SHANGHAI GOPHER ASSET MANAGEMENT CO LTD v. CHINA BASE GROUP LTD AND ANOTHER

CAMP 31/2022

[2022] HKCA 1724

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 31 OF 2022

(ON AN INTENDED APPEAL FROM HCA 1299 & 1300/2019)

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(Consolidated by the Order of Mr Registrar S Kwang dated 18 November 2019)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

Introduction

1.  This is a renewed application by the plaintiff, made by a summons dated 21 January 2022, seeking leave to appeal against the judgment of DHCJ Le Pichon (“the Judge”) dated 28 October 2021 [2021] HKCFI 3216 (“the Judgment”).  The plaintiff also seeks leave to appeal against that part of the decision of the Judge dated 7 January 2022 [2022] HKCFI 114 (“the Decision”), by which the Judge varied the costs order nisi made in the Judgment so as to order the plaintiff to pay the defendants’ costs on an indemnity basis.

2.  By the Judgment, the Judge dismissed the plaintiff’s appeal against the decision of Master Jonathan Wong dated 29 January 2021 granting leave to the defendants to amend their summons dated 6 May 2020 (pursuant to their summons dated 25 January 2021) and staying the consolidated action in favour of the People’s Court in Pudong New District, Shanghai.  The Judge also made an order nisi that the defendants’ costs of the appeal to her should be paid by the plaintiff.

3.  Subsequently, the plaintiff applied to the Judge for leave to appeal against the Judgment while the defendants applied to vary the costs order nisi.

4.  On 7 January 2022, the Judge handed down the Decision, by which she (1) refused to grant leave to the plaintiff to appeal against the Judgment, with indemnity costs to the defendants (see [3] to [19] and [32(1)] of the Decision), and (2) varied the costs order nisi so as to provide that the defendants’ costs in the appeal before her were to be assessed on an indemnity basis (see [20] to [31] and [32(2)] of the Decision).

Background

5.  The dispute that is the subject matter of these proceedings arose from an Equity Pledge Agreement and Guarantee dated 19 June 2019 (“the EPA”) signed by the 2^nd defendant in Pudong New District, Shanghai, the People’s Republic of China (“PRC”), on behalf of both defendants.

6.  The factual and procedural background was helpfully summarised at [3] to [14] of the Judgment, as follows:

“3. The plaintiff, a company incorporated in the Mainland, is a subsidiary of Noah Holdings Limited (‘Noah’) which is listed on the New York Stock Exchange. Its chairman and CEO is Wang Jingbo (‘Ms Wang’).

4. [The 1^st defendant] is a BVI company with wholly-owned subsidiaries, namely Guangdong Zhongcheng Industrial Holding Company Ltd (‘GZ’) and Guangdong Chengxing Holding Group Company Limited (‘GC’), Mainland trading companies that regularly supply goods to Beijing Jingdong Century Trading Company Limited (‘JD’), with JD being the procurement entity affiliated with JD.com, a business-to consumer online retailer.

5. GZ and GC entered into a factoring agreement on 16 January 2018 with the plaintiff (‘the factoring agreement’) to finance this trading business under which the plaintiff would purchase and obtain an assignment of the account receivables due from JD to GZ and GC at a discount.

6. [The 1^st defendant] holds approximately 62.8% of the issued shares (‘the shares’) in Camsing International Holding Limited (‘Camsing’) a Cayman Islands’ company listed on the Hong Kong stock exchange. [The 2^nd defendant] is the ultimate beneficial owner of [the 1^st defendant].

7. Disputes arose between the plaintiff and GZ and GC in early June 2019 when JD failed to meet its payment obligations.

8. On or about 17 June 2019, Ms Wang invited [the 2^nd defendant] to Noah’s office in Shanghai to discuss JD’s various payment defaults and on 18 June 2019 [the 2^nd defendant] travelled to Shanghai to meet Ms Wang.

9. It is [the 2^nd defendant’s] case that she was subjected to duress and coerced by Ms Wang into signing the EPA on behalf of the defendants. The parties to the EPA are (1) [the 1^st defendant], (2) the plaintiff, (3) GZ and GC and (4) [the 2^nd defendant].

