MAKATISOFT INC. v. HARBRIDGE CONSULTANCY SERVICES LTD AND ANOTHER

DCCJ 5508/2020

[2021] HKDC 1327

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5508 OF 2020

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BETWEEN

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DECISION

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1.  This is an application taken out by the Defendants seeking an order to stay these proceedings on the ground that the Courts of Dubai Intentional Financial Centre (“CCDIFC”) is the more convenient forum to determine the disputes between parties. Before the hearing Counsel for both parties put in their respective submissions which the court finds to be helpful.

2.  The pleaded case of the Plaintiff is that by an agreement made between the Plaintiff and the 1^st Defendant, the 1^st Defendant was to provide services in relation to the incorporation and administration of companies (“the Agreement”). Eventually 17 international business companies (“IBCs”) were established in Hong Kong, the Republic of Seychelles and Belize. Respective quotations and invoices were issued in October, November and December 2018. The Plaintiff relies on these quotations and invoices to prove the Agreement. The 1^st Defendant had since received a total sum of US$274,229 from the Plaintiff for services provided.

3.  It is the case of the Plaintiff that the Agreement was void ab initio because it was executed through a fraudulent scheme devised by Alistair Gordon Honye (“Hoyne”), the then Chief Strategy Officer of the Plaintiff on one side and the 2^nd Defendant, who was and still is Director of the 1^st Defendant on the other. According to the Plaintiff, the 1^st Defendant had contracted out to Company Formation DMCC (“SFM”) those tasks specified under the Agreement but at a much lower price and the 1^st Defendant had thus made secret profit out of this arrangement. The Defendants were therefore, amongst other allegations, in breach of fiduciary duties owed to the Plaintiff and being guilty of fraud.

4.  A writ of summons was issued by the Plaintiff against the Defendants on 14 December 2020 praying for, inter alia, an order to have the Agreement set aside and damages. After filing the acknowledgement of service, the Defendants issued this summons. The 2^nd Defendant filed an affirmation in support. After the Plaintiff filed its affirmation in opposition the 2^nd Defendant filed a reply to which an expert opinion of Dubai Law was attached (the “Expert Opinion”). The Plaintiff did not seek leave to file any reply to the Expert Opinion. At the hearing, Ms Lee appearing for the Plaintiff submitted that the Expert Opinion should not be given weight for various problems in it. This shall be dealt with later.

Discussion

5.  Mr Avery Chan of counsel represents the Defendants in this application. He follows the 3-stage test adopted by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364 and sets out the connecting factors going to the suitability of the trial on a forum under stage 1, namely, (i) residence of the parties, (ii) the law to be applied to resolve the dispute (iii) factual connections between the dispute and the courts, eg, place where the events occurred and residence of the witnesses, (iv) whether related proceedings are on foot in another jurisdiction and (v) whether other persons may become parties to the litigation.

Stage 1: Dubai is Clearly or Distinctly more Appropriate than Hong Kong for the Trial

(i) Residence of the Parties

6.  It is not disputed that both Defendants are Hong Kong residents. The Plaintiff is registered in the Philippines. Mr Chan relies on The Spiliada [1987] AC 460 and submits that there are cases where no particular forum could be described as the natural forum for the trial of action, and such cases are particularly likely to occur in commercial disputes where there can be pointers to a number of different jurisdiction. Ms Lee representing the Plaintiff does not agree with Mr Chan’s submission that there is no natural forum in these proceedings. She submits that the Plaintiff could sue the Defendants in Hong Kong as of right. She further submits that it is plainly appropriate for the Hong Kong courts to try the action.

(ii) Jurisdiction Clauses and the law to be Applied

a. Jurisdiction Clause in the TOB covering the Agreement named the Hong Kong Courts

7.  Ms Lee submits that the Terms Of Business (the “TOB”) produced by the Defendants allegedly pertaining to the Agreement contained a jurisdiction clause claiming that the terms are governed by and construed in accordance with the laws of the Hong Kong Special Administration Region. Having said that Ms Lee submits that the validity and genuineness of the TOB shall be subject to challenge at the trial. The purpose of her drawing the attention of the court to the TOB is to show that the case of the Defendants is contradicted by their own documents and nothing else. She makes it clear that the Plaintiff will not seek to invoke the jurisdiction clause in the TOB^[1].

8.  Mr Chan asks the court not to consider the jurisdiction clause therein because when the TOB was sent to the Plaintiff, there was no contemplation that their service would include incorporation and management of companies in Seychelles and Belize^[2].

