YIP LAI FONG AND ANOTHER v. SIN TUNG HING AND OTHERS

HCA1282/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1282 OF 2003

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J U D G M E N T

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The application

1.  The 2^nd defendant appeals under O.58 r.1 of the Rules of the High Court against a Master’s Order ordering a stay of his counterclaim in this action upon the plaintiffs undertaking not to prosecute their claim until after the retrial of a parallel PRC action.

Background

2.  Full Billion Shipping Limited, the 4^th defendant, (“the Company”) is a Hong Kong registered company.  Its shareholding is the subject matter of the counterclaim.  The Company is a substantial shareholder (80%) of another Hong Kong registered company, Hung Kong, which in turn owns 90% of a PRC joint venture company.  This company runs a fruit distribution business in Lishui in the Mainland.

3.  In May or June 2002, under a share transfer agreement (“the Agreement”), the Company sold its 80% shareholding in Hung Kong to the 3^rd defendant.  The plaintiffs, who claim to be the registered and beneficial shareholders of 50% of the shares of the Company, challenge the validity of this agreement.  They allege that it was entered into as the result of a conspiracy between the 1^st defendant (the registered shareholder of the other 50% of the shares of the Company); the 2^nd defendant and the 3^rd defendant.  The plaintiffs also alleged that 1^st defendant executed the Agreement in breach of his fiduciary duties as a director of the Company.

4.  The defence case is that the Company properly approved the Agreement.  Although there were only two registered shareholders (the 1^st plaintiff and the 1^st defendant) the 2^nd plaintiff, the 1^st defendant and the 2^nd defendant held the beneficial shareholding in equal one-third parts and each had provided the Company’s share capital in equal amounts.  All three of them were equally involved in the Company’s de facto decision-making and all three of them approved the Agreement.  In the alternative, they say that at the shareholders’ level, the majority of the beneficial shareholders approved the Agreement and at the board level, that it was approved by the 1^st defendant who had the casting vote as board chairman.

5.  In his counterclaim, the 2^nd defendant seeks, among other things, a declaration of his beneficial interest in one-third of the Company’s shares.  He says that there is an express oral trust under which the 1^st plaintiff and 1^st defendant each agreed to hold an equal one-sixth of the Company’s issued shares on trust for him as well as a resulting trust arising from his provision of one-third of the share capital.

Chronology

6.  This action’s procedural background is complicated, the chronology is as follows:

7.  On 19 June 2002 the plaintiffs filed a petition under s.168A of the Companies Ordinance (HCMP2423/2002).  Originally, the petition did not include the 2^nd defendant as one of the respondents.  He was added on 12 March 2003 as the 6^th respondent by reason of his claim of beneficial interest in the Company’s shareholding.  The hearing of the Petition was originally scheduled for May 2003.

8.  On 20 October 2002 the 1^st plaintiff instigated an action in the Peoples’ High Court of Guangdong Province (the PRC Action).

9.  On 8 April 2003 the plaintiffs issued the writ in this action – HCA1282/2003.

10.  The pleadings in this action closed in October 2003.  By that time the 2^nd defendant had raised the issue of his beneficial interest in one-third of the Company’s shareholding by way of the counterclaim.

11.  After October 2003, the plaintiffs appear to have taken no further action in HCMP2423/2002 and this action, preferring to rely on the PRC Action.

12.  The 2^nd defendant raised the issue of his beneficial entitlement to one-third of the shareholding as part of his defence to the PRC Action.  He also argued that the dispute should be resolved under Hong Kong law.

13.  On 25 July 2006, judgment was given in the PRC Action.  The Guangdong Court ruled that it would apply Hong Kong company law in resolving the question of the 2^nd defendant’s interest and status in the Company.  It decided that as the 2^nd defendant was not a shareholder of the Company, he had no interest or status in it.

14.  On 28 August 2006, the 2^nd defendant lodged an appeal against the judgment in the PRC Action in the Supreme Peoples’ Court in Beijing.

15.  On 20 October 2008, the Supreme Peoples’ Court allowed the appeal and remitted the PRC Action back to the Guangdong Court for rehearing.

16.  The Guangdong Court still has to commence the rehearing of the PRC Action.  The indications are that this will take place in May or June of this year.

