CHINA SHANSHUI CEMENT GROUP LTD AND OTHERS v. TIANRUI (INTERNATIONAL) HOLDING CO LTD AND OTHERS

HCA 548/2019

[2020] HKCFI 3043

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 548 OF 2019

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D E C I S I O N

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A. The application

1.  This is another action (“HCA 548” or the “Present Action”) involving the Shanshui Group of companies (the “CSC Group”).  The Plaintiffs are China Shanshui Cement Group Limited (“P1” or “CSC”), China Shanshui Cement Group (Hong Kong) Company (“P2” or “CSCHK”), China Pioneer Cement (Hong Kong) Company Limited (“P3” or “Pioneer”) and Shandong Shanshui Cement Group Company Limited (“P4” or “Shandong Shanshui”) (P1 to P4 collectively “Ps”).

2.  There are altogether 18 Defendants (“Ds”).  This hearing only concerns the 1^st Defendant (“D1” or “Tianrui International”), the 2^nd Defendant (“D2” or “Tianrui GroupCo”) and the 8^th Defendant (“D8”) (collectively the “Tianrui Ds”).

3.  In the pleadings, Tianrui International and Tianrui GroupCo have been referred together as “Tianrui”.  I will for ease of reference, and unless otherwise specified, adopt the same term.

4.  By summons dated 14 August 2019 (the “14/8/2019 Summons”):

(a)  Tianrui International seeks:

(i)  an order that the Writ issued herein (the “Writ”) and “purportedly served” on it on 15 April 2019 be set aside (§1);

(ii)  a declaration that that the Court has no jurisdiction over Tianrui International in respect of the subject matter of the claim or the relief sought on the grounds that:

(1)  Ps have failed to show any serious issues to be tried (§2.a.);

(2)  Ps have failed to demonstrate a good arguable case that their claims fall within any of the gateways under Order 11 rule 1(1) (§2.b.);

(3)  Ps have failed to demonstrate that Hong Kong is clearly and distinctly the more appropriate forum for the trial of the claims (§2.c.);

(4)  Tianrui International has presented a winding-up petition against CSC in the Grand Court of Cayman Islands (FSD 116 of 2018) (“Cayman Court” and “Cayman Petition”), that it is currently pending, that its issues substantially overlap with those raised by the Writ, and that in the best interests and convenience of the parties including the Cayman Petition, the present proceedings should be conducted in the Cayman Court (§§2.d. and 2.e.);

(iii)  alternative to the above, a stay of the action herein against Tianrui International “pending the final determination by the Cayman Court of the Cayman Petition and of all the issues raised therein, on the grounds as set out in paragraph 2 above” (§3 of the 14/8/2019 Summons);

(b)  further or alternatively, the action against the Tianrui Ds be stayed in favour of the Cayman Court as that is clearly and distinctly more appropriate forum, and/or that is in the best interests of the parties (§4);

(c)  further or alternatively, the action against the Tianrui Ds be stayed pending the final determination of the Cayman Petition on the grounds set out in §4, or alternatively on case management grounds (§5).

5.  This is the hearing of the 14/8/2019 Summons[1].

6.  Mr Jenkin Suen SC and Ms Natalie So appear for the Tianrui Ds. Together they have produced 3 sets of written submissions: their main one dated 28 October 2020 (“Mr Suen’s Written Submissions”), their Brief Note of Reply dated 9 November 2020 (“Mr Suen’s Written Reply”), and their Speaking Note for Tianrui Ds handed up in the course of the hearing (“Mr Suen’s Speaking Note”).

7.  Mr Victor Dawes SC together with Ms Bonnie Y K Cheng and Ms Leticia Tang appear for Ps.  Together they have filed 2 sets of written submissions: their main one dated 4 November 2020 (“Mr Dawes’ Written Submissions”) and a Note dated 10 November 2020 dealing with a new Summons filed by the Tianrui Ds on 6 November 2020 (the “6/11/2020 Summons”).  The 6/11/2020 Summons has subsequently (towards the end of this hearing) been withdrawn with leave from this Court.  I will come back to it when I deal with the costs of the hearing at the end of this Decision.

B.  Parts of the 14/8/2019 Summons abandoned

8.  Despite the contents of the 14/8/2019 Summons, Mr Suen in his Written Reply informs this Court that the Tianrui Ds will no longer rely on the ground of invalid service of the Writ on Tianrui International as a basis for stay, and that they are prepared to confine themselves to the grounds of stay which would, if successful, apply to all Tianrui Ds.  In the course of the hearing, Mr Suen clarifies further that Tianrui International will no longer pursue §§1, 2 and 3 of the 14/8/2019 Summons.

9.  Several sections of Mr Suen’s Written Submissions are hence no longer relevant.  In particular, section C (§§15 to 29 under the heading of “No valid service in Hong Kong on Tianrui International”) and section D thereof (§§30 to 77 under the heading of “No serious issue to be tried” concerning only whether leave to serve out under Order 11 rule 1(1) should be granted) are no longer relevant.

C.  The affirmatory evidence

10.  Quite a number of affirmations have been placed before me.  The main ones which were specifically filed for the purpose of the 14/8/2019 Summons are:

(a)  the 1^st and 2^nd affirmations of Liu Shihua of 14 August 2019 and 27 February 2020 (“Liu/1” and “Liu/2” respectively) filed in support, and

(b)  the affirmation of Chang Ming-cheng (“Chang”) of 20 December 2019 filed in opposition (“Chang/Aff”).

11.  Before me are also several affirmations that have been filed before the Cayman Court for the purpose of the Cayman Petition:

(a)  the 2^nd and 3^rd affirmations of Li Xuanqi of 7 September 2018 and 4 October 2018 (“Cayman Li/2” and “Cayman Li/3” respectively);

(b)  the 2^nd affirmation of Wu Ling-ling (“Wu”) of 26 September 2018 (“Cayman Wu/2”); and

(c)  the 2^nd affirmation of Chang of 13 June 2019 (“Cayman Chang/2”).

