CHEN HONGQING v. LIU YIU KEUNG STEPHEN AND OTHERS

HCA 1699/2019

[2021] HKCFI 1804

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1699 OF 2019

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BETWEEN

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D E C I S I O N

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The

“CHQ Injunction Decision”

A. The Three Decisions

1.  I call this decision the “CHQ Injunction Decision”.  It is my decision on the CHQ Injunction Summons (defined below).  It may be read in context together with two other related decisions this Court hands down at the same time (namely the “Leave & Directions Decision”[1] and the “FR Lien Decision”[2]).

B. The Claim, and the background facts

2.  In respect of the nature of Chen HQ’s claim herein and the relevant background facts, I refer to my two earlier Decisions in this action handed down on 31 October 2019[3] and 23 February 2021[4], my Jurisdiction Decision handed down on 30 August 2019 in HCA 2648/2017[5], and the Trust Actions Judgment[6] and Trust Actions Discharge Decision[7] of G Lam J (as he then was) both handed down on 31 January 2018.  I will unless otherwise specified adopt the same terms as used in those Judgments and Decisions.

3.  To recapitulate the procedural background so as to set the scene:

(a) On 17 November 2017, soon after his unsuccessful application to be joined in the Trust Actions, Chen HQ commenced HCA 2648/2017 (“HCA 2648”). He claimed to be the owner of those Employee Shareholders’ interests in their CSI Shares, so that should those Employee Shareholders become successful in the Trust Actions, the related shares, then held by the EY Receivers, should be passed to him but not the successful Employee Shareholders;

(b) On 30 August 2019, I handed down the Jurisdiction Decision in HCA 2648.  For reasons set out therein, I set aside the Service Out Order, the concurrent Writ and concurrent Amended Writ issued pursuant thereto and the service out permitted thereby, and discharged the ASI (the “Jurisdictional Orders”).  For reasons set out in the Receivership Decision, I also dismissed Chen HQ’s Receivership Summons; 

(c) On 13 September 2019, Chen HQ started the present action (“HCA 1699” or the “Present Action”).  Instead of seeking to have the matter tried in Hong Kong, as he had been seeking to do in HCA 2648, this time he seeks to rely on the decisions he has obtained in the Mainland (the “Ruzhou Judgments”) against certain of the Employee Shareholders.  The Present Action has been described on his behalf as one “by a beneficiary solely entitled to an asset to call for the trust property by asking the trustee to execute a conveyance or transfer of the legal estate”[8];

(d) On the same day, he took out a summons for leave to appeal against the Jurisdictional Orders and the dismissal of his Receivership Summons;

(e) On 3 October 2019, two of the SHDs took out a summons for leave to be joined in the Present Action.  By order of this Court of 25 October 2019, they were joined, and are now D4 and D5;

(f) By summons dated 4 October 2019 under the Present Action and returnable on 31 October 2019 before this Court (the “CHQ Injunction Summons”), Chen HQ sought against the EY Receivers an interim injunction to restrain them from disposing of the 368,168 CSI Shares pending trial or further order (the “CHQ Injunction”);

(g) During the hearing on 31 October 2019, and having heard respective Senior Counsel appearing for the parties, I refused Chen HQ’s application for interim/interim relief (see [2019] HKCFI 2720).  I adjourned the matter for substantive argument.  That hearing was originally fixed before me on 3 March 2020.  That was vacated due to the COVID-19 pandemic.  I on 28 February 2020 ordered paper disposal, and gave directions on the further conduct of the matter, including the filing of written submissions and extension of time for the filing of further evidence as requested by Chen HQ;

(h) Pursuant to the directions I gave, the following submissions were filed between 6 and 20 March 2020 in support or opposition of the CHQ Injunction Summons, they being:

(i) The submissions of Mr Ambrose Ho SC and Mr Law Man Chung of 6 March 2020 on behalf of Chen HQ (“CHQ#1”);

(ii) The submissions of Mr José-Antonio Maurellet SC, Mr Alexander Tang and Mr Kevin Lau of 13 March 2020 on behalf of D4 and D5 (“SHD Sub”);

(iii) The submissions on behalf of Chen HQ of 20 March 2020 in reply (“CHQ#2”);

(i) In the meantime, before the close of submissions for the CHQ Injunction Summons:

(i) By summons of 16 March 2020 (“Jinan Group Joinder Summons”), Jinan Group sought leave to be joined as a defendant in the Present Action, and other consequential directions relating to the CHQ Injunction Summons should it be so joined;

(ii) By summons dated 9 December 2020 (the “SHD Joinder Summons”), a group of SHDs sought leave to intervene and/or be joined;