10. [The 2^nd defendant] was arrested by the Shanghai police the following day for allegedly forging sale and purchase contracts with JD to obtain funding from the plaintiff and has been remanded in custody ever since.

11. The plaintiff commenced an action in the Shanghai Financial Court against JD, GC, Suzhou Chengjun Marketing Co Ltd and [the 2^nd defendant] in respect of the account receivables due from JD in connection with the factoring agreement (‘the Shanghai proceedings’).

12. On 19 July 2019 the plaintiff issued two writs in similar terms (respectively, HCA 1299 and HCA 1300/2019), one against each defendant. No orders for service out were obtained by the plaintiff.

13. The procedural history thereafter is particularly relevant to one of the issues arising, (namely, whether the defendants have submitted to the jurisdiction) and it will be set out in greater detail in that section.

14. For present purposes, suffice it to say that

(i) the two actions were consolidated by consent on 18 November 2019;

(ii) on 6 April 2020, the defendants’ solicitors (‘TNC’) served the stay summons (which sought an order staying the action based on §11.2 of the EPA being an exclusive jurisdiction clause for all disputes to be referred to Shanghai) on the plaintiff’s solicitors (‘ZL’), pending re-opening of the Registry due to Covid-19 closures;

(iii) the stay summons was filed on 6 May 2020 when the Registry reopened;

(iv) on 25 January 2021, the defendants took out an amendment summons to replace the word ‘Shanghai’ in the stay summons with the words ‘the People’s Court of Pudong New District, Shanghai’ (‘the Pudong court’); and

(v) Master Jonathan Wong allowed the amendment on 29 January 2021 and stayed the action, culminating in the present appeal.”

The hearings before the Judge

7.  There were three main issues in dispute before the Judge.

8.  The first was whether clause 11.2 of the EPA amounted to a valid exclusive jurisdiction clause, which had the effect of obliging the parties to submit their disputes, if not resolved by negotiation, to the People’s Court (a court in the PRC) in the place where the EPA was signed (that being Pudong New District, Shanghai).  That clause (as set out in [15] of the Judgment) was in the following terms:

“Any dispute, controversy or claim arising out of or in connection with this Agreement, including the validity, invalidity, breach or termination of this Agreement shall be settled by both parties through negotiation. If the negotiation fails, both parties shall submit such dispute, controversy or claim to the people’s court with competent jurisdiction for trial in the place where this Agreement is signed, …”

9.  As to this, the Judge held (at [32] of the Judgment) that clause 11.2 of the EPA was an exclusive jurisdiction clause.  In coming to this conclusion, the Judge had regard to expert opinion on PRC law adduced by the parties, predominantly focused on the proper construction of Article 34 of the PRC’s Civil Procedure Law (“the CPL”), which provides for the right of parties to a contract to choose the forum or court in which their disputes are to be litigated (see [17] to [31] of the Judgment).

10.  The second main issue was whether the consolidated action should be stayed in light of the exclusive jurisdiction clause.

11.  In respect of this issue, Mr William Wong SC, who appeared for the plaintiff before the Judge (but not before us), submitted that the action should not be stayed even if clause 11.2 was an exclusive jurisdiction clause, on the basis that the court should not grant a stay unless there was a subsisting dispute between the parties.  He contended that the defendants had failed to put forward a credible defence, having regard to the quality of the evidence relied upon (which consisted of evidence by the defendants’ solicitors as to what they had been told by the 2^nd defendant, who was under detention in the Mainland), and that where the defendants have failed to put forward a credible defence, there is no dispute that requires adjudication (see [33] to [35] of the Judgment) so that the exclusive jurisdiction clause does not bite.  This submission was rejected by the Judge, who held that in the unusual circumstances of this case, where the 2^nd defendant was held in custody, it would be appropriate to give weight to the evidence that had been filed.  In any event, the Judge agreed with and followed the decision of Master Benny Lo in Deltatre SPA v Hong Kong Sports Industrial Development Limited [2018] 4 HKLRD 478, which itself followed a line of authorities stemming from Euromark Ltd v Smash Enterprises Pty Ltd [2013] EWHC 1627 (QB), to the effect that an exclusive jurisdiction clause should be generally given effect to, in the absence of strong cause to the contrary, and that the absence of a defence of substance will not normally amount to such strong cause.