D.   Relevant facts

12.  The facts are complicated.  Set out below are only the core events which put the application in context.

13.  CSC was incorporated in the Cayman Islands.  Its primary business is as the holding company for various entities in the Shanshui Group.  The Shanshui Group is principally engaged in cement production, supply and distribution in the Mainland.

14.  CSC has been listed on the Main Board of the Stock Exchange of Hong Kong Limited (“SEHK”).  Trading of its shares had at one stage been suspended, but has subsequently been resumed.

15.  P2 to P4 are some of CSC’s subsidiary companies.  P4 has been the main operating entity.

16.  Tianrui International was incorporated in the BVI.  It belongs to a group of companies (the “Tianrui Group”) whose ultimate holding company is D2.  D2 was established in the Mainland.  D8 was at the material time the Chairman of D2.

17.  D3 to D17 were at various times appointed as the directors and/or officers of CSC (collectively the “Tianrui D&Os”).  It is Ps’ case that they were nominated by Tianrui International and/or the EY Receivers (defined below), or by those directors and/or officers so nominated.

18.  D18 was the Hong Kong transaction services arm of the Ernst & Young network of companies (“EY”).  The EY Receivers were its directors and/or managing directors.

19.  Coming back to CSC, its substantial shareholders included:

(a)  China Shanshui Investment Co., Ltd (“CSI”), which was incorporated in Hong Kong in 2005.  At all material times, CSI held 25.09% of the issued shares of CSC;

(b)  Tianrui International;

(c)  Asia Cement Corporation (“ACC”), a company incorporated in Taiwan; and

(d)  China National Building Material Co., Ltd. (“CNBM”), a company incorporated in the Mainland.

20.  ACC and CNBM are also in the cement industry, and are said to be direct rivals to Tianrui International.  It has also been suggested that by either taking control of CSC or through merger with it, CSC, CNBM, and ACC would substantially consolidate their respective positions as cement producers in the Mainland.  The same can also be suggested of Tianrui. 

21.  CSI was incorporated as an integral part of an Employees Stock Ownership Scheme (the “Scheme”) and public listing of the CSC Group.  Under the Scheme, most of the shares in CSI were held in trust for the employees of the CSC Group. 

22.  Pursuant to the Scheme, and upon transfer of some shares to him by another shareholder, Zhang Caikui (“Zhang Sr”) became holder of approximately 81.74% shares in CSI.  The majority of them were held for the employees who participated in the Scheme (the “CSI Employee Beneficiaries”). The balance of the shares was held by 7 minority shareholders (the “CSI Minority Shareholders”).

23.  Since about 2014, disputes developed between Zhang Sr and 2,631 of the 3,947 CSI Employee Beneficiaries and the CSI Minority Shareholders as to whether Zhang Sr held 45.63% of the CSI shares (the “Disputed CSI Shares”) on a fixed or discretionary trust for the CSI Employee Beneficiaries.  A number of legal actions before the High Court of Hong Kong ensued.  They have subsequently been consolidated and tried (the “CSI Trust Actions”). 

24.  Between about February and April 2015, Tianrui acquired on a number of days altogether 28.16% shares in CSC and became its largest shareholder[2]. Ps describe the acquisitions as having been aggressive.  It is further their case that the acquisitions reduced the percentage of public float of the CSC shares to below the requisite 25%, causing the suspension of trading of its shares[3].

25.  In the course of the CSI Trust Actions, on 20 May 2015 and 14 July 2015, D3, D4 (collectively the “EY Receivers” and together with the 18^th Defendant (“D18” or “EYTL”) the “EY Defendants”)) and Koo Chi Sum from Ernst & Young were appointed as receivers of the Disputed CSI Shares.

26.  When first appointed, the EY Receivers were directed not to seek to alter the composition of the board of directors of CSC without obtaining further directions of the Court.  They were there to hold the rings. 

27.  On 16 October 2015, the EY Receivers obtained from Deputy Judge Seagroatt a direction that they be free to cause CSI to vote to change the composition of the board of directors of CSC.

28.  Prior to 1 December 2015, Wu (said to have been appointed by ACC), Mr Chang Zhangli (said to have been appointed by CNBM) and Zhang Sr were amongst the board of directors of CSC (the “Pre-2015 CSC Directors” or “Pre-2015 CSC Board”).

29.  On 1 December 2015, during an EGM of CSC (the “2015 EGM”), the then Pre-2015 CSC Directors were removed.  They were replaced by another board (the “Former Board” or the “Former Directors”).  D8 was appointed the Chairman.  Tianrui as a result gained control of CSC[4].

30.  What the Former Board undertook having gained control, the purposes of those transactions and their effects on the CSC Group are subject to hot dispute.  Mr Suen summarizes[5] them as follows from the perspective of the Tianrui Ds:

“ After the Former Directors took office, they made various attempts to raise finance and/or increase the public float of CSC, including, inter alia, the ‘Open Offer’, the ‘First Proposed Placement’, and the ‘Second Proposed Placement’. In addition, the Tianrui group also provided the CSC Group with multiple loans totalling approximately HK$1.85 billion from December 2015 to May 2018. These loans are unsecured, interest free, and have no fixed repayment terms. These were acts to enhance the finance and cashflow of CSC, that nevertheless form the basis of many of the misguided allegations against the defendants in this case.”

31.  On the other hand, it is Ps’ case, as summarized by Mr Dawes[6], that throughout the period when the Former Board was in control, Tianrui did not honour the Cayman Undertaking[7].  Nor did the board seek to enforce the same.  Instead, according to Ps, the Former Board procured the CSC Group to raise funds on patently uncommercial terms which were to Tianrui’s benefit but the CSC Group’s detriment.