17.  On 10 October 2006, the 2^nd defendant issued a writ against the plaintiffs, seeking, among other things, a declaration of his beneficial interest in one-third of Company’s shareholding.  This action is HCA2256/2006

18.  The pleadings in HCA2256/2006 closed on 2 March 2007.  The plaintiffs, as defendants in that action, brought their defence without prejudice to their intention to apply for the striking out of the writ on the basis that the issue of the 2^nd defendant’s beneficial interest in one-third of the Company’s shareholding was the subject matter of the counterclaim in this action.

19.  On 26 April 2007 they issued a summons to strike out the writ in HCA2256/2006 on that ground.  At a call-over it was agreed that the Master could deal with the summons by way of a paper hearing.

20.  In the 2^nd defendant’s written submissions for that paper hearing it was said that, without prejudice to his rights in the application, he had recently applied for leave to discontinue his counterclaim in this action.  I am told that this passage reflected advice from his then solicitors that he should discontinue his counterclaim in this action in order to preserve his right to pursue the issue in HCA2256/2006.

21.  The Master dealing with the paper application was concerned if granting leave for discontinuance of the counterclaim in this action would impact upon the striking out application.  She refused to deal with the striking out application on paper and directed that an inter partes hearing be fixed.

22.  No steps were taken to list the inter partes hearing.  However, the hearing of the application for leave to discontinue the counterclaim in this action was heard on 15 November 2007 before another Master.  At the hearing, the plaintiffs opposed the application and the Master refused to grant the application.

23.  On 5 August 2008 the plaintiffs brought the present summons to strike out the counterclaim on the ground that “… it is frivolous and vexatious or otherwise an abuse of process for the 2^nd defendant, who having agreed to and did participate in having the subject matter of his counterclaim litigated in Guangdong Province Higher Peoples’ Court, to re-litigate the same in these proceedings”.

24.  On 11 November 2008, yet another Master heard this summons, upon the plaintiffs undertaking not to prosecute their claim in this action until after the retrial of the PRC action, she ordered a stay of the counterclaim.  That Order is the subject matter of this appeal.

Arguments

25.  Mr Jason Pow SC, for the 2^nd defendant, argues that the stay should be lifted to allow the counterclaim to be tried here.  He says that the matter should be dealt with by applying the forum non conveniens principles set out by the House of Lords in Spiliada Maritime Corporation v. Cansulex Ltd [1986] 3 WLR 972 HL, in the speech of Lord Goff.  These principles were adopted in Hong Kong in The Adhiguna Meranti [1987] HKLR 904 CA.

26.  His argument is that Hong Kong, not the PRC, is both the natural and appropriate forum for the trial of the counterclaim and that trial here will not deprive the plaintiffs of any legitimate personal or juridical advantages that they may have in having the counterclaim tried in the PRC.

27.  Mr Benjamin Chain, for the plaintiffs counters by saying this is not a case of forum non conveniens, rather it is forum shopping at the choice of the 2^nd defendant.  He has lost the PRC action once and he fears loosing it again, that is why he wants to be able to pursue the counterclaim in Hong Kong.

28.  Mr Chain makes the valid point that the cases the 2^nd defendant relies on, including Spiliada and The Adhiguna Meranti, are all cases where the foreign proceedings had either not been commenced, or were in their very early stages.  That is not the case here, both these proceedings and the PRC action started in mid 2002, nearly 7 years ago.  The PRC action has gone to trial, the judgment overturned on appeal and awaits retrial.

Decision and reasons

29.  I accept that there are arguments supporting Mr Pow’s claim that that this Court is the natural and appropriate forum for resolving the counterclaim.  The 4^th defendant is incorporated in Hong Kong.  It owns property in Hong Kong.  It has a Hong Kong business address.  It owns shares in another Hong Kong company.  The resolution of the counterclaim will involve the application of Hong Kong company law as well as common law concepts, in particular, the concepts of oral and resulting trusts.  I am told that the documents involved are predominantly, if not all, available in Hong Kong.  I am also told that he factual matrix relates to discussions and understanding between the parties conducted and arrived at in Hong Kong and that the witnesses involved are mainly Hong Kong residents, or have a close connection with Hong Kong.  The 2^nd defendant is himself a PRC resident, but I am told that he has no difficulty in attending trial in Hong Kong.