(j) The Jinan Group Joinder Summons and the SHD Joinder Summons came to be heard before me on 5 January 2021:

(i) the SHD Joinder Summons was ultimately not contested.  The applicants were joined, and are now D6 to D1168;

(ii) the Jinan Group Joinder Summons was contested.  Having heard respective leading counsel for the parties, and for reasons set out in my Decision of 23 February 2021[9], I allowed the application, and gave certain directions in relation to the further conduct of the CHQ Injunction Summons.  Jinan Group is now D1169;

(k) Pursuant to the directions I gave on 23 February 2021, the following submissions in further support or opposition of the CHQ Injunction Summons have been filed:

(i) The submissions of Mr Anson Wong SC, Mr Ross Li and Mr Lai Chun Ho of 23 March 2021 on behalf of Jinan Group (“Jinan Sub”);

(ii) The submissions of Mr Law Man Chung of 16 April 2021 on behalf of Chen HQ in reply (“CHQ#3”).

C. The submissions in gist

4.  CHQ#1 may be summarized as follows:

(a) The CHQ Injunction aims at protecting the status quo;

(b) D4 and D5 do not act for the other Employee Shareholders.  There are no objections from the others;

(c) The arguments made by D4 and D5 are groundless, not substantiated by admissible evidence, and in any event show precisely that there are serious issues to be tried;

(d) The balance of convenience tilts firmly in favour of the grant.

5.  SHD Sub may be summarized as follows:

(a) the reasons in my decision refusing interim/interim relief are relied upon;

(b) the Ruzhou Proceedings which led to the Ruzhou Judgments are tainted with serious procedural defects;

(c) the injunction should not be granted on the grounds that Chen HQ has engaged in impermissible re-litigation, he has been blowing hot and cold, because of the operation of Henderson estoppel, that public policy precludes recognition of the Ruzhou Judgments, that necessary parties are not before the Court, and that balance of convenience is against any grant.

6.  For Jinan Group, it is submitted that:

(a) in respect of the Ruzhou Judgments, Jinan Group not being a party, there is no res judicata against Jinan Group;

(b) the Present Action is liable to be struck out as an abuse of process given the inconsistent position Chen HQ has taken;

(c) Chen HQ is estopped from enforcing the Ruzhou Judgments;

(d) In any event, the injunction should not be granted upon the Court’s proper exercise of its discretion, because:

(i) Chen HQ’s case is dubious;

(ii) Chen HQ has failed to come to court with clean hands;

(iii) there is no evidence of credible undertaking.

7.  The main themes of Chen HQ’s replies are that:

(a) The causes of action in HCA 2648 and the Present Action are different, the former contractual, and the latter proprietary;

(b) Whilst Chen HQ accepts that his stances in HCA 2648 and the Present Action are different, SHDs’ and Jinan Group’s submissions involve the erroneous assumption that the adoption of inconsistent arguments or positions without more attracts legal consequences, including the draconian effect of depriving a party of his right to sue;

(c) There is therefore no estoppel, nor abuse;

(d) The fact that Jinan Group was not a party to the Ruzhou Proceedings does not lead to any conclusion that Chen HQ has raised no serious issue to be tried.

D. Applicable principles for interlocutory injunction

8.  On the applicable principles for interlocutory injunction, I have been cited and reminded of the discussions in American Cyanamid Co v Ethicon Ltd (No. 1) [1975] AC 396, 406-408, per Lord Diplock, HL, Music Advance Ltd v Incorporated Owners of Argyle Centre Phase 1 [2010] 2 HKLRD 1041, §12(d), per Ma J (as he then was), and National Commercial Bank Jamaica Ltd v Olint Corpn [2009] 1 WLR 1405, §§16-17, per Lord Hoffmann.  They are not controversial.  Nor do they need to be repeated.

E. Whether serious issue to be tried

9.  I deal with two matters first.

10.  At various places of his submissions, Mr Maurellet refers to my decision of 31 October 2019 refusing Chen HQ’s application for interim/interim relief.  The test for interim/interim relief is balance of fairness — see China Shanshui Cement Group Limited v Zhang Caikui [2018] HKCA 409, per Lam VP at §13.  It is different from the test I am to apply here.  Any observation I made in that Decision is also necessary preliminary in nature.  The value in relying on that Decision at this stage is limited.

11.  The second matter is this.  One facet of the SHDs’ case in resisting the CHQ Injunction Summons has been set out at §22 of SHD Sub.  It is submitted that the Ruzhou Proceedings are tainted with serious procedural defects. Substantial evidence has been adduced in support.  Chen HQ has in turn filed “voluminous evidence” in rebuttal.  As Mr Maurellet has realistically accepted, “at this interlocutory stage, it is not possible for these issues to be determined conclusively”[10]. Reference to them at this stage is again of limited value.