32.  On 31 January 2018, G Lam J handed down 2 judgments.  One relates to the CSI Trust Actions.  In the other judgment (which has been referred to as the Discharge Decision[8]), His Lordship discharged the appointment of the EY Receivers.  In one subsequent judgment dated 7 May 2018 in HCA 1282/2017[9] also relating to the Shanshui Group, G Lam J recorded at §16 that:

“ … I have expressed serious concerns in the Discharge Decision [2018] HKCFI 194 at §§62-66 that the transfer of the interests of the plaintiffs in CSI shares in August 2015 (of which Chen HQ now claims to be the beneficiary), among other vital information, had been withheld from the court (both DHCJ Seagroatt and the Court of Appeal on appeal from him) and that a misleading picture had been presented to the court when it granted orders for the Receivers to become involved in the management of CSCG, with the result that the board of the listed company became thereafter dominated by Tianrui and the Receivers …”

33.  On 23 May 2018, during an EGM of CSC (the “May 2018 EGM”), there was another reconstitution of the CSC Board.  The Former Board was replaced, and was replaced by the “Current Board”.  Tianrui lost control of CSC.

34.  The purposes and effects of what were undertaken afterwards are again in hot dispute:

(a)  According to the Tianrui Ds, and as summarized by Mr Suen[10]:

“ …

(9)  On 8 August 2018 and 3 September 2018, CSC issued 2 series of CBs in the aggregate principal amount of US$531,600,000, with interest at 20% p.a. (respectively, ‘August CBs’ and ‘September CBs’). On 6 October 2018, CSC entered into conversion agreements with the holders of the CBs to permit early conversion of the CBs into shares in CSC, as well as into subscription agreements for issue of 85,845,636 new shares. As a result, 974,825,988 new shares were issued on 30 October 2018 resulting in a significant dilution of Tianrui International’s shareholding in CSC (to 21.85%). It is Tianrui International’s case that, inter alia, the CBs were issued on uncommercial terms to connected persons of ACC/CNBM and/or for improper purposes (and ought to be set aside) with the result of substantially diluting the shareholding in CSC held by Tianrui International (who was never approached to enquire if it would participate in subscribing for some or all of the CBs or to provide alternative financing, which Tianrui entities had provided in the past interest free) …

12.  Against that context (in particular, the issue of the CBs), on 30 August 2018, Tianrui International presented the Cayman Petition to wind up CSC on just and equitable grounds in FSD 161/2018.”

(b)  According to Ps, and as summarized by Mr Dawes[11]:

“ 37.  Upon its appointment, the Current Board had only five months to resolve the issues which the Former Board had failed to do in 2.5 years in order to prevent CSC’s delisting by the SEHK. The problems were exacerbated by the fact that KPMG, which recommenced its audit in June 2018 to resolve the audit issues, resigned in July 2018, citing threats by the Former Board.

38.  Nonetheless, the Current Board managed to fulfil the Resumption Conditions and achieved resumption of trading of CSC’s shares on 31 October 2018.  Through the issuance of convertible bonds (‘CBs’) on 8 August 2018 and 3 September 2018, the partial conversion of the CBs and the issuance of new shares, the Current Board restored the public float and raised funds for 100% of the Tendered 2020 Notes to be redeemed and for the New York Proceedings to be resolved.  The Current Board also resolved the audit issues.”

E.  Various proceedings in Hong Kong and the Cayman Islands

35.  While under the Pre-2015 CSC Directors, CSC in May 2011 and March 2015 issued respectively 2 series of 8.5% and 7.5% senior notes (the “2016 Notes” and “2020 Notes”).  They were to become due in 2016 and 2020 respectively.

36.  On 10 November 2015, the Pre-2015 CSC Board presented a voluntary winding up petition in the Cayman Court in an attempt to wind up CSC (the “2015 Winding Up Proceedings”).  The pleaded basis was that CSC would not be able to repay its debts.  Tianrui Ds on the other hand suggest that that application was ultra vires, and was brought for improper purposes[12].

37.  On 17 November 2015, in the context of the 2015 Winding Up Proceedings, D2 undertook to inter alios the Cayman Court, the Hong Kong High Court and CSC by deed poll to procure that CSC had sufficient funds to redeem the 2020 Notes in the event that it gained control of the board of directors of CSC (the “Cayman Undertaking”).

38.  As mentioned above, Tianrui gained control of CSC on 1 December 2015.

39.  On 4 December 2015, CSC (under the control of the Former Board), CSCHK, Pioneer and Shandong Shanshui commenced HCA 2880/2015 against inter alios the Pre-2015 CSC Directors, CNBM and ACC (“HCA 2880”).  The claims include breaches of fiduciary duties and conspiracies to injure the plaintiffs therein.  There are also allegations of misappropriation of funds, books and the corporate chop from Shandong Shanshui[13].

40.  The trial of HCA 2880 is due to commence in April 2021 before Coleman J.

41.  As mentioned above, Tianrui lost control of CSC on 23 May 2018.

42.  As have been mentioned above, on 8 August 2018 and 3 September 2018, CSC issued 2 series of Convertible Bonds (respectively the “Aug 2018 CBs” and “Sept 2018 CBs”, and collectively the “CBs”).  The total principal amount was US$531,600,000.  The interest was 20% p.a.

43.  It is Tianrui International’s case that the CBs were issued on uncommercial terms to connected persons of ACC/CNBM and/or for improper purposes, with the result of substantially diluting the shareholding of Tianrui International in CSC.

44.  On 30 August 2018, Tianrui International presented the Cayman Petition to wind up CSC on just and equitable grounds.  The Petition was formally issued and served on 4 September 2018.  The case of Tianrui International, according to the Cayman Petition as subsequently amended, is that there is a justifiable lack of confidence on its part in the management of CSC.  It alleges that CNBM and ACC have acted unfairly and/or oppressively towards it and/or that the affairs of CSC have been conducted with a lack of probity and that as a result it no longer has confidence in the management of CSC.

45.  On 11 September 2018, CSC applied for orders that the Cayman Petition be struck out.

46.  On 19 October 2018, Mangatal J of the Cayman Court dismissed the Cayman Petition on the basis that Tianrui International had an alternative remedy that it had unreasonably failed to pursue.

47.  On 16 January 2019, the Cayman Islands Court of Appeal (“CICA”) overturned the decision of Mangatal J.  CICA gave its reasons on 5 April 2019.  The application to the Privy Council for permission to appeal has subsequently been dismissed (on 20 February 2020).

