 2000 and November 2006, the plaintiff entrusted the defendant with money for various purposes, including paying the Dongguan Government for obtaining certificates of ownership for the individual units in the Garden. In breach of his duty, the defendant failed to so apply the money or give an account to the plaintiff. 

28.  Subsequent to the issue of the present summons, the defendant has asked the plaintiff for further and better particulars in July 2010 (i) as to the source and nature of the money entrusted to the defendant; and (ii) “whether the money was (or represented) the sale proceeds of (or monies otherwise generated by) the units of [the Garden], of which the right of use of land and right of sale of commodity housing belonged to [the Property Company], as received by the defendant from the respective purchasers thereof.”

29.  The plaintiff flatly refused to provide the further and better particulars on the ground that the answers were for preparation of the defence only.

30.  It was only in the affirmations of Ms Chow that she clarified her case. The plaintiff claimed that as a result of her continued investment and development of the Garden and cooperation with the Property Company, she had acquired some rights and interests (“the undefined interests”).  She never expressly defined those rights and interests except in the legal opinion of her Mainland lawyer.  I will come back to that later on.  

31.  Despite the 2 Judgments, the Property Company had, confirmed the validity of its agreement with the plaintiff in 1991.  By a document dated 28 November 2007 (“the Written Confirmation”), the Property Company confirmed, amongst others, that:

(i) The Property Company and the plaintiff had signed a contract dated 31 December 1991 regarding cooperation in developing and investing in the Garden.

(ii) The above cooperative relationship had never ceased nor been affected by any litigation or dispute.

(iii) The plaintiff was the only developer of the Garden.

(iv) Apart from the plaintiff, no other company or person had any right to sell or deal with the units in the Garden.

32.  By an authorization letter dated 20 December 2007 (“the Authorization Letter”), the Property Company appointed Ms Chow of the plaintiff as the person in charge of the Garden to deal with its daily matters.  The validity period was for one year from 20 December 2007 to 19 December 2008.

33.  The plaintiff signed sale and purchase agreements as “agent” for the Property Company.  It also received proceeds of sale from purchasers.  It said it was entitled to do so because of its agreement with the Property Company. 

34.  The plaintiff, however, did not explain how it “entrusted” the monies to the defendant.  The defendant, on the other hand, stated that the Office would receive all sale proceeds and monies for application for certificates and taxes and pooled them together.  The defendant would withdraw money therefrom.  The money never passed through the plaintiff’s hands. 

35.  The plaintiff accepted the advice of its then legal advisers in the Mainland that it was not easy to overturn the 1997 and 2007 Judgments and decided not to appeal against either of them.  The plaintiff claimed that neither Judgment dealt with the issue of whether it had the undefined interests.

RES JUDICATA?

36.  The general statement of principle can be found in the case of Ray Chen v. Wan Ching Lam & another , HCA 4582 of 2001, Ma J (as he then was).

“22. I begin with a statement of the general principles:

(1) Res judicata in its narrow sense simply means that a party will not be permitted to relitigate in subsequent proceedings issues which have already been adjudicated upon in previous proceedings by a court of competent jurisdiction. This form of abuse of process is often known as res judicata proper or res judicata in its classic or narrow sense.

(2) Res judicata in its so-called wider sense is the principle that ‘the court requires the parties to that litigation to bring forward the whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matters which might have been brought forward as part of the subject in context, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.’: see Henderson v. Henderson (supra), at 115 per Sir James Wigram VC.  In Yat Tung Investment Company Limited v, Dao Heng Bank Limited (supra), Lord Kilbrandon said at 590A-B, ‘But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings  matters which could and therefore should have been litigated in earlier proceedings.”