12.  Stripped of all the technicalities, the 2 principal features of the case which ground Mr Maurellet’s and Mr Wong’s submissions that Chen HQ has failed to establish any serious issue to be tried are as follows:

(a) Chen HQ has changed of his stances from what he has adopted in HCA 2648 (that Hong Kong is the appropriate forum for his claim, and that the 3^rd and 4^th Ruzhou Proceedings were only for preserving the status quo) to what he adopts in the Present Action (reliance of the Ruzhou Judgments which he is seeking enforcement of in Hong Kong); and

(b) Chen HQ obtained the ASI, and has benefited from it.

13.  That there has been a change of stance is accepted by Chen HQ.  At §25 of CHQ#2, Mr Ho states that:

“ It is true that P has commenced HCA 2648 and taken a number of steps in the belief that Hong Kong is the appropriate forum, including seeking O.11 leave, obtaining [the ASI] and commenced the proceedings in Ruzhou. It is also true that by reason of the Jurisdiction Decision, P now acts in the belief that PRC is the appropriate forum for the disputes in HCA 2648.”

14.  In effect, Chen HQ is saying that he changes his stance and belief as a result of the Jurisdiction Decision. 

15.  In the Jurisdiction Decision:

(a) I observed that the issue of ownership over the CSI Shares is merely consequential upon resolution of the contractual relationship between Chen HQ and the 11 Representatives, and that the same can also be said about the dispute between Chen HQ and the Employee Plaintiffs from whom he allegedly purchased some shares directly[11];

(b) I observed that relevant proceedings have been and could legally be initiated in the Mainland on the very dispute which HCA 2648 is concerned with[12];

(c) having taken an overall examination of the claim and the issues involved, I observed as follows[13]:

“ … The only connection which Chen HQ could realistically rely upon is the involvement of a Hong Kong company in the form of CSI. That connection is however, on the facts of this case, neither real nor substantial. It is in my view in fact tenuous. All relevant events took place in the Mainland. The related alleged agreements and understanding (the SALA, the Loan Agreements, the Share Pledge Agreements, the SPGAs and the SPAs) were all according to Chen HQ’s case reached in the Mainland. They all contain a choice of law clause choosing Mainland laws as the governing law. I have discussed above the issues involved. They are in my view contractual in nature. The case raises no issue of Hong Kong company law. The applicable law is in my view Mainland law. All the witnesses were Mainland parties and residents. If there had been any improprieties in the form of coercion as alleged by Chen HQ, they took place in the Mainland which the Hong Kong Courts are ill-equipped to handle. Chen HQ has himself started multiple court and arbitral proceedings in the Mainland on the very same issues.”

(d) In the end, I concluded that Chen HQ had failed to show a serious question that Hong Kong is not only the appropriate forum to try the case but that this is clearly so[14].

16.  Chen HQ also accepts that “[in] taking the benefit of the [Ruzhou] Judgments, there may be implications for HCA 2648.  However, that is a matter to be resolved in that action”.

17.  The core of SHDs’ and Jinan Group’s positions are in fact this: They say that Hong Kong is not the forum conveniens for the claim in HCA 2648. They made the jurisdiction challenge.  They have been successful.  They say that I am correct in the Jurisdiction Decision.  Then, given the prior steps Chen HQ had undertaken in HCA 2648, they submit that Chen HQ should further not be permitted to prosecute his claim via the Ruzhou Proceedings and to seek to enforce the Ruzhou Judgments in Hong Kong.  Not only that.  They are submitting that the position is so clear even at this stage that Chen HQ has in the Present Action raised no serious issue to be tried.

18.  Whilst Chen HQ accepts that his stance has changed upon my Jurisdiction Decision, the overarching submissions made on his behalf are these:

(a) Mere inconsistent argument or position without more may not attract any legal consequence — see Chinachem Charitable Foundation Ltd v Chan Chun Chuen & Anor [2009] 5 HKC 190, at §§45-47, and in particular §45 of Nexus Communication Group v Michael Lambert [2005] EWHC 345 (Ch) cited therein;

(b) Parallel claims on the same subject matter in 2 different jurisdictions are not inherently wrong, especially when there are substantial reasons of benefit to the plaintiff: Airbus Industrie v Patel [1999] 1 AC 119 at 132H, per Lord Goff, and Societe Aerospatiale v Lee Kui Jak [1987] 1 AC 871 at 894B-C, per Lord Goff;

(c) the causes of action in HCA 2648 and the Present Action are different.