48.  On 27 May 2019, Tianrui International took out a further writ action before the Cayman Court against CSC (the “Cayman Writ Action”). Declarations are sought to the effect that the CBs be treated as void together with an order setting aside the issue of those bonds, the related share conversion and the new shares consequentially issued.  The relationship between the Cayman Petition and the Cayman Writ Action was explained by Segal J at §81(e) of his Judgment delivered on 6 April 2020 (the “Segal J Judgment”, the history of which I will come to soon) as follows[14]:

“ …The commencement of the Cayman Writ Action is merely a procedural device to permit additional and alternative relief to be granted after the trial of the [amended Cayman Petition] if the claims made in the Cayman Writ Acton are made out. By bringing the Cayman Writ Action, [Tianrui International] is seeking to ensure that if it is unsuccessful on the [amended Cayman Petition], and so is unable to achieve the corporate divorce it seeks, it may be able to obtain the alternative relief that can properly be granted in the Cayman Writ Action. Alternatively, if it succeeds in showing that a winding up order should be made the Court can consider whether the claim in the Cayman Writ Action has been made out and whether relief in the Cayman Writ Action would provide Tianrui with an adequate alternative remedy. If a winding up order is made, and a declaration made that the board had acted unlawfully and abused its powers in issuing the bonds and the New Shares, it would be open to a liquidator appointed by the Court to decide what further action should be taken and claims brought.”

49.  On 12 August 2019, CSC filed 2 summonses making a number of applications before the Cayman Court.  CSC sought inter alia and in gist:

(a)  an order striking out or staying the Cayman Petition on the basis that it is an abuse for Tianrui International, having commenced the Cayman Writ Action, to continue to pursue the Cayman Petition;

(b)  an order that the writ in the Cayman Writ Action be struck out on the basis that it is defective in so far as a derivative claim is being pursued; and 

(c)  a temporary case management stay of the Cayman Petition and/or the Cayman Writ Action pending the conclusion of HCA 2880 and the Present Action in Hong Kong.

50.  By his Judgment delivered on 6 April 2020 (ie the Segal J Judgment mentioned above), Segal J dismissed all of CSC’s applications.

51.  In the meantime, on 29 March 2019, Ps took out the Writ in the Present Action.  It is endorsed with a Statement of Claim (the “SOC”). 

52.  In a nutshell, P’s pleaded causes of action[15] are conspiracy to injure the CSC Group by unlawful means, breaches of fiduciary, contractual and regulatory duties, dishonest assistance, knowing receipt and criminal intimidation.  The SOC is a 68-page long document.  Paragraphs 21 to 28 thereof contain a useful summary of Ps’ claim, that;

“ B1 Unlawful Means Conspiracy

21.  As particularised in Sections C, D and E below, the [Ds] conspired by acting in combination and in concert with one another using unlawful means with the intention of injuring the CSC Group by unlawful means, namely breaches of fiduciary and other duties, dishonest assistance and/or criminal intimidation and violence.

B.1.1 Object of the conspiracy

22.  The object of the conspiracy was to acquire control of the CSC Group, and illegitimately maximise economic benefit therefrom for the benefit of the co-conspirators (especially Tianrui) and at the expense of the CSC Group.

23.  The unlawful means conspiracy in relation to which [Ds] were parties was instigated and/or directed by Tianrui. [D7] … (former CEO of Tianrui GroupCo) and [D8] … (Chairman of Tianrui GroupCo) were also parties to the conspiracy at the outset.

24.  As a result of the conspiracy, the Tianrui D&Os and EYTL also received the property of the CSC Group (in the form of excessive remuneration paid them [sic]) with the unconscionable knowledge that the property was transferred in breach of fiduciary and other duties owed by the Tianrui D&Os to the CSC Group.

25.  The Tianrui D&Os were all former directors and/or officers of various companies within the CSC Group. During their tenure as directors and/or officers, they approved, caused and/or procured the decisions which had the effect of diverting the CSC Group’s assets away to Tianrui. They acted in breach of the fiduciary and other duties they owed to the CSC Group and did so dishonestly, enriching themselves personally and Tianrui in the process.

B.1.2 The different phases of the conspiracy

26.  The conspiracy was effected primarily through the breaches of fiduciary and other duties by the Tianrui D&Os to the CSC Group. The conspiracy evolved over time and eventually involved the following phrases:

26.1  acquiring shares in CSC so as to cause the public float of CSC to fall below 25%, thereby resulting in the suspension of trading of CSC shares …

26.2  acquiring control of the CSC Group through the appointment of the EY Receivers as receivers of the 2,631 CSI Employee Beneficiaries’ 45.63% shareholding of CSI …

26.3  installing directors and officers aligned to Tianrui on the boards of CSC and its subsidiaries to enable decisions beneficial to Tianrui and disadvantageous to the CSC Group to be approved …

26.4  embarking on litigation before the High Court of Hong Kong against those whose interests were opposed to Tianrui’s …

26.5  abandoning CSC’s investigation of Tianrui’s acquisition of the interests of the CSI Employee Beneficiaries …

26.6  procuring the CSC Group to raise funds through wholly uncommercial means which would have had the effects of …:

(i)  releasing Tianrui from the undertaking it had given on 17 November 2015 (‘Cayman Undertaking’) that CSC would have the financial means to repurchase the loan notes it had issued in the aggregate amount of US$500m and which would otherwise have been repayable on 10 March 2020 (the ‘2020 Notes’);

(ii)  diluting the shareholding of non-Tianrui shareholders, thus further cementing Tianrui’s control of the CSC Group which would, in turn, make it easier for the CSC Group’s assets to be diverted to Tianrui;

(iii)  driving down CSC’s share price so as to make it easier for Tianrui and its proxies/concert parties to buy up yet more CSC shares to reinforce its control and/or to justify the low prices in the share-issuance and placement orders;

26.7 releasing Tianrui from the Cayman Undertaking and instead raising funds for the repurchase of the 2020 Notes through various attempts at issuing share-issuance and placement offers …

26.8 releasing Tianrui from the Cayman Undertaking and instead causing the CSC Group to pay coupon interests on 85% of the 2020 Notes validly tendered (‘Tendered 2020 Notes’) and in the amount of some US$85 million …

26.9. pledging away the assets of [Shandong Shanshui] (i.e. most of the valuable assets of the CSC Group) …

26.10 procuring CSC to provide a corporate guarantee for a RMB400 million loan facility which had been extended by the Bank of China … to Tianrui …

26.11 orchestrating the acts of criminal intimidation and violence in Jinan on 8 April 2017 (‘Jinan Incident’) …

26.12 attempting to disguise or conceal Tianrui’s intention of not honoring the Cayman Undertaking and its involvement in the Jinan Incident …

27. The conspiracy which unfolded was one whereby Tianrui could seize control over its competitor (the CSC Group) and maximise economic benefit from its assets and businesses through the help of the Tianrui D&Os (including the EY Receivers) who were acting in breach of their fiduciary and other duties, and in circumstances which each of the [Ds] dishonestly assisted in the breaches of duties by the other [Ds].