37.  In Harvest Good Development Limited v. Secretary for Justice & others [2007] 4 HKC 1, Hartmann J said, at para 99,

“There need not be a specific finding as to cause of action estoppel or issue estoppel. It will suffice if there is a finding that, in all the circumstances, the attempt to raise issues which could, and should, have been raised earlier goes against the public interest; that is, the general interest in ensuring finality in litigation as well as the interests of the parties themselves …”

38.  The doctrine applies equally to matters that were resolved or dismissed in proceedings outside Hong Kong but which the same party attempts to raise afresh in a Hong Kong action: Wee Soon Kim Anthony v. UBS AG Hong Kong Branch, HCA 2005 of 2004; China North Industries Investment Ltd and another v. Ronald Chum & others CACV 321 of 2006, at paras 46-55.

39.   On its face, the misappropriation claim was made by an employer against an employee.  Mr Chong submits that it was not necessary to demonstrate that the plaintiff was a “contractual developer” or had title in land.  He conceded that paragraph 1 of the amended statement of claim was irrelevant.  It was only necessary to prove that the defendant was an employee and that he had misappropriated the money entrusted to him. 

40.  If Mr Chong’s submission is correct, the present cause of action had never been adjudicated upon because:

(i) The 1997 Judgment concerned land interest, development and investment rights of the plaintiff whereas the misappropriation claim was based on breach of employee’s duty.   Further, the alleged misappropriation took place between January 2000 and November 2006 which all took place after the 1997 Judgment.

(ii) The 2007 Judgment concerned trespass which required proof of interest in land.  It was different in nature from the misappropriation claim.

41.  However, that was not the end of the story.  The defendant argued that the misappropriation claim could or should have been raised and adjudicated upon in the 2007 Action.  The plaintiff explained that the documents were voluminous and she had not yet been able to work out the accounts properly to sue in misappropriation by the time it commenced the 2007 Action.  It was also the plaintiff’s belief that the misappropriation claim did not involve land use rights of the Property Company anyway. 

42.  To start with, one should ascertain the cause of action in the 2007 Action.  The phrase “cause of action” has been defined to mean “simply a factual situation the existence of which entitles one person to obtain from the Court a remedy against another person.” per Diplock LJ in Letang v. Cooper [1965] 1 KB 232, 242; Hong Kong Civil Procedure 2011, para 15/1/2.

43.  In the writ (起訴狀) for the 2007 Action, the section under “事實和理由” set out how the plaintiff came to sign the 1991 agreements, how PDD was appointed as agent to sell the Garden units, how the plaintiff invested and developed the Garden pursuant to the 1991 agreements, how the plaintiff employed the defendant as General Manager of the Garden, how the defendant misappropriated the plaintiff’s assets (隨意侵佔原告之資產), how the defendant failed to provide accounts for auditing purpose despite repeated requests.  The plaintiff also expressly pleaded that up to March 2007, it had in hand statistical data that the defendant had misappropriated huge sums of sale proceeds to the extent of RMB 7 million odd and had not returned to the plaintiff; it intended to launch a claim in the High Court of Hong Kong. The plaintiff went on to plead the facts as to how the defendant and one Leung Shu Ming in collusion forcibly trespassed the office on the 2^nd floor of the north suite without consent of the plaintiff, denied the plaintiff access and set up security guards. The defendant even posted up notices to state that it was he who terminated Ms Chow’s directorship, thereby defaming Ms Chow.  The defendant even engaged decorators to renovate the office in the north suite, directly altering the premises in which the plaintiff enjoyed rights.  The plaintiff pleaded that it guakao the Property Company to develop the Garden, so all unsold units there should lawfully belong to the plaintiff. The plaintiff prayed for:

“判令被告立即停止侵權行為、排除妨礙、消除影響，同時，由於被告的侵權行為，導致原告在陽明山花園的銷售及物業管理工作都無法開展，造成了原告巨大的經濟損失，損失金額將不低於人民幣20萬元，被告依法也應當賠償給原告。”

44.  It can immediately be seen that the facts there included all those necessary for the misappropriation claim but the plaintiff deliberately left out the resultant remedies from its prayer for relief. 