12.  The third main issue was whether the defendants had submitted to the jurisdiction in Hong Kong by having taken certain procedural steps in order to obtain documents from the plaintiff.

13.  As to this, having considered the relevant authorities and evidence, the Judge held that the defendants’ conduct in these proceedings did not, on the facts, amount to a submission to the jurisdiction.

14.  In relation to costs, the Judge noted in the Decision that there was a line of authority that suggested that where a party had brought proceedings in breach of an exclusive jurisdiction clause, an order for indemnity costs should normally follow.  Having considered the circumstances of this case, the Judge varied her costs order nisi to provide for costs in favour of the defendants to be assessed on an indemnity basis. 

Legal principles

15.  It is well established, and both parties accepted, that in order to succeed in its application for leave to appeal, the plaintiff has to show that the proposed appeal has reasonable prospects of success.  The plaintiff rightly recognised that the decisions appealed against involved the exercise of discretion by the Judge, thus very much restricting the scope for interference by this court (so that this court will only interfere if the Judge had erred in law, taken into account irrelevant matters (or omitted to have regard to relevant matters) or was plainly wrong), but contended that there were nonetheless reasonable prospects of success.  The plaintiff also suggested that a decision by this court on the question of whether or not proceedings should be permitted despite being brought in apparent breach of an exclusive jurisdiction clause where there was no genuine dispute or where there was no credible defence would be in the public interest, as there were said to be conflicting lines of authority and decisions at first instance, which had not previously been ruled upon by the Court of Appeal.

16.  Having considered the papers, we decided to exercise the power under Order 59 rule 2A(5)(a) of the Rules of the High Court, Cap 4A and will determine this application without an oral hearing on the basis of the written materials filed with the court.

The intended appeal

17.  The plaintiff puts forward four grounds of appeal in its draft Notice of Appeal.  Grounds 1 to 3 are identical to those relied upon when seeking leave to appeal from the Judge.  Ground 4, relating to the costs order as varied, was raised for the first time before us.

18.  The intended grounds of appeal are as follows:

(1)  the Judge erred in law and/or in fact in finding that clause 11.2 of the EPA is an exclusive jurisdiction clause (“Ground 1”);

(2)  the Judge erred in law and/or in fact in finding that the defendants had identified a credible defence, and for affirming the Master’s decision to order a stay, when she should have held that there was no credible defence and that no stay should be granted notwithstanding the exclusive jurisdiction clause (“Ground 2”);

(3)  the Judge erred in failing to find that the defendants have submitted to and/or waived their right to challenge the jurisdiction of the Hong Kong Courts (“Ground 3”);

(4)  the Judge erred in ordering that the plaintiff’s costs should be assessed on the indemnity basis, as the plaintiff had not “deliberately ignored” the exclusive jurisdiction clause and had (contrary to the Judge’s view) been misled by the defendants into thinking that the clause could be ignored (“Ground 4”).

19.  We shall deal with each proposed ground in turn.

Ground 1

20.  In respect of Ground 1, the plaintiff’s counsel Mr Keith Tam (who also appeared with Mr Wong SC before the Judge), complained that the Judge had failed to have regard to the original Chinese text of Article 34 of the CPL in evaluating the expert evidence adduced by the parties, and that the Judge had wrongly preferred the opinion of Mr Lin, the defendants’ expert witness, as opposed to that of Mr Yang, the plaintiff’s expert witness.

21.  In our view, as Mr Douglas Lam SC for the defendants submitted, and as the Judge explained at [5] to [6] of the Decision, the Judge was perfectly entitled to rely upon an English translation of the text of the CPL, the accuracy of which was not challenged by the parties at the hearing before her.