28.  This conspiracy has caused and continues to cause substantial loss to the CSC Group.  Had Tianrui not lost control of the CSC Board at the EGM on 23 May 2018, the fraud against the CSC Group would have continued to the point that it would likely have stripped of its most valuable assets, rendered insolvent and/or permanently de-listed from the SEHK.”

53.  From the above, the following broad picture emerges:

(a)  The main disputes are between 2 camps of business rivals (Tianrui on the one side and ACC and CNBM on the other) over the control of CSC;

(b)  HCA 2880, the Cayman Petition and the Present Action were initiated at different stages when different camps were in control of the CSC Board:

(i)  HCA 2880 was initiated in December 2015 when Tianrui was in control;

(ii)  The Cayman Petition was issued and served in August/September 2018 after Tianrui lost control of the CSC Board upon the reconstitution of the CSC Board during the May 2018 EGM;

(iii)  The Present Action was commenced in March 2019 by the Current Board having gained control after the May 2018 EGM;

(c)  The focus of the main complaints and subject-matters of HCA 2880, the Cayman Petition and the Present Action are different[16]:

(i)  HCA 2880 covered Tianrui’s complaints about the conduct of the Pre-2015 CSC Board before they lost control of the CSC Board to Tianrui on 1 December 2015;

(ii)  The Present Action covers the complaints of CSC (and those of ACC and CNBM) against the conduct of Tianrui and its representatives during the period when Tianrui was in control (ie between 1 December 2015 and 23 May 2018); and

(iii)  The Cayman Petition covers conduct of the Current Board after the May 2018 EGM on 23 May 2018 and Tianrui International’s concern about them.  As Mr Suen puts it[17], the Cayman Petition:

“ … ventilate[s] [Tianrui International’s] concerns about the oppressive and prejudicial conduct committed by the majority in power, primarily arising out of the CBs.” (emphasis added)

F.  §4 of the 14/8/2019 Summons — the Forum Non-conveniens Ground

F.1.   The legal principles

54.  The legal principles applicable to an application for a stay on the basis of forum non-conveniens have been authoritatively confirmed by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364 at §51, that:

“ 1.  The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action ie in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

2.  In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

3.  If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

4.  If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer.  Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.”

55.  I warn and remind myself that the approach in forum non-conveniens is not just an exercise in loading up factors which point to any particular jurisdiction.  The court is required to focus on the appropriateness of a forum from the point of view of the trial of the action — see Rambas Marketing Co. LLC v Chow Kam Fai David [2001] 3 HKC 250 (per Recorder Ma (as the Chief Justice then was) at p 255B-C).

56.  In deciding forum non-conveniens, the existence or possibility of lis alibi pendens is a factor to be taken into account — see China Construction Bank (Asia) Corp Ltd v Shanghai Pudong Development Bank Co Ltd, unrep, CACV 14/2016, 3 February 2017 at §§5.2-5.3.  

F.2.  Stage 1

57.  Stage 1 of the consideration is whether Hong Kong is not the natural or appropriate forum and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong.

58.  The onus is on the Tianrui Ds to establish the above.

59.  The consideration of the appropriateness of a forum is from the point of view of the trial of the action.  To consider that, one needs to see what the cause of action is and what the issues are.

60.  Whether a conspiracy can be proved is in most cases a question of inference from the overt acts.

61.  In the Present Action, most of the alleged overt acts relied upon took place in Hong Kong.  I have set out §26 of the SOC above.  I refer in particular to the acts highlighted by Mr Dawes[18], namely acquisitions of CSC shares by Tianrui International, the appointment of the EY Receivers, the steps leading to 2015 EGM and the ousting of the Pre-2015 CSC Board, Tianrui’s alleged entrenchment of control over CSC, the Former Board’s management of CSC, and the prosecution of the various High Court Actions in Hong Kong.  They all took place in Hong Kong.

62.  Mr Dawes relies upon The Albaforth [1984] 2 Lloyd’s Rep 91, where Robert Goff LJ observed at 96:

“ If the substance of an alleged tort is committed within a certain jurisdiction, it is not easy to imagine what other facts could displace the conclusion that the Courts of that jurisdiction are the natural forum.”

63.  I do not see Robert Goff LJ as meaning that the place where a tort is committed is conclusive on the issue of forum non-conveniens.  Nor do I believe that it is a proposition put forward by Mr Dawes.  But it is a relevant starting point.  As Lord Mance JSC observed in VTB Capital plc v Nutritek International Corpn [2013] 2 AC 337 at §51:

“ The place of commission is a relevant starting point when considering the appropriate forum for a tort claim. References to a presumption are in my view unhelpful. The preferable analysis is that, viewed by itself and in isolation, the place of commission will normally establish a prima facie basis for treating that place as the appropriate jurisdiction. But, especially in the context of an international transaction like the present, it is likely to be over-simplistic to view the place of commission in isolation or by itself, when considering where the appropriate forum for the resolution of any dispute is. The significance attaching to the place of commission may be dwarfed by other countervailing factors.”