45.  Why it was deemed necessary to sue in Hong Kong was not clear.  There was no suggestion that the PRC Courts had no jurisdiction over this claim, whether included as part of the 2007 Action or as a separate one.   According to the 1^st legal opinion of the defendant’s Mainland lawyer,

「由於公司員工或股東侵佔公司樓宇銷售收入的案由屬於”侵權訴訟”，根據《中華人民共和國民事訴訟法》第二十九條︰“因侵權行為提起的訴訟，由侵權行為地或者被告住所地人民法院權轄。”及最高人民法院《關於適用《中華人民共和國民事訴訟法》若干問題的意見》規定“28、民事訴訟法第二十九條規定的侵權行為地，包括侵權行為實施地，侵權結果發生地。」

Since the principal sales, the sales office and receipt of proceeds took place in Dongguan and the principal for sales (i.e. the Property Company) was also in Dongguan, the legal opinion stated that the Dongguan Court had jurisdiction. 

46.  The plaintiff could have proceeded in the same 2007 Action, or by a separate action.

   1.1原告（億達發展陽明山花園公司）的訴訟請求一開始就是基於容中耀是僱員而利用工作便利侵佔公司財物的公司法的法律關係，即包括侵佔銷售樓款和侵佔該寫字樓的理由，則該兩項法律後果均基於同一法律關係下產生的，這是可以作為一件訴訟案件而被人民法院受理的。

47.  Or there could be a separate action for the misappropriation claim which could be consolidated with the 2007 Action.

1.2原告（億達發展陽明山花園公司）基於公司法的法律關係另行起訴容中耀侵佔樓宇銷售收入（如果選擇另行起訴的話），則根據《中華人民共和國民事訴訟法》第五十三條︰“當事人一方或者雙方為二人以上，其訴訟標的是共同的，或者訴訟標的是同一種類、人民法院認為可合併審理並經當事人同意的，為共同訴訟。”，由於該訴訟案件訴訟標的與訴稱容中耀侵佔公司樓宇的訴訟標的屬於同一種類，即侵權訴訟，東莞市屬地人民法院只要經被告即容中耀書面確認同意後，就可以以“共同訴訟”的方式，將兩件案件合併審理的。

Because the 2 actions would be of the same kind, i.e. tort, the Dongguan People’s Court could, once the defendant confirmed his agreement in writing, consolidate them.

48.  The plaintiff’s Mainland lawyer, on the other hand, merely stated that:

“本所認為，貴司與容中耀之間糾紛，僅是貴司與貴司內部職員之間之糾紛。貴司作為一香港公司，容中耀作為一香港居民，相關糾紛在香港進行訴訟解決會更利於案件處理。”

He did not state that the Mainland Courts had no jurisdiction in an employer’s claim over breach of duty by an employee or why it could not be included in the 2007 Action.

49.  Further, the RMB 7 million which the plaintiff suspected the defendant of having misappropriated was strikingly similar to the RMB 7,121,278.60 which the plaintiff is now claiming.  Even if the exact amount misappropriated was not clear, the plaintiff could still have included the misappropriation claim in the 2007 Action and seek to amend the amount when the exact figure was known.  (The PRC Court had power to allow amendment to a plaintiff’s claim as can be seen from the 1997 Action.)

50.  Moreover, the relief prayed for in the 2007 Action was more than just trespass.  It included damages for defamation (nothing to do with land) and economic loss.  There was nothing to bar the joinder of the misappropriation claim.

51.  In my view, the plaintiff could and should have included the misappropriation claim in the 2007 Action.

52.  The plaintiff tries to impress upon this Court that the misappropriation claim was different in nature from the 2007 Action.  It relies on the undefined interests occurring after the 1997 Judgment.  If the plaintiff is to commence a new action for the misappropriation claim in the Mainland, basing on the 2 Judgments, no court in the Mainland will have jurisdiction to entertain it.  According to the plaintiff’s Mainland lawyer:

貴司如以東莞陽明山花園之發展商及投資者身份在大陸法院起訴容中耀，強調貴司作為東莞陽明山花園之發展商及投資者的身份，大陸法院為查明案件事實之需要，一般情況下會對東莞陽明山花園之權益進行調查。基於1995年及2007年案件所認定之事實，東莞陽明山花園之權益屬東莞市厚街房地產公司所有。大陸法院極有可能會要求追加東莞市厚街房地產公司作為案件之共同原告參加訴訟，如東莞市厚街房地產公司不予配合，貴司將有可能因案件主體不符而被駁回起訴。

The plaintiff had invited the Property Company to join as plaintiff in the 2007 Action but the invitation was declined. The plaintiff believed that the Property Company is unlikely to agree to be joined as a plaintiff in a new action.  The plaintiff is likely to lose in the new Mainland action. 