22.  More importantly, and in any event, as the Judge explained at [7] of the Decision, having regard to the reasons given in the Judgment at [17] to [28], she would in any event have preferred the evidence of the defendants’ expert Mr Lin to that of the plaintiff’s expert Mr Yang, as to the correct interpretation of Article 34 of the CPL.

23.  Mr Tam accepted (at paragraph 5 of his written submissions), the list of statutorily recognised categories mentioned in Article 34 is a non-exhaustive one that includes the location where the subject agreement is signed.  In this case, the EPA was signed in Pudong New District, Shanghai (see [19] of the Judgment).  But he went on to submit that even the statutorily recognised categories must have some actual connection to the place of dispute, relying on the evidence of the plaintiff’s expert Mr Yang.  However, the Judge explained in detail at [28] to [32] of the Judgment why the opinion of the defendants’ expert Mr Lin should be preferred, and we respectfully agree with her. 

24.  The assessment of competing expert evidence and the preference for one expert over another is clearly a matter within the purview of the Judge, with which this court will only intervene if it can be demonstrated that the Judge was plainly wrong.  We do not consider that such a suggestion has any reasonable prospect of success in this case.  We find no fault with the Judge’s analysis leading her to the conclusion that clause 11.2 of the EPA validly conferred exclusive jurisdiction on the Pudong court.

25.  Accordingly, we find Ground 1 not to be reasonably arguable.

Ground 2

26.  As for Ground 2, we share the views expressed by the Judge as to the unusual circumstances of this case that rendered it appropriate to have regard to the evidence put forward by the defendants, and to give it weight notwithstanding its hearsay nature.  In those circumstances, we do not think that the Judge’s conclusion that a credible defence had been raised by the defendants can be seriously challenged.

27.  That being so, this proposed ground of appeal, which is premised on the absence of a credible defence, is largely academic.  Mr Tam’s submission was that the lack of a credible defence in itself can and should amount to strong cause for refusing a stay of proceedings notwithstanding that the proceedings are brought in breach of an exclusive jurisdiction clause.  Given that the plaintiff has failed to persuade us that there are reasonable prospects of showing that the Judge was wrong to accept that there was evidence to support a credible defence, this point does not arise.

28.  Had it arisen, Mr Tam would have been justified in saying (as he did) that although the Judge conducted a comprehensive analysis on the competing lines of authority as to whether or not the lack of a credible defence justified departing from an exclusive jurisdiction clause (Standard Chartered Bank v Pakistan National Shipping Corporation [1995] 2 Lloyd’s Rep 365 suggesting that it did and the Euromark line of authorities, which the Judge followed, suggesting that it did not), her judgment was nonetheless a further chapter in a series of conflicting first-instance decisions on this point, which would benefit from consideration by this court.

29.  However, this court has since considered this point in Re Guy Kwok-Hung Lam [2022] HKCA 1297.  Although that case arose in the context of insolvency proceedings, and the question was whether bankruptcy proceedings should generally be stayed without consideration of the merits to enable proceedings to take place in a foreign jurisdiction pursuant to an exclusive jurisdiction clause, or whether it was open to the court to consider whether or not there was shown to be a bona fide dispute of substance, failing which the bankruptcy proceedings should proceed notwithstanding the exclusive jurisdiction clause, it seems to us that the position is a fortiori in an ordinary action (such as this) where the additional factor of insolvency proceedings does not exist.

30.  In Re Guy Kwok-Hung Lam, it was held that the Euromark and Deltatre line of authority which the Judge followed was to be preferred, and that the absence of a dispute of substance did not of itself constitute the strong cause required to justify departure from an exclusive jurisdiction clause.