64.  In submitting that the Cayman Court is “evidently the more appropriate forum of trial” of the Present Action, Mr Suen submits that the disputes are primarily between 2 camps of rival shareholders, that discretionary powers of management was involved, so that the courts of the place of incorporation are, albeit not necessarily the exclusive forum, “very likely indeed to be the appropriate forum”: see Konamaneni v Rolls Royce Industrial Power (India) Ltd [2002] 1 WLR 1269 at §§55, 66. He submits further that in deciding whether unlawful means have been employed, the nature and extent of the duties owed by the Former Directors to CSC are required to be considered, which are governed by Cayman law (see Dicey, Morris & Collins: The Conflict of Laws, 15^th ed, Vol 2, §30-028).  He also places emphasis on Ps’ case surrounding the Cayman Undertaking.

65.  In my view, Mr Suen’s submissions do not advance the Tianrui Ds’ case by much:

(a)  To start with, I agree with Mr Dawes’ submission[19] that it is a mischaracterization to say that the Present Action is one of internal disputes between two camps of rival shareholders.  The core of Ps’ claim remains one of unlawful means conspiracy;

(b)  Even in cases involving discretionary powers of management, the facts of the case and other countervailing factors may still be considered in deciding the appropriate forum.  As Collins J has pointed out at §66 of Konamaneni:

“ I also consider that the effect of Pergamon Press Ltd v Maxwell [1970] 1 WLR 1167 is, at the least, that if issues arise relating to the exercise of what Pennycuick J described as discretionary powers of management, then I should accord considerable weight to the potential role of the courts of the place of incorporation. I doubt whether they have exclusive jurisdiction to deal with such issues. For example it may be wholly unjust to require recourse to an offshore haven to pursue fraudulent directors in a case which has no connection with the jurisdiction other than that it is the place of incorporation.” (emphasis added)

(c)  Further, in the context of an application of a stay on forum non-conveniens ground, and given the incidence of the onus of proof, it is in my view not sufficient for the applicant to simply point to the applicability of foreign law.  The question remains whether the other forum is the appropriate forum for the trial of an action.  In the words of Mimmie Chan J in DP World Djibouti Fzco & Ors v China Merchants Port Holdings Co Ltd [2020] 1 HKC 224 at §85:

“ … it is incumbent on the defendant as the applicant for stay to identify and articulate what the disputed issue of foreign law is, why there is an issue, so that the court can decide whether the issue is indeed as substantial or difficult as defendant contends, to compel a stay of the action on the basis that there is an appreciable risk that justice will not be done, as the Court might reach a wrong conclusion on an aspect of foreign law.”

See in this regard also VTB Capital PLC v Nutritek Intl Corp [2013] 2 AC 337, per Lord Mance JSC at §§46-47;

(d)  In any event, with the appropriate assistance of expert evidence, the courts of Hong Kong are in a position to apply foreign law — Mehta v Mehta[2007] 2 HKLRD 520, per Recorder Rimsky Yuen SC at §39;

(e)  In the Present Action, the Tianrui Ds have not filed any expert evidence in any attempt to identify and articulate what the disputed issue of foreign law is or why there is an issue.  I accept in this regard Mr Dawes’ submissions at §83 of his Written Submissions;

(f)  Specifically in so far as the Cayman Undertaking is concerned:

(i)  Mr Suen, relying on Liu/1[20] and Cayman Li/3[21], submits[22] that there were various legitimate reasons why the Former Directors could not have enforced the Cayman Undertaking (including the alleged fact that it was unenforceable), as a matter of Cayman law, and the alleged fact that there had been various misrepresentations.  He submits hence that the determination of matters relating to the Cayman Undertaking would be more suitably dealt with by the Cayman Court, which is more familiar with Cayman law;

(ii)  However, the relevant Cayman law, and any difference between it and the relevant Hong Kong law, have not been identified or articulated;

(iii)  In any event, whether eg any misrepresentations had been made is factual.  It has not even been suggested that any witness from Cayman Islands is required to be called in that regard.  The court in Hong Kong is well positioned to hear the relevant evidence and reach its own factual findings on any factual disputes.  The Cayman law and legal principles, assuming that they are different from Hong Kong law, can then be applied with the appropriate assistance from Cayman law experts.

66.  Mr Suen then submits that the Cayman Petition involves the exercise of Tianrui International’s statutory right.

67.  I agree with Mr Dawes’ oral submission in this regard, that this limb of Mr Suen’s submission has little relevance.  The opposition of the present application by Ps does not involve them taking the stance that Tianrui International should not be permitted to continue with the Cayman Petition. They may.  Their statutory rights as a shareholder to seek a corporate divorce and to exit its investment are not going to be affected.

68.  On the other hand, as submitted by Mr Dawes which I accept, the following factors in fact suggest that Hong Kong is the natural and appropriate forum of the trial of the Present Action:

(a)  the majority of the overt acts of the alleged conspiracy pleaded against the Tianrui Ds (as summarized in §26 of the SOC and reproduced above) took place in Hong Kong;

(b)  the resulting losses and damage are predominately suffered by Ps situated either in Hong Kong or the Mainland;

(c)  other defendants in the Present Action are predominately in Hong Kong or the Mainland;

(d)  except the Tianrui Ds, D7 and D11, all other defendants have filed substantive Defences;

(e)  a substantial volume of documentary evidence will be in Chinese;

(f)  most witnesses will be in Hong Kong and the Mainland and will be giving evidence in Punti or Putonghua; and

(g)  there are already a number of pre-existing related proceedings in Hong Kong.

69.  For all reasons discussed above, I am not satisfied that the Tianrui Ds have discharged the burden on them to show that Hong Kong is not the natural or appropriate forum and that there is another available forum which is clearly or distinctly more appropriate than Hong Kong.

F.3.  Stage 2 and Stage 3

70.  In the light of my conclusion above, there is no need for me to proceed to Stage 2.  As confirmed by the Court of Final Appeal in SPH, failure by the party applying for a stay (Tianrui Ds on this occasion) to establish the two matters they are required to establish at Stage 1 is “fatal”.