53.  This begs the question of why the PRC courts have no jurisdiction and will dismiss the new claim.  An examination of the undefined interests will reveal the answer.  Here is how the plaintiff’s Mainland lawyer described those undefined interests:

“一. 因貴司與厚街房地產公司簽訂的合同被認定無效。按《中華人民共和國合同法》第五十八條的規定︰“合同無效或者被撤銷後，因該合同取得的財產，應當予以返還；不能返還或者沒有必要返還的，應當折價補償。有過錯的一方應當賠償對方因此所受到的損失，雙方都有過錯的，應當各自承担相應的責任。”

基於無效合同的約定而開發的樓盤現狀是已出售給小業主，返還物業給厚街房地產公司是不可能。樓盤應作整體的清算，因厚街房地產公司並無任何投入，清算所得的資金首先應返還貴司前期的所有投入，如有剩餘，應賠償貴司前期所有投入的損失，該損失一般情況下會理解為佔用資金之成本，即相應之貸款利息。如還有剩餘，即樓盤的利潤，因樓盤的權益屬厚街房地產公司，該利潤應屬厚街房地產公司所有。但厚街房地產公司享有該利潤之權利，屬厚街房地產公司之民事權利，現狀是厚街房地產公司一直不作主張，而實際歸屬已歸貴司所有（樓盤有利潤情況下）。該現狀在厚街房地產公司不作權利主張情況下是相對穩定的。

厚街房地產公司是否主張合同無效而產生之權利，是厚街房地產公司與貴司之間之民事關係。在厚街房地產公司未作主張、樓盤未作整體的清算前，樓盤的包括但不限於售樓款等款項由貴司持有。除厚街房地產公司之外之任何人及/或公司，包括貴司之員工，如侵佔貴司之該些款項，貴司都有權向其提出侵權之訴予以追討。”

54.  I have doubts as to whether Article 58 can be applied in the way the lawyer described.  That Article deals with the position between contracting parties, i.e. the plaintiff and the Property Company (and maybe the Mainland Authority) when a contract is nullified.  It does not say how the plaintiff can go from there to make an employee liable.

55.  Be that as it may, it can be seen from the legal opinion that the plaintiff cannot avoid relying on the facts pleaded in the 2007 Action to establish the undefined interests. 

56.  The undefined interests were not really new interests.  In the 2007 Action, the plaintiff pleaded that 原告取得土地後，即依約進行了投資開發建設. Despite that, the Court still held that it had not established any right, whether in title, to manage, or to sell.

“而原告在本案中並無提交相關證據證明其對陽明山花園有投資,或對陽明山花園有經營、管理、銷售等權利，也未提交相關證據證明其對案涉陽明山花園管理處寫字樓二樓北面的房屋依法享有佔有、使用、收益、處分等權利，原告主張自己係案涉房屋的權利人，證據不足，本院不予確認。”(emphasis added)

57.  The Written Confirmation and Authorization Letter would not assist the plaintiff.  The former merely confirmed an existing state of affairs before its date – the same state of affairs asserted before the Mainland Court.  The latter stated the plaintiff to be the agent of the Property Company but if that were so, why would it not be the disclosed principal who should sue the defendant? 

58.  The so called lack of jurisdiction was really a comment that the matter was res judicata in the Mainland.  There was no merit in the new claim.

59.  If the plaintiff were to proceed in Hong Kong, parties are agreed that PRC law will apply.  Thus, the same result as the 2007 Judgment will be reached.  The plea of “contractual developer” was actually relevant.  The plaintiff cannot avoid going into the history to show how that status was created and hence the undefined rights accrued.  She had deliberately understated her case in the pleadings and unreasonably refused to give particulars to avoid the attack of res judicata.