19.  I see force in those arguments.

20.  The following submissions have also been made on behalf of Chen HQ in answer to the specific grounds of opposition raised by SHDs and Jinan Group.

21.  Impermissible re-litigation:

(a) Relying on Buckland v Palmer [1984] 1 WLR 1109 at 1114H, Mr Maurellet submits that Chen HQ is abusing the process by simultaneously pursuing parallel proceedings based on the same set of facts;

(b) In reply, Mr Ho submits that the causes of action in HCA 2648 and in the Present Action are not the same.  In any event, I have made the Jurisdictional Orders.  There is no option on Chen HQ’s part to amend and continue HCA 2648.  There is no basis to dismiss P’s claim in the Present Action as impermissible re-litigation.  This is particularly so in the event of this Court refusing P’s leave application to appeal[15];

(c) I again see force in Mr Ho’s submissions.  I repeat Chen HQ’s acceptance that “[in] taking the benefit of the [Ruzhou] Judgments, there may be implications for HCA 2648”.  But at this stage, I do not find the position to be so clear to the extent that there is no serious issue to be tried.

22.  Blowing hot and cold:

(a) Mr Maurellet refers to the inconsistent stances that Chen HQ has adopted.  Relies on Express Newspapers Plc v News (UK) Ltd [1990] 1 WLR 1320 at 1329F-G and Chan Chun Chuen v Kao, Lee & Yip, unrep, HCA 597/2015, 12 October 2017 at §30(4), he submits that Chen HQ has been blowing hot and cold;

(b) I have considered §30 of Chan Chun Chuen.  As Mr Maurellet has submitted, the relevant doctrine is essentially a “fairness doctrine”;

(c) I have considered the distinction which Mr Ho has drawn, based on Handley, Estoppel by Conduct and Election (2^nd ed) §15-029 and Evans v Bartlam [1937] AC 473, between election between inconsistent rights/duties and election in procedure, the latter being usually regarded as not final;  

(d) On the facts of the Present Action, and in particular in the light of the reasons for Chen HQ’s change of stances as set out in §§12-17 above, I cannot conclude at this stage, as a matter of fairness, that Chen HQ has blown hot and cold to the extent that no serious issue to be tried has been raised.

23.  Henderson estoppel:

(a) Mr Maurellet relies on Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72 at §§82-83;

(b) I have considered the various facets of the doctrine explained by Ma CJ at §83 of the judgment.  I regard as having particular relevance the following facets.  The starting point is to recognise that the doctrine is founded on an abuse of process.  But a party ought not lightly to be deprived of the right to have serious matters litigated.  In examining aspects such as abuse, the court is concerned with balancing interests.  The assessment of different factors and balancing competing interests can be said to be an exercise of a discretion;

(c) Again, I come back to the background leading to the change of stance on Chen HQ’s part, and the reasons for him not relying on the Ruzhou Judgments before.  I have to balance against it the harshness of depriving him of the right to have the enforcement of the Ruzhou Judgments litigated in Hong Kong;

(d) At this stage, I am not satisfied that the doctrine of Henderson abuse renders the position such that there is no serious issue to be tried.

24.  Public policy:

(a) Mr Maurellet’s submission in this regard is based on Philip Alexander Securities & Futures Ltd v Bamberger [1997] ILPr 73 at 115, that prima facie, if someone proceeds in breach of, and with notice of, an injunction granted by the English court to obtain judgments abroad, those judgments should not, as a matter of public policy, be recognised in the United Kingdom;

(b) But the Ruzhou Judgments were not obtained in breach of the ASI.  Mr Maurellet’s submission in this regard is that “Chen HQ took the benefit of the [ASI] and stopped the Jinan Proceedings, which paved the open path upon which he could, and did, race to obtain the 3^rd and 4^th Ruzhou Judgments”;

(c) It should be noted that there was only 11 ASI Defendants who were subject to the ASI;

(d) Mr Maurellet is in effect seeking to extend Philip Alexander to covering judgments obtained by a party who has been somehow aided by an anti-suit injunction;

(e) I am not satisfied that the position is as clear as Mr Maurellet has submitted.

25.  Not all parties before the Court:

(a) Mr Ho’s position is that in the Present Action, Chen HQ is seeking to enforce the Ruzhou Judgments, and that the only necessary defendants are those who are in possession of the CSI Shares;

(b) In any event, various parties have subsequently been joined into the action;

(c) I do not find the position to be such that no serious issue to be tried has been established.