71.  If necessary, I would have ruled that Ps would be deprived of a legitimate personal or juridical advantage if the Present Action were to be tried in the Cayman Islands, and that substantial injustice would be caused to Ps.  The main reasons are:

(a)  The present application for a stay is made only by the Tianrui Ds. Other defendants are not involved;

(b)  If I were to grant the stay sought by the Tianrui Ds, a number of scenarios could arise;

(c)  One possibility is that Ps may discontinue their claims against all the other defendants and re-institute the same claim against all 18 defendants in the Cayman Islands.  If that course were to be adopted, presumably, leave to serve the Cayman Islands process outside jurisdiction would have to be obtained from the Cayman Court.  I have not been explained what the law in the Cayman Islands is in that regard.  I do not know what the attitude of the other defendants would be.  They might resist any such application by Ps before the Cayman Courts. Ps would be left in a most invidious position.  In any event, a very substantial amount of costs will be wasted, and a further substantial amount be incurred to have the action re-instituted;

(d)  The other theoretical possibility is for Ps to proceed against the Tianrui Ds in the Cayman Islands and the other defendants in Hong Kong.  That would however deprive Ps of the juridical advantage of having the single alleged conspiracy and all the alleged co-conspirators tried before the same forum, and will cause grave injustice to Ps.  I borrow the observations of Lord Bingham in Donohue v Armco Inc & Ors [2002] CLC 440 at §34, that:

“ The Armco companies contend that they were the victims of a fraudulent conspiracy perpetrated by Donohue, Atkins, Rossi and Stinson. Determination of the truth or falsity of that allegation lies at the heart of the dispute concerning the transfer agreements and the sale and purchase agreement. It will of course be necessary for any court making that determination to consider any contemporary documentation and any undisputed evidence of what was said, done or known. But also, and crucially, it will be necessary for any such court to form a judgment on the honesty and motives of the four alleged conspirators. It would not seem conceivable, on the Armco case, that some of the four were guilty of the nefarious conduct alleged against them and others not. It seems to me plain that in a situation of this kind the interests of justice are best served by the submission of the whole dispute to a single tribunal which is best fitted to make a reliable, comprehensive judgment on all the matters in issue. A procedure which permitted the possibility of different conclusions by different tribunals, perhaps made on different evidence, would in my view run directly counter to the interests of justice.”

The same can be said about forcing Ps to have two separate trials against two different groups of parties in the same alleged conspiracy in two different jurisdictions.

F.4.  Conclusion

72.  For the above reasons, I dismiss §4 of the 14/8/2019 Summons.

G.   §5 of the 14/8/2019 Summons — the Case Management Ground

G.1.  The applicable legal principles

73.  I consider first of all the applicable legal principles.

74.  That the court has the inherent jurisdiction to grant a stay on case management grounds is not in dispute.  The source of power can also be s 16(3) of the High Court Ordinance.  The power is discretionary.

75.  I have been cited 2 local authorities: Linfield Ltd v Taoho Design Architects Ltd & Ors [2002] 2 HKC 204 and Joseph Ghossoub v Team Y&R Holdings Hong Kong Limited & Ors [2019] HKCFI 589.  The factors and considerations relevant to the court’s exercise of discretions are:

(a)  the power has been likened to and approximates that which the court may exercise to stay proceedings on the basis of lis alibi pendens, ie a stay on the basis that there are concurrent proceedings else dealing with the same or similar subject matter;

(b)  when considering whether to grant a stay, the court must consider what would serve the ends of justice between the parties to the litigation and the administration of justice generally;

(c)  a stay should not cause an injustice to the plaintiff;

(d)  the applicant for stay must satisfy the court that continuing the proceedings would be oppressive or vexatious to him or an abuse of process and unjust, and

(e)  where a plaintiff commences proceedings as of right, he should not be deprived of the right to continue those proceedings in the absence of “very good reasons to the contrary”;

(f)  when there is no identity of parties between two sets of proceedings, it may not be desirable or even possible to stay one set pending resolution of the other.  The reason is that the outcome of one is not binding upon the parties in the other.  There will be risk of inconsistent findings.  That however is inevitable.

76.  In MAD Atelier International BV v Manés [2020] 3 WLR 631, Bryan J observed at §164 that:

“ … the court has a discretion to stay an action pending the resolution of a claim pending in another forum, but a stay should only be granted in ‘rare and compelling circumstances’: Reichhold Norway ASA v Goldman Sachs International [2000] 1 WLR 173 , 186 …. A stay will not, at least in general, be appropriate if the other proceedings will not bind the parties to the action stayed or finally resolve all the issues in the case to be stayed, or the parties are not the same: Klöckner Holdings GmbH v Klöckner Beteiligungs GmbH [2005] EWHC 1453 (Comm) at [21] (Gloster J).”

77.  In International Commercial Litigation, 2^nd ed 2015, Professor Richard Fentiman has (at §§14.07 to 14.15) identified a number of further considerations relevant to the exercise of the court’s discretion, analyzed the relationship between a stay on case management grounds and a stay on the ground of forum non-conveniens, and explained why a stay on case-management ground will only be granted in “rare and compelling circumstances”:

“ … a stay may be granted on case-management grounds to regulate the conduct of English proceedings in the light of alternative foreign proceedings. In this context the power is parallel to, but distinct from, the court’s power to stay on forum conveniens grounds …

… In cross-border proceedings, it is not uncommon for a defendant to seek a stay of English proceedings pending the outcome of proceedings in another jurisdiction, but no such stay will be granted if justice and efficiency would be served by allowing the English proceedings to continue. Moreover, given that a stay of proceedings on forum conveniens grounds is permitted by CPR Part 11, and that the court’s jurisdiction and the appropriateness of proceedings are not in dispute, a stay on case-management grounds is regarded as exceptional, to be made only ‘in rare and compelling circumstances’, where the arguments for a stay clearly outweigh those any resulting disadvantage to the claimant …

The power to stay on case-management grounds is perceived by the courts as a valuable tool in cases where a claimant has embarked upon parallel proceedings in England and a foreign court. In that event, ‘justice and the efficient management of the case’ require that a claimant ‘be put to his election as to which of the two actions to pursue first’…

A stay on case-management grounds is distinct from a stay on forum conveniens grounds in several ways:

(i) The objective is not to determine the most appropriate forum according to forum conveniens principles …

(ii) … The existence of pending proceedings abroad may of course influence a court’s view of the forum conveniens, but it does so only as one factor in assessing appropriateness. The issue on a forum conveniens application is whether the English court or a foreign court is the more appropriate form [sic forum?]. On a case-management application it is whether the existence of parallel proceedings is appropriate.