60.  In summary, I am of the view that the present claim could and should have been litigated in the 2007 Action.  It was an abuse of process for the plaintiff to now seek to resurrect that Action in a different jurisdiction.  She should not be permitted to rely on her own deliberate decision not to include the present claim in the 2007 Action to bypass the unfavourable ruling in the 2007 Judgment.

61.  If I am wrong, I have considered the alternative application for dismissal or stay of proceedings.

DISMISSAL OR STAY OF PROCEEDINGS ON THE GROUND OF FORUM NON CONVENIENS

62.  The defendant claims that the 廣東東莞人民法院 is the available forum having competent jurisdiction which is clearly and distinctly the natural and appropriate forum for the trial of this action.

63.  The 3-stage test for stay on the ground of forum non conveniens is well-known:

“(I) Is it shown that Hong Kong is not only not the natural and appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong?

(II) If the answer to (I) is yes, will a trial at the other forum deprive the plaintiff of any legitimate personal or juridical advantages? The evidential burden here lies on the plaintiff.

(III)  If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II). … Deprivation of one or more personal or juridical advantage will not necessarily be fatal to the applicant provided that the court is satisfied that notwithstanding such loss substantial justice will be done in the available forum…  Proof of this … rests upon the applicant for the stay.”

Spiliada Maritime Corporation v. Cansulex Ltd [1987] 1 AC 460, adopted by the Hong Kong Court of Appeal in The Adhiguna Meranti  [1987] 1 HKLR 904; and The Lanka Muditha [1991] 1 HKLR 741.

Stage (I) The natural and appropriate forum for the trial

64.  “Appropriate” in this context means the forum that has the most real and substantial connection with the action: Pei Zheng Middle School v. China Pui Ching Education Foundation Ltd, CACV 262 of 2005.  Such connecting facts include not only factors affecting convenience or expense (such as availability of witnesses), but also other facts such as the law governing the relevant transaction and the place where the parties respectively reside or carry on business. 

65.  Where jurisdiction in Hong Kong has been founded as of right (as in this case, against the defendant who is a Hong Kong resident), the burden of proof is on the defendant: The Peng Yan [2009] 1 HKLRD 144.

66.  The factors connecting the claim to Hong Kong are: that the plaintiff is a Hong Kong entity; that the main witnesses Ms Chow and the defendant are Hong Kong residents. 

67.  It is not clear whether or not the employment contract was made in HK or the Mainland.  It is irrelevant anyway because the subject matter of the dispute is not the validity of the employment contract or the terms therein but the breach of duty of the employee.

68.  The plaintiff suggests that because 400 units were sold in Hong Kong, that constituted a connecting factor to Hong Kong.  I disagree because  no dispute arose out of those sales and purchases. 

69.  The factors connecting the claim to the Mainland range from applicable law to witnesses and the substance of the claim. 

70.  The plaintiff conceded, correctly in my view, that the applicable law is that of the Mainland. 

71.  The likely witnesses either reside in the Mainland (the 2 accounting clerks) or spend a lot of time there (Ms Chow and the defendant).  

72.  On the evidence, the defendant was specifically employed by the plaintiff for the sales of the Garden.  The Mainland Authority and the Property Company from which the plaintiff allegedly derived rights and interests in the Garden are in the Mainland. The parties’ transactions and dispute over rights took place in the Mainland.  The entrustment of the cash to and receipt thereof by the defendant allegedly took place at the Garden.   The monies were to be applied for obtaining certificates of ownership and paying tax in the Mainland. Books of account used to be kept by the clerks at the Office.  Cash not properly applied by the defendant should be returned to the plaintiff in the Mainland. The alleged breach of duty was therefore committed in the Mainland.   (This is different from the duty of the plaintiff to keep proper accounts as a Hong Kong company in order to fulfill its responsibility to shareholders and the Inland Revenue Department.)  If the money is not accounted for, the loss is suffered in the Mainland.   