26.  Jinan Group is not party to the Ruzhou Proceedings:

(a) A point distinct to Jinan Group is that it was not a party to the Ruzhou Proceedings.  The principle of res judicata is inapplicable vis-à-vis Jinan Group;

(b) Mr Law’s submissions in reply is that the mere fact that Jinan Group is not party to the Ruzhou Proceedings does not mean that the Statement of Claim filed in the Present Action discloses no serious issue to be tried, and that Jinan Group’s argument is a non sequitur;

(c) As I have set out above, Jinan Group has only been recently granted leave to join the Present Action.  I have set out its alleged interest in the CSI Shares in my Decision of 23 February 2021 (see in particular §23 thereof).  Jinan Group’s case is that it has itself obtained certain judgments in its favour in the Mainland in respect of the CSI Shares in dispute.  The exact nature of the contest between it and Chen HQ over the CSI Shares is yet to be clear.  I am not prepared to conclude at this stage that by reason only of Jinan Group not being a party to the Ruzhou Proceedings, Chen HQ has raised no serious issue to be tried.  This is particularly so given the fact that there are multiple parties who are before the Court, notably the EY Receivers.

27.  Chen HQ estopped from enforcing the Ruzhou Judgments:

(a) Mr Wong submits that Chen HQ is estopped from enforcing any of the Ruzhou Judgments given Chen HQ’s prior representation that he would not enforce the Ruzhou Judgments;

(b) But again, on the facts of the Present Action, and in particular in the light of the reasons for Chen HQ’s change of stances as set out in §§12-17 above, I cannot conclude at this stage that Chen HQ should be held to have estopped from enforcing the Ruzhou Judgments, to the extent that no serious issue to be tried has been raised.

28.  In all the circumstances, and on the matters and authorities before me, I conclude that there are serious issues to be tried.

29.  However, in respect of the specific grounds of objections discussed above, I state for the avoidance of doubt that it is not my view that they are of no merits.  My view is that they should if deemed appropriate be raised and considered during the trial of the Present Action.  At this stage, and on the materials and authorities before me, I am not satisfied that they either individually or cumulatively render the position such that no serious issue to be tried has been established.

F. Balance or convenience and discretionary matters

30.  Mr Maurellet and Mr Wong have raised a number of matters under this heading.

31.  Based primarily upon the history of the matters (the most important of which as discussed above), Mr Maurellet and Mr Wong submit that Chen HQ has failed to come to Court with clean hands, or that it would be inequitable to grant the injunction sought.

32.  Mr Wong has raised in particular the points that Chen HQ’s case is dubious, that he has failed to provide full details about the sources of his funds said to have utilized to purchase the CSI Shares, that he has put forward inconsistent cases.

33.  I have considered those submissions.  On the question of clean hands, Mr Ho and Mr Law submit that in the Present Action, the underlying claim is a call for trust property under the rule in Saunders v Vautier.  The misconduct complained of is not sufficiently connected to Ruzhou Judgments.  I see force in those submissions.

34.  Both Mr Maurellet and Mr Wong submit that damages are adequate remedy for Chen HQ.  The CSI Shares are shares of a private company.  They are not available in the market.  I have also considered, in view of the shareholdings held by CSI in CSCG, what may be described as the kingmaking status of CSI.  Further, as Mr Law has submtted[16], the shares involved constitute a block large enough to block the passing of any special resolution.  On the facts, I am not persuaded that damages are adequate remedy.

35.  Mr Wong submits that there is no evidence of credible undertaking offered by Chen HQ.

36.  In reply, Mr Law submits that the objection has been made late, and that Jinan Group has failed to adduce any evidence on any likelihood of a significant loss arising as a result of the injunction granted.  Mr Law further points to 100,488 shares in CSI which Chen HQ has obtained judgment against Zhang Snr in HCA 500/2019[17]. I am not persuaded by Mr Wong’s submissions that I should ignore such shareholding simply on the basis that Chen HQ has previously refused to disclose the source of his funds.

37.  I also remind myself of the observation of Ma J (as he then was) in Music Advance, that in considering applications for interlocutory injunctions, the Court aims to adopt a course which carries the lower risk of injustice.  In the Present Action, and on the materials before me, granting the injunction sought in my view carries the lower risk of injustice.

G. Conclusion

38.  For the reasons set out above, I grant the injunction as sought at §1 of the CHQ Injunction Summons (except that the reference to “the Defendants” there should be updated to “the 1^st, 2^nd and 3^rd Defendants”).

H. Costs

39.  I make a costs order nisi that the costs of the CHQ Injunction Summons be Chen HQ’s costs in the cause of the Present Action, to be taxed if not agreed.