(iii) Unlike forum conveniens stays, case-management stays may be granted merely because it would be unjust to allow English proceedings to continue in parallel with proceedings abroad. The oppression a defendant would suffer if exposed to parallel actions may justify such a stay …

…

A stay may be granted on case-management grounds in cases involving parallel English and foreign proceedings …

Such cases are fact-specific, and general principles are hard to discern.  A number of propositions may, however, be derived from the cases.  A stay is likely to be granted where the claimant initiated both sets of proceedings, and the same essential issues are involved in both, such that the effect of a stay is merely to require the claimant to choose which action to pursue.  However, a stay is likely to be denied where the effect of the stay is to require the claimant to bring, or participate in foreign proceedings.  Again, there is some evidence that the court will be inclined to decline a stay if the court has already concluded that it is the forum conveniens …”

78.  I will apply the principles and considerations discussed above.

G.2.  Discussion

79.  There are concurrent proceedings in two jurisdictions relating to CSC in the way as I have discussed above.

80.  The Tianrui Ds are seeking a stay of the Present Action pending “final determination” of the Cayman Petition.

81.  Given the existence of the two sets of proceedings, the jurisdiction and discretionary powers in this Court to order a stay of the Present Action on case management ground are engaged.

82.  However, for the following reasons, and in exercise of my discretion, I refuse the application:

(a)  There is no identity of parties between the two sets of proceedings. The result and findings of the Cayman Court upon adjudication of the Cayman Petition and the Cayman Writ Action are not binding on the other parties in the Present Action who are not before the Cayman Court;

(b)  The main subject matters of actions are different.  As I have explained above, and principally, HCA 2880 concerns the conduct of the Pre-2015 CSC Board before the 2015 EGM, the Present Action concerns the conduct of the Former Board between the 2015 and May 2018 EGMs, whereas the Cayman Petition and the Cayman Writ Action concern the conduct of the Current Board after the May 2018 EGM, and arose primarily out of the CBs;

(c)  There is therefore also no identity of issues.  As Segal J observed at §145(d) of the Segal J Judgment:

“ … it is not clear that there is a substantial overlap between the [Cayman Petition] and [the Present Action] …”

(d)  The forms of relief claimed are different.  In the way Mr Suen puts it, Tianrui International is before the Cayman Court seeking a corporate divorce to exit its investment.  Ps in the Present Action are seeking declarations to account, equitable compensation or alternatively damages;

(e)  Given the differences in the parties, the issues and the relief sought, the result and findings of the Cayman Court may not even be binding as between CSC and Tianrui International in the Present Action.  On this issue, Mr Suen fairly accepts that the most he can put it is that those result and findings “might” be binding as between CSC and Tianrui in Hong Kong.  That in my view is far from sufficient to justify any case management stay;

(f)  Mr Suen has referred me to §145(i) of the Segal J Judgment that:

“ …as matters currently stand, there is no reason to believe that the coronavirus will prevent a trial of the [Cayman Petition] in, say, one year’s time …”

He submits therefore any case management stay is not going to be for long.

(g)  I do not accept that submissions.  §5 of the 14/8/2019 Summons seeks a stay pending the “final determination” of the Cayman Petition.  Even after trial, there can be appeals, including one to the Judicial Committee of the Privy Council.  The duration of any stay is going to be uncertain.  Even assuming that a trial of the Cayman Petition is going to take place in one years’ time, with all appeals taken into account, the duration of any stay pending “final determination” of the Cayman Petition will most certainly be much longer than one year;

(h)  During such stay if there were to be one, the part of the Present Action against the defendants other than the Tianrui Ds would be in limbo.  If it were to be adjourned, the length of the adjournment would be highly uncertain. Proceeding without the Tianrui Ds would not be a real option.  I have dealt with above how a split trial is going to present unfairness to Ps;

(i)  Mr Suen submits that if Tianrui International is successful in the Cayman Petition, an independent liquidator may be appointed, so that the further conduct of the Present Action can be reviewed by an independent pair of eyes. In my view, what a liquidator, even assuming that one is going to be appointed, may do upon examination of the Present Action is highly speculative.  I see no sufficient benefit in that possibility which would warrant a stay for an uncertain period of time at this stage;

(j)  The Cayman Petition was issued by Tianrui International.  It was not as if multiple concurrent actions had been started by Ps in different jurisdictions such that justice would require them to be put to choose;

(k)  I do not see any case management benefit in granting the stay.  Quite the contrary, and as I have explained above, the part of the Present Action against the other defendants would be in limbo if I were to grant the stay as requested;

(l)  I do not find it unjust to allow the Present Action to continue in parallel with proceedings before the Cayman Court.  I on the other hand see injustice to Ps if I were to grant the stay.

G.3.  Conclusion

83.  For the above reasons, I refuse also §5 of the 14/8/2019 Summons.

H.   Overall disposition

84.  For the reasons set out above, I dismiss §§4 and 5 of the 14/8/2019 Summons.  In respect of the other paragraphs, I dismiss them also as they have not been pursued and have in effect been abandoned.

I.   Costs

85.  I see no reason why costs should not follow the event.  However, towards the end of the hearing, Mr Dawes informs me that given the circumstances in which §§1-3 of the 14/8/2019 Summons were in effect abandoned and the withdrawal of the 6/11/2020 Summons, he intends to seek costs on an enhanced basis and for that purpose requests the opportunity to make further submissions on costs.  The consensus reached ultimately is that I may consider not making any costs order even on nisi basis, but simply invite parties to file submissions on costs.  I adopt that course.  I now direct that Ps should within 14 days from the date of this Decision file submissions on costs, the Tianrui Ds to file their response within 14 days of receipt, and Ps their reply within 7 days.  The question of costs will then be dealt with on the papers.