73.  One head of claim is conversion, which is a tort that applies to chattels as opposed to money.  No chattels are involved and so it is not necessary to consider where the conversion occurred.

74.  The connecting factors are overwhelmingly with the Mainland.  Accordingly, Hong Kong is not the appropriate forum from the point of view of the trial.  The Dongguan People’s Court is clearly and distinctly more appropriate than Hong Kong.

Stage (II)  Deprivation of  juridical advantage

75.  A juridical advantage may be a significant cause of action, a substantive remedy or a procedure available in one jurisdiction and not the other.  A juridical advantage may be that there is realistically no fair trial abroad if the local proceedings were stayed.  See Hong Kong Civil Procedure 2011, Vol 1, para 11/1/12B.

76.  The plaintiff relies on the same point as under Stage (I) – that there is a real likelihood that the Mainland court will decline to entertain the plaintiff’s action for the absence of the Property Company  without recognizing the plaintiff’s undefined rights and without trying the present causes of action. 

77.  The plaintiff seeks to argue by that by proceeding in Hong Kong, it can avoid the PRC procedure of having to join the Property Company and sue in its own right.  According to the legal opinion of its Mainland lawyer,

1.民訴訟法第一百零八條是一程序性之規定，內容為︰起訴必須符合下列條件︰（一）原告是與本案有直接利害關係的公民、法人和其他組織；（二）有明確的被告；（三）有具體的訴訴請求和事實、理由；（四）屬於人民法院受理民事訴訟的範圍和受訴人民法院管轄。該條規定起訴需具備的程序性要件。就其法律效果而言，若原告提起之訴訟同時具備該四個條件，則法院受理此案；反之，若原告之訴訟有任何一要件缺失，法院可以裁定不予受理或要求原告補充。在受理案件之後，若原告之訴求有事實及法律支持，則以判決形式支持其訴訟請求；反之，則以判決形式駁回其訴訟請求。

It was based on (一) that the 2007 Judgment dismissed the plaintiff’s claim.

78.  Even if the plaintiff were correct, who had what rights are matters of substantive law.  It would be PRC law that is applicable and the plaintiff can hardly escape the same consequence as to lack of rights despite her continued investment in the Garden.    

79.  The plaintiff also submits that the quality of justice offered by the Hong Kong court and the real possibility of receiving substantial justice in Hong Kong instead of in Mainland China are strong juridical advantages which the plaintiff will be deprived of if this action is stayed in favour of the Mainland courts.  Since the plaintiff suggests that there is lack of substantial justice in the Mainland, it must assert candidly and support his allegations with positive and cogent evidence: Bayer Polymers Co. Ltd. v. Industrial and Comemrcial Bank of China, Hong Kong Branch [2000] 1 HKC 805, 808G-809C; Duan Qi Gui v. Upper Like Investments Ltd, CACV 320/2007, at para 33-34.  This the plaintiff has failed to do.

80.  The plaintiff is unable to show that it will suffer juridical disadvantage if the trial were to take place in Hong Kong.

Stage (III) Balance of advantages of (I) against disadvantages of (II)

81.  Given that the defendant passes the Stage (I) test but the plaintiff cannot pass the Stage (II) test, the balance is clearly in favour of a stay of proceedings in favour of the Dongguan People’s Court.

CONCLUSION

82.  I find that res judicata does apply to the present case and it will be an abuse of process to relitigate the issues.  Accordingly the amended statement of claim is struck out and the claim is dismissed.  Alternatively, this claim should be stayed in favour of the Dongguan People’s Court which is the available forum having competent jurisdiction and is clearly and distinctly the natural and more appropriate forum for the trial of the action.

83.  I also order, nisi, that the plaintiff should bear the costs of the defendant.  There shall be summary assessment of costs on the papers on 8 April 2011 at 9:30 am.  No attendance is required. The defendant shall file and serve his statement of costs by 1 April 2011.  The plaintiff shall file and serve its grounds in opposition by 6 April 2011.

84.  I thank counsel for their able assistance.