9.  In my view, this could not be the strongest point taken by Mr Chan. As could be seen from the documents produced by Mr Chen, the TOB and related documents for setting up a Hong Kong company were dated 19 October 2018^[3]. There was an invoice issued by the 1^st Defendant to the Plaintiff on 5 November 2018 in respect of setting up 9 Seychelles IBCs at a total charge of USD99,000^[4]. About 2 weeks from the OTB. There are other documents in relation to the setting up of the other 3 Seychelles IBCs^[5], 1 Belize IBCs^[6] and 3 Belize IBCs^[7]. These documents were all issued in November and December 2018, just one to two months after the date of the OTB. It is difficult for the Defendants to say that at the time of the issuing the TOB, there was only discussion of setting up one company in Hong Kong.

10.  Further, amongst the emails, one was sent from Hoyne to the 2^nd Defendant on 31 October 2018 in which Hoyne said “As discussed extensively over the phone these last few weeks we are also looking to incorporate 9 Seychelles entities.”^[8] (emphasis added by the court) There was reply from the 2^nd Defendant 1 hour later on same day explaining why there was “big delay”^[9]. Further, there was already a quotation in USD attached to the email^[10]. That was about 10 days after the OTB. The email exchange did not support the Defendants’ assertion that there was no contemplation of IBCs in Seychelles in mid-October 2018. The 2^nd Affirmation of Mr Chen did not seek to explain those email exchange but set out in paragraph 8 (4) and (5) therein the complications and complexities in setting up IBCs in Seychelles and Belize. That made it more persuasive that the idea of setting up IBCs in Seychelles and Belize did not only come about after mid-November 201[9]^[11]. The Court takes it that it is a typo in the year as it could be clearly seen from invoices that the setting up of Seychelles and Belize IBCs were agreed in November and December 2018^[12]. Be that as it may, what Mr Chen said could not be correct.

11.  Even if it was accepted that at the time the TOB was sent out on 19 October 2018 there was no contemplation of setting up International IBCs in Seychelles, there was no explanation as to why the later invoices issued in November and December 2018 were not made subject to different TOBs containing in each a jurisdiction clause the 1^st Defendant found most appropriate for the circumstances. To the contrary, according to the Expert Opinion, the TOB was the Master TOB to cover the terms and conditions for all services provided by the 1^st Defendant to the Plaintiff^[13].

b. Jurisdiction Clause in the Management Service Agreement made between SFM and its clients named CIDFC to determine their disputes

12.  Mr Chan submits on behalf of the Defendants that there are jurisdiction clauses in the SFM Terms of Business sent out to SFM’s clients, the beneficial owners of the IBCs (“the SFMTOB”). It was stipulated therein that parties to the Management Service Agreement shall be subject to the exclusive jurisdiction of the CDIFC. In reply, Ms Lee submits that neither the Plaintiff nor the Defendants is party to the Management Service Agreements, and thus no parties in these proceedings shall be bound by the exclusive jurisdiction clause therein^[14]. Mr Chan does not take his argument further.

13.  I also agree with Ms Lee that that the engagement of Dubai expert on foreign law or otherwise would not makes the Defendants’ application stronger. It is trite that the Hong Kong courts commonly receive evidence of foreign law experts and find little risk of injustice in resolving issues of foreign law with the assistance of expert evidence.

(iii)Factual Connections between the Dispute and the courts, eg, place where the events occurred and residence of the witnesses

a. Availability and Compellability of Witnesses

14.  Mr Chan submits at the hearing that after all the arguments in the present application boil down to the compellability of witness and discovery/disclosure of documents. It is submitted by Mr Chan that staff from SFM shall be crucial witnesses and the documents in their possession are important for determination of issues on fraud. SFM was however incorporated and is still registered in Dubai. In reliance on the Expert Opinion Mr Chan submits that SMF being a company registered in Dubai shall be subject to court order for it to give testimony and to produce evidence. The Expert Opinion stated that

“Generally, it is established law that everyone has the authority to testify in the court of law as long as they were permitted by the competent court, and a request to hearing the witness was not declined by the court”^[15] .

15.  The author of the Expert Opinion (“the Expert”) went on to apply his opinion to the present proceedings by saying that:-

“as the plaintiff is alleging fraud and that the Defendants charged exorbitant fees, the Dubai Court may instruct the Witnesses to testify to ascertain the amount of work that was conducted and if indeed the fees can be considered exorbitant.”^[16]

16.  In reply, Ms Lee submits that the Expert Opinion indicated only uncertainties for the Defendants to call the staff of SFM as their witnesses. She relies on the latter part of the same paragraph quoted by Mr Chan in which the Expert stated that:-

“However, the court may decline to hear the witness, should it find no benefit in their testimony to the case.”^[17]

17.  Ms Lee further submits that apart from the passage saying that the court may decline to hear the witness, the Expert cited an authority in which it was stated that:-

“the trial court is authorised to assess the seriousness of the opponent’s request to transfer the case for investigation, admit it or decline it. That is acceding to the lawsuits circumstances and documents. It is also authorized to decline the request should it find in the suit’s papers and documents enough clues to form a belief in order to adjudicate on the subject without the need to transfer the case for investigation and witness hearing”. ^[18] (emphasis added by the court)

18.  Ms Lee also criticizes the Defendants for their failing to particularise how important SFM is to the defence case. The Defendants have so far not disclosed any names of employees in SMF and what documents shall be relevant.