31.  The following remarks and views expressed by G Lam JA (at [28], [83] and [90] of Re Guy Kwok-Hung Lam are particularly relevant in the context of the present application:

(1)  the court is not bound but has a discretion whether to stay an action brought in breach of an agreement to refer disputes to a foreign court, but that discretion should be exercised by granting a stay unless strong cause for not doing so is shown;

(2)  the reasons for departing from the general rule stem from factors not contemplated by the parties at the time of the contract and do not include factors of convenience that were foreseeable (save in exceptional circumstances involving the interests of justice);

(3)  it is a strong policy of the law to require parties to abide by their contracts.  An exclusive jurisdiction agreement is an important agreement between the parties as to how and where their differences are to be resolved.  Prima facie they should be held to that agreement.  An action brought in breach of it will ordinarily be stopped unless there are strong reasons otherwise.  Even where a stay is refused for strong cause shown, the breach may found a claim for damages;

(4)  the point of an exclusive jurisdiction clause is that the court should not embark upon a review of the merits of the dispute in the first place;

(5)  in agreeing to an exclusive jurisdiction clause, the parties are contemplating the scenario where claims and disputes have arisen.  It ought to be foreseeable to them that disputes may arise in different ways, and that while some disputes may be evenly balanced, others may be one-sided.  The strong cause that needs to be shown to justify not staying proceedings brought in breach of an exclusive jurisdiction clause does not include such foreseeable factors;

(6)  unless one construes the exclusive jurisdiction clause to apply only to more arguable disputes, which is usually not the natural and proper meaning of the agreement, it would be illogical to say that the plaintiff may bring legal proceedings in Hong Kong if the defendant has a weak case, but must go to a foreign court in accordance with the exclusive jurisdiction clause if the defendant’s case is more substantial;

(7)  for the court to venture into the merits and decide whether there is an arguable defence before giving effect to the exclusive jurisdiction clause is to do precisely what the parties have agreed should be done by the foreign court.

32.  In the light of the judgment of this court in Re Guy Kwok-Hung Lam, it does not seem to us that Ground 2 is reasonably arguable. Moreover, that decision has resolved (at the level of the Court of Appeal) the question of which of the competing Euromark and Standard Chartered Bank lines of authorities should prevail.

33.  For these reasons, we do not think that Ground 2 is reasonably arguable, or that there is some other reason for leave to be granted in relation to it.

Ground 3

34.  As submitted by Mr Lam SC, the arguments advanced by Mr Tam in respect of Ground 3 are simply repetitions of those put before the Judge at the hearing before her.  Mr Tam’s submission that the defendants should have been found to have submitted to the jurisdiction of Hong Kong Courts is based on complaints as to the weight accorded by the Judge to the evidence before her, on the basis of which she came to her conclusion as to whether or not there had been a submission to the Hong Kong jurisdiction by reason of the steps taken by the defendants to obtain information from the plaintiff.  We do not think that the plaintiff has surmounted the threshold required to persuade us to disturb the Judge’s findings of fact in this regard, and we do not regard Ground 3 as reasonably arguable.

Ground 4

35.  Ground 4 is an attack on the Judge’s exercise of discretion in an award of costs.  While we would leave open the question of whether or not the bringing of an action in breach of an exclusive jurisdiction clause should as a rule be visited with indemnity costs, it seems to us that the Judge in fact carefully analysed the conduct of the parties in the present case when coming to her decision to vary the costs order nisi so as to require the plaintiff to pay the defendants’ costs of the hearing before her on an indemnity basis.  It is trite that this court would not interfere with such an exercise of discretion unless it is shown, inter alia, that the exercise of discretion was demonstrably flawed.  We do not see any demonstrable flaws in her reasoning or conclusions in this respect, and do not consider the contrary suggestion to be arguable.  Leave should not be granted in respect of this ground either.

Disposition and costs

36.  We therefore consider that none of the proposed grounds of appeal have reasonable prospects of success, and the threshold requirement for granting leave to appeal has clearly not been met.  Nor is there some other reason in the interests of justice why the appeal should be heard nevertheless.  We therefore refuse to grant leave to appeal to the plaintiff, and dismiss the summons dated 21 January 2022.

37.  In our view, the leave application is wholly without merit, and we make a further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination of this application to be considered at an oral hearing inter partes.

38.  There is no reason why costs should not follow the event.  We therefore make an order nisi that the plaintiff do pay the defendants their costs of this application, and having considered the statement of costs submitted by the defendants, find it to be generally reasonable, and assess the defendants’ costs on a gross sum basis in the amount claimed of HK$114,190.