30.  But, set against that, there are arguments for saying that the courts of the PRC are the natural and appropriate forum.  The 4^th defendant is ultimately the major shareholder in a PRC registered joint venture and the business of that joint venture is wholly carried out in the PRC.  The 2^nd defendant is a PRC national and resident.  There is also the inescapable fact that the parties chose to litigate this matter in the PRC.  Since the close of the pleadings in this action in October 2003 up to the Guangdong Court’s judgment in July 2006, a period of nearly 3 years, the parties were content to let these proceedings lie dormant.  And, with respect, the only thing that appears to have stirred them from their sleep is the 2^nd defendant’s dissatisfaction with the outcome of the PRC Action.

31.  Hirst J in the English case of Meadows Indemnity Co. Ltd v. The Insurance Corporation of Ireland & Anor [1989] 1 Lloyd’s LR 181, said this about the effect of the state to which the foreign proceedings have advanced in the application of the Spiliada principles:

“… I am quite satisfied that the existence of foreign proceedings is a relevant factor in the equation when the Court has to consider whether the foreign forum is clearly more appropriate under The Spiliada test, particularly in view of the inherent undesirability of two concurrent sets of proceedings; its weight will depend on all the circumstances, including the state of advance of the foreign action.” [Emphasis supplied]

32.  I accept that Hirst J went on to say that the existence of the foreign proceedings was not the decisive factor in establishing the foreign jurisdiction as the more appropriate forum.  Nevertheless, it must be the case that if the parties have litigated in an other jurisdiction, to the extent of taking their dispute to trial, receiving judgment and the unsuccessful party successfully appealing it, that is a very strong indication that they have chosen that jurisdiction as the one they want to resolve their dispute.  As Mr Chain said in the course of argument, it was the 2^nd defendant who appealed the Guangdong Court’s decision, it therefore lies ill in his mouth to say that he does not want the retrial, or that he was forced into participating in that action reluctantly.

33.  Mr Pow counters that by saying his then solicitors failed to advise the 2^nd defendant that he could apply to this Court for an order restraining the 1^st plaintiff from proceeding with the PRC Action, on the ground that Hong Kong is the proper forum and that the plaintiff had already invoked this Court’s jurisdiction on the same issues.  That may be so, but it begs the question: why did he not ask them if it was possible to restrain the 1^st plaintiff from proceeding with the PRC Action?  One does not have to be lawyer to ask such an obvious common-sense question.  There is no affidavit from the 2^nd defendant before me indicating that he asked that question.  And if it is the case that he was badly advised, why should that be a factor to his advantage and the plaintiffs’ disadvantage?  His redress for bad legal advice should be a negligence action against his former solicitors, not the overturning of the Master’s Order in this action.

34.  In his argument Mr Pow made many trenchant criticisms of the Guangdong Court’s approach to the action.  He says that it experienced demonstrable difficulties in interpreting and applying Hong Kong company law.  And that the Court appeared to be unaware of the concepts of express oral trusts, resulting trusts; and beneficial shareholdings in a company, all of which are common concepts under Hong Kong law.  That may be so, but the authorities are clear; judicial chauvinism plays no part in applications such as this.  In Spiliada Lord Goff (at pages 482B to 483C) said arguments that the damages in the foreign jurisdiction will be lower, or the civil procedures less favourable, are generally inadmissible.  Lord Brandon in The Abidin Daver [1984] AC 398 HL (at pages 424F to 425C) said that is inappropriate for the English courts to pass judgment on the perceived weaknesses of other jurisdictions.  The English Court of Appeal took a similar view in Herceg Novni v. Ming Galaxy [1998] 4 All ER 238, where Sir Christopher Staughton said (at page 247a):

“Our task is not to decide whether our law is better than the law of Singapore.  It is to decide whether substantial justice will be done in Singapore.”

35.  In the circumstances of this case, I believe that the Master made the correct Order and it is the one I now make.  Neither the plaintiff’s action nor the 2^nd defendant’s counterclaim is permanently stayed.  After the completion of the retrial of the PRC action they are at liberty to come back to this Court and continue the proceedings if they wish.  I note that similar interim stay orders were made in roughly similar circumstances in Chiyu Banking Corporation v. Chan Tin Kwun [1996] 2 HKLR 395 and Dunavant Asia Ltd v. Cotton & Jute Corporation of the 7^th Division of the Production & Construction Corps of Xinjiang China HCCL47/2004 (unreported).  These decisions are, of course, not binding on me and I make it clear that my decision is made in the exercise of the discretion given to me in these matters. 

Costs

36.  Costs follow the event, I make an order nisi that the 2^nd defendant pay the plaintiffs’ costs of this application, such costs to be taxed if not agreed.