19.  The Defendants say witnesses from the Plaintiff reside in the Philippines. Ms Lee says that the Defendants could not apply the same arguments to other witnesses who have no connection with Dubai, for example Hoyne and other members in the senior management who are residents in the Philippines. According to Ms Lee, this is only a neutral factor and shall not add any force to the Defendants’ case.

20.  I agree with Ms Lee that there is nothing before the court to say how the people staying outside Dubai could be made subject to an order made by the CIDFC even if CIDFC finds itself competent and does not decline the calling of these witnesses.

b. Discovery/Disclosure of Documents under order of CDIFC

21.  According to Mr Chen’s Affirmation SMF has already appeared not co-operative in terms of disclosing documents in their possession^[19]. Mr Chan agrees after being referred to the relevant passages in the Expert Opinion that the Expert has not dealt with pre-action discovery or non-party discovery under RDC O24 r7A. All the Expert has discussed is compellability of a party to an action or its adversary or opponent on discovery of documents.

22.  Ms Lee takes it further to criticise the quality of the Expert Opinion saying that it falls below the standard required by the court for its lacking an expert declaration as required under Order 38 rr 35A and 41 of the Rule of District Court. Further the lack of original material in support of the opinion stated is certainly not helpful in making the Expert Opinion reliable. Basically Ms Lee asks that the Expert Report should not be given weight.

23.  It seems also to me that the expert has made certain mistakes on the facts of the case. For instance, it was said that SFM had signed the Management Services Agreement and Mr David Robert Martin, Mr David El Dib and Mr Martin Backhausen also signed “on behalf of the Plaintiff”^[20]. This is not correct. The three signatories signed, at least on the face of it, on their own behalf as Client of SFM^[21] and declared to be beneficial owners^[22] of the newly set up IBCs^[23]. The name of the Plaintiff could not be found on the Management Services Agreement. On its face, the Management Services Agreement had nothing to do with the Plaintiff. This is a fundamental flaw in the Expert Opinion. The Expert relied heavily on the jurisdiction clause in the SFMOTB where the parties herein had no part to play. It is quite clear that the Expert gave his opinion on a flawed basis. That may also explain why non-party discovery has not been dealt with in the Expert Opinion. In any event, even if there were valid reasons for the Expert to say that the signatories signed on behalf of the Plaintiff, there is nothing at this stage to show that it is the intention of the Plaintiff to sue SFM. The latter remains a non-party to the present proceedings.

24.  The Expert has also got the chronology wrong. He said that the TOB was provided by the 1^st Defendant on 19 October 2019^[24] where on the document itself, it clearly stated that the date was 19 October 2018^[25]. He also said that this was provided when the Plaintiff first approached the 1^st Defendant for service. This just could not sit well with his account of events stated in the preceding paragraph and gave rise to confusions^[26].

25.  To sum up, Ms Lee submits that there is nothing before the court to substantiate the assertion that testimony from the staff of SMF is crucial in these proceedings. The issue between the parties herein is the extent of the Plaintiff’s knowledge of such outsourcing arrangement carried out by the 1^st Defendant pursuant to the Agreement between the Plaintiff and the 1^st Defendant. It is her submission that evidence of SFM is unnecessary. She criticises the Defendants for not identifying, let alone establishing, any factors to show that Hong Kong is not the natural forum to try these issues and that such issues should be left to the CDIFC for adjudication.

(iv) Whether related proceedings are on foot in another jurisdiction

26.  There was none so far. Ms Lee takes this point and submits to the court that when the Expert Opinion said that CDIFC is available to try this action, it has not been tested and confirmed.

(v) Whether other persons may become parties to the litigation

27.  Again, there was none so far. There was no plan to join SFM by the parties so far.

Conclusion

28.  I agree with Ms Lee that little weight should be given to the Expert Report so far as the issue of forum is concerned. For the reasons set out above, I agree with Ms Lee that first the Defendants have failed to substantiate why Hong Kong is not the natural and appropriate forum to try the proceedings. Without the Expert Opinion and coupled with the fact before the court that the parties have nothing to do with the SFMTOB, the Defendants have not given sufficient support to contend that the CDIFC is clearly and distinctly more appropriate.

29.  The court finds it not necessary to go to stage 2 and 3.

30.  The Summons is dismissed with costs to be summarily assessed by the court.

31.  I give the following directions on the filing of pleadings:

(1) The Defendants do file and serve their defence and counterclaim, if any, within 21 days from date of this Decision; and

(2) The Plaintiff do file and serve its reply, if any, within 14 days thereafter.

32.  The Plaintiff shall lodge and serve its statement of costs within 7 days from date of this decision. The Defendants shall comment on the same by letter within 7 days thereafter.